Contractor Severance Packages, Explained

Do you get severance if you are a contractor?

It depends on your true legal status. Labels in an employment contract do not decide severance entitlements. Courts look at control over your work, who supplies tools, whether you can work for others, and how financially dependent you are on one client. Independent contractors usually have no severance rights. The more a company controls your schedule, methods, and income stream, the stronger your claim to severance pay becomes.

While independent contractors are not entitled to a severance package if terminated, employees and dependent contractors are entitled to a package.

What factors do courts consider in determining your employment status?

Courts will look at a number of factors to determine if someone is truly an independent contractor, with these factors indicative of how much control one has over their work. The more control the company has over them, the more likely they will be considered an employee or dependent contractor. Some of the factors that courts will look at include who sets the person’s working hours, who is responsible for providing the equipment for the role to be completed, if the person is able to work for other companies, and does the person derive most of their income from the company.

A person is more likely to be deemed a “dependent contractor” if they derive the vast majority of their income from that one company. Different court decisions have set different thresholds for what percentage of one’s income needs to come from that company to be considered a dependent contractor as opposed to independent, but it is clear that the person must establish a level of financial dependency on the company. They will have a stronger likelihood of demonstrating they are a dependent contractor (and entitled to a severance package) if they can show that they earned well over 50% of their income from one source.  It could be argued that 50% of their income would be “financially dependent”, but their case is stronger the higher that percentage is.

Do I get severance if my contract ends?

If a fixed term contract ends on its stated end date, severance is usually not owed. If the company ends it early and the agreement does not contain a valid early termination clause, the worker may be entitled to pay for the balance of the term plus benefits. Repeated renewals or long engagements can blur lines and support a finding of indefinite employment or dependent contractor status. In those cases, common law notice may apply on non renewal or termination. The details in the employment contract and the history of the relationship matter.

Are contract workers eligible for EI?

Regular EI benefits require insurable employment as an employee. Independent contractors usually do not have insurable earnings and are not eligible. If you were treated like an employee in practice, you may have been misclassified. In that case, you can seek a corrected Record of Employment and access EI. Self employed individuals can opt in to a federal program for special benefits such as maternity or sickness, but not regular EI unless they had insurable employment.

What is a typical severance package in Ontario?

There is no single typical package. Employees and dependent contractors may be entitled to common law reasonable notice based on factors such as age, role, employee’s length of service, and job market conditions. ESA minimums set a floor for employees, not a ceiling. A complete exit package often addresses base salary, variable compensation such as bonus and commission, vacation pay, benefits or health insurance continuation, equity or RSUs, outplacement, references, and the release language. Payment can be a lump sum payment or salary continuance with mitigation credits.

Because small wording changes can affect how much severance you receive, we model best and worst case outcomes, stress test the release, and propose targeted revisions that protect value and reduce legal risk.

What are the rules around severance pay?

For employees in Ontario, two concepts often get mixed up. Termination pay is ESA notice or pay in lieu, usually up to 8 weeks based on service. ESA severance pay is separate. It applies when the employee has 5 or more years of service and the employer has a payroll of at least 2.5 million dollars in Ontario. oUnder common law, severance can be higher. Independent contractors are generally outside ESA severance pay requirements, but dependent contractors can have common law severance entitlements.

How can Whitten & Lublin assist contractors in understanding their rights regarding severance packages?

If you are a contractor looking to better understand your rights as to whether you might be entitled to a severance package, we encourage you to seek legal advice on the matter. 

If your contract is ending or you have already faced employment termination, get clarity before you sign or walk away. Independent, dependent, or employee status can change your employer’s severance pay obligations and your leverage in any severance package negotiations. Small details in the contract and your day to day work can mean real dollars for former employees.

Whitten & Lublin can review your agreement, assess your legal status, and calculate realistic severance ranges. We start with a flat fee consultation, then any next steps are quoted in advance so you stay in control of cost and pace.

If you want experienced employment lawyers on your side, contact us online or call (416)  640-2667. We can help you understand your rights, negotiate a stronger exit, and move forward with confidence.

Author – Nasyr Asmi