Pink slips are no longer solitary documents. Today they’re often accompanied by a severance package. In a downturn, negotiating the best deal for your client can mean the difference between red ink and black ink.

The stakes may be higher today because the country is going through a period of downsizing, said Paul Boniferro, a partner and practice group leader, labour and employment, with McCarthy Tétrault LLP in Calgary and Toronto. "The general principles have stayed the same, but awareness is greater."

Both employees and employers are seeking out legal advice in greater numbers these days as the number of closures, downsizing exercises and layoffs has increased since the bottom fell out of the economy in late 2008.

"In this environment, every employer and employee has to contemplate a severance package," noted David Debenham, a partner with Lang Michener LLP in Ottawa. "The issue has always been how much severance. It’s a bit of a guessing game."

There is no guesswork, however, when it comes to the principles surrounding severance packages. "The amount of notice or severance that is reasonable will vary from case to case," said Brian Thiessen, a partner in the Calgary office of Blake, Cassels & Graydon LLP.

However, he pointed out, "the individualized nature of common law reasonable notice and pay in lieu of notice estimates… was articulated by the court in Bardal v. Globe and Mail Limited, and continues to be recognized in more recent court decisions."

That recognition is reflected in employment contracts across the country. "Every non-union employment contract contains a term that is implied by Canadian common law that an employer will provide an employee with ‘reasonable notice’ of termination if the employee is terminated without cause. This obligation can be satisfied by providing an employee with advance working notice of termination, pay in lieu of that notice, or a combination of both," said Christina Hall, an associate in Fraser Milner Casgrain LLP’s employment and labour practice in Toronto.

Bardal sets out the factors for determining reasonable notice. These include the individual’s age, their years of service, their position within the company, and their chances for re-employment. "I like to think of these factors as you would beads on an abacus, in that each factor can move either way along a continuum in order to determine the proper period of reasonable notice owing to an employee," said Hall. "In general, longer-serving, senior and older employees tend to obtain higher notice awards than shorter-serving, junior and younger employees."

While Bardal and subsequent decisions provide a strong foundation, there is no set formula for determining severance. "It’s the court’s best guess how long it will take you to replace the income you’ve lost," said Boniferro.

"There is some confusion that there could be a windfall," he added. "It’s not a windfall, it’s severance."

Most provinces offer some guidance. In Alberta, for example, the Employment Standards Code and regulations provide the minimum standards that govern most employment relationships. This includes minimum notice or pay in lieu of notice that must be given to an employee upon termination without cause. For employees with less than two years of service, this translates into one week’s notice or payment. For employees with at least 10 years of service, this figure jumps to eight weeks. "Employees are entitled, in the absence of an express agreement to the contrary, to common law reasonable notice," said Thiessen." The calculation of a reasonable notice period at common law is a more flexible and dynamic concept, decided with reference to each particular employee."

One way to remove any question marks is to determine in advance of any termination what the severance will be. "This should be decided ahead of time in the employment contract so it’s not a guessing game," said Debenham.

Both parties win this way, he added. It reduces the unknown liability of the company, and it provides employees with greater security.

In the current environment, however, those benefits may not be viewed as positively as they are in a booming or stable economy. "The recent economic downturn has caused both sides to the employment relationship to look differently at their rights and obligations on termination of employment," said Hall.  "While many employers have not changed the termination packages that they offer, others whose businesses are suffering have been seeking to reduce their termination packages due to cash flow difficulties, at the same time as terminated employees are seeking to maximize their packages for fear that they will not be able to obtain a new job quickly.  

"These competing interests," she noted, "are often leading to greater tension at the time of termination and to a greater tendency for both sides to obtain legal advice."

"We’ve already seen an uptake in our business because a number of these severance packages are contested," said Boniferro. "The real test will be whether the courts adjust notice periods up and down depending on economic conditions."

The answers to that test will not be known for a number of years as cases wind their way through the courts. In the meantime, the virtual world is entering the fray.

Paradigm Shift Solutions Inc., a Vancouver-based company jointly founded by a lawyer and an e-commerce expert, have launched FiredWithoutCause.com, which bills itself as "the first online legal service to help everyday Canadians who have been fired or laid off to get what they are rightfully entitled from their employer."  The site, part of a growing trend towards do-it-yourself legal services, offers severance pay calculation and customized negotiation tools for less than $60.

"In my experience, most people who have lost their jobs fail to even seek legal advice, believing that it is not worth their while. We hope to change Canadians’ attitudes, and help more people get what they are entitled to," said Chilwin Cheng, a lawyer and president of Paradigm Shift Solutions.

Of course, common sense could always prevail. "It’s critical to do a fair assessment as to the reasonable prospects of reasonable employment," said Boniferro. "See if you can find a fair and [equitable] balance. You don’t want to short change the employee but you also have to recognize the economic constraints of the company."

Those constraints, said Thiessen, may compel companies to look to a variety of risky alternatives to reduce the bottom line including reduction in wages, pensions and other benefits; changing the compensation mix; and transferring employees to other positions or locations. "All of these alternatives to dismissal run the risk that an employee may bring a claim for constructive dismissal."

There are acceptable alternatives, he added, and lawyers may be called upon to advise clients on innovative ways to reduce costs for employers. Such options include offering employees unpaid job-protected leaves of absence for specified periods; creating work-sharing agreements: and offering retirement policies that act as an incentive for employees to retire.

This can help avoid the pink slip — and the red ink.