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Calculating Severance Pay in Ontario

Calculating Severance Pay In Ontario | Lecker & Associates

Estimated reading time: 8 minutes

Calculating Severance Pay in Ontario | Co-Authors: Bram Lecker & Simon Pelsmakher, Employment Lawyers


Severance Pay Calculations

Your employer has just fired you. This is going to impact you financially and without a doubt, you are in for a stressful period ahead. If they offered you a termination package, it is time to take a very close look at the details. These payments represent a financial bridge until you find another job. You must understand your legal entitlements so you do not leave money behind. Indeed, there are many factors that come into play when calculating your termination pay. In Ontario, the Employment Standards Act 2000 (ESA) governs the rules your employer must follow for terminations. This article will help guide you about your rights and entitlements under these circumstances.

For-Cause or Not-For-Cause Terminations

When your employer makes the decision to let you go, they must prepare several documents for you. Legally, one of them must be a written notice of the termination. It should state whether they have let you go “for cause or “not-for-cause“.  Here are typical reasons why an employer might let you go for cause. Misconduct, theft, insubordination, intoxication at work, continuously being late, performance issues, etc. Under these circumstances, your employer may terminate your position on the spot, and without notice. Even so, they owe you notice pay unless they prove willful misconduct on your part. Courts set the bar very high for this determination. Your employer cannot use trivial reasons to deny you this entitlement. 

In the event of a for-cause termination, you will find it helpful to consult with one of our employment lawyers to review the circumstances of your termination. It will take an hour and at the least, we can offer you peace of mind that your employer has not short-changed you. 

Do Employers Need a Reason to Fire Employees?

The law does not require employers to provide a reason for a not-for-cause termination. Rather, it merely obliges them to give you reasonable notice when they conclude they no longer require your services. Here, your employer does not allege fault on your part. Consequently, this puts you in the strongest position as a litigant in any province in Canada.

When you do not receive any written notice of termination, the analysis of your notice and severance package shifts. It is no longer about whether you are entitled to them, but how much.

Calculating Minimum Notice and Severance

Bram Lecker, Principal of Lecker & Associates

Ontario law requires employers to provide reasonable notice for a not-for-cause termination. At a minimum, the ESA guarantees that you receive 1 week of notice per year of employment, up to a maximum of 8 weeks. During this time, you will receive Notice Pay, which is a continuation of your salary until the end of the notice period.

The ESA requires larger employers to provide terminated employees with more compensation compared to a small business owner. Consequently, if you have five or more years of service at an organization with 50+ employees or an annual payroll of $2.5M+, then you may also be eligible for Severance Pay on top of the notice. Severance is calculated at 1 week of regular pay per year of employment, up to a maximum of 26 weeks.

These are the minimum notice and severance terms guaranteed to all employees of Ontario regardless of what is stipulated in your employment contract.

Common Law Entitlements

While the ESA stipulates the minimums noted above, many Ontario employees do not fully understand yet another layer of protection they receive in the event of a job loss. It relates to the interpretation of reasonable notice. According to the courts, this represents the amount of time it will take you to find similar employment in your industry, with the same salary and position. Employers and employees are often at opposite ends on the spectrum on this point. Consequently, we rely on common laws, a set of judge-made laws that are based on precedents. They can amount to an additional 3-6 weeks of pay year of employment, depending on your age, length of service, position and job market conditions.

Unfortunately many employers “conveniently” address this issue rather inadequately when preparing severance packages. Some will count on their employee’s ignorance of the law or unwillingness to see a lawyer. We encourage all employees to exercise their right to seek legal advice before signing termination documents. We often disagree with the amount of notice provided and this is the leading cause for wrongful dismissal lawsuits.

Employment Contracts

In an attempt to limit termination entitlements, some employers include limiting clauses in employment contracts that force employees to forego their common law entitlements as a condition of employment. In 2020, a landmark case heard by Ontario’s Superior Court closed this loophole completely, throwing out an entire contract because of such a clause. Employers can no longer contractually deny what the law entitles you to. This means many individuals are likely owed extra termination pay if your employment contract contained such clauses, and we encourage you to contact us for this assessment. 

