Severance pay — Ontario Employment Law

In Ontario employment law, the term 'severance pay' can be confusing because it has two distinct meanings. Understanding the difference is crucial for any worker who has been terminated. The first type is statutory severance pay, a specific entitlement defined under Ontario's Employment Standards Act, 2000 (ESA). This is a mandatory payment for long-serving employees of larger companies. To qualify, an employee must have worked for the employer for five or more years, and the employer must have a global payroll of at least $2.5 million. The ESA formula for severance is one week's regular pay for each year of service (plus a pro-rated amount for a partial year), up to a maximum of 26 weeks. It's important to note this is separate from and in addition to statutory termination pay.

The second, and often more significant, type of severance is what's known as common law severance. This isn't a separate payment but rather represents the money an employer owes an employee when they fail to provide sufficient 'reasonable notice' of termination. This common law entitlement applies to almost all terminated employees, regardless of the employer's payroll size or the employee's length of service (unless the employee was fired for just cause). The amount is based on what a court would consider a reasonable period for the employee to find comparable new employment. This calculation considers factors like age, length of service, the character of the employment, and the availability of similar jobs. This amount is almost always substantially more than the ESA minimums. An employment contract may attempt to limit this common law entitlement, but such clauses are often found to be unenforceable. Because the calculation of common law severance is complex and depends heavily on individual circumstances, having any severance offer reviewed by a legal professional is a critical step in protecting your rights.