Can Severance Pay Be Included in a Contract?

Severance Pay Be Included in a Contract

There’s no doubt that being laid off from a job can be very stressful. Aside from the emotional upheaval of losing a position you’ve worked hard to achieve, there is the worry about where you will find work next and how you’ll cover expenses in the meantime. A comprehensive severance package can make the transition into new employment less overwhelming for some employees, providing them with money to help cover costs and time to find a job.

Severance packages can include compensation, including salary continuation, payments for unused vacation and sick days, extended health coverage and more. These benefits can be paid in one lump sum or offered over the course of a few months in installments, depending on your situation and your employer’s policy. However, severance pay is still taxed, just like your regular paycheck. You will receive a W-2 from your former employer indicating how much of your severance was paid and it will be included in the total income you reported on your taxes for that year.

Whether you’ve been laid off or fired for good reason, or even if your job was terminated in the midst of a company restructuring, severance pay can ease the blow and allow you to move on quickly without worrying about financial concerns. Severance packages are also a way for companies to show their employees that they care and want them to have the best possible start to a new chapter in their lives.

Can Severance Pay Be Included in a Contract?

While employers aren’t required to offer severance, they may do so as part of their employment contracts, collective bargaining agreements or company policies. They may also offer severance to prevent bad publicity and to defuse tensions during a reduction in workforce.

In addition to salary, most severance packages also contain waivers of liability and non-compete and non-disclosure agreements. These agreements can limit your rights to sue the company in the event of a wrongful termination or other legal issue. It’s important to thoroughly review these documents before signing and consider seeking legal advice if you are unsure about their terms.

Often, when a severance package is offered, it’s accompanied by an employment contract that specifies the specific details of how and when the severance will be paid. These clauses are often found in a section of the contract that addresses termination of employment and can be difficult to locate for an employee who’s just been laid off.

An experienced employment lawyer can review an employment contract to determine if there is a severance clause and, if so, what its contents are. This will be especially important if you have a bonus included in your severance package and lose your job just before the bonus is due to be paid out. You could lose out on a substantial amount of money if you don’t realize your contract includes a severance pay Toronto provision until you’re already out of a job.