25 Sep Why don’t I receive a severance package upon retirement?
Choosing to retire can be a very difficult decision. Some questions an employee will ask when preparing to retire are: How much income will I give up upon retirement? Can I afford it? Will there be compensation forfeited if I retire by choice? Is it better to wait for my employer to begin that conversation?
One variable that could sway an employee to put a hold on voluntarily retiring is if they want to acquire a severance package. A loyal and devoted employee who has worked for an employer for over 20 years, could be ready to retire and wanting to make that decision for themselves. If this employee approaches their employer and announces their retirement on their own volition, it is not legally necessary, according to the Employment Standards Act, for the employer to then provide severance.
If there has been an agreement in the employment contract (or an alternate agreement) that the employee will receive payment upon retirement, whether by choice of the employee or employer, then the employer is legally obligated to provide that compensation. This could be called an early retirement package that contains compensation for the employee to collect when they choose to phase out of their role.
When there is no such agreement, it is better for the employee to wait to be terminated without cause. In this case, the employer would begin the conversation about retirement with the employee, undergo a dismissal without cause, and would offer a severance package that reflects their time and dedication at the workplace.
There is still a chance the employer, even without an early retirement plan, could still provide a retirement package if the employee voluntarily decides to retire. The employer and employee may have developed a great working relationship over the years, and the employer could decide out of courtesy, that they will choose to provide this pay.
The bottom line is, if the employee decides to retire on their own without an agreement, the decision to provide severance pay is in the hands of the employer and is no longer a legal obligation. The law treats a voluntary retirement and resignation as two similar decisions, and it impacts what the employee is then entitled to receive.
If you are an employee who wants to know whether you are eligible for severance even if you decide to voluntarily retire, please contact KCY at LAW by filling in an online consultation request or contact us by phone at 905-639-0999 to book your consultation today.