If you have been terminated, one of the first questions you may have is: How much severance should I get?
There is no single amount or formula that applies to every employee in Ontario. Two employees with similar salaries and the same number of years of service can receive very different severance packages.
Your potential entitlement can depend on Ontario’s minimum employment standards, the terms of your employment contract and, in some circumstances, your entitlement to common-law reasonable notice.
This page focuses on the question employees usually mean when they ask how much severance they should receive: what factors determine the overall amount you may be entitled to following termination?
Is there a standard severance package in Ontario?
No. There is no single “standard” or “average” severance package that applies to every Ontario employee.
Employers sometimes offer an amount based primarily on length of service, such as a certain number of weeks for each year worked. While length of service can be important, it is not necessarily the only factor that determines an employee’s potential entitlement.
Ontario’s Employment Standards Act, 2000 establishes minimum termination and severance requirements. Depending on the employee’s circumstances and employment contract, common-law reasonable notice may also apply.
This is why comparing your offer with a friend or co-worker’s package may not tell you whether your own offer is reasonable.
What is common-law severance in Ontario?
The term “common-law severance” is often used to describe common-law reasonable notice or pay in lieu of reasonable notice.
Unlike statutory severance pay under Ontario’s Employment Standards Act, 2000, common-law reasonable notice is not determined by a simple formula based only on years of service.
Courts consider the circumstances of the individual employment relationship when determining an appropriate notice period.
The principles traditionally associated with reasonable notice come from cases such as Bardal v. Globe & Mail Ltd. and include factors such as the employee’s age, length of service, character of employment and the availability of comparable employment.
For a more detailed explanation, read Common-Law Reasonable Notice in Ontario.
What factors affect how much severance you may receive?
If common-law reasonable notice applies, several factors can affect the amount of notice or pay in lieu an employee may be entitled to receive.
These may include:
- Your age – age may affect how long it could reasonably take to find comparable employment;
- Your length of service – longer service is an important consideration, although it does not create a fixed formula;
- Your position and responsibilities – the nature of the employee’s role can affect the assessment;
- Your experience, training and qualifications;
- The availability of comparable employment – including the type of work available to someone with your background; and
- Other circumstances affecting your ability to find comparable work.
The weight given to each factor depends on the circumstances of the individual case.
Does one month per year of service determine severance?
No.
Employees sometimes hear that severance is calculated as “one month per year of service.” That can be a useful shorthand people use when discussing severance, but it is not a legal formula for determining common-law reasonable notice.
Length of service matters, but it is only one consideration.
For example, two employees who each worked for their employer for 10 years could potentially have different reasonable notice periods because of differences in age, position, experience and prospects of finding comparable work.
Similarly, a short-service employee should not automatically assume that they will receive only a few weeks of notice.
Can a short-service employee receive several months of severance?
Potentially, yes.
At common law, short service does not automatically mean a short notice period. Courts assess all of the relevant circumstances rather than simply multiplying years of service by a fixed number.
For example, an employee with relatively short service may still face difficulty finding comparable employment because of their position, age, experience or the nature of the available job market.
This is one reason an employee should be cautious about assuming that their severance entitlement can be calculated solely from their years of service.
Why can two employees receive different severance packages?
Employees often compare severance offers with co-workers, friends or former colleagues and wonder why the amounts are different.
There can be several reasons:
- Different employment contracts – one employee may have an enforceable termination clause while another does not;
- Different ages or lengths of service;
- Different positions or responsibilities;
- Different compensation structures involving bonuses, commissions, equity or benefits;
- Different prospects of finding comparable employment; and
- Different circumstances surrounding the termination.
For these reasons, another employee’s package is not necessarily a reliable benchmark for determining what you should receive.
How does your employment contract affect your severance?
Your employment contract can have a significant effect on the amount you may be entitled to receive following termination.
Many employment agreements contain a termination clause that attempts to define what the employee will receive if the employer terminates the employment relationship without cause.
An enforceable termination clause may limit an employee’s entitlement. However, the existence of a termination clause does not necessarily mean that the employee is automatically restricted to the amount stated in the agreement.
The wording of the clause and the law that applies to it may need to be reviewed before determining whether it limits common-law reasonable notice.
For more information, read about Employment Contracts in Ontario.
How do ESA minimums fit into your severance package?
Ontario’s Employment Standards Act, 2000 establishes minimum termination requirements and, for qualifying employees, statutory severance pay.
These minimum statutory entitlements are different from common-law reasonable notice.
Rather than repeating the full statutory rules here, see Severance Pay in Ontario: How Much Are You Entitled To? for a detailed explanation of ESA severance eligibility and calculation.
If you are specifically trying to understand the difference between statutory termination pay and statutory severance pay, read Termination Pay vs. Severance Pay in Ontario: What Is the Difference?.
What compensation can be included in a severance package?
Determining how much an employee may be entitled to receive can involve more than base salary.
Depending on the employee’s compensation and circumstances, a severance assessment may need to consider:
- Salary or wages;
- Bonuses or incentive compensation;
- Commissions;
- Benefits;
- Equity or stock compensation;
- Pension or retirement contributions; and
- Other forms of regular compensation.
The terms of any bonus, commission or equity plan may also be important when determining what compensation should continue during an applicable notice period.
What is a fair severance package?
There is no universal definition of a “fair” severance package.
An appropriate offer depends on the employee’s potential statutory, contractual and common-law entitlements and the particular circumstances of the termination.
An employer’s first offer may be reasonable. In other situations, there may be issues with the amount offered, the treatment of benefits or incentive compensation, the employment contract, or other terms in the package.
The question is therefore not whether your package matches an average number of weeks or months, but whether it reflects the legal entitlements that may apply to your employment relationship.
How can you estimate how much severance you may receive?
A severance calculator can provide a starting point for estimating a potential common-law notice period based on factors such as age, salary, position and length of service.
Try Monkhouse Law’s Ontario Severance Pay Calculator.
A calculator is only an estimate. It cannot determine whether a termination clause in your employment contract is enforceable, assess all components of your compensation or account for every circumstance that may affect reasonable notice.
What if you have already received a severance offer?
If you already have a severance package in front of you, the question becomes more specific: does the offer reflect what you may actually be entitled to receive?
Before signing, it can be helpful to review the amount offered, your employment contract, any release you have been asked to sign and the other components of your compensation.
For more information, read Received a Severance Package? What to Consider Before Signing.
If you would like an employment lawyer to review the offer, learn more about Monkhouse Law’s Severance Package Review by an Ontario Employment Lawyer.
How much severance should you get in Ontario?
There is no single number of weeks or months that every employee should receive.
Your potential severance entitlement may depend on your employment contract, age, length of service, position, compensation and prospects of finding comparable employment, as well as the statutory minimum entitlements that apply to you.
If you have been terminated and are unsure whether your severance offer reflects your potential legal entitlements, Monkhouse Law’s employment lawyers can review your employment agreement, termination documents and severance package and explain your options.
Contact Monkhouse Law Employment Lawyers for a free 30-minute phone consultation.