Losing your job can be one of the most traumatic experiences in your professional life. Whether it is a result of restructuring, downsizing, or any other non-disciplinary reason, it is important to understand your rights - particularly regarding severance pay in Ontario. A number of employees do not know they might be entitled to compensation beyond basic termination pay.
This guide explains who gets severance pay under the ESA, how it differs under common law, and when to speak to a severance lawyer.
Severance pay is compensation offered at termination without cause after a lengthy relationship. It is meant to acknowledge the years of service and to assist with financial support while one looks for work.
In Ontario, severance pay can be calculated in two ways:
Who Is Eligible for Severance Pay Under the ESA?
To be eligible for severance pay under Ontario’s ESA, you must meet the following two criteria:
Example: You have worked for a company for 10 years, and its payroll is more than $2.5 million. Under the ESA, you are entitled to 10 weeks of severance.
The ESA provides a minimum entitlement to severance, while common law often provides employees with much more — sometimes months or even more than a year of pay.
Under common law, severance is determined based on:
For example, a senior manager, age 50, with 15 years of service, might receive severance entitlements of possibly 12-18 months, depending on the situation.
This is why you should not sign a severance package right away, as a low offer may simply be the bare minimum the employer is offering based on the Employment Standards Act (ESA), and may not be your full severance entitlement under common law.
A severance package may include:
Typically, employers will offer a package that is a standard offering, but this may be negotiable. You have the right to negotiate, especially if the offering does not carry your common-law entitlements. This is an area where a qualified severance lawyer can provide value.
Most employees walk away from their job and enter into a severance package without knowing what they are legally entitled to. This can be a monumental mistake, costing the employee tens of thousands of dollars. A skilled severance lawyer will:
At Rutman Law, we help workers in Ontario understand and enforce their rights. If you’re unsure whether you should speak with a lawyer, our blog on key signs you need to consult an employment lawyer provides helpful guidance. We have considerable experience in employment law procedures and ensure clients receive fair treatment under the law.
Termination or pay in lieu of notice is financial compensation provided to an employee whose employment is terminated by the employer without notice, as opposed to working a notice period. Termination pay is merely a specific restriction in contrast to severance pay (common law and Statutory).
Severance pay (common law and statutory), otherwise called going-away pay, is a bigger consideration, as it takes into account the employees' longer service and the consequences of losing their employment. Some employees may receive both severance and termination pay.
Common Misunderstandings of Severance Pay:
"I'm on contract, so I'm not entitled to severance."
→ Many fixed-term contracts are still subject to ESA and common law considerations for severance.
"My employer said it was a take-it-or-leave-it offer."
→ You always have the right to have the notice and/or severance package reviewed and get an opinion before signing.
“Only companies of a certain size have to pay severance.”
→ Even for employees of small employers, common law severance applies if the employer and the employee terminate the contract without any cause.
It varies. Under the ESA, it’s 1 week per year of service (if you qualify). Under common law, it can be several months to a year or more, depending on your job, age, and tenure.
In most cases, no. If you were legally terminated for cause (e.g., theft, insubordination), then you may not be entitled to severance. However, it is likely that your employer improperly labelled the termination as for cause. You should seek legal advice.
Yes. Severance offers are typically negotiable. This is especially true if the severance offer is less than you are entitled to at common law.
There is no legal time limit, but many employers will speak about a short time limit (e.g., 3–5 days). Do not feel pressured. See a lawyer!
Typically, no, unless you've been constructively dismissed. This refers to the situation where your employer has made your job intolerable or has fundamentally changed the nature of your job.
Always consult with an employment lawyer to ensure that it speaks to your rights under both ESA and common law.
Yes, severance pay is subject to income tax (the same whether paid as a lump sum or a salary continuation).
If you were recently terminated or have a pending termination, understand your right to severance pay in Ontario. What you receive may be much less than what you are entitled to receive, and usually, once you agree and sign, it is the end of the discussion. Importantly, before accepting a severance package, contact a severance lawyer. Rutman Law represents employees in Ontario seeking their rights for fair compensation.
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