business
How to Impress the CFO
STRATEGIES TO REDUCE SEVERANCE OBLIGATIONS
Canadian companies express grave concerns about the enor-mous
expense of terminating employees. These complaints
are understandable: long-term workers are typically award-ed
substantial “reasonable notice periods” by the courts,
and even short-service employees may become entitled to surpris-ingly
generous severance obligations in some circumstances. The
resulting cost to companies looking to reduce their workforce can
be astronomical.
This concern is particularly pressing in the wake of the Ontario
government’s new legislation, which seeks to increase minimum
wage by approximately 30 per cent – a policy that has led observ-ers
to predict the elimination of some 50,000 jobs in the province.
Unfortunately, smaller businesses are often the least knowl-edgeable
about their severance-related obligations. Because the
courts rarely differentiate between businesses based on their size
and resources, the companies that suffer the brunt of Canada’s
relatively generous severance obligations are often those that can
least afford it.
However, there is hope. While the cost of staff reductions might
seem daunting, companies frequently forget that there are ways to
minimize these obligations – in some cases, rather substantially.
TERMINATION PROVISIONS
First of all, employment agreements with enforceable termination
provisions are a must-have for companies seeking to reduce their
severance costs. The purpose of a termination provision is to re-place
an employee’s far greater “common law” entitlement with a
lesser contractual amount – which can be as little as the minimum
payment required by employment standards legislation. Although
these provisions will not completely eliminate the cost of termi-nating
most employees, they can nevertheless reduce severance
payouts to a small fraction of what would otherwise be owing.
By Daniel Chodos
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