What you should know about severance package anti-rehire agreements
Employees faced with signing an anti-rehire agreement in a severance package should first
understand all their legal options.
These clauses have traditionally not been common in Canada and demand
that the employee, as part of a generalized termination and severance
proposal, never apply to that company again. They present a bit of a
philosophical difference between the United States and Canada but seem
to have gained more popularity in our country in the past five years.
Because of that, workers north of the border may not be fully aware of
what anti-rehire clauses entail or how they can impact an employment
relationship. In some instances, this provision can actually benefit the
employee.
They can take different forms so it is important to understand their purpose and use. For example, in
one recently reported case, a nurse was fired from her hospital job and filed a grievance. She was
offered a $3,541 ‘retirement allowance’ to withdraw her complaint, according to CTV News. She
would also be required to make no further claims against the Huron Perth Healthcare Alliance and
would not seek reinstatement or apply for jobs within the organization in the future, the report
stated. The woman refused to sign the offer.
While the nurse was fired for cause, anti-rehire clauses have also been used in instances where an
employer has not alleged a wrongdoing.
What you should know about severance package anti-rehire agreements - Law360 Canada
What’s interesting is the notion that an employee can be asked to sign one of these provisions at the
end of an employment relationship, even if they have been terminated on a without cause basis, such
as an economic restructure.
However, under the terms of the severance, the employer is saying that person can never apply to
work there again. When I see those terms, I am inclined to do a deeper dive to ascertain exactly
what that means.
The clause could be used in situations where there was underlying misconduct that might not have
reached the for-cause threshold but would still compel the employer to no longer wish to ever employ
that person again. I would still push back on that term because I genuinely don't believe it’s
appropriate to attempt to limit someone's future employment opportunities at the time of termination
and severance.
Anti-rehiring clauses may be used in a settlement proposal that seems fair and reasonable but still
does not take into account some extenuating circumstances. For instance, there are situations where
it is possible to be terminated from a department in a large organization and be hired by another,
especially in large financial institutions where one sector might not know what the others are doing.
In circumstances involving large corporations, the termination and settlement agreement could put
the onus on the employee to advise the company if they have been hired by another department. If
the employee does fails to do so, the company might seek to recapture some of the settlement.
Even a terminated employee with no intention of applying for reinstatement should think twice before
signing these clauses.
Sometimes employees, even if they are terminated on a without cause basis, are so angry that they
are convinced a no-rehire clause has no value because they will never work for that company again.
But they should keep in mind that the economy shifts and circumstances evolve. They shouldn’t bind
their hands unless there is an extremely compelling reason to do so.
A shrewd employee may even be able to benefit from an anti-rehire clause. Agreeing to such a term
can have some probative value. There might be an opportunity to seek further compensation in
exchange for signing off.
Of course, the difficult part can be finding that value, which can be tricky. Most contractual terms can
be amended on consent. Even if the employee signs this sort of prohibition that states they will never
apply and won't get rehired, situations change. Company leadership can be recast. Then there is the
issue of what happens to the compensation received.
This is where getting legal advice can be advantageous. A termination and settlement agreement
could state that the employee will receive a year of salary with a clause stipulating that if they are
rehired by the organization, then the payments will end or, alternatively, the corporation will seek to
recapture any amounts in excess.
It would then be my job to finagle those types of provisions so it is not anti-rehire but effectively
anti-double dipping and negotiate whether or not that employee actually does have to repay the
compensation received for signing that clause.
Even if a worker received a benefit for signing an anti-rehire clause it should not deter them from
applying for positions in the company down the road. There are steps that can be taken, such as
converting that compensation into a hiring bonus.
Employees may also want to seek advice if they have received a severance and will be returning to
their former company. Under Ontario law, if the employer wants to start the employment relationship
anew, a person would have to be paid at least all of their Employment Standards Act (ESA)
entitlements. Otherwise, their tenure would be reinstated under the ESA.
It is crucial not to act in the heat of the moment when it comes accepting a severance package that
includes conditions.
What you should know about severance package anti-rehire agreements - Law360 Canada
Employees should carefully consider what they are agreeing to in any termination and severance
agreement because if these anti-rehire clauses are properly drafted, they are entirely enforceable. It
only makes sense to have any offer reviewed to see what is acceptable. Otherwise, there could be a
violation of the settlement terms.
Ellen Low has been working exclusively in employment and human rights for over a decade. She
obtained her law degree from the University of Ottawa, articled at Gowlings and practised as a
partner with a boutique Toronto employment law firm and founded her own firm, Ellen Low & Co.
Employment Law, in 2018.