Factors That Impact How Severance Pay is Calculated in Ontario

severance pay calculation

If an employer wants to terminate an employee without cause, that employee is entitled to notice of termination before it’s official, as long as the employee has been working for that employer for at least three months. You may also be entitled to severance pay depending on your length of service and how large your employer is.

A severance package, which is often simply referred to as severance pay, is usually a combination of termination pay (pay that an employee is entitled to in lieu of a working notice of termination period) and severance pay.

There are a lot of factors that affect how you calculate your severance pay in Ontario, and it’s crucial to know where you stand financially in case you lose your job.

The following factors decide how your severance pay is calculated.

How Your Employment Contract is Governed

Most Ontario employment contracts are governed by the Employment Standards Act (ESA); however, workers in federally-regulated industries like TV and radio broadcasting, banking or airline, marine, rail or highway travel get their legal minimum severance pay and other entitlements from the Canada Labour Code.

Employment contracts covered by the ESA provide for a minimum of (after 90 days of employment):

  • One week’s notice for every year of service, up to a maximum of eight weeks, as a notice of termination period or pay in lieu of notice.
  • One week’s pay for every year of service, to a maximum of 26 weeks, as severance pay – as long as the employer has a total global payroll of at least $2.5 million or has laid off at least 50 employees in a six-month period because all or a part of their business is/has closed and the employee has worked for the employer for at least 5 years.

Some professions, like emergency services, farming and in manufacturing, construction, and mining, have special rules in the ESA, so they may have different severance pay entitlements.

Unless your employment contract legally and explicitly states that you are only entitled to the legal minimum termination and severance pay, however, you may be entitled to a lot more notice and/or severance pay than the minimum.

Even if your employment contract contains such a clause, you should still have an employment lawyer review it to determine if the clause and contract are legally enforceable. If not, you may be entitled to more notice and severance pay under the common law. See the last section for more information.

If Your Employer Provides More Severance than the ESA

If your employment contract or collective bargaining agreement provides for more severance pay, notice, severance pay with less than five years of service, or any other entitlement that gives a greater benefit than the ESA, that entitlement is the minimum you are now entitled to, and your employer cannot give you any less even though it is more than they were legally required to provide under the statute.

How Severance Pay is Calculated Under the Common Law

If you don’t have a written contract of employment or your employment contract doesn’t have a legally-enforceable termination pay clause, your right to termination pay is governed by the common law – cases decided by judges on the same issue.

According to common law, the purpose of severance pays or notice is to provide you with a reasonable amount of time to find a similar, comparable job. To make a decision on how much time that is, the personal factors of the employee are considered, 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 taking these factors into consideration, judges have routinely provided a longer, more realistic time for how long it would take the employee to find a similar job than the ESA and award higher severance packages as a result.