Severance pay is mandatory in Ontario when an employee meets the eligibility requirements under the Employment Standards Act, 2000 (ESA). However, not every employee who is terminated is entitled to statutory severance pay.
Generally, an employee must have at least five years of employment, and their employer must meet one of the ESA’s additional requirements relating to payroll or a qualifying permanent closure.
It is also important to distinguish statutory severance pay from termination pay. They are separate entitlements under Ontario employment law.
Does every employee have to receive severance pay in Ontario?
No. Not every employee who is terminated is entitled to statutory severance pay under the ESA.
An employee may qualify for termination notice or termination pay without also qualifying for statutory severance pay.
Statutory severance pay applies only when the requirements set out in Ontario’s guide to severance pay under the Employment Standards Act are met.
For a detailed explanation of the difference between the two entitlements, read Termination Pay vs. Severance Pay in Ontario: What Is the Difference?
Who qualifies for mandatory severance pay in Ontario?
An employee generally qualifies for statutory severance pay if their employment is severed, they have worked for the employer for five years or more, and:
- The employer has a global payroll of at least $2.5 million; or
- The employer severed the employment of 50 or more employees within a six-month period because all or part of the business permanently closed.
These requirements are set out under Ontario’s Employment Standards Act, 2000.
For the $2.5 million test, the employer’s payroll is not limited to employees working in Ontario. The Ontario government’s current guidance considers the employer’s global payroll.
This can be important for employees working for national or multinational employers that may have relatively few employees in Ontario but a much larger workforce elsewhere.
Is severance mandatory if you are fired without cause?
Not automatically.
An employee who is terminated without cause may have termination-related entitlements, but statutory severance pay is only mandatory if the employee also meets the ESA severance eligibility requirements.
This means an employee may be entitled to termination notice or termination pay without qualifying for statutory severance pay.
Employees may also have contractual or common-law rights beyond the ESA minimum requirements, depending on their circumstances.
For a broader explanation of potential entitlement, read Am I Entitled to Severance Pay in Ontario?
How much statutory severance pay is mandatory?
For an employee who qualifies, statutory severance pay is generally calculated using the employee’s regular wages for a regular work week and their completed years of employment, including completed months in a partial year.
For example, an eligible employee with five years and six completed months of employment would generally have 5.5 years used in the statutory severance calculation.
The maximum statutory severance pay under the ESA is 26 weeks.
For more information about the calculation, see the Ontario government’s severance pay guide.
Employees who want an estimate of their broader potential termination entitlements can also use Monkhouse Law’s Ontario Severance Pay Calculator.
Is severance pay mandatory if your employer has a small Ontario workforce?
It may be.
For the ESA’s $2.5 million payroll requirement, the employer’s payroll is not limited to wages paid to Ontario employees.
This means an employee working for a national or multinational company may still satisfy the payroll requirement even if the employer has only a small number of employees in Ontario.
The employer’s global payroll can therefore be important when determining whether statutory severance pay is mandatory.
For a fuller explanation of severance eligibility and the $2.5 million payroll requirement, read Severance Pay in Ontario: How Much Are You Entitled To?
When does mandatory severance pay have to be paid?
Under Ontario’s employment standards rules, statutory severance pay must generally be paid by the later of:
- Seven days after the employee’s employment is severed; or
- The employee’s next regular pay day.
The Ontario government’s severance pay guide provides the current payment requirements.
In some circumstances, an employee may agree in writing to receive statutory severance pay in instalments, subject to the ESA rules.
What if your employer says you are not entitled to severance pay?
If your employer says that statutory severance pay does not apply, the first question is whether you meet the ESA eligibility requirements.
This may require looking at:
- How long you worked for the employer;
- Whether your employment has been legally severed;
- The employer’s global payroll; and
- Whether the termination was part of a qualifying permanent closure involving 50 or more employees.
Even if you do not qualify for statutory severance pay, that does not necessarily mean you have no other rights following termination.
You may still have entitlement to termination pay, contractual compensation or common-law reasonable notice.
Are severance packages mandatory in Ontario?
A severance package and statutory severance pay are not necessarily the same thing.
Employers often use the term “severance package” to describe the overall compensation offered when employment ends. A package may include termination pay, statutory severance pay, benefits, bonuses, commissions or additional compensation offered in exchange for signing a release.
Whether statutory severance pay is mandatory depends on the ESA requirements. Whether an employee may be entitled to additional compensation beyond those minimums depends on the circumstances.
If you have already received an offer, read Received a Severance Package? What to Consider Before Signing.
Should you have your severance offer reviewed?
If you have been terminated and are unsure whether your employer is required to pay statutory severance or whether you may have additional entitlements, an employment lawyer can review your employment agreement, termination documents and severance offer.
Having an offer reviewed does not necessarily mean starting a lawsuit or legal dispute. It can help you understand what the employer is required to provide and whether there are other potential entitlements to consider.
Learn more about Monkhouse Law’s Severance Package Review by an Ontario Employment Lawyer.
Contact Monkhouse Law Employment Lawyers for a free 30-minute phone consultation.