What is statutory severance pay?
In Ontario, severance pay is a statutory payment that is made by the employer to the employee upon termination of an employee in ADDITION to notice of termination. It is only required in Ontario and federal jurisdictions. The purpose of severance pay is to compensate the employee for his or her longer service with a business or employer.
Who is eligible for statutory severance pay?
Employees are eligible for severance pay when an employer dismisses an employee, in cases of constructive dismissal, or when there has been a layoff for 35 or more weeks.
Who is entitled to statutory severance pay?
When an employee has been employed for 5+ years and also meets at least 1 of the following:
- An employer severs a relationship of 50 or more employees within a 6 month period.
- If the payroll of the business to employees is $2.5 million or more.
When is an employee not entitled to statutory severance pay?
- The contract of the employment has been frustrated due to discontinuance of the employer’s business because of an unforeseen event or the employer has died or the employee has died.
- The employee is guilty of wilful misconduct or wilful neglect of duty.
- The employee is a construction service employee. E.g- construction worker.
- An employee who is terminated after refusing an alternative position with the employer.
Mattiassi v Hathro Management Partnership – Severance in Addition to Working Notice under the ESA
This case is about a plaintiff that worked for the defendant for 26 years. She was dismissed without cause and received 54 weeks working notice. The plaintiff’s claim was for the balance of severance pay for 26 weeks. The defendant in the case was Thomson Rogers LLP and Hathro Management which provided administrative services to Thomson Rogers LLP. The plaintiff, Shirley Mattiassi, was employed by Hathro Management and therefore was entitled to severance pay under the Employment Standards Act 2000 for 26 weeks. The judge decided that both Hathro Management and Thomson Rogers LLP should be held liable. The plaintiff was owed BOTH severance pay and working notice payment.
According to section 65(7) of the Employment Standards Act 2000, severance pay is cumulative and should be paid IN ADDITION to other payments under working notice payments. This is elaborated upon in the case of Wyllie v Larche Communications Inc. 2015 ONSC 4747, 2015 CarswellOnt 11291 at para 40 where Mr. Wyllie was entitled to two weeks wages in lieu of reasonable notice in addition to five days of severance pay.
It is important to note that working notice and severance pay are distinct standards that cannot be combined or set-off against each other.
Can an employer contract out of minimum employment standards such as severance pay?
No. Section 5(1) of the Employment Standards Act 2000, states that an employer cannot contract out or waive minimum employment standards. An employer has to comply with both working notice and severance pay minimum standards.
Does mitigation conditions apply to severance pay?
No. Mitigation does not apply to severance pay. An employer cannot deduct income earned by an employee for severance pay obligations.
What is the maximum severance pay that an employee can receive?
Severance pay shall not exceed the amount equal to an employee’s regular wages for the duration of 26 weeks.
Can severance pay be paid in installments?
Yes. Severance pay can be paid in installments not exceeding 3 years if the employee agrees to this.
Statutory severance pay paid lowers common law wrongful dismissal damages
In Stevens v the Globe and Mail, 1996 CanLII 10215 (ON CA), there was an appeal by the Globe and Mail regarding a judgment where the trial judge refused to deduct severance pay from the damages awarded for wrongful dismissal. Stevens was the editor of the Globe and Mail when the Globe and Mail terminated his employment without cause. He sued the newspaper for wrongful dismissal. He was awarded $138 902 in the case for wrongful dismissal.
The justices at the Court of Appeal noted that severance pay is in ADDITION to reasonable notice pay and other payments under the Employment Standards Act. Severance pay is payable to employees without deductions except for:
- Supplementary unemployment benefits received by the employee
- Payments to the employee under the severance pay scheme.
Severance pay is not to be set-off or deducted from any other payments under the Employment Standards Act or contracted out of in an employment contract.
However, at the Court of Appeal, the justices decided that severance pay can be deducted from damages received for wrongful dismissal such as in the case at hand.
If you have further questions about severance pay or your termination package you should reach out to Monkhouse Law to speak to an employment lawyer.