What is Common Law Severance in Ontario?
Common law severance in Ontario is a legal principle that determines the compensation an employee may be entitled to when their employment is terminated without cause. Unlike the minimum standards under the Employment Standards Act, 2000 (ESA), common law severance often provides significantly more generous notice or pay in lieu, reflecting the employee’s length of service, position, and circumstances of termination.
Understanding Ontario common law severance is essential for employers to manage risks, avoid costly litigation, and ensure compliance with both statutory and common law obligations.
What Is a Common Law Severance?
At its core, common law severance is a court-recognized entitlement to reasonable notice, or pay in lieu of notice, beyond ESA minimums.
While the ESA provides a baseline, common law severance considers factors including:
- Employee’s age
- Length of service
- Position and level of responsibility
- Availability of similar employment in the job market
- The circumstances surrounding the dismissal
This ensures employees are fairly compensated if terminated without cause, even if they do not meet ESA severance eligibility.
As Christopher Achkar, employment lawyer and founder of Achkar Law, explains:
“Understanding the difference between statutory and common law severance is critical for both employees and employers. Whether you’re reviewing a termination package or planning one, getting legal advice first can help protect your rights, reduce risks, and avoid costly mistakes.”
| Feature | ESA Severance Pay | Common Law Severance |
|---|---|---|
| Minimum entitlement | Set formula under the ESA | Determined by courts; often longer than ESA minimums |
| Eligibility | Employees with ≥5 years of service, employer with payroll ≥$2.5M | All employees may be entitled, regardless of employer size or payroll |
| Calculation | Based on weekly wages | Factors include age, position, length of service, and market conditions |
| Statutory backing | Employment Standards Act, 2000, ss. 64–67 | Developed through case law; influenced by HRC, LRA, and other employment laws |
💡Quick Tip:
Even if an employee does not meet ESA eligibility, they may still have a claim under Ontario common law severance.
Key Cases on Common Law Severance in Ontario
Several landmark cases shape common law severance pay:
- Bardal v. Globe & Mail Ltd. (1960): Established the foundational factors for reasonable notice: character of employment, length of service, age, and availability of similar employment. https:
- Machtinger v. HOJ Industries Ltd. (1992, SCC): Confirmed that written notice provisions must meet or exceed ESA minimums. Failure can result in common law damages exceeding ESA entitlements.
- Minott v. O’Shanter Development Co. (1999, ONCA): Senior employees are entitled to longer notice periods due to the reduced likelihood of quickly finding comparable employment.
- Kerr v. Danier Leather Inc. (2007, SCC): Highlighted that terminations without cause should consider the employee’s position, tenure, and age, often resulting in substantial common law severance awards.
Calculating Common Law Severance Pay in Ontario
Courts use the Bardal factors to determine reasonable notice or pay in lieu:
- Age, Older employees may need longer notice to secure comparable work.
- Length of service, Longer service usually means longer notice.
- Position and responsibilities, Senior or specialized roles typically receive more generous notice.
Availability of similar employment: The ease of finding a comparable job affects the notice period.
- Example: A 50-year-old senior manager with 15 years of service may be entitled to 12–18 months’ pay in lieu of notice under common law, even if ESA minimums are much lower.
Employer Obligations for Ontario Common Law Severance
Understanding Your Exposure
Employers may face common law severance claims if they:
- Dismiss employees without cause
- Provide notice or pay below what is reasonable under common law
- Rely solely on ESA minimums when circumstances justify more
Courts often award notice periods ranging from several months to several years for long-serving, high-level employees.
Drafting Employment Agreements
- Include clear termination clauses specifying notice or severance entitlements
- Ensure compliance with ESA minimums
- Be aware that common law entitlements may exceed contractual terms if they are deemed unfair
Unionized Employees
For employees covered by a collective agreement, common law severance may be affected by the Labour Relations Act (LRA). Employers should carefully review agreements to determine obligations and potential overlaps.
Human Rights Considerations
Terminations must comply with the Human Rights Code (HRC) to avoid discrimination claims, which may increase severance obligations if dismissal is related to protected grounds.
- Underestimating notice can lead to costly litigation.
- Constructive dismissal claims if roles are changed or demotions occur.
- ESA minimums do not protect against common law claims.
Practical Checklist: How to Mitigate Common Law Severance Risk
- Audit employment contracts for proper severance clauses
- Document performance issues and termination rationale
- Tailor severance packages to position, tenure, and market conditions
- Seek legal review before termination, especially for senior staff
- Consider unionized or protected employees under LRA/HRC obligations
When to Speak With an Employment Lawyer
Consult a lawyer if you:
- Plan to terminate an employee without cause
- Consider a severance package differing from ESA minimums
- Face potential constructive dismissal claims
- Are you drafting or updating employment agreements
- Deal with unionized employees or protected grounds under the HRC
Legal guidance helps manage risk, ensure compliance, and reduce exposure to costly claims.
Need Help With Common Law Severance in Ontario?
At Achkar Law, we assist employers across Ontario to:
- Draft enforceable employment contracts with clear severance clauses
- Evaluate common law severance obligations before termination
- Negotiate severance packages to reduce legal exposure
- Provide strategic advice for unionized and high-level employees
If you want to manage severance obligations effectively while staying compliant with Ontario employment law, contact us to discuss your situation.
The article in this client update provides general information and should not be relied on as legal advice or opinion. Achkar Law Professional Corporation copyrights this publication and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©