This is How Severance Pay is Calculated in Ontario

While it’s not something we like to think about, there is always the possibility that your employer suddenly decides to let you go.

It’s always best to know where you would stand should the worst happen, and knowing how much severance pay you could be entitled to if that scenario plays out can actually provide you with a little peace of mind.

If you’ve ever wondered “how is severance pay calculated in Ontario?” this is how, according to Ontario employment laws

The Right to Notice of Termination or Pay in Lieu of Notice

An employer can terminate an employment contract at any time without having a reason to.

If they terminate an employee without cause, however, they are required to give the employee notice of the termination with enough time for the employee to find a comparable job while they continue working until the termination date. This gives the employee a bridge between jobs instead of suddenly being without an income.

Alternatively, an employer can pay the employee what they would have made during the notice period and terminate them immediately. This is known as “pay in lieu of notice” or “termination pay.”  This is the most common practice with employers.

The Employment Standards Actrequires that an employer provide the employee with the following:

• 1 week of notice for employees that have between 3 months and 1 year of service.
• 2 weeks of notice for employees with between 1 year and 3 years of service.
• 3 weeks of notice for employees with between 3 years and 4 years of service.
• 4 weeks of notice for employees with between 4 years and 5 years of service.
• 5 weeks of notice for employees with between 5 years and 6 years of service.
• 6 weeks of notice for employees with between 6 years and 7 years of service.
• 7 weeks of notice for employees with between 7 years and 8 years of service.
• 8 weeks of notice for employees with 8 or more years of service.

In addition to termination pay,  if the employee worked for 5 years or more with their employer, and that employer has a total global payroll of at least $2.5 million, the employer owes the employee a lump sum payment as severance pay of one week’s pay for every year of service, up to a maximum of 26 weeks.

If your employment contract provides you with a greater entitlement than the ESA, the entitlement in your contract becomes your legal minimum, and your employer can’t pay you less.

If, however, there is no employment contract, the employment contract does not contain a termination clause, or the termination clause is legally unenforceable, the employee may be entitled to what’s known as a “common law” notice period.

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 ruled 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 that come before them, judges prefer to assess each one individually and consider all of 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 considering these factors that will impact a person’s ability to find a comparable job, judges routinely end up providing a longer, more realistic timeline of how long it will reasonably take a person to find a new job, resulting in much larger severance packages than would be provided by the ESA.

Even 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 the common law notice period.   Always consult with a lawyer before signing off on any severance package offer.