Aside from finding a new job, severance pay is usually an employee’s main concern when fired. If you compare notes with other workers or look at calculators online, you may notice that for the same amount of time working, some people receive weeks of severance pay while others receive months. This article aims to resolve some confusion around how much severance pay an employee should receive in Ontario.
What is Severance Pay?
Severance pay is often used as a catch-all term for the pay received when an employee is terminated. In reality, severance pay is a specific legal entitlement. It does not reduce the confusion that employees face that severance pay can mean different things in Ontario for a terminated worker:
- Severance pay as stipulated under the Employment Standards Act
- Common Law severance
- Severance pay provided for in an employment contract
These three types of severance pay are related, but employees can receive vastly different amounts for each. Read on to learn more about each type.
What Severance Pay am I entitled to under the Employment Standards Act?
To get severance pay under the Employment Standards Act, you need to meet several criteria:
- You have been dismissed, constructively dismissed, laid off for too long, or your employer discontinues business where you work,
- You have worked for your employer for at least five years, and
- Your employer has discontinued all or part of their business at the establishment where you work, and you are one of 50 or more employees who have also had their employment ended in a six-month period or your employer has a payroll of $2.5 million or more.
If an employee is eligible for severance pay under the Employment Standards Act and does not fall under any exemptions, their employer cannot pay less than what the Act requires. The amount is calculated by multiplying a one week of regular wages by the number of years and fraction of a year that you have worked for your employer.
Severance Pay Calculator Ontario
In order to assess an employee’s severance entitlements (i.e. continuation of the employee’s remuneration) in a “without cause” dismissal (i.e., when dismissed without having committed any misconduct or wrongdoing), there are a number of factors to bear in mind for Ontario workers. First, the Employment Standards Act, 2000 (“ESA”) stipulates that after three (3) months of service, a recently terminated employee is entitled to one (1) week of notice of dismissal or termination pay per year of completed service, to a maximum of eight (8) weeks. Second, if the employer has a payroll of at least $2.5 million (typically seen when 50+ workers are employed) and the employee has completed at least five (5) years of service, they are entitled to an additional one (1) week of statutory severance pay per year of completed service, to a maximum of twenty-six (26) weeks.
Further, through our precedent-based common law legal system, judges have routinely ruled that an employee’s minimum entitlements set out under the ESA is insufficient income protection to keep the employee “whole” while they are seeking new employment. Accordingly, barring a restrictive employment contract which stipulates otherwise, judges have the discretion to enhance an employee’s severance above their minimum statutory entitlements under the ESA, based upon factors such as (but not limited to) an employee’s age, length of service, and type of position.
Depending upon these factors, in some cases employees may be entitled to several months of additional severance, to upwards of twenty-four (24) months of severance (inclusive of their minimum entitlements set out under the ESA). This enhanced severance package is also known as common law reasonable notice of dismissal.
To get an idea of Severance Pay you may be owed go to Severance Pay Calculator Ontario
I worked for less than five years, why did my employer say that he gave me severance pay?
You may also be entitled to termination pay in addition to severance pay. When an employer pays any combination of termination pay, severance pay, and remaining vacation pay at the end of the employment, they might call that “severance pay”. This leads to confusion for workers attempting to navigate the Employment Standards Act alone.
Separately from severance pay, the Employment Standards Act sets out that every worker who has worked more than three months continuously must receive at least one week of notice that they will be terminated. For longer employment, workers are owed one week per full year of service, up to eight weeks. This entitlement is termination pay, but in common parlance it may be referred to as severance pay. These are statutory minimums, and depending on the situation, employees may be entitled to more.
Conversely, if an employee worked for more than five years, they could be entitled to both severance pay and termination pay under the Employment Standards Act.
What is Common Law Severance Pay?
Severance pay and termination pay under the Employment Standards Act are intended to provide employees with minimum payments on termination. However, in Ontario, employees may be entitled to common law severance pay depending on their circumstances. Common law is judge-made law that has been created incrementally through court decisions and is in continuous development.
Generally, unless the employment contract clearly and legally outlines that the employee will only be entitled to minimum employment standards, they may be entitled to the higher common law severance pay. To determine whether you are entitled to more, you should consult a legal professional to review your circumstances.
How much is Common Law Severance Pay?
Workers are entitled to roughly one month of working notice for each year of service, generally up to 24 months. Generally, workers with lower seniority may find it more difficult to find alternative employment and may be entitled to more than the ballpark of 1 month per year of service. For example, recently, in a case concerning the termination of an employee with 4.5 months seniority, Monkhouse Law obtained 5 months of severance for the employee plus money for benefits lost, given the special circumstances of the case.
In determining the common law notice entitlement, the following factors will generally be considered:
- Salary and position
- Length of service
- Experience, training, education, and other qualifications
- Availability of and access to similar jobs
- Any other special circumstances that would impact the ability to find comparable employment, such as economic downturn or lack of university education
- Whether the person has tried and succeeded to find another job
- If the person was induced or solicited away from stable employment to take the job
- If long term, stable employment was promised
- If the contract of employment or termination agreement would make it harder to find another job, for instance if it includes non-compete or non-solicitation clauses
An employment lawyer will look at previous cases of similarly situated to estimate what you may be entitled to. If finding a new job will be very easy, you may be entitled to less than a month per year of employment. Conversely, in very special circumstances, courts will award even above 24 months of pay or special damages for an employer’s misconduct. An employment lawyer can go through each of these factors with you to put your best foot forward in severance pay negotiations.
What if my Contract says my Severance Pay is only the Employment Standards Act Minimum?
An employment contract may state that the employee is entitled only to the minimum amount set out in the Employment Standards Act. Alternatively, a contract may provide for less than the common law amount but more than the Employment Standards Act minimums. While it is possible to make such agreements, that is not the end of the story as such a termination clause may not be enforceable.
Termination clauses may be found invalid if they provide anything less than the Employment Standards Act minimums, do not include other benefits, are unclear, or are otherwise unfair. Monkhouse Law has successfully represented employees in such situations. An employment lawyer can review your contract to assess the enforceability of the provision by comparing it to how courts treated similarly worded clauses in the past.
What if I’m not entitled to Severance Pay because I was terminated for Cause?
While it is true that a “for cause” or “with cause” termination means that a person is not entitled to severance pay or termination pay, termination for cause is a very high standard to meet, reserved for only the worst workplace behaviour. For less serious offenses or poor performance, progressive discipline and repeated warnings are often required. For more serious behaviour, a single instance may be enough, but suspicions or accusations alone are not.
These are only some of the reasons why you should speak to an employment lawyer if you’ve been offered a severance package. Even if your severance package seems generous, you may still be entitled to more.
Employment Lawyers at Monkhouse Law specialize in Employment Law, Human Rights Law, and Disability Insurance Law. We serve employees, independent contractors, and employers, and strive to get optimal results for every client through skilled advocacy and research on each matter. We have successfully represented clients before all levels of court in Ontario, including the Superior Court, the Divisional Appeals Court, and the Court of Appeal and have also appeared before the Supreme Court of Canada.
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