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A Quick Guide to Severance Pay in Ontario

Losing your job can be a traumatic experience, and after you’ve been let go, you’ll need every dollar you can get to help ease some of the stress while searching for new employment.

This is why it’s crucial to know how much severance pay you’re entitled to and that you received full compensation after being terminated. While you can always use an online severance calculator, the best and most accurate way to know your rights is to speak with an employment lawyer to ensure that you receive the full financial support you’re legally entitled to when you need it most.

While the terms ‘severance pay’ and ‘severance package’ are used in everyday language, they have specific legal definitions in employment law.

What is Severance Pay in Ontario?

If an employee is terminated without cause, they are entitled to be notified by their employer of the employer’s intention to terminate the employment relationship. During this ‘notice period,’ the employee can continue to work and earn wages while they look for a new job.

Alternatively, an employer can pay the employee what they would have earned during the notice period and end the employment relationship immediately. This is called ‘termination pay ‘or ‘ pay in lieu of notice.’ 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 or the wages they would have earned in that time, at a minimum.

If that employee had been working for the employer for at least five years, and the employer:

  • 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.

And their employer:

  • 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 pay the employee severance pay of one week’s pay for every year worked to a maximum of 26 weeks, on top of their termination pay, providing them with what’s commonly referred to as a severance package.

Read more: What Do Family Law Solicitors Do

Who is Entitled to Termination and Severance Pay?

These laws are from the Employment Standards Act (ESA). They apply to non-federally regulated, non-unionized workers who signed an employment contract stating that upon termination, they are only entitled to the provisions in the ESA. The laws in the ESA regarding termination and severance pay represent the minimum allowed by law. An employment contract can not provide less than these minimums, but you could always be offered more.

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 it violates the ESA. To find out of the clause in your employment contract is valid, contact an employment lawyer.

There are some occupations that are governed by the ESA that have special rules regarding several employment issues, including rights regarding notice of termination, termination pay, and severance pay. Some of these professions include:

  • EMS, healthcare, and health professionals.
  • Manufacturing, construction, and mining.
  • Hospitality services and sales.
  • Transportation.
  • Agriculture, growing, breeding, keeping, and fishing.
  • Household, landscaping, and residential building services.
  • Government employees.

Visit this page for more information pertaining to these ESA exceptions.

Federally-regulated employees are subject to the rules in the Canada Labour Code, and employees working in a unionized environment have their rights regarding termination and severance pay spelled out in their collective agreements. If you are part of a union, you can consult the CBA, or your Union Steward or Union Rep should be able to explain your rights to you.

Keep in mind that the above notice periods and severance pay entitlements are only applicable if an employment contract explicitly states that upon termination 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 legally unenforceable, you may be entitled to more than the minimum notice period and/or severance pay.

If You Don’t Have an Enforceable Severance Clause or Any Contract at All

In court cases where there was no clear employment contract clause regarding notice of termination and severance pay, judges have been ruling for years that the minimum notice periods in the ESA do not provide a reasonable amount of time to allow a person to find new employment. In the cases before them, judges prefer to assess each one individually and consider all the factors, including:

  • Age of the employee
  • Length of service
  • Position
  • Availability of similar jobs
  • The economic climate
  • If the employee was in a ‘specialist’ role

By taking these factors into consideration, judges routinely provide a longer, more realistic timeline of how long it will reasonably take someone to find a new job, resulting in much larger severance packages than would be provided by the ESA.

If you signed an employment contract that covers notice of termination, you should still have an employment lawyer look it over. The wording of the clause may not hold up in court, which could entitle you to a significantly larger severance package.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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