Hands up if you want a severance package! A primer on voluntary departure programs
In January, Shaw Communications announced a Voluntary Departure Program as part of a “‘total business transformation’ that aims to re-focus and streamline its operations.” Shaw’s program made headlines particularly because of the number of employees affected, but it is not the first employer to reorganize its business through voluntary terminations.
Notwithstanding how common they are, many of our clients still face uncertainty about what voluntary departure programs are and what their impact will be. Below are the answers to some of the most frequently asked questions about voluntary departure programs.
What is a voluntary departure program?
While Shaw calls it a “voluntary departure program”, these corporate initiatives can also be known as mutual, voluntary, conditional, optional or early separations, exits, buyouts, severances or departures (or any euphemistic combination of these terms).
A voluntary departure program is an optional termination offered by an employer to a group of employees. Compare this to a standard termination, in which an employer unilaterally terminates the employment of one or more employees. In a voluntary departure program, an employee can review the terms in advance and, only if he or she accepts them does the termination take effect. If the employee rejects the terms, then there is no termination and the employee continues to work.[1]
What are the terms of a voluntary departure offer?
In a group departure scenario, employers generally use a formula to determine each employee’s termination entitlements, but there is no standard formula that employers must use. So long as employees receive no less than their minimum termination entitlements (whether by statute or contract), the employer may use any formula it wishes.
In Shaw’s case, it has used a formula of six months of pay plus an additional month of pay per year of service, up to a cap of thirty[2] months. This offer is in addition to a working notice period of two to eighteen months, during which time the employee will continue to work and receive pay, accrue bonus and have benefit coverage. In contrast, some employers may choose to offer shorter or no working notice periods, while others may offer to continue salary only until the employee finds other work, at which time the employer will only pay out 50% of the remaining payments. The employer may also choose to use a formula with “bumps” for special factors, such employees with managerial positions or extraordinarily long tenure.
Generally, employers select formulae that address their specific circumstances and are enticing to employees given the characteristics of their workforce.
How do these offers compare to “standard” severance offers?
The answer is: it depends. Some employers may be more generous when they make individual severance offers, but that is not always true. Sometimes, but not always, the formula favours one group of employees over another (e.g. managerial and long-tenured over lower lever and short-service).
Are there any restrictions on accepting a voluntary departure offer?
Any employee who has received a voluntary departure offer may accept it. Provided that the employer does not (a) discriminate against employees on human rights-protected grounds[3] or (b) breach its obligations under a collective agreement, it may limit the number and type of employees to whom it makes such offers. Put differently, an employer is not required to make the offer available to all employees. According to BNN, Shaw’s offer excludes unionized, short-term and certain sales and customer service-related employees
Other than meeting these minimal requirements, the employer sets the terms of the offer and the offer is generally non-negotiable. Employees should review the fine print of the offer carefully to ensure that they understand the implications of what they are accepting. As is the case with Shaw’s offer, an employee’s acceptance is usually treated as final and cannot be rescinded.
Why do employers offer voluntary departure programs?
Employers offer these programs when they are undergoing a broader corporate restructuring, including one that is required to cut labour costs. Employers may elect to do a mass termination instead, which does not require employee consent. However, many employers undertake voluntary departure programs to take advantage of the following:
Limited legal costs and avoiding litigation: Since employees consent to the separation terms in advance, there is no back-and-forth negotiation between lawyers and no litigation. In this way, employers and employees can minimize their legal fees and side-step litigation.
Contingency planning: Since the employer sets the timing and other terms of the employees’ departures, there is business continuity during a restructuring. Specifically, an employer can incentivize key employees to continue to work throughout the transition and space out the departures of other employees who are less critical to day-to-day operations.
Fairness: When an employee’s employment is terminated, he or she is often left in the dark about what the employer has offered to other employees upon termination. They may feel slighted if the severance offer seems low or may feel that they are leaving money on the table by accepting an initial offer. Using a transparent, formulaic approach to calculating termination entitlements injects fairness into the process.
Controlling the message: Whenever an employer is undergoing a restructuring, it is important to minimize public, investor and employee concerns about the company’s financial position. By rolling out a voluntary departure program, employers can release a contemporaneous public announcement about the viability of the company and the company’s vision for the future, an option not available with individual terminations.
There are clear advantages to employers and employees who participate in voluntary departure programs as compared to individual or mass terminations. The importance of employer- and employee-specific analyses in these situations cannot be understated, so make sure to seek out proper legal and financial advice before raising your hands to participate in a voluntary departure program.
[1] Notwithstanding the employee’s rejection of an offer, there is no guarantee of ongoing employment. Employers, including Shaw, may still elect to termination any employee’s employment down the road.
[2] The original memo to Shaw employees also noted a cap of twenty-four months, so it is unclear what the cap truly is.
[3] Employers may not target employees based on their age, whether such targeting is direct or indirect.
