If you have lost your job in Ontario, one of your first questions may be how much severance pay you are entitled to receive. The answer can depend on more than how long you worked for your employer.
The term “severance” is often used generally to describe money an employee receives when their employment ends. You may hear “severance pay,” “termination pay” and “severance package” used as though they mean the same thing. Under Ontario employment law, however, there are important differences between them.
Ontario’s Employment Standards Act, 2000 (ESA) provides minimum termination and severance entitlements for qualifying employees. Depending on the circumstances, an employee may also have rights under an employment contract or to common-law reasonable notice.
What is severance pay in Ontario?
Under Ontario’s Employment Standards Act, 2000, statutory severance pay is compensation that may be owed to certain employees when their employment is severed.
Not every employee who loses their job qualifies for statutory severance pay.
The word “severance” is also commonly used in a broader sense to describe the total compensation someone receives when their employment ends. For example, a severance package may include termination pay, statutory severance pay, benefits, bonuses, commissions or other compensation.
This broader use of the word “severance” is one reason employees can find the terminology confusing.
Is severance pay the same as termination pay?
No. Under Ontario’s ESA, termination pay and statutory severance pay are separate entitlements.
Termination pay may be owed when an employer ends an employee’s employment without providing the required amount of working notice. Statutory severance pay is an additional entitlement that applies only to employees who meet specific requirements.
An employee may therefore be entitled to termination pay, statutory severance pay or both. Ontario’s employment standards guidance confirms that the two obligations are separate.
Because Monkhouse Law has a separate page dedicated to this distinction, read Termination Pay vs. Severance Pay in Ontario: What Is the Difference? for a full comparison.
Who qualifies for statutory severance pay in Ontario?
Under the ESA, statutory severance pay applies only when certain eligibility requirements are met.
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.
For the $2.5 million payroll test, the employer’s payroll is not limited to employees working in Ontario. The Ontario government’s current guidance states that the employer’s global payroll is used when determining whether the $2.5 million threshold has been met.
This can be particularly important for employees who work for large national or multinational employers. An employer may have a relatively small workforce in Ontario but still meet the payroll requirement when its global payroll is considered.
There are additional rules and exceptions that can affect whether an employee qualifies. See the Ontario government’s guide to severance pay for the current statutory requirements.
An employee who does not qualify for statutory severance pay should not automatically assume that they have no entitlement when their employment ends. Termination pay, contractual entitlements and common-law reasonable notice are separate considerations.
For a more detailed discussion of eligibility, read Am I Entitled to Severance Pay in Ontario?
Who qualifies for statutory severance pay in Ontario?
Under section 64 of Ontario’s Employment Standards Act, 2000, statutory severance pay applies only when certain eligibility requirements are met.
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.
For the $2.5 million payroll test, the employer’s payroll is not limited to employees working in Ontario. The Ontario government’s guide to severance pay confirms that the employer’s global payroll is considered when determining whether the $2.5 million threshold has been met.
This can be particularly important for employees who work for large national or multinational employers. An employer may have a relatively small workforce in Ontario but still meet the payroll requirement when its global payroll is considered.
Employees who do not qualify for statutory severance pay should not automatically assume that they have no entitlement when their employment ends. Termination pay, contractual entitlements and common-law reasonable notice are separate considerations.
For a more detailed discussion of eligibility, read Am I Entitled to Severance Pay in Ontario?
How is statutory severance pay calculated in Ontario?
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, with completed months in a partial year also taken into account.
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.
Statutory severance pay under the ESA is capped at 26 weeks.
This calculation applies to statutory severance pay. It should not be treated as a formula for determining an employee’s full potential entitlement when their employment ends.
How does your employment contract affect what you may receive?
Your employment contract can have a significant effect on what you are entitled to receive following termination.
Many employment agreements contain a termination clause setting out what the employer will provide if the employee is terminated without cause. Depending on the wording, the clause may attempt to limit the employee’s entitlement to the minimum requirements of the ESA or provide another contractual entitlement.
However, the existence of a termination clause does not necessarily mean that it will legally limit the employee’s entitlement.
Whether a termination provision is enforceable can depend on its wording and the law that applies to the agreement. If a termination clause does not successfully limit the employee’s entitlement, common-law reasonable notice may potentially apply.
If you signed more than one employment agreement during your employment, those documents may also need to be considered.
For more information, read about employment contracts in Ontario.
What is common-law reasonable notice?
Some employees may be entitled to common-law reasonable notice, or pay in lieu of that notice, when their employment is terminated without cause.
