Many employees assume that working for a small business means they have fewer legal protections. In Ontario, that is not true. Employment laws apply to businesses of all sizes, and employees working for small employers may still be entitled to termination notice, termination pay, and substantial severance compensation.
If you have been dismissed from a small company, it is important to understand that your employer cannot simply terminate your employment without legal obligations. In many cases, employees at small businesses are entitled to compensation that is much greater than the minimum standards set out in the Employment Standards Act, 2000 (“ESA”).
This guide explains how termination of employment works at small businesses in Ontario and what your rights may be.
Can a Small Business Terminate an Employee in Ontario?
Yes. Small businesses in Ontario can terminate employees, but they must follow employment law requirements.
When a small business terminates an employee without cause, the employee is usually entitled to termination notice or termination pay. In many cases, employees may also be entitled to additional compensation under the common law, often referred to as common law severance.
The size of a company does not eliminate its legal obligations. Employees working for small businesses still have the same basic rights under Ontario employment law as employees at larger companies.
Do Small Businesses Have to Follow Employment Law?
Yes. Small businesses must follow Ontario employment law just like larger companies.
The ESA applies to most employees in Ontario regardless of the size of the employer. This means that small businesses must still comply with legal requirements related to:
- Termination notice or termination pay
- Severance pay in certain circumstances
- Vacation pay and public holiday pay
- Minimum wage and overtime rules
- Human rights protections
The ESA is enforced by employment standards officers who can investigate complaints and require employers to pay wages or compensation owed to employees (Ontario Ministry of Labour – ESA Small Business Guide).
Some employment standards depend on factors such as the employer’s payroll size or the employee’s length of service. However, the basic legal protections apply whether an employee works for a large corporation or a small privately owned business.
Employees are also protected from reprisals for asserting their rights under the ESA. An employer cannot penalize, discipline, or terminate an employee for asking about their employment standards rights or attempting to enforce them (Ontario Ministry of Labour – Small Business Guide).
Importantly, employees may also be entitled to common law severance, which is often significantly higher than the minimum amounts required under the ESA.
Termination Notice for Employees at Small Businesses
When an employer terminates an employee without cause, the employee is generally entitled to advance notice of termination or termination pay in lieu of notice. These rules apply even in cases involving termination of employment at a small business.
Under the ESA, the minimum notice period depends on the employee’s length of service (Employment Standards Act, 2000, s.54–61):
- Less than 1 year of service – 1 week of notice
- 1 to 3 years – 2 weeks of notice
- 3 to 4 years – 3 weeks of notice
- 4 to 5 years – 4 weeks of notice
- 5 to 6 years – 5 weeks of notice
- 6 to 7 years – 6 weeks of notice
- 7 to 8 years – 7 weeks of notice
- 8 years or more – 8 weeks of notice
However, these are only the minimum statutory standards. In many cases, employees are entitled to substantially more compensation under the common law. Courts often award months of severance depending on factors such as:
- Age of the employee
- Length of service
- Position and responsibilities
- Availability of comparable employment
For example, a long-term employee dismissed from a small business may be entitled to many months of severance, even if the ESA minimum would only require a few weeks of notice. You can also review our guide to termination pay in Ontario to better understand the difference between minimum standards and broader legal entitlements.
Severance Pay for Small Business Employees
In addition to termination notice, some employees may also qualify for statutory severance pay under the ESA.
To qualify for statutory severance pay in Ontario:
- The employee must have worked for the employer for at least five years; and
- The employer must have a payroll of at least $2.5 million, or the termination must occur as part of a mass termination.
These rules are set out in the ESA (s.64–65).
Many small businesses do not meet the $2.5 million payroll threshold, which means statutory severance may not apply. However, this does not eliminate an employee’s right to common law severance.
Employees often assume that small employers cannot afford severance. In many cases, however, courts still award months of compensation when employees are dismissed from small businesses.
Wondering what you may be owed? Use our Ontario severance pay calculator for a general estimate of what your claim may be worth.
What Happens If a Small Business Closes?
If a small business closes or shuts down operations, employees still have legal rights.
When a business permanently closes, employees are typically entitled to:
- Termination notice or termination pay
- Outstanding wages and vacation pay
- Potential severance compensation
The closure of a business does not automatically remove an employer’s obligations. In many cases, employees may still be able to pursue compensation for wrongful dismissal.
If the business becomes insolvent or enters bankruptcy proceedings, employees may also be able to access compensation through the federal government’s Wage Earner Protection Program.
Can Small Businesses Avoid Paying Severance?
Employers sometimes believe that being a small business allows them to avoid paying severance. In most cases, this is incorrect.
Small employers cannot simply terminate employees without legal consequences. Even when ESA minimums are met, the employee may still have a claim for wrongful dismissal if the compensation provided was inadequate under the common law.
If you were let go after a temporary layoff or restructuring, you may also want to review our page on layoffs in Ontario.
Frequently Asked Questions About Small Business Termination
Do small businesses have to pay severance in Ontario?
Yes. Employees may be entitled to termination notice, termination pay, or severance even if the employer is a small business. Statutory severance may apply where the employer has a payroll of at least $2.5 million and the employee has at least five years of service.
Can a small business lay off employees?
Yes. Small businesses may impose temporary layoffs in certain circumstances. However, if the layoff exceeds the permitted duration under Ontario employment law, the employee may be considered terminated.
Do employees at small businesses have the same rights as those at large companies?
Yes. Most employment standards in Ontario apply regardless of the size of the employer. Employees working for small businesses are generally entitled to the same minimum protections relating to wages, vacation pay, termination notice, and other employment standards.
When to Speak With an Employment Lawyer
If you were dismissed from a small business in Ontario, it is important to understand the full extent of your rights before accepting a severance package.
Employers often offer only the minimum ESA amounts, even though employees may be entitled to much greater compensation. Speaking with an employment lawyer can help you determine whether the severance offered is fair.
If you have been terminated from a small business, you should consider speaking with an employment lawyer before signing any severance agreement.