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 Ontario severance pay 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 the difference between termination pay and severance 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? Does it affect whether or not I receive severance pay?
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.
Do I get severance if I get fired?
All employees are entitled to severance pay (i.e. 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 do I calculate my severance pay in Ontario?
Severance pay in Ontario is calculated under the Employment Standards Act. Eligible employees receive one week’s pay for each year of service, plus a portion for completed months, to a maximum of 26 weeks. Common law may provide much more severance pay, depending on age, position, and job market. A Whitten & Lublin employment lawyer can help assess your full severance entitlements.
Do I get EI if I get severance pay?
Yes, but Employment Insurance (EI) benefits may be delayed. If you receive a lump sum payment or salary continuance, Service Canada often treats this as income and applies a waiting period before EI begins. Once that period ends, you can receive EI, provided you meet the eligibility requirements. Severance pay does not disqualify you from EI entirely.
How long does it take to get severance pay in Ontario?
In Ontario, termination pay and statutory severance pay must be provided when your employment is severed. Employers typically pay either as a lump sum or through salary continuance. If your employer fails to provide severance pay promptly, this may breach the Employment Standards Act. Speaking with an employment lawyer can help enforce your severance entitlements without unnecessary delay.
What is the maximum severance pay in Ontario?
In Ontario, statutory severance pay can reach up to 26 weeks of pay. This is in addition to termination pay owed under the statutory notice period. However, common law notice often provides much more severance pay, sometimes up to 24 months or more.
Can you get both termination pay and severance pay in Ontario?
Yes. Termination pay and severance pay are distinct entitlements under Ontario’s Employment Standards Act. Termination pay covers the statutory notice period, while severance pay compensates long-service employees if the employer meets eligibility criteria. Many employees qualify for both, and in some cases, common law notice may provide much more severance than the statutory minimum entitlements.
Is it better to take a lump sum severance?
A lump sum payment provides immediate access to severance pay, while salary continuance spreads payments over a set period. Both options have pros and cons. A lump sum offers flexibility but may affect EI benefits timing. Salary continuance may preserve benefits for longer. Only your personal financial needs and goals can help determine the better option.
Is severance pay taxable?
Yes. Severance pay is taxable income in Canada. Whether received as a lump sum payment or salary continuance, income tax is withheld at source. This often confuses severance pay with non-taxable benefits. Because tax rules can reduce your take-home amount, it’s important to understand how severance pay is taxed and plan accordingly when reviewing a severance package.
How can Whitten & Lublin help you with your severance package?
When your job ends, the terms in your employment contract and termination letter can make the difference between receiving only minimum entitlements and securing a full severance package. Many severance pay disputes arise because employers rely on restrictive termination clauses or miscalculate what an employee is owed. If your contract doesn’t validly limit you to the ESA or the CLC, you may be entitled to much more under common law. When an employer ends the employment relationship without providing the proper severance, this is considered wrongful dismissal. Understanding severance pay disputes and how wrongful dismissal applies in your situation is key to protecting your income, your stability, and your next step forward.
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