Difference between Termination Pay and Severance in Ontario

On the surface, termination pay and severance pay refer to the same thing. They are both forms of compensation that an employee is owed when they are let go from their job without cause.

Is severance pay the same as termination pay in Ontario?

Technically, severance pay and termination pay are two separate concepts that are often used together to reference the compensation an employer in Ontario owes to an employee.

Employment Lawyer Lior Samfiru explains the difference between severance and termination pay on a Season 4 episode 28 of the Employment Law Show.

What is termination pay?

Termination pay refers to pay that is given to an Ontario employee when they lose their job, are let go, or fired. This pay is the minimum amount laid out by Ontario’s Employment Standards Act (ESA). This is also called statutory notice or pay in lieu of notice (statutory entitlements).

Statutory notice is determined by your length of service and the size of your employer’s payroll. It must be paid on the basis of your “wages” as defined by the ESA. This includes elements of compensation such as base pay (whether hourly or salary) and commissions (if applicable).

How is statutory notice or pay calculated in Ontario?

Your statutory notice, or pay in lieu of notice, is calculated as one week per full year of service. There is a maximum amount of eight weeks.

You may also be entitled to statutory severance pay if you are an hourly employee and:

• Worked for more than five years; and
• The employer’s payroll is over $2.5 million.

Statutory severance pay is calculated as one week per year of service up to a maximum of 26 weeks. Unlike notice, statutory severance includes pro-rated amounts for partial years.

What is severance pay in Ontario?

Severance pay is compensation that an employee in Ontario receives when they lose their job. It seeks to compensate the employee for more than just the loss of employment. The point of severance pay is to help an employee bridge the gap of unemployment, and help cover financial obligations while they are looking for their next job.

Your employer must give you advance notice of your termination (working notice), compensation in place of notice (severance pay), or a combination of both. An employment contract usually indicates the amount of notice that must be given to the employee upon termination.

While termination pay is the minimum amount a person can receive when their employer fires them, severance pay is the full amount.

As with termination pay, the longer the employment relationship, the greater the severance pay. But severance pay in Ontario also takes into account factors specific to each employee.

This form of severance pay is called “common law reasonable notice” within the legal profession.

How do I know if I am entitled to severance pay?

All employees are entitled to severance pay. The amount of severance you are entitled to may depend on the specific terms of your employment contract. The key part of your contract to pay attention to is the termination clause. You should also read over any language in an offer letter that speaks to termination.

Even if you have a termination clause or the offer letter addresses termination, it is important to have these reviewed by a lawyer in the event you are terminated or let go from your job. The law is constantly changing, and the clause may no longer be valid or enforceable by the time your employment ends.

How much severance pay should I get?

The amount of severance pay you should get is determined by looking at past court cases. The cases we consider are those where an employee’s situation is comparable. The factors used to determine the amount of reasonable notice owed include:

• age;
• length of service;
• position;
• salary;
• experience and training; and,
• The availability of similar employment.

Factors such as overtime pay, the value of benefits, and any bonus entitlements should also be considered.

Generally, common law reasonable notice (severance pay) is capped at a maximum of 24 months’ pay . This is true even if you have been with your employer longer than 24 years. This amount may be greater if there are exceptional circumstances at play.

What happens if I am not given enough severance pay?

Your employer must provide you with a fair severance package. When they don’t, you experience what is called a “wrongful dismissal“. It occurs when your employer offers you far less compensation than what you should legally receive.

It is extremely important that you contact an employment lawyer at Samfiru Tumarkin LLP for a severance package review. Our team has years of experience representing tens of thousands of clients in severance pay negotiation. We can determine what you are actually owed, and remove the stress involved in obtaining fair compensation.