Common Law Severance in Ontario vs Statutory Severance
When employees are dismissed from their jobs without cause in Ontario, they are entitled to notice or pay in lieu of that notice under employment law. This compensation helps bridge the financial gap while they seek new employment. However, there is often confusion around the term “severance.” Many people mistakenly believe that all termination pay is severance pay, but in reality, severance pay only applies in specific circumstances. This article will clarify the differences between statutory severance and common law severance in Ontario and explain why it is important to understand these distinctions. Statutory severance pay is a specific entitlement for employees who have worked for five or more years with an employer having a payroll above $2.5 million, defined as one week’s pay for each year of service.
What Is Severance Pay in Ontario?
Severance pay is a specific type of compensation mandated by the Ontario Employment Standards Act (ESA), including statutory severance pay, which is a specific entitlement for employees who meet certain criteria. These are the minimum entitlements that employees must receive under the law. Under the ESA, severance pay is owed to employees when their employment is terminated under certain conditions:
- Eligibility Criteria
- The employee must have been employed for at least five years.
- The employer must have a payroll of $2.5 million or more, or the termination must involve a mass layoff of 50 or more employees within a six-month period.
- Statutory severance pay is defined as one week’s pay for each year of service.
- Amount of Severance: Employees are entitled to one week of regular pay per year of service, up to a maximum of 26 weeks. This is separate from any termination pay owed under the ESA but can be deducted from amounts owed under common law.
What Is Statutory Termination Notice?
Statutory termination notice is another minimum entitlement under the Ontario Employment Standards Act. When an employee is dismissed, employers must provide notice or pay in lieu of notice based on the employee’s length of service:
- Less than one year: 1 week of notice or pay.
- 1 to 2 years: 2 weeks of notice or pay.
- More than 2 years: 1 additional week per year of service, up to 8 weeks.
These statutory minimums can be limited by a well-drafted employment contract, but without such a contract, the employee may be entitled to common law notice. In the absence of a well-drafted employment contract, employees may be entitled to reasonable notice, which often exceeds statutory minimums.
What Is Common Law Severance in Ontario?
Common law severance in Ontario refers to the notice or pay in lieu of notice, known as common law reasonable notice, that an employee is entitled to under common law, which typically exceeds the statutory minimums provided by the Employment Standards Act. Unlike statutory severance, common law severance is not capped and is determined by various factors, including:
- Length of Employment: Longer service generally results in longer notice periods.
- Age of the Employee: Older employees may receive more notice due to the greater difficulty they may face in finding new employment.
- Position and Responsibilities: Higher-level employees or those with specialized skills may be entitled to more significant compensation.
- Availability of Comparable Employment: If similar jobs are scarce, the employee may receive a longer notice period.
The common law severance package is determined by various factors, including length of employment, age, and position.
The amount of common law severance pay is often determined by court decisions in similar cases, making it more personalized and potentially much higher than statutory entitlements.
Why Common Law Severance Matters in Ontario
Understanding common law severance in Ontario is crucial for both employers and employees. Consulting with severance lawyers can help employees understand their rights and ensure they receive fair compensation. Employers need to be aware of their potential liabilities, while employees should understand their rights to ensure they receive fair compensation upon dismissal. Understanding how much severance pay you are entitled to can make a significant difference in your financial stability after termination. Since common law severance can significantly exceed statutory minimums, it is advisable for employees to consult with an employment lawyer before accepting any termination offer. Similarly, employers should seek legal advice to ensure they are meeting their obligations and minimizing the risk of litigation.
Conclusion
Severance entitlements in Ontario can be complex, with significant differences between statutory and common law severance. Reviewing the termination clause in your employment contract is crucial to understanding your severance entitlements. For employees facing dismissal, understanding these differences can help ensure they receive the full compensation they are entitled to. For employers, being informed about these obligations can help avoid costly legal disputes. If you have questions about common law severance in Ontario or need assistance with a workplace termination, consulting a knowledgeable severance lawyer is a wise first step.
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