Severance Pay and Public Servants

I am an economist, not a lawyer or expert on the collective agreements in the federal public service, but I can still detect a hatchet job.

The CBC have given a lot of play to a Greg Weston story that allegedly generous severance payments to public servants amounting to as much as $2 Billion will be triggered by job cuts in the upcoming Budget.

“The Harper government’s plan to slash an estimated 30,000 public service jobs over the next three years includes hefty golden handshakes that could leave some federal workers laughing all the way to the bank.”

No source for the calculation is given in the story, and the only reaction apparently solicited was from the Canadian Taxpayers Federation who responded predictably:

“Public service severance packages are far out of line with anything in the private sector,” the federation’s Derek Fildebrandt said. “It’s far out of line with Canadians’ reasonable expectations.”

As any federal public service union would have noted if they had been asked, the story muddies together the long-standing accumulation of severance pay by public servants as part of a negotiated compensation package (which no longer applies to new hires in most cases), and collective agreement provisions on workforce adjustment which would be triggered by mass layoffs. The details are complicated, and they are hardly “news.”

What about the allegation that severance pay for federal public servants is excessive?

In his 2006 report on federal labour standards, Harry Arthurs noted (in Chapter 8 ) that severance payments made to non union long tenured employees in lieu of notice as a result of civil litigation are far higher than those required by employment standards legislation. Settlements have been in the range of 50 weeks pay in lieu of notice for long serving rank and file workers, and 80 weeks for managers and professionals higher up the hierarchy. These are settlements in cases where termination was triggered by economic reasons rather than for cause.  They are at this seemingly generous level because high seniority workers who have invested a lot of time with a single employer typically face significant income losses if they are laid-off.

Such settlements require an employee who is given notice to litigate, which is costly, but the fact remains that settlements do set the bar for termination pay in lieu of notice for a wide range of private sector employees, especially managers and professionals. Federal public severance awards on the level suggested in the story are not, in fact, out of line with what the courts have found to be fair.

The option of civil litigation is not available to workers who are covered by a collective agreement, where the norm is for employees to be laid off on the basis of seniority such that long tenured workers enjoy significant job security except in cases of large scale layoffs, plant closures and the like. The norm in the public service, however,  is not layoffs based on seniority, but a complicated process where displaced workers are given some preference in filling job vacancies which may or may not open up.

In short, provisions in place in the federal public service look quite reasonable.