What is a severance package?
A severance package, also known by various labels such as termination pay, pay in lieu of notice, exit package, or layoff package, ultimately refers to the same concept: severance pay.
If you are an employee who has been dismissed without cause, your employer is required to provide you with the proper advanced warning, known as notice. A severance package is the pay your employer provides you in place of proper notice or advanced warning.
Are you entitled to a severance package?
Under Ontario employment law, unless you are dismissed for just cause, you are entitled to receive severance pay. Your employer will typically provide you with a written termination letter outlining the severance package they are prepared to offer, in exchange for a signed release. Your employer may claim that there is an enforceable severance provision in your employment contract that limits your entitlement to severance. These provisions are often not enforceable. This means you may be entitled to much more severance pay than what is initially offered.
If your former employer alleges just cause to terminate your employment without severance pay, the high standard of proof required to support this claim is rarely met. Often in cases where just cause is alleged, many terminated employees may still be entitled to severance pay, despite their employer’s claim.
In Ontario, statutory severance pay under the Employment Standards Act (ESA) only applies in specific circumstances. To qualify, an employee must have at least five years of service and the employer must either have a global payroll of $2.5 million or more, or have terminated 50 or more employees within a six-month period due to a permanent business closure.
Under the ESA, employers must provide severance pay in these circumstances; the severance pay required is expressed as one week’s pay per year of service, at the employee’s regular weekly wages.
This framework is distinct from severance entitlements under common law, which is not tied to payroll thresholds or a statutory Ontario severance pay chart. Common law entitlements depend on the reality of your situation, including your role, age, compensation, and prospects for new employment, and can result in a far more substantial full severance package than ESA minimums alone.
Calculating severance pay can be complex. Understanding your rights, and how to properly calculate severance pay is crucial to securing a fair settlement that provides you with what you are rightfully owed. Our online Ontario severance pay calculator can provide a rough starting point, but it does not account for the full range of factors that determine what you are truly entitled to under common law.
Correctly assessing and calculating severance pay is part of how an experienced severance pay lawyer can help you.
What is termination without cause?
You do not have the right to continued employment in Ontario. In other words, you can be fired from your job at any time and for almost any reason, as long as your employer provides you with the proper advanced warning or payment, known as severance.
However, there are several rules regarding termination of employment and your right to compensation once you have been dismissed without cause.
- Wrongful dismissal laws protect you from inadequate notice or severance.
- Constructive dismissal laws protect you from fundamental changes to your job position or compensation.
- Human Rights laws protect you from discrimination during employment and at time of dismissal.
- Statutory laws (like Ontario’s Employment Standards Act (ESA)) protect you from terminations that do not respect the legislated minimums.
What is reasonable notice of termination?
In Ontario, employers are required to provide you with a reasonable notice of termination. In other words, your employer must provide you with advance working notice of a defined termination date. During your notice period, all your working conditions must remain constant. For example, your employer cannot demote you or decrease your pay during your reasonable notice period. Failing to provide you with these rights is a form of wrongful dismissal.
Your employer can also provide you with payment in place of a reasonable notice of termination, which is known as severance pay.
What is the difference between reasonable notice and notice of termination?
The concept of “notice of termination” as required by the Employment Standards Act, provides only a minimum amount of notice that an employer must provide you. But you may be entitled to significantly more than statutory notice.
In addition to notice of termination, you may also be entitled to reasonable notice or payment in lieu of this notice. The length of a reasonable notice period is determined by characteristics such as age, tenure, position, salary, and re-employability.
Why do you need a severance pay lawyer?
It is not uncommon for employers to offer severance packages that are not fair and reasonable. Employers usually offer lowball severance packages on the assumption that you will be happy to get anything, or that you will sign a release without knowing your rights. This is why it is vital that you speak to an experienced Ontario severance pay lawyer to review your severance package before accepting your employer’s initial offer.
An experienced employment lawyer will consider how to best deal with the circumstances of your case, such as how to set aside any restrictive severance provisions in your employment contract, or the right strategy to deal with a just cause termination.
How can a Whitten & Lublin severance pay lawyer help you take control?
Our severance pay lawyers have extensive experience handling severance pay disputes in Ontario, including cases where employees were wrongfully dismissed, or offered severance packages that fell well short of what the law requires.
We have dealt with some of the largest organizations in Canada. From the outset, working with our team lets you obtain legal advice that is practical, strategic, and tailored to your situation. We will explain your options and protect your legal rights. Our skills, experience, and reputation are widely recognized by clients and peers, making us one of the most recommended labour and employment law firms in the GTA.
When they think they hold all the cards, show them you have more power than they think. Let the severance pay lawyers at Whitten & Lublin protect your employment rights and help you get the severance you are entitled to.
Under Ontario common law, severance pay is determined by multiple factors, including your length of service, age, position, salary, and the expected time it will take to secure comparable employment. Generally, the longer you have been with a company, the higher your severance entitlement can be. Unlike termination pay and severance pay under the Employment Standards Act, 2000 (ESA) or the Canada Labour Code (CLC), which follows minimum standards, reasonable notice of termination at common law often provides significantly more compensation.
Some employers try to limit severance payments by only offering ESA or CLC minimums. However, many employees are still entitled to common law severance, which considers factors beyond basic employment length. Common law severance can result in significantly more compensation, up to 24 months and even beyond in some cases. Because severance calculations can be complex, it is in your interests to have a severance package lawyer review your offer.
Yes, severance pay should include all elements of your compensation package, not just your base salary. This means that health benefits, dental coverage, commissions, pension contributions, and bonuses must be accounted for in your severance package. Employers are legally required to continue benefits throughout the notice period, whether you are receiving working notice or severance pay in lieu of notice. If your employment agreement includes annual bonuses, stock options, or profit-sharing, these should also be factored into your severance compensation.
Some employers attempt to exclude benefits or bonuses from severance packages, claiming they are discretionary. However, if bonuses or benefits were a regular part of your earnings, they should be included. If your employer is denying part of your severance, an experienced severance pay lawyer from Whitten & Lublin can step in and help you get the compensation you deserve.
Only in very limited circumstances. Employers must prove just cause for termination to deny severance pay. This is an extremely high legal standard, requiring proof that an employee engaged in serious misconduct. Simply making mistakes at work, poor performance, or minor policy violations do not meet the threshold for just cause. Many employers attempt to claim just cause to avoid paying severance, but in most situations, the employee is entitled to notice or severance pay.
If your employer claims they have just cause to terminate you, seek legal advice immediately. A severance package lawyer can assess your case, challenge your employer’s claims, and help you recover the severance pay you are owed. Don’t accept a termination at face value. You can take control. We can help ensure you receive fair compensation.
Yes. In Ontario, severance pay is generally considered taxable income, and employers are required to deduct income tax when it is paid, whether as a lump sum or through salary continuance. While tax deductions are a normal part of any severance payment, they are separate from the question of whether the amount of severance being offered is fair. Many employees are presented with severance offers that meet basic payroll requirements but fall well below what they are legally entitled to under common law.
At Whitten & Lublin, we can help you figure out if an employer has minimized, understated, or oversimplified your severance. Before you accept anything, we can help you understand your real entitlement, and whether the employer’s offer respects the value of your work and years of service. That clarity puts the decision back in your hands, so you can move forward knowing you didn’t leave compensation on the table or accept less than you deserve.
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