Most people have heard the term “severance pay” or “severance package,” however, not many know the legal definition, when they are entitled to severance pay, what/how much they are entitled to for severance pay and what to do if an employer does not provide them the severance they are entitled to.
If you’ve been terminated from your employment or are negotiating the termination of your employment contract, book a free consultation with a leading disability and employment lawyer in Ontario to discuss the specifics of your case. Many employers and employees are unaware that severance pay isn’t necessarily a mathematical calculation based solely on months or years of service and that the employee may be entitled to much more than they are offered.
Disclaimer: The information in this guide and everywhere else on this website is for general information only and is not intended to provide legal advice of any kind. No lawyer-client relationship is created by accessing or otherwise using Ertl Lawyers’ website or by communicating with a lawyer or staff member. If you need legal advice, contact one of the top employment lawyers in Toronto at Ertl Lawyers. We’re more than happy to speak with you.
Who is Entitled to Termination and Severance Pay?
The laws in this post are specific to non-federally regulated, non-unionized workplaces. Federally-regulated employees are subject to the rules in the Canada Labour Code. And employees working in a unionized environment have their rights around termination and severance pay stipulated in their collective agreements. If you are part of a union, your Union Steward or Union Rep should be able to explain your rights to you.
Similarly, workers in Ontario who have signed an employment contract that clearly spells out the employee’s rights and entitlements regarding termination and severance pay are generally bound by that clause in the employment contract unless that clause violates the Employment Standards Act (ESA). More on this later.
If you have been terminated without cause, even if you have been laid off,, you are likely entitled to severance pay in Ontario.
What is Severance Pay in Ontario?
Severance pay is a catch-all phrase that commonly refers to what is more correctly known as a severance package. When an employee is terminated without cause, they are entitled, at a minimum, to termination pay – if they have not been given proper notice of termination.
Contrary to how it sounds, termination without cause does not mean that an employer must have a good reason to fire an employee. In fact, an employer can terminate an employee for any reason or without any reason at all, as long as the termination is not based on a prohibited ground in the Ontario Human Rights Code. (By contrast, a termination with cause or a “for-cause termination” is only allowed in extreme situations such as theft or fraud.)
To protect workers in Ontario from being ambushed by unilateral terminations, however, the Employment Standards Act requires that an employer provide an employee with notice of their intention to terminate the employment – or pay in lieu of that notice. This is termination pay.
Reasonable Notice of Termination and Termination Pay
The ESA sets out the minimum amount of notice an employee is entitled to if they are terminated without cause. Currently, an employee who has been with an employer for at least three months is entitled to notice of one week if they have been with their current employer for less than a year or:
- Two weeks for 1 to 3 years of service
- Three weeks for 3 to 4 years
- Four weeks for 4 to 5 years
- Five weeks for 5 to 6 years
- Six weeks for 6 to 7 years
- Seven weeks for 7 to 8 years
- Eight weeks for 8 years or more.
So, in other words, if an employer wishes to terminate an employee, they must provide them with the above notice periods at a minimum. They can continue to have the employee work during the notice period or terminate the employment immediately and pay them what they would have earned during the notice period, inclusive of pay, benefits, contributions, vacation pay, bonuses, commissions etc.
Bear in mind that these are the minimum notice periods allowed by law and are only applicable if an employment contract explicitly states that upon termination that the employee is only entitled to the notice period provided by the ESA.
However, if you did not sign an employment contract, or the contract does not cover notice of termination, or the clause covering the notice period is unenforceable, you may be entitled to more than the minimum notice period and/or termination pay.
Notice Period Entitlements for Employees Without an Employment Contract or Valid Termination Clause
For employees who do not have an employment contract or whose contract contains an unenforceable notice period/termination clause, the minimum notice periods prescribed by the ESA do not apply. Instead, the reasonable notice period the employee is entitled to may be calculated using the principles set out in common law – rulings made by judges in similar cases.
These rulings do not use a set-in-stone equation to determine how much notice would be reasonable in the circumstances. Instead, a judge or lawyers negotiating a settlement consider how long it would take the employee to find similar work.
Several factors are considered in a common law notice period, including:
- Age of the employee
- Length of service
- Availability of similar jobs
- The economic climate
- If the employee was in a ‘specialist’ role
Common law notice periods are usually much more generous than statutory notice periods (ones outlined in the ESA) and often those contained in employment contracts as well.
Many employment lawyers will scrutinize the employment contract to ensure that what’s provided in the contract is at least comparable to common law and that the section covering notice of termination would hold up in court. Otherwise, they may decide you could be entitled to a longer notice period and termination pay. Even if you signed an employment contract covering notice of termination, you should have an employment lawyer look it over.
All of that being said, termination pay is the minimum an employee is owed if they are terminated without cause. If you’ve been with your current employer for at least five years or your employment contract provides for it, you may also be entitled to severance pay.
The Legal Entitlement to Severance Pay in Ontario
So far, we have only spoken about termination pay. Employees may also be entitled to severance pay on top of their termination pay, providing them with a severance package.
The ESA stipulates that if an employee has worked for the employer for at least five years and their employer either:
- Dismissed or stopped employing the employee (even if due to bankruptcy)
- Constructively dismissed the employee, who then resigned within a reasonable time
- Lays off the employee for 35 weeks or more in any period of 52 consecutive weeks
- Lays off the employee because the entire business is closing permanently at their establishment, or
- Gives the employee notice of termination, but the employee gives two weeks’ notice and resigns before the notice period ends.
- Has a global payroll of at least $2.5 million; or
- Has severed the employment of (laid off) 50 or more employees in a six-month period because all or part of the business permanently closed.
Then the employer must also give the employee severance pay in addition to termination pay/notice. The ESA’s minimum entitles an employee to one week’s pay for every year worked to a maximum of 26 weeks.
Navigating employment contracts and laws can get complicated. Check out our severance pay calculator in Ontario for a ballpark figure of the amount of severance you could be entitled to under the common law. It is best, however, to speak directly with an employment lawyer when you want a more accurate idea of what you could be entitled to in a severance package in Ontario.
Always Speak to a Lawyer if You’re Offered a Severance Package or None at All
Despite what an employer may tell you, if they’ve offered you a severance package you do not have to accept it right away and should consult an employment lawyer before you sign anything.
As you’ve seen from the information above, it takes a professional who specializes in employment law to decipher what you are entitled to for severance, and employers generally try to save as much money as they can. You need an expert on your side to advise you of your rights.
The same is also true if you were terminated and not given any notice or severance because your employer claims that they were terminating you for cause or if you quit because your employer unilaterally and substantially changed the terms of your employment contract without notifying you first.
Regarding the first scenario, employers who terminate an employee for cause often are not justified in doing so. The law is clear that because the effects of a termination for cause are so severe, it is only appropriate in extreme circumstances. If you were terminated for cause within the last two years, speak to an employment lawyer immediately, as you may be entitled to severance pay.
The second scenario may be considered a constructive dismissal. In a nutshell, various court cases define constructive dismissal as an employer essentially breaking the terms of the employment contract, which forces the employee to leave and seek out other employment.
A word of warning however, if you feel you’ve been constructively dismissed, you should not leave your employment before consulting an employment lawyer, as the laws around constructive dismissal are also complicated. There are also steps you should take to ensure you have a strong case before you leave.
If you do have a legitimate claim for constructive dismissal, you would then be entitled to the severance package you did not receive when you left your employment.