How to Calculate Severance in Ontario

Question: How much severance am I owed in Ontario?

Lawyer Answer: The first thing we do when calculating how much severance an employee in Ontario is entitled to is to check their employment contract for a termination clause. If the employee has a termination clause in their contract, then we determine what it promises in case of termination. We also check to see if the termination clause is enforceable. If the termination clause says the employee is entitled to one month of severance per year of service, and it is written properly without any errors that make it void, then we advise the employee he gets seven months of severance if he worked seven years. It’s that simple.

However, if there is no termination clause or if the termination clause is void for some reason, then the ‘common law’ of severance (also known as ‘reasonable notice’) applies to the termination.  In calculating how much ‘common law severance’ an employee is owed, we look at several indicators the court emphasized in a famous case called Bardal v. Globe & Mail Ltd.:

There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

No Rule of Thumb to Calculate Severance

Thus, there is no fixed formula, rule of thumb or calculators for accurately calculating what constitutes reasonable severance. There are only ‘factors’ we rely on to calculate what is reasonable severance. Those factors are the principles enunciated by the courts in previous cases with similar facts. However, as stated in the quote above from Bardal, the most important factors are the employee’s:

1. character of employment (i.e. job);
2. length of service;
3. age; and
4. the availability of similar employment having regard to the experience, training and qualifications of the employee.

Yet, there are hundreds of other factors the courts have used in calculating reasonable severance. Any fact that generally affects how long it will take an employee to find comparable employment again may be relevant. For example, some severance factors chosen at random include:

• Specialization and status;
• Industry in recession;
• Custom in industry;
• Failure of employer to assist employee;
• Existence of a non-competition agreement; and
• Whether the employee was induced away from secure long-term employment.

Once we have our client’s severance ‘factors’, we look at past case law with similar factors in play to find a range of reasonable severance (i.e. we review the client’s factors and search the case law for cases with similar factors to learn that the case law has a severance period range of, for example, 7-12 months as awarded in similar cases). The employee’s lawyer will cherry-pick analogous cases at the high end of the range (i.e. 12 months), and the employer’s lawyer will do the same exercise and then cherry-pick analogous cases at the low end of the range (i.e. 7 months). In the result, the parties may agree to settle at the end of the day somewhere in the middle of the range (i.e. 10 months in this example).  

Read our info-graphic on average severance in Ontario.

Example: Calculating Severance

Now that we know the basics to determine how much severance an employer owes an employee, let us analyze and interpret an example case. Consider Mr. Smith, who worked for five years at his employer, who is age fifty, who earned relatively high compensation of $150,000 as an IT manager for a major telecommunications company.

Mr. Smith’s lawyer would argue that Mr. Smith is a technical and skilled professional which is a leading indicator that courts have consistently held favours a longer notice period. All things being equal, it will be more difficult for Mr. Smith to find comparable employment than most others because there are less IT manager jobs advertised than regular jobs.

Mr. Smith’s lawyer would also argue that Mr. Smith’s IT focus and training is quite narrow, and therefore he is entitled to more notice. Positions in specialized fields like IT for major telecommunications companies occupy a small segment of the broader IT employment market. Therefore, individuals whose skills are tailored to such narrow fields struggle to find comparable employment given the limited number of opportunities available.

Moreover, Mr. Smith’s lawyer would argue that there are a limited number of employment opportunities with salaries as high as what he earned at his former employer. As a result, Mr. Smith may find it difficult to find a position which offers similar compensation. Therefore, the notice period should be long.

In addition, Mr. Smith’s lawyer would argue the fact that Mr. Smith was a senior manager, who had subordinates, engenders a longer notice period since he may not find other employment at the same level of responsibility ever again. This is especially true in case the employee is older. Employers tend to hire managers from within which tends to skew towards younger hires; not to mention there may be a bias against older employees.  

Lastly, Mr. Smith’s lawyer might argue that Mr. Smith moved all the way from Alberta to take the job in Toronto and would have to plant roots back in Alberta, which should lengthen the notice period.

In conclusion, Mr. Smith’s lawyer would argue that in consideration of the above-noted factors, and in light of analogous case law, Mr. Smith is entitled to about twelve months’ severance. To back up this claim, the lawyer would do case law research with relatively similar factors to analogize Mr. Smith’s case to a past decision where a judge agreed with her estimate of 12 months severance. To that effect, there is actually a Canadian case, Nicholls v. Richmond (Municipality), with very similar facts that had the same severance award as the estimate for Mr. Smith:

• Employee’s occupation category: Professional
• Age of employee at time of termination: 50 years
• Employee’s number of years/months of employment: 6.5 years
• Notice period awarded: 12 months

And that is how we calculate severance in Ontario.