If you were “let go” from your employment, you may be entitled to severance pay. In this article, we provide you with an overview of what you need to know about severance in Ontario. You will learn how “severance pay” differs from “termination pay”, what requirements you need to meet to qualify for severance, and how to calculate your entitlement.

It is important to note that not all employees fall within the protections of the Employment Standards Act. Some exceptions are federal employees, individuals employed through a college-approved work program, and people who hold political, judicial, religious or elected trade union positions. An employment lawyer can review the terms of your employment and advise whether or not the Act’s provisions apply to you.

Severance pay is not the same as termination pay

While “notice”, “termination pay”, and “severance pay” are often used interchangeably, they are distinct legal concepts:

Notice: If you are an employee in Ontario and have been working for your employer for at least 3 months, you must be given notice of termination before you are let go from your job. You are typically required to work during this notice period.

To determine how much notice you’re entitled to receive, check your employment contract. If your contract doesn’t indicate a notice period, you can refer to s. 57 of Ontario’s Employment Standards Act, which sets out minimum notice periods depending on your length of employment. The minimum amount of notice is 1 week for employees who have been working for less than a year.

Termination Pay: If you are terminated and your employer doesn’t require you to continue working during the notice period, your employer may instead choose to give you termination pay. Termination pay is paid in lieu of working notice.

For example, if you are entitled to 3 weeks working notice of termination, your employer may instead choose to provide you with 3 weeks of termination pay and you do not have to work during these 3 weeks.

Severance Pay: Unlike termination pay, severance compensates you for the losses associated with your termination (i.e. your loss of seniority or the time it takes you to find another job). Qualifying for severance pay is different from qualifying for termination pay—it requires you to meet specific criteria related to how you were terminated, how long you worked for your employer, and the size of your employer.

If you aren’t sure whether you are entitled to severance pay, start by checking the terms of your employment contract. If your contract doesn’t mention severance, you may still be entitled to it based on the minimum standards set out in the Employment Standards Act or under the common law.

To qualify for severance pay your employment must be “severed”

Your employment is “severed” if your employer:

  • Dismisses or stops employing you (even if this is due to your employer’s bankruptcy or insolvency);
  • Constructively dismissed (i.e. constructive dismissal) you and you choose to resign within a reasonable time;
  • Lays you off for 35 weeks or more in any period of 52 consecutive weeks;
  • Lays you off due to the permanent closure of all of the business at their establishment; or
  • Gives you notice of termination, you resign after providing 2 weeks’ written notice and your resignation takes effect within the statutory notice period.

Not everyone whose employment is “severed” is entitled to severance pay

To qualify for severance pay in Ontario in addition to having your employment “severed”, you must have been employed by your employer for five years or more; and,

  • The severance must be because your employer is permanently discontinuing part or all of their business and and you are one of 50 or more employees who have had their employment severed within a 6 month period due to this discontinuance; or
  • Your employer has a payroll of $2.5 million or more.

If you satisfy all of these criteria, then you are entitled to severance pay. It is possible that you qualify for severance pay plus notice or termination pay.

 If you qualify for severance, you are entitled to one week’s pay per year of employment

In Ontario, the Employment Standards Act establishes that the minimum amount of severance you are entitled to is one week’s pay per year of employment. Your employment contract may meet or exceed this amount—this is why it’s important to review your employment contract!

If your employment contact indicates that you are entitled to severance pay based on the formula set out in the Employment Standards Act, then you can use this formula to calculate your severance pay:

To calculate your severance entitlement: Multiply your regular wages by the sum of: the number of years of your employment plus the number of months of your employment divided by 12. Do not include partial months in this calculation.

Your maximum severance entitlement is equivalent to your regular wages for a work week for 26 weeks.

You may be entitled to more severance pay under the common law

It is important to understand that the Employment Standards Act and your employment contract are minimum standards for severance pay. You may be entitled to a larger severance package under the common law based on: the nature and length of your employment, your age, and the availability of similar employment opportunities. This is why it is helpful to consult a lawyer. Before signing a severance package, it is important that you are fully informed of your entitlement based on your unique situation. If you have been presented with a severance package, do not feel compelled to sign it under pressure. You have options and it’s important to understand them.

Contact Toronto labour and employment lawyers at Grosman Gale Fletcher Hopkins LLP for assistance with negotiating your severance package.

The experienced lawyers at Grossman Gale Fletcher Hopkins LLP in Toronto can advise employees and employers on their rights and obligations related to severance pay when negotiating severance packages. For more than 30 years our firm has been providing clients with strategic legal advice as they negotiate their severance pay. Contact us online or at 416.364.9599 to speak with one of the knowledgeable labour and employment lawyers on our team.