How Does Severance Pay Work in Ontario?
Some common questions asked by many employees include: how does severance pay work in Ontario; how does it get calculated, what is the difference between termination and severance pay and who qualifies for termination and severance pay? For provincial employees, employers must abide by the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “ESA”) to provide an employee with the correct statutory entitlements upon termination. For federal employees, employers must abide by the Canada Labour Code, R.S.C. 1985, c. L-2 (the “CLC”) with respect to an employee’s entitlements upon termination. Beyond statutory entitlements, an employee may also be entitled to common law reasonable notice if the employee’s contract does not limit their entitlements to either the ESA or the CLC.
How does severance pay work in Ontario?
A typical severance package will provide an employee with their minimum entitlements under either the ESA or the CLC, as well as continuation of benefits for a certain period of time. An employer must pay an employee all outstanding wages, which includes any unused vacation pay. By law, employers must provide employees with their minimum entitlements when terminating an employee’s employment, with very limited exceptions.
In addition to providing an employee with their minimum legal entitlements, an employer has the option of providing an employee with an improved separation package, on the condition that the employee signs a Release that would prevent the employee from suing the employer for more severance. The amount that an employer decides to pay on top of providing the minimum legal entitlements is up to the employer’s discretion.
Who qualifies for termination pay?
For provincially regulated employees, employees must receive statutory termination pay under the ESA, if they have been continuously employed for at least 3 months with the same employer. The following chart specifies the amount of notice required for an employee who has been continuously employed for more than 3 months:
| Period of Employment | Notice Required |
| Less than 1 year | 1 week |
| 1 year but less than 3 years | 2 weeks |
| 3 years but less than 4 years | 3 weeks |
| 4 years but less than 5 years | 4 weeks |
| 5 years but less than 6 years | 5 weeks |
| 6 years but less than 7 years | 6 weeks |
| 7 years but less than 8 years | 7 weeks |
| 8 years or more | 8 weeks |
Employees must receive the above amounts corresponding with their length of continuous employment with the employer. The only exception would be if an employer can prove that the employee intentionally engaged in wrongful or unlawful conduct in the workplace. By proving this, an employer would not need to pay a separation package to the employee.
What is severance pay and how does it differ from termination pay?
Under the ESA, if an employee worked for an employer for 5 or more years and the employer has either a global payroll of at least $2.5 million or the employer severed the employment of 50 or more employees in a six month period because all or part of the business permanently closed, an employee may be entitled to statutory severance pay on top of the termination pay as listed above. The amount of severance pay is calculated based on the number of completed years of employment and the number of completed months of employment divided by 12 for a year that is not completed. An employee may receive a maximum amount of 26 weeks of statutory severance pay in addition to termination pay.
How does termination entitlements work under the Canada Labour Code?
For federally regulated employees, employers must pay a separation package based on the number of years of service worked at the company. The following chart specifies the amount of notice needed for federal employees:
| Period of Employment | Notice Required |
| 3 months but less than 3 years | 2 weeks |
| 3 years but less than 4 years | 3 weeks |
| 4 years but less than 5 years | 4 weeks |
| 5 years but less than 6 years | 5 weeks |
| 6 years but less than 7 years | 6 weeks |
| 7 years but less than 8 years | 7 weeks |
| 8 years or more | 8 weeks |
In addition to federal statutory termination entitlements, federal employees may also be entitled to federal statutory severance pay if they have completed 12 consecutive months of continuous employment. Employees who qualify can receive either the greater of two days’ wages for each completed year of employment, or five days’ wages.
What is Common Law?
The common law is a body of unwritten laws developed over time through judicial decisions. If an employee is not limited by their employment contract to the amounts listed in the ESA or the CLC, that employee would be entitled to reasonable notice under the common law.
Reasonable notice refers to the notice period that an employer gives to an employee when terminating their employment. This period is designed to provide the employee with sufficient time to secure new employment.
An employee’s entitlements under the common law are dependent on a list of factors: (1) the age of the employee (2) the length of service (3) job position, and (4) the availability of similar employment.
Based on these factors, an employee could, on average, receive one month of notice for every year of employment. An employee could get up to 24 months’ of reasonable notice, or more in extraordinary circumstances.
Are you entitled to severance pay if you are fired?
All employees are entitled to a separation package upon termination of employment, with some exceptions.
ESA
An employee under the ESA is entitled to their minimum legal entitlements under the ESA. If an employee is terminated without cause, and their employment agreement violates the ESA, an employee is entitled to a bigger severance package under the common law.
If an employee is terminated with cause, but the employer is unable to prove that the employee intentionally engaged in wrongful or unlawful conduct in the workplace, the employee is still entitled to the minimum legal entitlements under the ESA. However, the employee would not be entitled to a bigger severance package under the common law.
If an employer is able to prove that the employee intentionally engaged in wrongful or unlawful conduct in the workplace, then the employee would not be entitled to any separation package whatsoever from the employer.
Despite this, it is crucial to understand that an employer may not be correct in terminating an employee for cause. As such, it is important to consult an employment lawyer to understand whether your employer correctly terminated your employment with cause. If an employer incorrectly terminates an employee for cause, the employee may be entitled to reasonable notice at common law.
CLC
An employee under the CLC is entitled to their minimum legal entitlements under the CLC. If an employee is terminated without cause, and their employment agreement violates the CLC, an employee is entitled to a bigger severance package under the common law.
If an employee is terminated with cause, then the employee would not be entitled to any separation package whatsoever from the employer. Despite this, it is crucial to understand that an employer may not be correct in terminating an employee for cause. As such, it is important to consult an employment lawyer to understand whether your employer correctly terminated your employment with cause. If an employer incorrectly terminates an employee for cause, the employee may be entitled to reasonable notice at common law.
How do you know if your severance pay is fair?
The ESA and CLC only sets out the minimum amount of severance pay that you are owed, not the maximum. If your employment contract violates the ESA or CLC, you may be entitled to common law notice.
If you have been terminated and would like to calculate the amount of notice, you may be entitled to, you can consider using a severance calculator for an estimate. However, it is best to speak with an experienced employment lawyer to get a better understanding of your entitlements, as a severance calculator is a high level estimate and cannot account for your individual circumstances.
How to negotiate severance pay under common law?
If your employment contract does not limit you to your entitlements under the ESA or the CLC, you could greatly improve your separation package. While each case varies, an experienced lawyer can often help improve your separation package as employers often do not provide their best offer at the time of termination. Please contact an experienced employment lawyer to best understand your entitlements and how to improve your separation package.
How Can Whitten & Lublin help you with your severance package?
It is crucial for employees to review their employment contracts and their termination letter with an experienced employment lawyer, to ensure that they are receiving the statutory notice periods under either the ESA or the CLC. If your employment contract does not limit your entitlements to the ESA or the CLC, you may also be entitled to reasonable notice under common law. Book now online or call (416) 640 2667.
If you are an employee who would like to have one of our experienced employment lawyers review your severance package to ensure you are receiving what you are owed, contact us online or by phone at (416) 640-2667.
Author – Abby Leung