When your job ends in Ontario, you may be entitled to severance pay—a type of compensation that helps you financially while you transition to new employment. Here’s a complete guide to understanding severance pay under Ontario’s Employment Standards Act (ESA), how it’s calculated, and your potential entitlements under common law.
What is Severance Pay in Ontario?
Severance pay is a form of compensation provided to long-serving employees in Ontario when their employment is terminated without cause. It’s designed to support you financially as you look for new work. Severance pay is not the same as termination pay, which is a separate form of compensation provided when advance notice of termination isn’t given. Learn more about the differences between termination and severance pay here.
Do You Qualify for Severance Pay?
To qualify for severance pay in Ontario, you must meet specific conditions under the Employment Standards Act (ESA):
- Length of Service: You must have worked with your employer for at least five years.
- Payroll Size or Group Layoffs:
- Your employer has a global payroll of $2.5 million or more, OR
- Your termination is part of a layoff of 50 or more employees within a six-month period.
If these conditions apply to you, your employer must provide severance pay in addition to any termination pay owed.
Severance pay is one week’s pay for each year of service, up to 24 months’ pay
The ESA sets a minimum amount for severance pay in Ontario, but common law entitlements may allow for much higher amounts.
- ESA Minimum Severance Pay: Eligible employees are entitled to one week of pay per year of service, up to a maximum of 26 weeks.
- Common Law Severance Pay: Many employees are entitled to significantly more than the ESA minimum under common law. Factors like age, position, length of service, and availability of comparable work are considered, and severance packages can reach up to 24 months’ pay.
Example Calculation
If you’ve worked for 10 years and meet the ESA conditions, you would be entitled to at least 10 weeks of severance pay. However, depending on your role and circumstances, you might receive up to 24 months of pay under common law.
Use our Severance Pay Calculator to see a personalized estimate of your severance entitlements.
Ontario Severance Pay Chart
The chart below summarizes minimum severance entitlements under the ESA based on years of service:
| Years of Service | Notice Period (Minimum ESA) | Severance Pay |
|---|---|---|
| Less than 1 year | 1 week | None |
| 1 year | 2 weeks | None |
| 2 years | 2 weeks | None |
| 3 years | 3 weeks | None |
| 4 years | 4 weeks | None |
| 5 years | 5 weeks | 5 weeks |
| 6 years | 6 weeks | 6 weeks |
| 7 years | 7 weeks | 7 weeks |
| 8 years or more | 8 weeks | Up to 26 weeks, based on length of service |
How Severance Pay is Calculated in Ontario
Severance pay is typically calculated based on your regular weekly wages and years of service. The formula under the ESA is as follows:
- Severance Pay Formula: Regular weekly wages × Years of service = Severance Pay
For example, if you worked with the same employer for 10 years and earned $1,000 per week, your severance pay would be $10,000. Note that severance pay under the ESA is capped at a maximum of 26 weeks.
Maximum Severance Pay: How you may be entitled to much more
If your employment contract doesn’t limit your severance pay to ESA minimums, you may be entitled to common law severance—which often results in significantly higher compensation. Under common law, your severance pay could be up to 24 months’ pay depending on factors such as:
- Age: Older employees generally receive longer notice periods, as finding a new job can be more challenging.
- Position and Salary: High-responsibility roles or specialized skills may increase severance pay entitlements.
- Length of Service: The longer your employment, the more severance pay you may qualify for.
- Difficulty finding similar employment
Example: A 57-year-old manager with 20 years of service might be eligible for up to 24 months of severance pay under common law. This amount can be substantial, especially if finding a comparable job will be difficult.
Additionally, Employees with short service of three years or less are treated disproportionately better than long-term employees when it comes to severance.
If you’re unsure of what you might be entitled to, reach out to an Ontario employment lawyer at Samfiru Tumarkin LLP to ensure you receive the full compensation you deserve. As Canada’s most positively reviewed law firm, we proudly serve clients across the province through our Toronto and Ottawa offices.
How Employment Contracts Affect Severance Pay
Your employment contract can influence your severance entitlements. Contracts often contain clauses that aim to limit severance pay to ESA minimums, but these clauses must meet strict legal standards. If the termination clause in your contract is ambiguous or doesn’t comply with ESA standards, it may not be enforceable. In such cases, you could be entitled to full severance pay under common law.
How it works for Federally Regulated Employees
Federally regulated employees, such as those working in banking, telecommunications, and transportation, are governed by the Canada Labour Code rather than the ESA. Severance pay entitlements can differ under federal rules. If you work in a federally regulated industry, our team can help clarify your unique severance entitlements.
Common Questions About Severance Pay in Ontario
Q: Am I guaranteed severance pay under Ontario law?
A: You are entitled to severance pay if you meet the ESA’s criteria (five years of service and payroll size) or if common law severance applies due to the terms of your employment.
Q: What other times can I get severance in Ontario?
A: There are other situations besides a termination without cause when you should receive a severance package, including:
- Incorrectly terminated “for cause”
- Constructive dismissal (e.g., major changes to your job that lead you to resign)
- Temporary layoff for an extended period
- Layoff due to the closure of your employer’s business
- Resignation during a notice period (with two weeks’ notice)
Q: Can I ask for severance months after being let go?
A: Yes, you can request severance up to two years after being let go. This two-year period, known as the time limit to pursue severance, allows you to explore your options. It’s essential to avoid signing any termination documents before consulting an employment lawyer at Samfiru Tumarkin LLP to protect your rights.
Q: Should I use the Ministry of Labour to get severance pay?
A: Avoid using the Ministry of Labour if you want a full severance package under common law. The Ministry can only assist with the minimum amount under the Employment Standards Act (ESA). Filing a claim with the Ministry will prevent you from pursuing a more substantial package with the help of a lawyer at Samfiru Tumarkin LLP. Always contact our team first.
Q: How is severance pay typically paid out in Ontario?
A: Severance can be paid in three ways:
- Lump-sum payment (one-time)
- Salary continuance (continued regular pay)
- Installments (spread out over time)
Q: Is severance pay taxable in Ontario?
A: Yes, severance pay is considered taxable income in Ontario. Tax treatment varies depending on the payment structure:
- Lump Sum: Taxed as a withholding amount, with no CPP or EI deductions.
- Salary Continuance: Subject to regular tax contributions like CPP, EI, and RPP
Tip: If possible, severance can be deposited into an RRSP or RPP to defer taxes.
More Resources on Severance Pay
- Do hourly employees get severance pay in Ontario?
- Wrongful dismissal in Ontario
- Mass layoffs in Ontario: Rights to severance
- Severance pay by company
- Severance pay in the construction industry
Get the compensation you deserve
At Samfiru Tumarkin LLP, we’ve successfully represented thousands of non-unionized employees across Ontario, securing millions of dollars in compensation for those facing workplace issues. Whether you’re negotiating a severance package, dealing with a wrongful dismissal, or navigating other employment challenges, our team is here to fight for your rights.
We offer expert legal advice on a wide range of employment issues, from severance pay disputes to workplace harassment, and everything in between—including disability claims and personal injury matters outside the work environment. Our dedicated lawyers will ensure you get the full compensation you’re entitled to.
Don’t leave your future in your employer’s hands—put it in ours. Find out why were chosen as one of Canada’s Best Law Firms in 2024 by The Globe and Mail. Contact us today or call 1-855-821-5900 for a consultation, and take the first step toward protecting your rights and securing your financial future.
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