Almost everyone in Ontario is entitled to ‘severance pay’ unless that person is terminated for just cause. However, keep in mind that there are two kinds of severance pay:
- Common law severance pay; and
- Statutory severance pay.
Who gets common law severance pay? Almost everyone has a right to common law severance pay unless they have a valid and enforceable termination clause limiting their right to common law severance pay.
Who gets statutory severance pay? Everyone who worked for 5 years at an employer with a $2.5 million dollar payroll is entitled to statutory severance pay as per section 64 of the Employment Standards Act.
What is the difference between common law severance pay and statutory severance pay?
Common law severance pay is a range of pay in lieu of ‘reasonable notice‘ (reasonable notice is the actual term for what common law ‘severance’ is). Statutory severance pay is simply one week’s pay for every year of service.
Calculating common law severance pay is an art, not a science. No one case is the same. The amount of common law severance pay someone is entitled to depends on any number of factors determining roughly how long it will take them to reemploy in a comparable job, especially:
- Years of service; and
The maximum amount of severance pay is around 24-30 months. The minimum amount of severance pay is around six-twelve weeks even if the employee only worked one hour because everyone takes at least about six weeks to find a new job, and that is when common law severance pay is designed to make the employee whole until.
The only caveat to common law severance pay is that some employees may have a termination clause in their employment contract that limits their right to common law severance pay to just the statutory severance amount or some kind of formula greater than statutory severance but less (or even more) than common law severance. However, sometimes the termination clause may be void for any number of reasons and therefore the amount of severance the employee gets defaults back to the common law severance amount.
Do employees get both common law severance pay and statutory severance pay?
Employees can be entitled to both common law severance pay and statutory severance pay, but most severance packages just include an amount of pay in lieu of reasonable notice that captures both the statutory and common law severance amounts into one offer. For example, if an employer offers the terminated employee 9 months’ of reasonable notice, that may actually be 9 weeks statutory severance and 27 weeks common law severance (i.e. 9 months total). Also, for example, if an employee sues for more severance, the judge typically just grants a single amount of severance globally without reference to statutory severance, but it’s not as if the judge refused to award statutory severance. Thus, when employment lawyers make offers to settle severance cases, they typically just offer X amount of months’ severance, not an amount broken down into both statutory and common law severance. That is all to say that, yes, employees get both statutory and common law severance, but often the final amount of severance they get does not differentiate between both common law and statutory severance.
Think of it this way – if the maximum severance an employee is entitled to is 24 months, then she does not get 24 months common law severance and 24 weeks of statutory severance.
Final note: the Ministry of Labour cannot award common law severance.
High earning employees should not demand severance from their employer through the Ministry of Labour. The Ministry of Labour only has the ability to enforce statutory severance, it has no power to enforce common law severance. Thus, and this is not a sales pitch, but rather sound practise, high earning employees should never go through the Ministry of Labour for severance pay. Once they complain to the Ministry of Labour, they cannot then hire a lawyer and sue for common law severance. This could cost the employee many months of severance because typically common law severance is worth far more than statutory severance. Thus, only low-earning employees with short service should go through the Ministry of Labour for severance as the Ministry of Labour is free and it might not be worth it to hire a lawyer for a small amount of common law severance.
Almost everyone is entitled to severance
In summary, almost everyone is entitled to severance unless they were terminated for just cause or they have a valid and binding termination clause in their contract that stops them from getting common law severance somehow. In any event, every single person in Ontario is entitled to statutory severance if they worked for their employer for five+ years and their employer has a 2.5 million dollar payroll.
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.