Introduction

Losing a job can be overwhelming, but Ontario law provides protections to ensure employees receive fair compensation when their employment ends. Severance pay is a critical component of these protections, offering financial support during the transition to new work. This blog breaks down how severance pay is calculated under Ontario’s Employment Standards Act (ESA) and common law, empowering you to understand and assert your rights.

________________________________________

What Is Severance Pay?

Severance pay is compensation owed to eligible employees upon termination without cause. It is distinct from termination pay (compensation for lack of notice) and applies in specific circumstances under Ontario law. Severance pay recognizes an employee’s long-term contributions to an organization and helps bridge the gap between jobs.

________________________________________

Who Is Eligible for Severance Pay in Ontario?

Under the ESA, employees qualify for severance pay if all three of these conditions are met:

1. Tenure: The employee worked for the employer for at least 5 years;

2. Employer Size: The employer has a global payroll of $2.5 million or more or

3. Mass Termination: The employer terminated 50 or more employees within a 6-month period due to business closure.

Note: Independent contractors, temporary workers, and some federally regulated employees (e.g., banks, airlines) are excluded.

________________________________________

How Severance Pay Is Calculated Under the ESA

The ESA sets the minimum severance pay entitlement:

● 1 week of pay per year of service, up to a maximum of 26 weeks.

Example:

● An employee with 10 years of service: 10 weeks × weekly pay.

● An employee with 30 years of service: 26 weeks (capped) × weekly pay.

Weekly Pay Calculation:

● Based on the employee’s regular wages for a standard workweek (excluding overtime or bonuses).

________________________________________

Common Law Severance Entitlements

Most employees are entitled to far more severance under common law than the ESA minimums. Courts consider factors such as:

● Age and job prospects;

● Length of service;

● Position and salary;

● Availability of similar employment.

Typical Range: 1–24 months of pay (or more in exceptional cases).

Example: A 55-year-old executive with 20 years of service might receive 18–24 months’ pay under common law.

________________________________________

Exceptions to Severance Pay

Severance pay is not required if:

1. The employee is terminated for cause (e.g., theft, fraud, willful misconduct);

2. The employee refuses comparable alternate employment offered by the employer;

3. The employee retires and is eligible for a pension.

Note: Proving “just cause” is difficult for employers, and most terminations are without cause.

________________________________________

Key Steps to Claim Your Severance Pay

1. Review Your Employment Contract:

○ Termination clauses must meet or exceed ESA standards. If a clause is invalid (e.g., violates the ESA), you may claim common law entitlements.

2. Calculate Your Entitlements:

○ ESA minimums are just the starting point. Consult a lawyer to assess common law rights.

3. Negotiate with Your Employer:

○ Many employers settle out of court to avoid costly litigation. A lawyer can draft a persuasive demand letter.

4. File a Claim if Necessary:

○ Ministry of Labour Complaint: For ESA violations (deadline: 2 years).

○ Lawsuit: For common law severance (deadline: 2 years from termination date).

________________________________________

Practical Tips for Employees

● Document Everything: Save termination letters, pay stubs, and employment contracts.

● Don’t Rush to Sign a Release: Employers often offer quick settlements that undervalue your entitlements. Have a lawyer review any agreement.

● Act Promptly: Missing the 2-year limitation period bars you from claiming severance.

________________________________________

FAQs About Severance Pay

Q: Are part-time employees eligible for severance?

A: Yes, if they meet the ESA eligibility criteria.

Q: Can I get severance pay if I quit?

A: Generally no, unless you were constructively dismissed (e.g., forced to resign due to employer misconduct).

Q: Is severance pay taxable?

A: Yes, it is considered income and taxed accordingly.

________________________________________

Conclusion

Severance pay in Ontario is not a one-size-fits-all calculation. While the ESA provides a safety net, common law often grants significantly higher compensation. Understanding your rights and seeking legal advice early can mean the difference between a minimal payout and a settlement that truly reflects your contributions.

If you’ve been terminated, consult an employment lawyer to ensure you receive what you’re owed.

‍

Free Consultation with London Employment Lawyers

Ontario’s laws provide critical protections for employees during mass layoffs, ensuring they receive fair notice, severance pay, and support. If you’re affected by a group termination, understanding your rights and seeking professional advice can help you navigate this challenging time and secure the compensation you deserve. Please do not hesitate to contact our experienced London employment lawyers for a free legal consultation. Randy Ai Law Office can be contacted at (548) 489-2006 or fill out the contact form.

‍