Subscribe to our newsletters
Severance Pay in Ontario: What Employees Are Actually Entitled To
How Much Severance Pay Are You Entitled to in Ontario?
Severance pay in Ontario depends on two legal frameworks:
- Minimum entitlements under the Employment Standards Act (ESA)
- Common law reasonable notice, which is often significantly higher
Under the ESA, employees may receive between 1 and 8 weeks of notice or pay in lieu.
However, under common law, severance is frequently measured in months, not weeks, and can range from 2 to 24 months of compensation, depending on age, position, and length of service.
Most severance offers in Ontario reflect only ESA minimums, not full legal entitlements.
Most Severance Offers in Ontario Are Based on Minimums
Many Ontario employers calculate severance by referencing ESA minimums or internal policies. While these minimums must be paid in some situations, they are rarely the full legal entitlement.
Unless an employment contract validly limits severance, Ontario courts apply common law principles. In many cases, common law severance is measured in months, not weeks, and includes compensation for lost benefits and bonuses.
Accepting a severance offer without understanding this distinction can permanently limit an employee’s rights.
What “Severance Pay” Means Under Ontario Law
In Ontario, “severance pay” is often used as a general term to describe compensation paid when employment ends without cause.
Legally, severance can include:
- termination pay or pay in lieu of notice
- continuation or compensation for lost benefits
- additional damages under common law
The label used by an employer does not determine entitlement. Courts look at the substance of the termination, not how the payment is described.
Statutory vs Common Law Severance in Ontario
| Feature | ESA (Statutory Minimum) | Common Law Severance |
|---|---|---|
| Source of entitlement | Minimum standards set by Ontario’s Employment Standards Act, 2000 (ESA). | Judge-made law (court decisions) that can apply unless a valid contract limits entitlement. |
| What it’s designed to provide | A statutory “floor” of notice/termination pay (and, in some cases, severance pay). | “Reasonable notice” damages intended to reflect the time needed to find comparable work. |
| Typical time period | Usually measured in weeks (ESA minimum notice; ESA severance applies only if eligibility criteria are met). | Often measured in months, depending on the employee’s circumstances. |
| Key factors considered | Primarily length of service and specific ESA eligibility thresholds. | Contextual factors such as age, length of service, position, and availability of comparable employment (and other facts like inducement). |
| Benefits during the notice period | Employers generally must continue benefits during the ESA notice period (or compensate where required). | Damages often include compensation for lost benefits (and may include other compensation depending on the package and facts). |
| Bonuses, commissions, and variable pay | May be limited to what the ESA requires and what the employment contract provides. | May be included in damages depending on the plan language, past practice, and court interpretation. |
| When it applies | Applies to most employees, but ESA severance pay applies only if statutory criteria are met. | Applies unless a valid employment contract legally limits the employee to ESA minimums. |
| Can it be limited by contract? | Not below ESA minimums. | Yes, but only if the termination clause is enforceable and compliant with the ESA. |
| Can employees waive it by signing a release? | ESA minimums generally cannot be waived below statutory requirements. | Common law rights can often be released/waived by signing a release as part of a settlement. |
| Practical takeaway | Useful for understanding minimum legal obligations. | Often the framework that determines whether an offer is reasonable and whether more may be owed. |
The ESA establishes a minimum floor. Common law severance reflects what Ontario courts consider reasonable notice, based on the employee’s circumstances.
In practice, common law severance frequently exceeds ESA minimums, sometimes by several multiples.
How Severance Pay Is Calculated in Ontario
Ontario courts calculate severance using what are known as the Bardal factors:
- Length of service
- Age at termination
- Character of employment (seniority, specialization)
- Availability of comparable employment
- Whether the employee was induced to leave secure employment
Example:
A 55-year-old manager with 15 years of service may receive 14–20 months of severance.
A 32-year-old employee with 2 years of service may receive 3–5 months.
There is no fixed formula.
Wondering if your severance offer is fair?
Many employees seek legal advice at this stage to confirm whether a severance offer reflects their full entitlement.
Get your severance offer reviewedWhy Severance Pay Calculators Often Underestimate Ontario Entitlements
Online severance calculators typically estimate statutory minimums only. They cannot account for the legal factors Ontario courts rely on, such as age, seniority, or labour market conditions.
Severance charts and “weeks-per-year” formulas can therefore be misleading. Courts do not calculate severance mechanically, and outcomes often vary widely.
Ontario courts routinely award severance well beyond calculator estimates, particularly for older or senior employees.
Termination Entitlements Comparison
| Years of Service | ESA Minimum | Possible Common Law |
|---|---|---|
| 5 years | 5 weeks | 5–8 months |
| 10 years | 8 weeks | 8–14 months |
| 20 years | 8 weeks | 18–24 months |
Lump Sum vs Salary Continuation: How Severance Is Paid in Ontario
Severance may be paid as a lump sum or through salary continuation. Each option carries legal and practical implications, including benefit continuation, tax treatment, and mitigation obligations.
The structure of severance can affect the total value of the package, even when the dollar amounts appear similar.
📌 Further Reading
Is Severance Pay Mandatory in Ontario?
Severance pay is mandatory in Ontario in some circumstances under the ESA. However, even when ESA severance is not required, employees may still be entitled to severance under common law.
Whether severance is owed depends on how the employment ended, the length of service, and whether a valid employment contract limits entitlement.
Termination Without Cause and Severance Pay
Most severance entitlements arise from termination without cause. In these situations, employers must provide reasonable notice or pay in lieu.
The amount of severance depends on legal entitlement, not employer discretion.
Is Severance Pay Taxable in Ontario?
Severance pay is generally taxable, though the tax treatment can vary depending on how payments are structured.
Some severance amounts may qualify as retiring allowances, which can affect taxation and rollover options.
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 |
Need Help With Your Severance Pay or Termination?
It may be appropriate to seek legal advice if:
- you are asked to sign a release
- your severance offer is based on ESA minimums
- your role was senior or specialized
- you were induced to leave prior employment
Reviewing a severance offer before accepting it can help ensure your legal rights are preserved.
Call Toll-free: 1-800-771-7882
Related Ontario Severance Topics
- Is severance pay mandatory in Ontario?
- What is Common Law Severance in Ontario?
- Ontario Severance Pay Chart (ESA Minimums Only)
- Ontario Severance Pay Calculator: Why Online Estimates Are Often Wrong
- Bardal Factors: They’re Only Part of the Severance Story
- Lump Sum vs. Salary Continuance: Which Severance Option Is Better?
- Can I Negotiate My Severance Package? What Employees Should Know
A Quick Look at Our Client’s Story
After working for years in a demanding role, our client was offered a severance package that didn’t reflect their contributions or length of service. Unsure whether to accept, they reached out to our team. Our severance lawyers reviewed the offer, identified areas for improvement, and successfully negotiated better terms helping our client move forward with greater financial security.
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. ©