Negotiating Your Severance

With over 35 years of experience in employment law, severance package negotiations represent a cornerstone of our practice. We understand common law precedents extremely well and have actively participated in shaping them over the years. Our lawyers have clarified ambiguous laws and fiercely advocated for employee rights. Invariably, common law entitlements are where we usually find additional money for our clients.

For starters, we look at your specific circumstances to determine if the severance package offered to you is fair. Does it reasonably compensate you for sufficient time to land an equivalent position and become “whole” again? We examine all aspects of your termination, including your age, length of service, seniority and the job market. For instance, if you are 47 years of age, with 7 years of senior management service in the IT sector, you may be entitled to reasonable notice of approximately 8-12 months. Employers in this sector tend to hire younger new graduates. Accordingly, it might take you this long to find a job with similar pay and title.

Using on-line Severance Pay Calculators

Any terminated employee, particularly tenured ones in their senior years, should have their termination packages thoroughly vetted by an experienced employment lawyer. On-line severance pay calculators will often prove woefully inadequate in your circumstances because of the subjectivity and variability that arrive with seniority and tenure. We will examine your situation very closely to ensure your offer includes all your entitlements. Our courts are not shy with awarding packages that exceed ESA minimums when your circumstances demand it. 

COVID-19 & The Job Market

The COVID-19 pandemic has created poor economic conditions in many industries in Canada. Presently, it may take you much longer than normal to find another job. Courts in Ontario and Alberta are now taking this fact into consideration and lengthening notice periods for dismissed employees. This reasoning is consistent with the general goal of common law notice entitlements: that the period of reasonable notice should reflect the amount of time it will realistically take you to find a similar job.  

In addition, some layoffs that occurred during the COVID-19 pandemic lend themselves well to an interpretation of constructive dismissal, particularly if your employer breached a fundamental term of your employment. IDEL provisions make this matter complex and you should consult with a lawyer to obtain clarity about your specific circumstances. 

Notice and Severance: What About Your Benefits?

If part of your compensation included non-discretionary items like commissions, bonuses, shares etc., then your employer must continue to pay these amounts for the duration of your notice period. You are also entitled to all discretionary benefits if they formed an integral part of your compensation. 

As with common law entitlements referenced above, employers sometimes try to limit these contractually. They include clauses that stop such benefits on the termination date. Courts are very reluctant to uphold such provisions, especially when they are worded ambiguously. Employers might not be able to rely upon these clauses if they deny what the law entitles you to. Consequently, we strongly counsel employees to seek legal advice before signing termination papers. We can ensure you leave nothing behind. Perks like commissions, bonuses, medical and dental benefits, disability benefits and vacation pay can often amount to 15% of your total compensation. We will ensure they continue to accrue through your notice period.

The “Extras”

For some people, the journey to gainful re-employment may involve re-positioning your skills in a new industry. You might even require retraining for a new career or transitioning into self-employment as a consultant. In certain situations, we can negotiate for outplacement services and personalized career coaching. These invaluable resources can help you move forward efficiently.

Furthermore, if you were bullied or harassed prior to your termination, forced into an unwilling resignation, let go because you are pregnant or returning from a disability leave, then we go to bat for extra damages for mental injury.

Employment Insurance, CERB and your Severance Pay

Notice and severance payments have implications on your Employment Insurance benefits. These termination payments tide you over financially while you are in between jobs. However, federal government Employment Insurance benefits fulfill the same purpose. The Employment Insurance Act quite fairly does not permit you to double-dip. For more information on this topic, read our blog about Severance Pay and Employment Insurance.

Last year, the federal government introduced CERB in great haste as an efficient financial response to the COVID-19 emergency lockdown. Ordinarily, such programs take months and years to design. While CERB temporarily replaced the EI benefits program, the government had not clarified how they would treat CERB against severance pay. We, therefore, counsel individuals to act with financial prudence if they received both CERB and severance pay. Do not treat the benefit like a windfall. Instead, hold on to it until you are sure you will not have to pay it back.

About Lecker & Associates

Lecker & Associates primarily represent Ontario employees. Contact us to examine your notice and severance packages if you have recently been laid off.  You can count on us for sound advice and aggressive representation.

Here is a description of the employment law services we provide to employees of Ontario.  For other blogs like this one, visit Wrongfully Dismissed.


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