The Basics of Severance Packages in Ontario

When Ontarians think about pay packages upon the termination of their job, they often use the term “severance packages”. That term can include a number of different types of pay, including statutory termination, notice outlined in an employment contract, and notice at common law. However, despite the similar naming convention, the three are unique. 

What are Severance Packages?

Severance packages in Ontario consist of the amount legally owed to you by an employer when the employer terminates your employment. This will always include the minimum provincially regulated standard pay and benefits. It can also include amounts that are outlined in an employment contract over and above the mandated minimum amount, assuming that the contract clause is valid. Lastly, if your contract is silent on amounts upon termination, or if the contract clause is not valid, you are entitled to reasonable notice at common law. The employer is obligated to pay the employee their entitlements. However, where entitlements are not clear or there is debate as to whether or not the employee has the entitlement, legal disputes can arise.

Below we lay out five things to look out for when considering a severance package offered by an employer. 

Five Critical Elements of Your Severance Package in Ontario

1: Does it Meet the Minimum Provincial Statute Requirements?

The Ontario Employment Standards Act, 2000 (ESA) states, should you have maintained continuous employment for a minimum of three months, that your employer owes you notice in the form of advance notice or the equivalent of one week’s pay per year that you have remained with them, to a maximum of eight weeks. The ESA also outlines statutory severance, which is paid as long as the employee has five years of service and the employer in question must meet a minimum payroll threshold of $2.5 million annually. This is an additional week per year of service, up to 26 weeks.

You are entitled to these payments on termination regardless of anything your contract says. Your employer can never give you less than this payment (unless they are alleging something called just cause, see below). You also do not need to sign a release (see below) to get this payment. It comes to you without any requirement from you.

2: Contracts with a Termination Clause May Dictate Entitlement

An employment contract can dictate severance package entitlements upon termination of employment. However, there are a few things to note: first, the contract can never give you less than your ESA minimum payments. If it attempts to give you less than ESA minimum payments, the termination clause in the contract is void. Second: the contract clause may or may not be valid for a number of other reasons. If the contract clause is not valid, you may still be entitled to common law notice (which is often longer than what is laid out in a contract). Third, even if the contract clause is valid, it may not disentitle you to common law notice.

Carefully inspect your employment contract to verify whether the termination clause is valid and fully restricts your entitlements, which an experienced Ontario employment lawyer can verify with ease. 

3: Is Your Severance Package Classified as “For Cause” or “Without Cause?”

In the event your position is terminated, it can be with cause (the employer has a reason for ending your employment immediately and without any payments required) or without cause (no reason required by the employer). Terminating an employee for cause, and so disentitling them to any severance package, is a high bar. It requires serious misconduct or behaviour from the employee. If your employer has attempted to terminate you for cause, seek the help of an experienced employment lawyer, as the allegation of cause may not be legitimate and you may be entitled to a severance package. 

4: Workplace Issues/Violations Can Affect Your Severance Eligibility

Should you have been wrongfully dismissed due to human rights issues or other violations on behalf of the employer, it is imperative that you reach out to an employment lawyer to verify your termination pay and/or severance package eligibility. Unlike other types of dismissals, if you have been dismissed because of a human rights violation, you may be entitled to have your job back. You may also be entitled to additional sums of money for such violations. This will vary depending on the context of your specific experience. 

5: Is an Employer Requesting to Release You to Avoid Legal Complications?

If an employer is asking you to sign a release form, read it carefully as you may be inadvertently absolving them of any legal responsibility. Employers may make you an offer of a little extra money over and above statutory minimum payments to sign this release. However, if you are entitled to common law notice, you may be signing away your rights for much less than you are entitled to. Taking this form to a lawyer for analysis and guidance is a proactive step to take.

The more informed you are, the more protected you are in terms of the severance amount owing to you. Alternatively, if you have been laid off due to the COVID-19 pandemic, please see our article on the subject.

[Note:  This article is for informational purposes only and does not constitute legal advice, which requires an assessment of your individual circumstances.]