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What is Severance Pay in Ontario?

What is Severance Pay in Ontario

Many Ontarians understand that if an employer lets them go, they are entitled to a few weeks’ pay depending on how long they worked for their employer and consider this ‘severance pay.’ However, many are unsure of what severance pay actually is and what they are entitled to.

If you’ve recently been terminated, are negotiating a severance with your employer or just have questions about your rights in the workplace, book a free consultation with one of the leading employment lawyers in Ontario. If you’re out of work, the last thing you want to do is leave money on the table.

Please note that the information below does not apply to federally-regulated or unionized workers. Federal employees are bound by the rules in the Canada Labour Code, and rules around severance pay for unionized workers are included in their collective agreements.

Termination Pay is Not the Same as Severance Pay

If your employer terminated your employment without cause, as long as you’ve been with them for at least three months, they are required to notify you in advance before your employment has officially ended.

You are legally entitled to notice of termination. The minimum notice provided by the Employment Standards Actis one week for each full year worked with an employer to a maximum of eight weeks. If you signed an employment contract, your entitlement to notice can’t be less than this minimum.

If you did not sign an employment contract, or your contract does not have an enforceable termination clause in it, your notice period is calculated under common law, which determines a reasonable notice period based on how long it should take you to find a comparable job. Common law notice periods are generally much longer than the minimum.

Many employers choose to pay the employee in lieu of that notice – this is the money that you would have made during the notice period, including bonuses, commission, RRSP contributions, benefits, etc. This is known as termination pay.

Speak to an employment lawyer if you’ve been recently terminated or are about to be to ensure that you received the right amount of notice/termination pay.

So What is Severance Pay?

Legally, if you’ve been with your employer for at least five years, and your employer has a global payroll of at least $2.5 million, or they terminated 50 or more employees in a six-month period due to a full or partial closure and your employment was “severed” by your employer, you are entitled to a minimum of one week’s pay for every year of employment to a maximum of 26 weeks. This is in addition to your termination pay.

Severance occurs when your employer:

  • Dismisses you – even if it is because your employer went bankrupt.
  • Constructively dismisses you, and you leave in a reasonable amount of time.
  • Lays you off for 35 weeks or more in any period of 52 consecutive weeks.
  • Lays you off due to the permanent closing of the entire business at their establishment.

OR

  • Gives you notice of termination, but you give two weeks’ notice and resign during the notice period.

As with termination pay, speak with an employment lawyer to ensure that you’ve received the right amount of severance pay.

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