Severance Pay: The Impact of Length of Service on Entitlements
Severance pay is a crucial aspect of employment termination that provides financial support to employees who lose their jobs. In Ontario, the entitlement to severance pay is influenced by various factors, with the length of service of the employee being a significant consideration.
This article will define severance pay, how an employee’s length of service impacts an employees entitlements in Ontario, and how an employment lawyer can help.
What is Severance Pay?
In Ontario, severance pay refers to the compensation owed to eligible employees when their employment is severed. Severance provides financial support for long-term employees when their employment has been severed. Employment is severed when job loss arises, including from the following circumstances:
- An employer becomes bankrupt or insolvent.
- An employer terminates an employee’s employment.
- An employee is constructively dismissed and resigns.
- An employee is laid off for 35 or more weeks within 52 consecutive weeks.
- An employee is laid off due to the permanent closure of a business.
The Employment Standards Act (ESA) regulates severance and termination pay in Ontario. It sets out the minimum entitlements employers legally owe eligible employees upon termination or a layoff. According to the ESA, two requirements must be met for an employee to qualify for severance pay entitlements. First, employees must have at least five years of service with the same employer. Second, the employer must have a global payroll of $2.5 million, or the employer must have severed the employment of 50 or more employees within six months due to the permanent closure of all or part of the business.
It is essential to consult a lawyer before signing a severance package. Employment lawyers can provide more details based on your unique circumstances and, where applicable, leverage your case to obtain a more generous severance package.
When an employer terminates the working relationship with an employee and does not provide an appropriate severance package, it could expose them to potential liability.
If you are an employer who may owe an employee severance, consult with an experienced employment lawyer to advise you on an employee’s entitlements to reduce your exposure to liability.
How Does Length of Service impact Severance Pay?
The length of service refers to the total period an employee has worked for an employer. The ESA sets out the minimum standards for severance entitlements based on an employee’s length of service.
According to the ESA, an employee with at least five years of service with the same employer is entitled to severance pay upon termination. Severance pay is calculated by multiplying an employee’s wages for a regular work week by their length of service. For severance pay calculations, the length of service includes the completed years and months of employment. For a year that is not completed, the number of completed months is divided by 12 and then multiplied by the weekly wages.
For instance, an employee who has worked for a company for six years and three months would be entitled to 6.25 weeks’ severance. The maximum severance entitlement required by the ESA is 26 weeks of wages.
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Exceptions and Additional Considerations
Exceptions and other factors may impact an employee’s entitlements to severance pay.
Some employees may have individual employment contracts that outline specific severance pay provisions. If the contract provides for more generous severance pay than the ESA, the employee is entitled to the benefit outlined in the contract.
Severance pay is primarily triggered when an employee is terminated without cause. If an employee is terminated for a reason due to serious misconduct or a fundamental breach of their employment agreement, severance pay may not be applicable. The ESA also lists specific roles which are exempt from severance pay.
Unionized employees may have severance provisions negotiated through collective bargaining agreements. These agreements may differ from the ESA requirements and should be reviewed in each case.
It is important to note that an employee must have at least five years of continuous employment with the same employer to be eligible for severance pay under the ESA. Employees with less than five years of service are not entitled to statutory severance pay, although they may still be entitled to termination pay or other benefits if they are let go. Severance is separate from termination pay, the minimum pay an employer must provide to an employee upon termination.
If you are an employee with questions about your severance pay entitlements, consult with an experienced employment lawyer before you sign any documents.
If you are an employer who has questions about your employees’ severance entitlements, an experienced litigation lawyer can help you put together a severance package to reduce your exposure to liability.
Conclusion
In Ontario, the length of service is a crucial factor that impacts an employee’s entitlement to severance pay upon termination. Employees with at least five years of service with the same employer may be eligible to receive severance package, calculated as one week’s wages for each completed year, up to a maximum of 26 weeks.
However, it is essential to consider other factors that may influence severance entitlements, such as individual employment contracts, terminations for cause, and collective agreements. Each case should be carefully evaluated to determine the specific obligations and entitlements based on the applicable laws and agreements.
Employers should be aware of these regulations to ensure compliance with the ESA and avoid potential legal issues. On the other hand, employees should be familiar with their rights to ensure they receive fair and appropriate severance package in case of termination.
Contact Us
If you are an employer or an employee, and need assistance with an employment matter, our team of experienced workplace lawyers at Achkar Law can help.
Contact us by phone toll-free at +1 (866) 553-2024 or email us at [email protected] and we would be happy to assist.
