The four numbers in a severance package

The Employment Standards Act sets the statutory floor for notice and severance pay in Ontario. It is read first because it is non-negotiable — the package cannot be lower than this number, regardless of what the employment agreement says. If the offered amount is at or below this floor, the read is short.

The ESA number is also the reference point for what a court would award in the worst-case scenario for the employee. Most negotiations move upward from this anchor, not downward.

Common-law reasonable notice is the second number — and usually the largest. It depends on length of service, age, position, character of employment, and the availability of similar work. The reading produces a range, not a single number. Most negotiations land somewhere inside that range.

The contract may attempt to limit common-law entitlement through a termination clause. Whether that clause is enforceable is itself a legal question, and depends on how the clause is drafted and on the case law as it stands at the time of the termination.

Bonus and short-term incentive treatment is the third number, and the one most often overlooked. Three sub-questions: did the bonus accrue during the notice period; is it discretionary or formulaic; and what does the contract or plan document say about termination treatment.

For executives and senior contributors, the bonus number can rival or exceed the base notice number. It is read early, not at the end.

Stock options, RSUs, and deferred compensation produce the fourth number. The reading covers the vesting position at the termination date, the treatment of unvested grants, the post-termination exercise window for options, and any acceleration triggers in the plan document.

Equity treatment is governed by the plan document, not the employment agreement. The two documents must be read together, and discrepancies between them are flagged in the memo.

The release language, non-disparagement clause, reference terms, benefits continuation, and outplacement support are the qualitative portion of the package. They are read after the four numbers because their negotiating room is partly a function of where the four numbers land.

A package that is quantitatively strong leaves more room to negotiate the qualitative items. A package that is quantitatively weak usually means the qualitative negotiation has to do more work.