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Severance Pay in Ontario: What You Are Owed and How to Get It
If you have been let go in Ontario, one of the first questions is: how much severance pay are you owed? Most employees are offered less than their legal entitlement. In many cases, the difference between what an employer offers and what a court would award is significant, sometimes measured in months of additional pay.
This article explains how severance pay works in Ontario, how it is calculated, what the minimum entitlements are under the Employment Standards Act, 2000, and when common law severance may entitle you to significantly more.
Before you accept your severance package, read this.
Accepting a severance offer may limit your right to additional compensation. Most offers reflect only the ESA minimum, not your full entitlement under common law. Strict deadlines can apply. Speak with an employment lawyer before signing anything.
Call: 1-866-698-7510 Have Your Severance ReviewedWhat is severance pay in Ontario?
In Ontario, "severance pay" is commonly used as a general term for compensation paid when employment ends without cause. Legally, it can include termination pay or pay in lieu of notice, continuation or compensation for lost benefits, and additional damages under common law. The label an employer uses does not determine entitlement. Courts look at the substance of the termination, not how the payment is described.
There are two distinct frameworks that govern severance in Ontario: the statutory minimum set by the Employment Standards Act, 2000, and the common law standard set by Ontario courts. Understanding the difference between them is essential before accepting any offer.
ESA vs. common law severance in Ontario
The ESA sets a floor. Common law determines what is actually reasonable. In practice, common law severance frequently exceeds ESA minimums, sometimes by several multiples.
| Feature | ESA minimum | Common law severance |
|---|---|---|
| Source | Ontario's Employment Standards Act, 2000 | Judge-made law based on court decisions |
| Purpose | Statutory floor of minimum notice or termination pay | Reasonable notice based on individual circumstances |
| Typical period | Weeks, capped at 8 weeks notice plus up to 26 weeks ESA severance | Often months, up to 24 months or more |
| Key factors | Primarily length of service and ESA eligibility thresholds | Age, length of service, position, availability of comparable work |
| Benefits | Employer generally must continue benefits during ESA notice period | Damages often include compensation for lost benefits |
| Bonuses and commissions | Limited to ESA requirements and contract terms | May be included depending on plan language and past practice |
| Can it be limited by contract? | Not below ESA minimums | Yes, but only if the termination clause is enforceable and ESA-compliant |
| Practical takeaway | Understand your minimum legal obligations | Determines whether an offer is reasonable and whether more is owed |
How is severance pay calculated in Ontario?
Ontario courts calculate common law severance using what are known as the Bardal factors. There is no fixed formula. The amount awarded depends on the combination of factors specific to each employee.
Length of service
Longer service generally results in a longer notice period and higher severance.
Age at termination
Older employees typically receive longer notice, reflecting greater difficulty finding comparable work.
Character of employment
Seniority, specialization, and level of responsibility all influence the severance amount.
Availability of comparable employment
A difficult job market or specialized role can increase the reasonable notice period.
Inducement
If you were recruited away from secure employment, this may increase your entitlement.
Typical common law severance ranges in Ontario
While every case depends on its facts, general ranges based on years of service provide a useful reference point. These are common benchmarks, not guarantees.
2 to 6 months
6 to 12 months
10 to 18 months
Up to 24 months
Not sure if your severance offer is fair?
Most severance offers reflect only the ESA minimum. A review by an employment lawyer can tell you what you are actually owed and whether your package can be negotiated.
Have Your Severance Reviewed Or call us: 1-866-698-7510Minimum severance pay in Ontario under the ESA
The following chart sets out the minimum notice and severance pay entitlements under the Employment Standards Act, 2000. These are the statutory minimums only. Most employees are entitled to significantly more under common law.
| Years of service | Minimum notice required (ESA) | ESA severance pay (if eligible) |
|---|---|---|
| Less than 1 year | 1 week | Not applicable |
| 1 year | 2 weeks | Not applicable |
| 2 years | 2 weeks | Not applicable |
| 3 years | 3 weeks | Not applicable |
| 4 years | 4 weeks | Not applicable |
| 5 years | 5 weeks | 5 weeks |
| 6 years | 6 weeks | 6 weeks |
| 7 years | 7 weeks | 7 weeks |
| 8 or more years | 8 weeks (maximum) | Up to 26 weeks based on length of service |
ESA severance pay applies only where the employer has a payroll of $2.5 million or more, or where the employment of 50 or more employees is severed in a 6-month period. Eligibility criteria apply.
