In Ontario in 2023, “severance pay” has three different meanings to people, but they all mean essentially this: Severance is the pay someone gets when they are terminated from work.
First, traditionally, severance means (1) “statutory Ontario severance pay”. Second, severance pay in Ontario can mean what most people think of when they picture severance, which is (2) “common law Ontario severance pay”. Lastly, the third kind of severance people think of in Ontario is (3) “severance pay according to an employment contract”.
- “Statutory Ontario severance pay”. This kind of severance pay in Ontario is a statutory requirement, meaning it is imposed by a statute (i.e. the Employment Standards Act) enacted by the government, and must always be paid if applicable. It is a minimum standard, just like minimum wage or overtime, vacation pay, etc. Statutory severance is a simple formula. If you qualify for statutory severance pay in Ontario, you get 1 week of severance pay for every year of service, up to a maximum of 26 weeks. Read more about statutory severance pay in our guide.
- “Common law Ontario severance pay“. This kind of severance is the pay an employer must give an employee to compensate him for the time it will reasonably take him to find comparable work. There is no formula. Rather, the amount of time (i.e. pay) an employee gets is based on past cases, i.e. the common law. Read more about common law severance pay in 2023 in our guide to common law severance pay.
- “Severance based on a termination clause in a contract”: This kind of severance gives a terminated employee in Ontario termination pay according to a formula contained in a termination clause in a contract. It may provide for exactly the statutory minimum or something more. For example, a termination clause may say the employee gets two weeks of severance pay per year of completed service instead of statutory severance pay or common law severance. Read our guide to a termination clause.
How do I know which kind of severance pay in Ontario applies to me in 2023?
Check your employment contract for a termination clause. If you have a termination clause in your employment contract, then (3) may apply, as there may be some kind of formula telling you how much severance you are entitled to.
Statutory severance (2) only applies to you if your contract specifically says all you get is statutory severance only.
If you do not have an employment contract or if you have an employment contract that does not contain a termination clause, then “common law Ontario severance pay” (1) applies to you. The common law applies by default unless your contract says otherwise. This is why it is very important to have your severance package reviewed by a lawyer in person or on the phone.
I have a termination clause. Is my termination clause enforceable?
Perhaps not. Many termination clauses are not enforceable if they are ambiguous or attempt to limit an employee to something less than statutory minimum standards. Read our article on termination clauses for more information as to why your termination clause may not be enforceable. There are several examples of how to get out of a termination clause and get the common law right to severance instead.
How to calculate common law Ontario severance pay in 2023?
If you are entitled to common law severance in Ontario (as most employees in Ontario are), you may be able to receive far more severance than statutory severance.
Calculating common law severance in Ontario is an art, not a science. There is no formula or calculator that says you get something like one month of severance for every year worked. Indeed, you could be entitled to many months of severance for every year worked or just a few weeks. For instance, in a recent case, Drepaul v Mikla Foods Canada ( 2019 ONSC 2387), the court awarded a 3-year employee in the position of Coordinator earning $80,000 a year with eleven months’ severance. In other cases, employees with several years of service only got one to three months’ severance.
To calculate common law severance in Ontario, judges analyze certain factors that were articulated in a case called “Bardal“. These important Bardal factors that examine how much severance pay you are entitled to are:
- age; salary; position; years of service; experience, training, qualifications; and
- the availability of similar employment; plus
- any other special circumstances affecting your ability to find a comparable job.
Employment lawyers review each factor to determine how long it will take you to find comparable employment and thus calculate your severance pay entitlement in Ontario in 2023. For example, the older you are or the more money you make, the harder it will be to get a comparable job. Therefore, you could be entitled to a larger severance package in 2023 in Ontario if you were close to retirement age and made over $100,000. This is just one example, there are hundreds of other ways to increase your entitlement to severance in Ontario in 2023. Read more in our guide to calculating severance.
What if I haven’t been provided with enough severance pay by my employer?
Then it is a “wrongful dismissal” and you could be entitled to other employment law remedies.
Click here to read more about wrongful dismissal. Click here for wrongful dismissal examples.
What is something called “notice” or “pay in lieu of notice”?
Generally, “notice” is just another word for severance. “Notice” or “reasonable notice” is basically the same thing as severance. Notice is the amount of time of warning an employee deserves before their job is terminated. Severance is essentially just the pay in lieu of that notice that an employer can provide instead. Read our guide to notice.
What about “termination pay”?
Termination pay in Ontario is the same thing as common law severance pay. Call it whatever you like: severance, termination pay or pay in lieu of notice – it is all the same thing. ‘Severance’ or ‘termination pay’ or ‘pay in lieu of notice’ is the amount of money you get when you are terminated from your employment. Thus, calculating termination pay in Ontario in 2023 is the exact same as calculating severance pay in Ontario in 2023.
Read our Severance Pay in Canada FAQ for more information about severance pay in Canada and Ontario.
Severance Pay (2023)
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Jeff is a lawyer in Toronto who works for a technology startup. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles. Jeff is interested in Canadian business, technology and law, and this blog is his platform to share his views and tips in those areas.