Short answer: Ontario employees can be owed three different things on termination: termination pay or notice under the Employment Standards Act, ESA severance pay if they qualify, and common law reasonable notice, which is often much higher. Whether you are limited to the ESA minimums depends on your employment contract.
The Employment Standards Act minimums
Termination notice or pay
After three months of employment, most employees are entitled to written notice of termination or pay instead of notice, generally one week for each year of service up to a maximum of eight weeks. Benefits must also continue during the statutory notice period.
Severance pay
ESA severance pay is a separate entitlement. An employee qualifies if they have at least five years of service and either the employer's global payroll is at least $2.5 million, or the employee is one of 50 or more people whose employment ends within six months because all or part of the business permanently closed. Severance pay is one week per year of service, including partial years, to a maximum of 26 weeks.
Common law reasonable notice
Unless an enforceable employment contract limits you to the ESA, you are also entitled to reasonable notice at common law. Courts decide it based on factors such as your age, length of service, the character of your role and the availability of similar work. It is frequently much higher than the ESA minimum, particularly for longer service and senior or specialized roles.
Is your termination clause enforceable?
Many employment contracts try to limit severance to the ESA minimums. Ontario courts have found many such clauses unenforceable, for example where any part of the clause, including the for cause wording, could allow the employer to give less than the ESA requires. If the clause fails, common law reasonable notice applies. Having your contract reviewed is often the most valuable part of a severance review.
What to check before you sign
- How the offer was calculated and whether it includes the ESA amounts in full
- Benefits: health, dental, life and disability coverage, and whether they continue
- Bonus, commission, stock options, RSUs and pension, and what happens to them during the notice period
- Whether payments are a lump sum or salary continuance, and what happens if you find a new job
- The release: what claims you are giving up, including human rights claims
- The reference letter, how your departure will be described and return of property
- The deadline to accept, which is often negotiable
Deadlines and mitigation
A wrongful dismissal claim must generally be started within two years. An Employment Standards complaint to the Ministry must also be filed within two years. If you claim common law notice, you are expected to look for comparable work, and income from a new job can reduce what you recover. Read our guide on wrongful dismissal and termination for cause if your employer alleged misconduct.
Frequently asked questions
How much severance pay is required in Ontario?
Under the ESA, eligible employees receive one week per year of service, up to 26 weeks, in addition to termination pay. Common law reasonable notice, where it applies, is often much higher.
Who qualifies for severance pay in Ontario?
Employees with at least five years of service where the employer's payroll is at least $2.5 million, or where 50 or more employees are terminated within six months due to a permanent closure.
Is severance pay the same as termination pay?
No. Termination pay replaces notice and applies to most employees after three months. Severance pay is an additional ESA amount for employees who qualify.
Should I sign a severance package right away?
Not before you understand it. Review how it was calculated, your contract and the release, and get advice before the deadline.
Is severance pay taxable in Ontario?
Yes, as employment related income. Some or all of it may be transferred to an RRSP if you have room, which can reduce the immediate tax.
Talk to our team
This guide is general information, not legal advice. For advice on your situation, see our employment lawyer in Toronto page. To book a paid consultation (30 minutes, $150 plus HST, paid when you book), book online or call (647) 271-1646. The phone is answered 24 hours a day, 7 days a week, and office meetings are by appointment. Civitas Law is a team of legal professionals under the leadership of lawyer Nasibeh Mehrpouyan, serving clients in English, French, Farsi, Russian and Serbian.