Under the Employment Standards Act (ESA), there are three key minimum entitlements an employee is entitled to in the event of termination without cause: 1) notice of termination or pay in lieu thereof, 2) benefit continuation and 3) severance pay. Those entitlements compose your severance package.
a) What is notice of termination or pay in lieu thereof?
In Canadian law, when employees are terminated without just cause, employees are entitled to be provided with prior notice of their termination.
If prior notice is not provided, an employer’s obligation is to provide pay in lieu of notice instead. That is, pay the employee their wages following their termination as if they were provided with advance notice. This is called termination pay and it is fundamentally different than severance pay.
It is to be noted that this is subject to the terms of the employment contract and any applicable collective agreements. For more details check our article: Confusion Over Severance? You Might Be Owed More Than You Think.
b) What is severance pay and how is it different from termination pay?
Severance pay is above and beyond termination pay and is only available to some employees upon termination without cause and would be in addition to termination pay or pay in lieu of notice as described above. Severance pay minimums are also defined by the ESA and are subject to the terms of the employment contract and any applicable collective agreements.
c) Am I entitled to severance pay if my employer terminates my employment during the COVID-19 epidemic?
If the termination was without cause, and generally for non-unionized employees, then you probably are entitled to severance pay if the other conditions below are met.
Under the ESA severance pay is only available to those who:
- have worked for the employer for five years or more; and
- the employer has
- a payroll in Ontario of at least $2.5 million; OR
- severed the employment of 50 or more employees within a six month period because the business is permanently closing or part of the business is completely closing.
d) How is the termination pay (pay in lieu of notice) calculated?
The ESA minimums for termination pay are based on years of service and are capped at a maximum of 8 weeks total. This means if you have worked at a company for 2 years you will receive 2 weeks of notice or pay in lieu, 3 years will mean 3 weeks of notice and so on. However, if you have more than 8 years of service you will be capped at 8 weeks of notice or pay in lieu.
e) How is the severance pay calculated?
Severance pay is also calculated based on service but is calculated using the total years of completed employment and the number of complete months in a year that is not completed. This means if you have 5 years and 6 months of service you would receive 5.5 weeks of severance pay. In addition to providing compensation for partial years of service, severance pay has much higher maximums. Instead of capping at 8 weeks, severance pay is paid to a maximum of 26 weeks.
For examples of how to calculate severance pay, click here.
f) Are severance pay and termination pay received cumulatively?
Severance pay is received in addition to termination pay. For example, a 26-year employee will receive the maximum termination pay of 8 weeks plus, if eligible, the maximum severance pay of 26 weeks for a total of 34 weeks of pay. It is to be noted that these calculations are based on the minimum right that is imposed by ESA. Those may be subject to change under the terms of the employment contract or the common law.
For more details on termination pay and severance pay please refer to our article.
g) Will I be entitled to severance pay if my employer closes business?
Yes, under ESA, a person’s employment is “severed” when their employer lays the employee off because all of the business at an establishment closes permanently. That is of course if the conditions for severance pay stated above are met.
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