What makes a good severance offer?Team
If your employer has decided to terminate your employment, they may be required to compensate you with what is called “severance pay”.
The amount of severance pay you should receive in Ontario is determined by looking at our common law and the Employment Standards Act, 2000 (ESA)
An employee’s ESA entitlements are non-negotiable and cannot be withheld by an employer upon termination.
Severance under the ESA
Ontario’s ESA guarantees your minimum statutory severance pay.
If you have been continuously employed for at least 3 months, you are owed one week’s pay per year of employment with the company, with a maximum of eight weeks’ pay for 8 or more years working.
An employee is also owed an additional one week’s pay per year of service if:
- they have 5 or more years of service, and either
- the employer has a payroll of $2.5 million per year; or
- 50 or more employees are losing their jobs over 6 months.
The maximum amount of severance pay you can receive under the ESA is 26 weeks’ pay.
Common law severance pay (Common law)
The ESA prescribes minimum standards for severance pay, and the common law supplements those minimums by providing for pay in lieu of a “notice period” that is calculated based on a series of factors. The authority which laid down the factors for calculating the length of the notice period is Bardal v. Globe & Mail Ltd. These factors, known as the “Bardal factors”, are:
- length of employment
- employee’s age
- job title and position
- availability of employment
- any other relevant factors.
Under these factors, employees with specialized skills may also be entitled to a longer notice period. Also, the reason why age is taken into consideration when calculating the notice period is that older employees tend to have a harder time securing a new position.
How to determine which severance pay applies to you
Generally speaking, employees in Ontario are implicitly entitled to common law severance pay unless they have a termination clause in an employment contract that says explicitly all they get is ESA severance.
Thus, if you have a contract, it is important to review your termination clause, because there may be wording that limits your common law entitlements or prescribes a formula telling you how much severance you are entitled to.
Maximum severance pay in Ontario
The maximum amount of common law severance pay an employee may be entitled to receive is generally capped at 24 months’ pay.
On certain occasions, employers will try to use the employment contract to reduce or eliminate the amount of severance pay owed to the employee under common law. The termination clause in your contract may restrict you to your minimum entitlements under the ESA. However, some employers have poorly drafted termination clauses or fail to update their termination clauses when updates to the law occur; this could potentially lead to the employment contract not being enforceable. Thus it is extremely important to check your contract in the event that you have one, as depending on what it says your employer may have to provide you with a generous severance package.
How do you collect your severance pay?
Please keep in mind that if you were let go from your job and you wish to pursue your FULL severance rights, contact the Ministry of Labour. They will only help you obtain your severance pay under the ESA, but they cannot help you get a full common law severance package.
In Ontario, when employers terminate employees, they are obligated to pay an employee their ESA entitlements no matter what. However, if an employee is entitled to common law reasonable notice beyond the ESA pay they received, they can still sue their employer for wrongful dismissal.
Determining an employee’s common law entitlements is a complex and nuanced task requiring specialized knowledge of employment law. Employees need to know what their entitlements could be at common law to negotiate terms in their favor. In some cases, employees could potentially be entitled to additional damages on top of their severance depending on the employer’s conduct.
If you are an employer seeking information about proper dismissals, or an employee who has been dismissed, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at 1 (800)771-7882 or email us at [email protected], and we would be happy to assist.