ESA minimum vs. common law: what the difference looks like in practice
| Years of service | ESA minimum | Possible common law |
|---|---|---|
| 5 years | 5 weeks | 5 to 8 months |
| 10 years | 8 weeks | 8 to 14 months |
| 20 years | 8 weeks | 18 to 24 months |
Why online severance calculators often underestimate your entitlement
Online severance calculators typically estimate statutory minimums only. They cannot account for the legal factors Ontario courts rely on, such as age, seniority, or labour market conditions. Severance charts and weeks-per-year formulas can be misleading. Courts do not calculate severance mechanically, and outcomes vary widely based on individual circumstances. Ontario courts routinely award severance well beyond calculator estimates, particularly for older or senior employees.
Lump sum vs. salary continuation
Severance in Ontario may be paid as a lump sum or through salary continuation. Each option carries different legal and practical implications, including benefit continuation, tax treatment, and mitigation obligations. The structure of severance can affect the total value of the package even when the dollar amounts appear similar. Before agreeing to either structure, get legal advice on which option better protects your interests.
Is severance pay mandatory in Ontario?
Severance pay is mandatory in Ontario in some circumstances under the ESA. However, even when ESA severance is not required, employees may still be entitled to severance under common law. Whether severance is owed depends on how the employment ended, the length of service, and whether a valid employment contract limits entitlement. Termination for just cause, where proven, may eliminate the entitlement to notice or severance entirely — but the bar for just cause is high.
Is severance pay taxable in Ontario?
Severance pay is generally taxable, though the tax treatment can vary depending on how payments are structured. Some severance amounts may qualify as retiring allowances, which can affect taxation and rollover options into an RRSP. Speaking with both an employment lawyer and a tax advisor before finalizing a severance structure is advisable.
Frequently asked questions about severance pay in Ontario
How much severance pay am I entitled to in Ontario?
It depends on your age, position, length of service, and ability to find comparable employment. While the Employment Standards Act, 2000 sets minimum entitlements, many employees are owed significantly more under common law, often measured in months rather than weeks. The only way to know your full entitlement is to have your situation reviewed by an employment lawyer.
Is severance pay mandatory in Ontario?
ESA termination pay is mandatory for most employees dismissed without cause. ESA severance pay is mandatory only where specific eligibility thresholds are met. Common law severance may apply regardless of ESA eligibility, unless a valid employment contract limits entitlement to the statutory minimum.
Can I negotiate my severance package?
Yes. Most initial severance offers are a starting point, not a final number. An employment lawyer can assess what you are owed and negotiate on your behalf before you sign anything. Once you sign a release, you generally cannot go back for more.
What is the difference between ESA severance and common law severance?
ESA severance is a statutory minimum calculated primarily on length of service and subject to eligibility criteria. Common law severance is determined by Ontario courts based on the Bardal factors including age, role, and job market conditions, and frequently results in significantly higher amounts.
How is severance pay calculated in Ontario?
For ESA purposes, termination pay is calculated based on weeks of service up to the statutory cap. Common law severance is calculated using the Bardal factors with no fixed formula. Courts assess each case individually, which is why two employees with the same years of service may receive very different amounts.
Should I accept my severance offer right away?
No. You are not required to accept immediately, and acting too quickly can cost you significantly. Before signing any release, have your entitlement reviewed by an employment lawyer. In most cases, there is room to negotiate a higher amount.
How long do I have to accept a severance offer?
There is no fixed deadline under Ontario law, but limitation periods apply to employment claims. Waiting too long can affect your ability to pursue additional compensation. Acting promptly while taking the time to get legal advice is the right approach.
Is severance pay taxable in Ontario?
Yes, severance pay is generally taxable as employment income. However, some amounts may qualify as retiring allowances, which may allow for RRSP rollovers and different tax treatment. A tax advisor and an employment lawyer can help you structure severance to minimize your tax exposure.
Find out what you are actually owed
If you have been terminated in Ontario and are reviewing a severance offer, our employment lawyers can tell you whether it reflects your full legal entitlement and negotiate on your behalf before you sign anything. Most consultations result in a higher offer.
Call us at 1-866-698-7510 or fill out the form below for a confidential consultation.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©