Common Law Severance and Statutory Severance
When employees are dismissed from their jobs without cause, they’re entitled to notice in advance of their dismissal or pay instead. This amount is to compensate for the time they’ll need to find new work. The term “severance” is often misused in discussions about entitlements to pay when an employee is dismissed. Severance only applies in some limited circumstances and instead the more accurate term is to describe the payments due on dismissal is “termination pay”. Termination pay is the amount of money that is paid to dismissed employees instead of giving them notice in advance of the separation date. This article explains the difference between statutory severance and common law severance, and how these terms are often misinterpreted.
What is Severance Pay?
Severance is an amount of pay that is owed to employees at the separation date from their employment. It is a requirement for Employers under the Ontario Employment Standards Act which establishes the minimum standards of employment in Ontario’s provincially regulated jobs.
The entitlement to severance pay includes the following:
- The employer has dismissed the employee from their employment or lays them off for a period of 35 weeks or more;
- The employee was employed for 5 years or more; and one of the following exists:
- The severance of employment happened in a mass termination of 50 or more employees in a 6 month period; or
- The employer has a payroll of $2.5 million or more.
The amount of severance pay owed to eligible employees is 1 week of regular pay per year of service, pro-rated to the number of completed months for a maximum of 26 weeks of pay. Severance pay is paid to an employee separately from any termination pay owed to an Employee under the Employment Standards Act but it can be deducted from any amounts owed to an employee at common law.
What is Statutory Termination Notice?
Statutory notice is also part of an employee’s minimum entitlements under the Ontario Employment Standards Act. This entitlement requires employers to provide notice or pay instead of notice to employees when they’re dismissed. The amount of notice or pay in lieu of notice depends on the length of the employee’s service with their employer and the calculation of notice would be owed as follows:
- Less than a year of employment – 1 week of regular pay;
- 2 weeks of regular pay for 1 to 2 completed years of employment; and
- 1 additional week per completed year of employment, up to 8 weeks of pay
To only be liable for an employee’s entitlements at dismissal at the above amounts, the Employee’s contract must specifically restrict other entitlements such as those at common law. Upon dismissal, employers also have the option of providing “working notice” where the employee would work for the above period of time.
What is Common Law Notice?
Common Law notice is the entitlement to advance notice or pay in lieu for the dismissal of an employee. Generally, common law entitlements are higher than the minimum owed to employees under the Employment Standards Act. The amount of pay owed to the employee at common law is based on past legal cases for similar employees that have been decided through the courts. The amount of common law notice is based on many factors including the following:
- Length of employment;
- Age of the Employee;
- The degree of responsibility and Employee’s level of training and education; and
- The availability of similar jobs
To enforce these entitlements, Employees may need to sue their employers for the appropriate amount of termination pay. Employers will often try to keep termination pay at common law to a minimum and suing is one way that Employees can enforce the amounts they’re owed.
Overall, entitlements upon dismissal can be much greater than most think. Whenever an employee is dismissed and given an offer of compensation at the end of employment, it’s best for employees to get competent legal advice of their entitlements and best options. And for employers, consulting an employment lawyer to ensure you are offering the appropriate entitlements can help avoid liability.
Are you a recently dismissed employee seeking fair compensation for your hard work? Perhaps you’re an employer dealing with a wrongful dismissal claim? Our team of seasoned employment lawyers at Achkar Law is here to champion your cause and secure the justice you deserve.