Unlike statutory severance pay, common-law reasonable notice is not calculated using a simple formula based only on years of service.
Courts consider the employee’s individual circumstances. Factors may include:
- The employee’s age;
- Length of service;
- The nature and character of the employee’s position;
- The employee’s experience, training and qualifications; and
- The availability of comparable employment.
Other circumstances may also be relevant.
This is why two employees earning similar salaries and with the same number of years of service may not necessarily have the same potential entitlement.
For more information, read about common-law reasonable notice in Ontario.
Does one week per year of service determine your severance?
Not necessarily.
Employees sometimes hear that severance is simply “one week for every year worked.” That may cause confusion because Ontario’s ESA contains calculations based on years of service for statutory entitlements.
However, an employee’s overall rights following termination may extend beyond ESA minimums.
If common-law reasonable notice applies, there is no fixed one-week-per-year formula. The employee’s age, length of service, position, employment circumstances and prospects of finding comparable work may all be relevant.
For this reason, the number of years you worked for an employer should not necessarily be used by itself to determine whether a severance offer is reasonable.
How much severance could you receive?
How much compensation you may receive when your employment ends depends on the legal entitlements that apply to your situation.
Your employer’s initial offer may be based on ESA minimums, a termination provision in your employment contract or another proposed amount. That does not necessarily determine whether the package reflects all of your potential entitlements.
Compensation may also involve more than base salary. Depending on the circumstances, other components may include:
- Bonuses or incentive compensation;
- Commissions;
- Benefits;
- Equity or stock compensation;
- Pension or retirement contributions; and
- Other regular compensation.
If you would like an estimate based on factors such as your age, salary, position and years of service, try Monkhouse Law’s Ontario Severance Pay Calculator.
A calculator can provide an estimate, but it cannot determine your individual legal entitlement or whether a termination provision in your employment agreement is enforceable.
Can short-service employees still have termination entitlements?
Yes. Working for an employer for only a short period does not necessarily mean that there is nothing to consider following termination.
For statutory severance pay under the ESA, an employee generally needs at least five years of employment and must satisfy the other statutory eligibility requirements.
Common-law reasonable notice is different. Length of service is relevant, but it is not the only factor that may be considered.
An employee’s age, position, responsibilities and the availability of similar employment may also affect a reasonable notice assessment. Other circumstances can sometimes matter as well.
For this reason, a short-service employee should not automatically assume that their potential entitlement can be determined simply by multiplying their years of service by a fixed number of weeks.
What if you have already received a severance package?
If your employer has already given you a severance package, the next question is usually whether the offer is reasonable and whether you should sign it.
A severance package may include termination pay, statutory severance pay, salary continuation, benefits, bonuses, commissions or other compensation. You may also be asked to sign a release giving up certain legal claims in exchange for the offer.
That is a different stage from simply determining what statutory severance pay means.
If you currently have a package in front of you, read Received a Severance Package? What to Consider Before Signing.
What if your employer has given you a deadline to sign?
Employers often include a deadline for accepting a severance offer.
An employer’s deadline for accepting a particular offer is not necessarily the same thing as a legal deadline affecting all of an employee’s potential rights.
If you need additional time to understand the package or obtain legal advice, you can ask your employer for an extension.
Before signing, it is also important to understand the effect of any release included with the offer.
For more information, read Do You Have to Sign a Severance Agreement Right Away in Ontario?
What if you are unionized?
Unionized employees are generally governed by their collective agreement and the grievance and arbitration process.
If you are represented by a union and have questions about termination, layoff or severance, you should speak with your union representative about the rights and procedures contained in your collective agreement.
Should you have your severance package reviewed?
If you are unsure whether your employer’s offer reflects your potential legal entitlements, an employment lawyer can review your employment agreement, termination documents and severance package.
A review can help identify which statutory, contractual or common-law rights may apply and whether other components of your compensation should be considered.
Having a severance package reviewed does not necessarily mean starting a lawsuit or legal dispute. It can help you understand what your employer is offering and your options before deciding what to do next.
Learn more about Monkhouse Law’s Severance Package Review by an Ontario Employment Lawyer.
Questions about severance pay in Ontario?
If you have been terminated and are unsure how much severance you may be entitled to, Monkhouse Law’s employment lawyers can review your employment agreement, termination documents and severance offer and explain your potential entitlements.
Contact Monkhouse Law Employment Lawyers for a free 30-minute phone consultation.