What is the Difference Between Severance Pay and Termination Pay?
As an employee, if you are terminated without cause, you are owed termination pay and maybe owed severance pay, pursuant to the Employment Standards Act, 2000 (“ESA”). Oftentimes, termination pay and severance pay are used interchangeably, however, there is a difference between termination pay and severance pay as they are two distinct terms.
The difference between termination pay and severance pay:
Termination Pay
Termination pay is set out in the ESA and provides an employee their minimum statutory payments when terminated without cause. An employee’s minimum statutory payments or notice under the ESA varies depending on an employee’s years of employment. The ESA guarantees employees the following notice periods based on their years of continuous employment:
| Years of Employment | Notice Required |
| Less than 3 months | No Notice Required |
| 3 months to less than 1 year | 1 week |
| 1 year to less than 3 years | 2 weeks |
| 3 years to less than 4 years | 3 weeks |
| 4 years to less than 5 years | 4 weeks |
| 5 years to less than 6 years | 5 weeks |
| 6 years to less than 7 years | 6 weeks |
| 7 years to less than 8 years | 7 weeks |
| 8 years or more | 8 weeks |
In many cases, an employee’s employment contract governs how much notice an employee is entitled to receive upon termination without cause. If an employee’s contract provides less than what the minimum standards are under the ESA, the employment contract is considered void. In cases like this, an employee would be entitled to common law notice, which permits a court to calculate an employee’s notice period based on factors such as an employee’s age, length of service, position, and availability of similar employment.
Severance Pay
Unlike termination pay, not all employees are entitled to severance pay under the ESA. Pursuant to the ESA, severance pay is compensation paid to a qualified employee whose employment has been “severed”.
An employee qualifies for severance pay if their employment has been severed and:
- They have worked for the employer for 5 years or more; and,
- Their employer has:
- A payroll of at least $2.5 million; or
- Severed the employment of 50 or more employees within a 6-month period
Is Termination the Same as Severance?
No, severance pay and termination pay are not the same under the ESA, Although these two terms are sometimes used interchangeably, confusing them could mean leaving money on the table. Termination pay is the minimum compensation required by law when an employer terminates an employee without cause. Severance pay, on the other hand, is additional compensation available to long-serving employees who meet specific criteria under the ESA.
ESA amounts are just the legal minimums. Many employees are entitled to much more under common law reasonable notice of termination, which considers factors like your age, position, length of service, and the time it may take you to find comparable work. In many cases, common law entitlements can be several times higher than what the ESA provides.
If you’ve been terminated, don’t assume the number your employer offers is all you’re owed. If you’ve been let go, our employment lawyers can help you determine if you are entitled to severance pay on top of termination pay.
What Is the Downside to Severance?
Severance pay can provide financial stability, but it’s important to understand the fine print before accepting an offer. In many cases, severance packages require employees to sign a release, preventing them from pursuing additional compensation. Accepting severance too quickly without legal guidance could mean missing out on what you’re truly entitled to.
If severance is paid as a lump sum, it may be subject to higher tax deductions compared to a structured payout. Before agreeing to any severance package, consult an employment lawyer at Whitten & Lublin to ensure your employer is not shortchanging you. We can review your severance offer, negotiate for better terms, and protect your rights.
Can You Get Both Termination and Severance Pay in Ontario?
Yes—if you qualify for severance pay, you are entitled to both severance and termination pay under the ESA. Termination pay covers your minimum notice period, while severance pay is additional compensation for long-term employees. However, many employers fail to inform employees of their full severance entitlements, hoping they will accept only termination pay.
If you’re unsure whether your employer has met their legal obligations, our team can review your case and fight for the compensation you deserve.
Do You Get Severance If Terminated?
Not always. While every terminated employee is entitled to termination pay, not everyone qualifies for severance pay under the ESA. You may be entitled to severance pay if you have worked for your employer for at least five years and your employer either has a payroll of at least $2.5 million or has laid off 50 or more employees within a six-month period due to a permanent discontinuance of business. If your employment relationship met these conditions, your employer must provide both termination pay and severance pay.
What is the difference between Severance Pay Under ESA and Common Law?
Severance pay under the ESA provides minimum entitlements for eligible employees. Under common law, an employee may be entitled to much more compensation in the form of a severance package that reflects their total loss of employment, except in situations where your employment contract explicitly limits you to ESA minimums. If you are terminated without cause, it is assumed that common law applies, unless your employment contract explicitly states that you are limited to ESA minimums in this situation.
- ESA severance pay applies only if the employee meets the ESA five-year service requirement and their employer meets the payroll or mass termination criteria.
- Common Law Notice (often called a severance package) considers factors like age, length of service, position, and job market conditions—which often leads to a much higher payout than ESA minimums.
- ESA severance has a maximum of 26 weeks’ pay, while common law notice can exceed this significantly. Depending on the case, it can be up to 24 months.
Employers sometimes offer the bare minimum under the ESA, even when an employee is entitled to significantly more compensation under common law. They also often leave out benefits, and other entitlements. If you’ve been terminated, do not accept a severance offer without reviewing it with an experienced employment lawyer.
What is the Ideal Severance Pay?
The ideal severance pay is not a fixed number—it’s the amount that fairly compensates an employee for the loss of their job, based on the full scope of their legal entitlements. While the Employment Standards Act (ESA) sets out minimum severance obligations for qualified employees, many individuals are entitled to much more under common law.
An ideal severance package should reflect factors such as your age, length of service, position, availability of similar employment, and how long it may reasonably take to find a comparable job. For long-serving employees or those in specialized or senior roles, the difference between ESA minimums and common law reasonable notice can be significant.
Should you Accept a Severance Package?
Before accepting a severance package, it’s important to consider more than just the lump sum payment being offered. While it may seem like a generous offer on the surface, many terminated employees are unaware of their full rights under employment standards legislation.
A severance package may also require you to sign a release, preventing you from pursuing further legal claims, such as wrongful dismissal, constructive dismissal, or claims related to vacation pay, general holiday pay, or employment notice. Once signed, this release is binding, even if your termination and severance pay were calculated incorrectly. Employers often include these clauses to limit their liability. Without proper legal review, you may unknowingly give up your right to fair compensation.
Before agreeing to any terms, it’s important to assess how your termination pay covers the legally required notice period, and whether your employer pays the correct amount based on your employment history. Many employees make the mistake of assuming they must accept what’s initially presented—but you are not obligated to do so.
Are You Getting the Severance Pay You Deserve? Speak to an Employment Lawyer
To better understand your entitlements and obligations under employment laws, we encourage employers and employees to seek legal advice. Many employees are unaware that calculating severance pay or completing a proper termination pay calculation involves more than simply multiplying weeks of service by a base salary. Your total compensation may include elements like commissions, bonuses, benefits, and vacation pay—each of which should be evaluated carefully.
Whether you’re trying to understand what you’re owed as of your termination date, or you’re unsure whether your employer’s offer reflects your legal rights, our team can provide insight and advice into your specific circumstances and guide you more on the difference between termination pay and severance pay.
If you’re looking for employment lawyers and would like more information about what Whitten & Lublin can do for you, please contact us online or by phone at (416) 640 2667 today.