Severance Pay in Ontario Explained
When an employer in Ontario decides to terminate an employee, understanding severance pay obligations is essential. Both employers and employees need clarity on what severance pay is, how it’s calculated, and how it differs from other forms of termination compensation to ensure fair treatment and compliance with Ontario law.
The information on this page applies to non-unionized employees in Ontario. Unionized employees are generally covered by collective agreements, which follow different procedures for termination and severance.
Frequently Asked Questions Ontario Severance Pay
Severance pay is compensation your employer must provide when your employment ends without cause, recognizing your service and helping you transition. In Ontario, severance pay may be required under the Employment Standards Act (ESA) and/or common law.
ESA severance pay applies only in specific cases, while common law severance can be much higher, depending on factors such as your age, position, length of service, and the job market.
If you’ve been terminated, have your severance package reviewed by a severance lawyer before signing any agreement.
Under Ontario’s Employment Standards Act (ESA), you’re entitled to severance pay if:
- You’ve worked for the same employer for five or more years, and
- Your employer has a payroll of at least $2.5 million, or
- 50 or more employees lose their jobs within six months due to a business closure.
Even if you don’t qualify for ESA severance, you may still be entitled to common law severance, which often provides a higher amount based on your age, position, length of service, and other factors.
It’s best to have a severance lawyer review your severance package before accepting any offer.
Severance pay is mandatory in Ontario when an employee qualifies under the Employment Standards Act (ESA).
Employers must provide severance pay if:
- The employee has worked five or more years, and
- The employer has a payroll of at least $2.5 million, or
- 50 or more employees are terminated within six months due to a business closure.
Even when ESA severance isn’t required, employees may still be owed common law severance, which can be much higher depending on their age, position, and length of service.
It’s best to have your situation reviewed by a severance lawyer to determine if severance pay applies to you.
ESA severance, also known as statutory severance pay, is the minimum severance an employer must pay under Ontario’s Employment Standards Act (ESA) when certain conditions are met.
You may qualify for ESA severance if:
- You’ve worked five or more years for your employer, and
- Your employer has a payroll of at least $2.5 million, or your job loss affects a large number of employees.
ESA severance is calculated as one week of regular pay per completed year of service, plus a partial week for incomplete years, up to a maximum of 26 weeks’ pay.
Keep in mind that common law severance can provide much higher compensation depending on your individual circumstances.
Common law severance is the amount of compensation an employee may be entitled to beyond the minimum required by Ontario’s Employment Standards Act (ESA).
It’s based on decisions from Ontario courts and considers factors such as your age, position, length of service, and the availability of similar work. In many cases, common law severance can be significantly higher than ESA severance, sometimes several months or more of pay.
Because each case is unique, it’s best to have a severance lawyer review your situation before accepting a severance offer.
In Ontario, ESA severance pay (for qualifying employees) is calculated as one week’s wages for every year of service, up to 26 weeks.
Common law severance pay is based on the Bardal factors — your age, years of service, position, and availability of similar work — and can result in significantly more compensation.
An employee rights lawyer can determine which applies to you and whether your offer is fair.
Under Ontario’s Employment Standards Act (ESA), severance pay is calculated based on your years of service and regular wages.
The ESA formula is:
Severance Pay = Regular Weekly Pay × (Years of Service + Partial Year)
For example, if you worked 10 years and earned $1,000 per week, your ESA severance would be $10,000.
ESA severance pay is capped at a maximum of 26 weeks’ pay. However, common law severance can be much higher, sometimes several months or more of pay, depending on your age, position, and job market conditions.
A severance lawyer can help calculate what you’re truly owed under both ESA and common law.
Yes, severance pay in Ontario is taxable income. The Canada Revenue Agency (CRA) treats severance pay as employment income, so it is subject to income tax deductions.
Depending on how the payment is made, tax may be:
- Withheld at the source if you receive a lump-sum payment, or
- Reported when you file your tax return if it’s spread out through salary continuation.
Because taxes can vary depending on your income level and how your severance is paid, it’s best to confirm the tax impact with a severance lawyer or accountant before accepting your package.
In Ontario, termination pay and severance pay are two different types of compensation an employee may receive when their job ends.
