What is severance pay in Ontario?
The term “severance” is often used in casual conversation to refer to any type of compensation given at the end of an employment relationship. It is frequently used interchangeably with the terms “termination pay” or “pay in lieu.” In law, however, severance pay is divided into three categories: statutory severance pay, severance pay as laid out in a contract, and common law severance pay.
Am I entitled to severance pay?
Generally, if you are an employee who has been “let go,” you are owed severance pay. Whether you worked as an hourly, salaried, part-time, or full-time employee is irrelevant to whether or not yet get severance pay. So, if you were wrongfully terminated or permanently laid off, your employer should be providing you with a severance package.
Generally, you would not be entitled to severance pay if you were terminated for cause or you quit your job. However, if you were effectively forced to resign due to a fundamental change in work conditions, pay, or as a result of bullying or discrimination, you may be able to claim severance, to learn more about such circumstances read more on Constructive Dismissal.
How much severance pay am I owed?
The amount of severance pay you are owed can vary dramatically depending on which of the three types of severance to which you are entitled. Read below to see what kind of severance package you may be owed.
1. Statutory Severance Pay
Do you have an employment contract? If so, does it have a termination clause that references the Employment Standards Act (ESA)? If you answered yes to both questions, you may be limited to statutory severance pay.
Under the Employment Standards Act, employees in Ontario are entitled minimum amounts of severance pay upon termination. The Act states that employees who have been let go are entitled to one week’s pay per year of service, to a maximum of eight weeks’ termination pay. If you worked at a company for over five years and your employer either had a payroll of over $2.5 million or terminated over 50 employees within a six month period, you may also be entitled to an additional week of pay per year of service, to a maximum of 26 weeks’ severance pay. For more details, read the Ontario Government guide on statutory severance pay.
However, the minimums set out in the Employment Standards Act are just that – minimums. Every employee who is terminated is entitled to at least the minimum severance pay outlined in the Employment Standards Act. Depending on your particular circumstances, you may be entitled to more than just statutory severance pay. An employment contract that is poorly drafted or that attempts to give you less compensation than the minimums outlined in the ESA is invalid. As a result, you may be entitled to much more generous termination pay under the common law. Keep reading to see if you might be eligible.
2. Contractual Severance Pay
Do you have an employment contract? Does it have a termination clause that references its own set of payouts rather than those laid out in the Employment Standards Act? Or, has your employer offered you a severance package that differs from what is offered in the Act? If so, you may be bound to severance pay as has been laid out in your employment contract.
In order for your employer’s alternate severance package to be legal, it must be better than the minimums provided for under the Employment Standards Act. An example of this might be providing you with two weeks’ pay per year of service rather than one. In that case, and if the clause did not otherwise violate the Act, you would be bound to the terms of the contract and would receive the severance package outlined in the termination clause.
Expert advice is required to determine whether the contract is compliant with the law because a lack of clarity regarding your entitlements could invalidate the contract. If the contract violates the Employment Standards Act, you may be entitled to common law severance pay, which is likely much more substantial.
3. Common Law Severance Pay
Have you not signed an employment contract? Did you sign an employment contract when you first started your job, say, ten years ago? Did you sign an employment contract with a termination clause that seems harsh or confusing? Does your termination clause state that your benefits end immediately upon termination or give you less than the Employment Standards Act minimums discussed above? Or, did your employer fire you and say they owed you nothing at all by way of termination pay? If so, you may be entitled to common law severance pay. This is a judge-made legal remedy as opposed to a statutory severance pay.
Common law severance pay is almost always the largest payout of the three types of severance pay, and many employees who have been let go are entitled to it. Unlike with the previous two types of severance, determining common law severance pay requires analyzing a variety of factors, including:
- Your age;
- Your salary;
- Your position;
- Your years of service;
- Your experience, training, and qualifications;
- The availability of similar employment;
- The economic situation at the time of termination; and
- Any other special circumstances impacting your ability to find comparable employment.
While there is no science or secret calculations to determine how much common law severance pay you are entitled to, it is usually far more money than what you would otherwise be owed under the Employment Standards Act or a contract drafted by your employer.
By way of example: under the Employment Standards Act, an older employee nearing retirement who worked for their employer for 15 years would be entitled to 8 weeks in termination pay, with the potential for an additional 15 weeks’ pay if their employer had a payroll of over $2.5 million or there was a mass termination. However, if that employee had not signed an employment contract, or if their contract’s termination clause violated the Act, they would be entitled to common law severance pay. Then, their severance package could be as much as 24 months of pay, depending on the circumstances.
My employer wants me to accept a severance package and release it by tomorrow. Do I sign?
Always take time to have an expert review your severance package, do not sign off in a hurry.
Often, an employer will offer a terminated employee a certain number of days to accept a certain severance package. The severance package may also be accompanied by a release. A release is a legal contract that, in essence, states: upon signing this document and in exchange for this severance package, you give up all your rights to later start a lawsuit against this company. Generally, if you sign a release, you will not be able to later go back to your employer and ask for more severance pay, even if you may have been entitled to more.
Given that many employees are entitled to more compensation than employers initially offer, ask your employer for an extension before accepting a severance package. This would allow you to think the offer over and consult an employment lawyer prior to signing, giving you time to either obtain a better severance package or have peace of mind after weighing your options.
What if I am unionized?
Your collective agreement likely stipulates that union members can only be terminated for just cause. Speak to your union representative to determine what exactly your collective agreement says about termination and severance packages.
So what do I do if I have been terminated?
If you have been terminated, it is important that you get what is fair and that you get what you are owed. Determining what kind of severance pay you are entitled to can be confusing, and many employees are owed far more than they are initially offered. Often, a second set of eyes and a knowledgeable, fearless advocate is needed to achieve a just severance package. So, if you have been terminated and are wondering whether you may be entitled to more severance pay that your employer gave you, contact us for a free 30 minute phone consultation.
Our employment lawyers at Monkhouse Law are experienced in matters of severance pay. If you believe you have been terminated and are seeking advice on the reasonableness of your severance package, it is crucial that you contact us as soon as possible.
Call us for a FREE 30 minute phone consultation at 416-907-9249 or submit a callback request
- Long Term Disability Ontario: Know Your Rights - January 19, 2021
- Continuity of Employment and Calculating Notice of Termination - January 12, 2021
- Contract Employees Ontario | What You Need To Know - December 22, 2020