Severance Packages in Ontario: How to Maximize Compensation

Severance packages in Ontario are a total amount employees are entitled to in place of notice if terminated from their employment. In Ontario, several factors are considered to calculate an employee’s severance package. Understanding all the components of a severance package is paramount to negotiating the amount an employee is entitled to and maximizing compensation upon termination.

This article will explain the specific components of severance packages in Ontario, how to get fair compensation, and why you should get severance packages reviewed and negotiated by an experienced employment lawyer at Achkar Law. 

What are the Components of Severance Packages in Ontario? 

Severance packages in Ontario typically consist of an employee’s minimum statutory entitlements under the Employment Standard Act (ESA), and their entitlements at common law. An employee’s ESA entitlements are non-negotiable and cannot be withheld by an employer upon termination.

Severance Packages in Ontario: What are Statutory Termination Entitlements?

The ESA obligates employers to provide employees statutory termination and severance pay, not to be confused with the general term referring to an employee’s entire termination package. 

Termination pay under the ESA is owed to the employee after completing at least three (3) months of service for an employer, starting at one (1) week of working notice or pay in lieu of notice at the employee’s regular earnings rate. Termination pay accrues at a rate of one (1) week per year of service up to a maximum of eight (8) weeks. 

If an employer in Ontario has a global payroll of at least $2.5 million, and an employee has at least five (5) years of service, the employee is additionally entitled to one (1) week per year of service up to a maximum of twenty-six (26) weeks upon termination. 

Employment service periods for the purposes of the ESA include both continuous service and periods of inactive employment with a particular employer. An employee with at least twenty-six (26) years of service could be entitled to up to thirty-four (34) weeks of salary at their regular earnings rate under the ESA. 

What is Common Law Reasonable Notice?

When it comes to severance packages in Ontario, – inclusive of the minimum entitlements under the ESA, an employee may be entitled to common law reasonable notice upon termination. Employees are typically entitled to common law reasonable notice or pay in place of a verbal employment agreement or where there is no enforceable termination clause in their employment agreement restricting their entitlements. 

A court will determine an employee’s reasonable notice period at common law by looking at factors such as the employee’s age, the character of employment, the state of the economy and the employee’s pay. The court may also consider other factors to determine how long it might take for an employee to find a comparable position to the one they were dismissed from. 

An employee could also be entitled to damages for loss of benefits, pension contributions, perks and other forms of income, such as bonuses, prorated for their reasonable notice period. This contrasts with the ESA, where an employee may only be entitled to their regular earnings for the relevant severance periods, any accrued but unpaid wages and vacation pay, and benefits continuation for a maximum of eight (8) weeks. 

The high range of what may be awarded for common law reasonable notice is typically twenty-four (24) months. However, calculation of an employee’s entitlement to common law reasonable notice is an art and not a science – it all depends on the unique circumstances of each employee.  

How Can Employment Lawyers Help Maximize Severance Pay?

Regarding severance packages in Ontario, when employers terminate employees they are obligated to pay an employee their ESA entitlements no matter what. However, if an employee is entitled to common law reasonable notice beyond the ESA pay they received, they can sue their employer for wrongful dismissal. 

Employers can offer employees more than ESA entitlements in exchange for a Full and Final Release. If an employee accepts the additional amounts on the employer’s terms by signing such a release, they cannot bring any legal claims against their employer arising from their employment, including a wrongful dismissal. 

Given that an employee may be entitled to much more than they receive, it is imperative they do not accept offers that fall short of what they may be entitled to. If an employee later finds out that they could have received eight (8) months of notice pay instead of just eight (8) weeks, they would have no way to legally seek that from their employer if they signed. 

Determining an employee’s legal entitlements is a complex and nuanced task requiring specialized knowledge of employment law. Employees need to know what their entitlements could be at common law to negotiate terms in their favour. In some cases, employees could potentially be entitled to additional damages on top of their severance depending on the employer’s conduct! 

Every case turns on independent circumstances. An employment lawyer can help an employee understand whether the offer their employer is making is fair and what can be done to maximize severance packages in Ontario as much as possible. An employment lawyer’s advice and expertise can differ between thirty-four (34) weeks of severance pay and twenty-four (24) months. 

Contact Achkar Law

If you are an employer seeking information about proper dismissals, or an employee who has been dismissed, our team of experienced workplace lawyers at Achkar Law can help.

Contact us by phone toll-free at 1 (800)771-7882 or email us at [email protected], and we would be happy to assist.