Termination pay covers the notice period an employee is entitled to when their employment is ended without cause and without working notice. It’s meant to replace the income they would have earned during that period.
Severance pay, on the other hand, is additional compensation for employees who have long service with their employer. It recognizes years of employment and loyalty, and it helps with the transition after job loss.
Some employees may qualify for both termination pay and severance pay under Ontario’s Employment Standards Act (ESA). The amount can also be higher under common law, depending on factors like age, position, and length of service.
If you were terminated without cause, meaning you didn’t commit serious misconduct, you are likely entitled to severance pay under Ontario’s Employment Standards Act (ESA) and possibly common law.
However, if you were fired for just cause, such as serious misconduct, theft, or wilful neglect of duty, your employer may not have to provide severance pay.
Determining whether a dismissal was “for cause” or “without cause” can be complex. Employers sometimes misclassify terminations to avoid paying severance. If you’ve been fired, it’s best to speak with an employment lawyer to review your situation before assuming you’re not entitled to compensation.
Yes, you can often negotiate your severance pay in Ontario. Many severance offers do not reflect your full legal entitlement under the Employment Standards Act (ESA) or common law.
Employers sometimes present standard packages that may overlook factors such as your age, position, years of service, and how long it may take you to find comparable work. These factors can significantly increase what you’re owed under common law severance.
Before signing a release or accepting an offer, it’s wise to have your package reviewed by a severance lawyer. A lawyer can help you understand whether the amount is fair and assist you in negotiating a higher settlement or additional benefits.
Ontario Severance Pay Chart
To help understand minimum statutory notice periods and severance entitlements under the Employment Standards Act (ESA), here is an Ontario Severance Pay Chart:
| Years of Service | Minimum Notice Required (ESA) | Severance Pay (if eligible, based on ESA conditions) |
|---|---|---|
| Less than 1 year | 1 week | Not applicable |
| 1 year | 2 weeks | Not applicable |
| 2 years | 2 weeks | Not applicable |
| 3 years | 3 weeks | Not applicable |
| 4 years | 4 weeks | Not applicable |
| 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 |
The Role of Employment Contracts in Severance Pay
Employment contracts can have a significant impact on an employee’s severance entitlements. A termination clause that clearly and lawfully limits entitlements to the minimum standards set by the Employment Standards Act (ESA) can restrict an employee’s right to additional common law severance.
However, if a termination clause is ambiguous, poorly drafted, or fails to meet ESA standards, it may be unenforceable. In such cases, the employee may be entitled to common law notice, which is often much greater than the ESA minimum.
Mitigation of Damages
Under common law, employees who receive severance pay have a duty to mitigate their damages by making reasonable efforts to find new employment after termination.
If an employee finds another job during the notice period, the income they earn may reduce the severance amount owed by the previous employer.
Courts assess whether employees have made reasonable efforts to seek comparable work, taking into account their experience, qualifications, and the job market. However, ESA severance pay is not reduced by mitigation; it applies regardless of new employment.
Special Considerations for Federally Regulated Employees
Employees who work in federally regulated industries such as banking, telecommunications, airlines, railways, and interprovincial transportation are governed by the Canada Labour Code, not Ontario’s Employment Standards Act (ESA).
The Canada Labour Code sets out its own rules for notice of termination, severance pay, and unjust dismissal protections, which can differ from Ontario standards. Federally regulated employees may be entitled to both notice and severance, as well as the right to file an unjust dismissal complaint in certain situations.
Because these entitlements and procedures can be complex, federally regulated employees should consult a severance lawyer to understand how federal laws apply to their termination or severance package.
“Every severance case is different. Too many employees settle for less than they deserve because they don’t realize how much common law entitlements can exceed the minimum standards.”
Christopher Achkar, employment lawyer and founder of Achkar Law
Need Help With Your Severance Pay or Termination?
If you’ve been let go or offered a severance package, don’t sign anything until you understand your rights. The employment lawyers at Achkar Law can review your situation, explain your options, and help you pursue the compensation you’re entitled to under Ontario law.
We assist employees and employers across Ontario, including Toronto, Brampton, Mississauga, Barrie, Newmarket, Ottawa and beyond.
Get clarity. Protect your rights. Move forward with confidence.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©