Many of us don’t spend a lot of time thinking about the consequences of losing our jobs, but there is always the possibility that your employer decides to dismiss you without cause or warning.
That’s why it is always a good idea to have an understanding of what severance pay is if you were to experience a job loss and how to calculate what you might be entitled to as a severance package.
This knowledge can provide you with some peace of mind. For those wondering how severance pay is calculated in Ontario, here is an overview based on Ontario’s employment laws for provincially-regulated employees.
Employee Rights Regarding Termination in Ontario
Employers can terminate employment contracts at any time without having a reason, but they are required to give the employee notice of termination before the termination is official.
Alternatively, an employer can pay the employee what they would have made during the notice period and terminate them immediately, which is known as “pay in lieu of notice” or “termination pay.”
The Employment Standards Act sets out the required amount of notice that an employer must give an employee based on the employee’s length of service. For instance, an employee with at least 3 months of service is entitled to 1 week of notice for every year of employment up to a maximum of 8 weeks.
Adding Severance Pay to Termination Pay
In addition to termination pay, if an employee has worked for their employer for 5 years or more and that employer has a total global payroll of at least $2.5 million, the employer must provide the employee with a lump sum payment as severance pay of one week’s pay for each year of service, up to a maximum of 26 weeks.
If an employment contract provides the employee with a greater entitlement than what is outlined in the Employment Standards Act, with respect to either notice of termination or severance pay, the entitlement in the contract becomes the legal minimum, and the employer cannot pay less.
Common Law Severance Packages
If there is no employment contract, or the employment contract does not contain a termination clause, or the termination clause is legally unenforceable, the employee may be entitled to what is known as a “common law” notice period based on legal precedents.
In such cases, judges usually consider personal factors such as the employee’s age, length of service, position, availability of similar jobs, economic climate and if the employee was in a ‘specialist’ role and how that would impact the employee’s ability to find similar work.
Common law notice periods typically provide a longer, more realistic timeline of how long it will reasonably take a person to find a comparable job, resulting in larger severance packages than would be provided by the ESA.
Even if your employment contract includes a clause regarding notice of termination, it is still advisable to have an employment lawyer review it before accepting any severance offer. The wording of the clause may not hold up in court, entitling you to the common law notice period.