Severance Packages

If you are a non-unionized employee and lose your job in Ontario, you are entitled to fair severance.

What constitutes a fair severance package depends on the terms of your employment.

If you do not have a written employment contract, you are entitled to 'Common Law Reasonable Notice' (see below).

If you do have a written employment contract, depending on its wording your entitlement to severance will fall into one of 3 camps:

  • The minimum amounts provided under the Ontario Employment Standards Act ("ESA");
  • Common Law Reasonable Notice; or
  • An amount specified in your contract, which may be greater than the minimums, but often less than Common Law Reasonable Notice.

A. The Minimum Amounts Under The Employment Standards Act

The ESA provides minimum payments that every employer must generally provide. This is not something that employers can refuse to pay, or use as a bargaining chip in exchange for a Release from you.

There are 2 types of payment under the ESA that can form part of a severance package: Termination Pay and Severance Pay.

Termination Pay is owed to you if you are fired without just cause, according to the following formula:

LENGTH OF EMPLOYMENT

NOTICE REQUIRED

Less than 3 monthsNone
3 months — 1 year1 week
1 year — 3 years2 weeks
3 years — 4 years3 weeks
4 years — 5 years4 weeks
5 years — 6 years5 weeks
6 years — 7 years6 weeks
7 years — 8 years7 weeks
8 years or more8 weeks

Severance Pay is only owed to you if:

  • You have at least 5 years of service with your employer; and
  • The employer has a payroll of at least $2.5 million; or
  • You are one of 50 or more employees let go within a 6-month period.

The maximum amount that an employee can be awarded in severance pay is 26 weeks.

NOTE: If you work for the Federal Government, or in an industry such as telecommunications, banking or aviation, your entitlement to minimum severance amounts may be set out in a federal law named the Canada Labour Code. It also requires minimum payments to be made upon termination.

B. Common Law Reasonable Notice Of Termination

If you do not have a written employment contract, or if your employment contract does not contain a termination clause, you are entitled to reasonable notice of termination (or pay in lieu thereof). Additionally, if your employment contract contains a termination clause, but has been poorly written or executed, you may also be entitled to common law notice.

Common law notice is generally far greater than the payments required under the ESA.

In order to assess reasonable notice, a number of factors are considered, including:

  • How old you are;
  • How long you have worked for your employer;
  • The type of job you perform; and
  • The availability of comparable alternative employment.

It is quite common for individuals to receive pay instead of notice equivalent to 3 or 4 weeks per year of service.

C. An Amount Specified In An Employment Contract

If your employment contract has a termination clause that meets the minimum requirements of the ESA and provides an amount beyond that, this will apply. In these circumstances it is likely that your severance package will fall between the minimum amounts of the ESA and pay instead of reasonable notice.

A Practical Example Of 'Fair' Severance:

John is a 56 year old middle-management employee and worked for a small company (with a payroll less than $2.5 million) for 12 years. John loses his job:

  • If John has a written employment contract with an enforceable termination clause, his severance package may be limited to 8 weeks of Termination Pay.
  • If John does not have a written employment contract, his fair severance package is likely in the range of 12-14 months.

Take-Away For Employees

What constitutes a 'fair' severance package depends on whether you have a written employment contract (and if you have a contract — what it says). Before you agree to a severance package and sign a release, have an employment lawyer review your documents to make sure you are being treated fairly.

Employment and Labour Laws are not always straightforward, but whether you are an employee or an employer, understanding your rights and duties will only stand to benefit you. Reach out to an employment lawyer or labour lawyer today if you have any questions and be sure to get what you deserve and safeguard yourself for the future. The lawyers at Vey Willetts LLP have a proven track record and are happy to assist.  

Our employment lawyers and labour lawyers serve clients throughout Ontario. 

Call us today at 1-800-296-7989 or fill out our online form.