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An employment contract can help if you are fired

Posted by on Apr 28, 2011 in HR Issues, Moneyville | 0 comments

By Sheryl Smolkin

Read this article and comments at Moneyville.ca 

If you have the bargaining power to negotiate an employment contract, you can ensure you get a good settlement if you are wrongfully dismissed.

In Ontario, you are entitled to minimum termination and severance payments under the Employment Standards Act whether or not you get another job. Other provinces have similar laws. The Canada Labour Code covers federally-regulated companies like banks and airlines. You can also sue for wrongful dismissal, but the statutory minimums will be deducted from any award.

Koskie Minsky partner Arleen Huggins says top executives are not the only ones who can  pre-arrange favourable termination provisions. She cites three possible scenarios where an employer might be willing to meet you more than half way:

•   Special skills: You are coming to the table with skills the employer really wants. For example, a salesperson with an excellent track record may be coveted by the competition.
•   Job is uncertain: You are joining a start up company with an uncertain future.
•   Leaving another position: You are being lured from another secure, well-paying position.

Huggins tells clients to seek an escalating termination clause so the deal improves as they are promoted and gain years of service.

For example, if three years is the “risk period” for a new venture, the agreement may give six months pay if you are let go within three years, plus four weeks pay for each additional year of service.

She also says the method of payment of any wrongful dismissal settlement should be stipulated. “You want the full amount in a lump sum within a fixed period (i.e. 30 days) with no requirement that the amount you receive will be reduced if you find another job within the notice period.”

That’s because if you prenegotiate a global lump sum for both amounts payable under the Employment Standards Act and common law damages, Huggins says the lump sum will be treated as a retiring allowance, which gets more favourable tax treatment.

As a result, you may be able to transfer part of the retiring allowance into an RRSP without using up RRSP contribution room. Amounts that cannot be tax-sheltered may be subject to lower withholding tax rates (i.e. under $5,000: 10 per cent; $5,001 to $15,000: 20 percent; over $15,000: 30 percent) than your marginal tax rate of 40 percent or more.

While it may seem disloyal when you are offered a new job to contemplate what will happen if things don’t work out, if the unthinkable occurs, you may be glad you did. Collective agreements frequently give unionized employees similar protection.

 

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