Ontario Termination Pay
An unexpected termination can be a difficult time for any employee. A key aspect of employment termination is understanding the complexities of termination pay, which can be challenging for both employers and employees. This article seeks to clarify the rules for termination pay in Ontario, ensuring you are well-informed about your rights and responsibilities. Additionally, it is crucial to understand how to calculate termination pay based on salary and tenure. Termination pay impacts both employees and employers at the end of an employment relationship.
What Establishes Notice of Termination of Employment?
Termination pay comes into play when an employer decides to end an individual’s employment.
The Employment Standards Act, 2000 (ESA) defines termination as situations including:
- An employer dismisses an employee, inclusive of circumstances stemming from employer bankruptcy or insolvency.
- An employee faces a constructive dismissal, which occurs when an employer makes a significant change to a fundamental term or condition of an employee’s employment without the employee’s consent, leading them to resign within a reasonable duration.
- An employee is laid off for a longer term than a temporary layoff.
When terminating an employee without cause, the employer is obligated to provide either working notice (notice that the employee will work until a future date when the employment will end) or termination pay (a lump sum payment in lieu of the notice period). This is to ensure the employee is compensated for the loss of employment and has time to transition to new employment.
There are instances where termination is not allowed. For example, employers cannot terminate or penalize an employee if the reason involves the employee exercising their rights under the ESA or if the termination is based on discriminatory grounds protected under the Ontario Human Rights Code.
Who Qualifies for Termination Pay?
Employees terminated without cause or constructively dismissed may be entitled to termination pay. Under the ESA, employees must receive either working notice, pay in lieu of notice, or a combination of both.
Termination pay is a lump sum payment provided in place of the required notice period. However, there are exceptions:
- Employees who have worked for less than three months are not entitled to statutory notice under the ESA.
- Special rules may apply for certain industries, such as construction.
It’s essential to understand the difference between termination pay and severance pay. Termination pay refers to the entitlement for notice period pay, while severance pay applies to longer-serving employees based on ESA criteria.
How to Calculate Termination Pay in Ontario
Under the ESA, employees who have completed at least three months of continuous employment are entitled to one week of notice for each year of service, up to a maximum of eight weeks. Termination pay is typically given as a lump sum but can also be provided through salary continuance or periodic payments.
Here’s a simplified breakdown of termination pay:
- Up to 1 year of service: 1 week of termination pay
- 1 to 3 years of service: 2 weeks of termination pay
- 3 to 8 years of service: Entitlement increases by 1 week per year, up to a maximum of 8 weeks.
For employees entitled to common law reasonable notice, the Bardal factors are used to calculate termination pay. These factors include:
- The nature of the employment
- The employee’s age
- Length of service
- Availability of comparable employment based on the economy and job market
Courts typically award up to 24 months of reasonable notice in certain cases, depending on the individual circumstances.
The Difference Between Termination Pay and Severance Pay
It’s important to distinguish termination pay from severance pay. While termination pay compensates employees for their notice period, severance pay is an additional entitlement based on the ESA for employees who have been with an employer for at least five years and work for a company with a payroll of $2.5 million or more.
Severance pay compensates for long-term service and aims to help employees transition to new opportunities. Like termination pay, severance can be provided as a lump sum or through installments.
Exceptions and Special Rules
The ESA provides statutory minimum entitlements, but these may not apply to all employees. For example:
- Construction workers are not entitled to statutory termination or severance pay under the ESA, but they may be entitled to reasonable notice at common law.
- Employees in temporary layoffs who are laid off beyond a certain period (13 weeks in a 20-week period) may be considered constructively dismissed and entitled to termination pay.
Employers must provide a written notice of termination and comply with all ESA requirements. Failure to follow proper procedures could lead to wrongful dismissal claims.
Conclusion
Understanding termination pay in Ontario is crucial for both employers and employees. The ESA provides clear statutory minimums, but employees may also be entitled to additional compensation under common law depending on their specific circumstances.
For employers, ensuring compliance with the ESA and proper handling of termination and severance pay can prevent costly legal disputes. For employees, knowing your rights to termination pay helps you secure the compensation you are entitled to during a difficult time.
If you are uncertain about your rights or obligations, speaking to a qualified employment lawyer can help you navigate this process with confidence.
Contact Achkar Law
If you are facing employment law challenges, you’re not alone. Our dedicated team of employment law professionals is here to provide you with the support, guidance, and representation you need to navigate through complex legal matters with confidence.
Don’t Wait for Matters to Escalate
Schedule Your Confidential Consultation Today – Reach out to us to discuss your situation in a private and secure setting. Our consultation process is designed to give you the insights and options you need to move forward.
Your initial consultation is the first step towards resolving your employment law concerns.
Call us today toll-free: 1 (800) 771-7882.
Let’s work together towards a positive outcome.
Seeking Help with Termination Pay and Severance Packages?
Related Topics
Vacation Pay in Ontario Explained
Termination Entitlements: Factors Courts Consider
What Kind Of Termination Packages Do Short-Term Employees Get?
