What is Severance Pay?

Many people wrongly believe that severance pay is all the money paid to an employee who is dismissed from work. That is not the case. Employees who qualify are entitled to “notice” AND “severance”.

Before an employer may dismiss an employee, it must provide that employee “notice” of the impending dismissal. Usually employers pay the dismissed employee money in lieu of notice. This is generally called termination pay or pay in lieu of notice, and is entirely different than severance.

“Severance”, on the other hand, is money that must be paid to employees on top of notice. It is basically a bonus for those who qualify.

Severance pay is a statutory requirement, meaning it is imposed by statutes (i.e. laws) enacted by the government, and must always be paid if applicable.

Employees regulated by the province of Ontario

Employees regulated by the province of Ontario are entitled to a single payment of severance pay above and beyond notice or termination pay in lieu of notice if they have five years of seniority and the employer has a $2.5-million-dollar payroll. If that is the case, employees are entitled to a payment of one weeks’ pay for every year of service up to a maximum of 26 weeks’ pay. For example, an employee with 12 years’ seniority at a large company would be entitled to 12 weeks’ pay on top of any earnings made during the notice period.

Employees regulated by the federal government

Employees regulated by the Canadian federal government (i.e. telecommunications, transportation, banking, etc.) are also entitled to a single payment of severance pay above and beyond notice or pay in lieu of notice if they have just one year of seniority. If that is the case, employees are entitled to a payment of two days’ pay for every year of service or five days’ pay, whichever is greater. For example, an employee with 12 years’ seniority at a bank would be entitled to 24 days’ pay on top of any earnings made during the notice period.

Severance is just a minimum

Laws regarding severance are just minimum requirements. Most employees have rights under the common law that give them much more money than statutory rights because such rights cannot be enforced by the government. Only courts can enforce these greater rights. Thus, most employees should choose to sue an employer in a court for “wrongful dismissal” rather than collect severance.

Dutton is a Toronto severance law firm. Call us today.