Is Severance Pay Mandatory In Ontario?

When a non-unionized employee is terminated without cause in Ontario, they are entitled to termination pay and sometimes, severance pay. “Severance pay” and “termination pay or notice pay” are often used interchangeably, but they are actually distinct legal concepts. Every employee that is dismissed without cause is entitled to termination pay, but only some employees are entitled to severance pay. If your employment meets the criteria described below, your employer must pay you severance pay in addition to termination pay.

Who is entitled and eligible for severance pay in Ontario?

The following are eligible for severance pay in Ontario:

  • An employee who has been dismissed by an employer,
  • an employee who is the subject of termination or mass termination,
  • an employee who has been the subject of a lay-off or the discontinuance of a business.

Additionally, the employee must have been employed for five years or more and either:

  1. 50 or more employees were laid off;
  2. The employer has a payroll of $2.5 million or more.

It is important to know that employers cannot contract out of Ontario’s Employment Standards Act 2000, and severance pay cannot be provided in lieu of notice pay.

How much severance pay should I get in Ontario?

An employee is entitled to one week’s pay per year of service, in addition to termination pay.

Multiply the employee’s regular wages by the sum of the following:

The number of years of employment plus the number of months of employment completed divided by 12. Partial months are not included.

Maximum: The maximum severance pay entitlement is the employee’s regular wages for a work week for a period of 26 weeks.

These are the amounts stipulated in the Employment Standards Act, and an employee cannot receive less than this. However, you may be entitled to more severance pay under the terms of your employment contract. If you have not signed an employment contract, or your termination clause is invalid, you may be entitled to common law severance pay.

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 potentially owed go to: Severance Pay Calculator Ontario

What is the purpose of severance pay?

Severance pay is meant to compensate the employee for the employee’s service. This type of compensation is targeted at longer serving employees, whereas termination pay is meant to assist all employees, regardless of the length of their service.

When should the severance package be paid?

Severance should be paid out to an employee seven days after the employee’s employment is terminated or on the next regular pay date. All benefits must also be continued.

Should I accept the severance package that was offered to me?

It is important to realize that the Employment Standards Act 2000, and your employment contract are minimum standards for severance pay. An employee may be entitled to a larger severance package under the common law; therefore, it is worthwhile to consult with an employment lawyer about your severance package. Employees should not feel pressured to accept a severance package within strict time limits set by their employer. Consult with a lawyer at Monkhouse Law prior to signing a release or accepting a severance package from your employer.

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