Termination & Severance Practices In Canada: Part 1

At an event hosted by Verity on September 30, 2016, the survey findings were introduced and reviewed by Tim Arnill, President and CEO of Verity (Ontario), and Peter Saulnier of Logan HR (British Columbia), two of six partner firms which operate VF Career Management.  The 55 attendees were invited to participate in real time text polls on selected questions during the presentation.

Guest Speaker Madeleine Loewenberg, co-founder of Loewenberg Psarris Workplace Law LLP, then connected the findings to legal trends in termination and severance.  Her presentation will be discussed in a subsequent blog (Part 2, The Law).

Workforce Changes

Tim noted that 89% of respondents to the survey reported that employee terminations in the past 12 months were the same or higher than in the previous year.  But 60% anticipated that, in the coming 12 months, employee terminations would be about the same and 28% expected terminations to be lower.  This potentially reflects relatively stable and possibly improving economic conditions (see, for example, the Bank of Canada’s recent Business Outlook Survey of senior managers).

Reasons for Terminations

Peter pointed out that 63% of respondents stated that organization structural change was the cause of employee terminations, 54% identified individual performance, and 31% business strategy change.  When they were asked about the main cause for terminations in the next 12 months, the figures respectively were 55%, 41%, 34%.

Preparations for Terminations

While 71% of organizations responded that they had a detailed plan when preparing for large downsizings, 21% only had a broad plan.  Although a month or more was seen to be the ideal amount of time for planning, common reasons for insufficient project planning included HR being informed too late, competing organizational priorities, and management inexperience.

When planning for individual terminations, 64% stated that they had a detailed plan and 32% a broad plan.  The ideal amount of time for planning was seen as one week or more.  However, since even a week is not always possible, HR needs to be ready with established processes, templates, and other tools.

Two-thirds of respondents indicated that they sought external supports, including employment lawyers and career transition services, to assist with large and individual terminations.

Severance and Benefits

Among the findings regarding severance, it is noteworthy that there is a movement away from salary continuance, with or without claw back, to lump sum payments.  Lump sum payments dominate for all levels of employees (ranging from 62% to 70%), including executives and managers.  Peter suggested that two reasons for this trend might be that companies want the obligation off their books and lump sum payments may lead to lower overall severance payments depending on how salary continuance is structured.  There may also be administrative difficulties in determining whether employees on salary continuance with a claw back have found a new job.

While coverage of legal fees remains low, employers are more often extending health benefits beyond the last day of employment, ranging from 44% to 62%, depending on the level of role, with the highest figure applying to executives and the lowest to support, hourly or union employees.

Career Transition Services

Career transition services are provided in 45-80% of cases, again with the highest figure applying to executives.  Nationally, 80% of employers feel that career transition support is “the right thing to do”; 56% are motivated to allow terminated employees to develop job search skills; and 49% want to send a positive message to remaining employees.  Other reasons for providing transition services included maintaining an organization’s brand image and mitigating legal risk.  Obviously, if employees land a new job more quickly, it is a win/win for them and their former employer.

The top criteria which organizations use in determining the type or length of career transition programs are: job level; length of service; expected difficulty of the job search; and age of employee.  Interestingly, these factors are similar to those relied on by organizations and courts in determining the amount of the package given to terminated employees.  Three months of career support is the most common program offered to professional/management employees and six months to a year or more for senior executives.

The most important factors in choosing a career transition provider are quality of consultants, quick response time, service features, and customization.