Severance pay in Ontario: minimums vs. what you may really be owed

Two systems, very different numbers

The ESA guarantees minimum entitlements on termination without cause. But unless your contract contains an enforceable termination clause limiting you to those minimums (many don't — courts strike down poorly drafted ones regularly), you're also entitled to 'reasonable notice' under the common law, which is frequently several times the ESA amount.

In practice: the ESA might give you 8 weeks while the common law gives you 8 months. Knowing which applies to you is worth real money.

Termination pay vs. severance pay: don't mix them up

People use 'severance' to mean everything, but Ontario law splits it in two — and you may be owed both.

Termination pay is pay in lieu of the advance written notice the employer was required to give you. Once you've worked at least 3 months, the ESA requires roughly one week of notice per year of service, up to a maximum of 8 weeks. If the employer won't keep you on for that period (working notice), it must pay the equivalent wages instead — and keep your benefits running through the notice period. Most employers pay in lieu; working notice is rare outside of very short tenures.

Statutory severance pay is the extra payment for longer-serving employees: one week per completed year of service (pro-rated for partial years), up to a maximum of 26 weeks, calculated on total compensation — base salary plus commissions, bonuses, and the value of benefits, not just base pay. But it only applies if you have 5 or more years of service AND the employer meets a size test: an Ontario payroll of $2.5 million or more, or 50+ employees severed within a 6-month period.

These two are cumulative: an employee with 6 years at a qualifying employer gets termination pay (6 weeks) plus severance pay (6 weeks). And both are only the floor — the common law can award far more.

ESA termination pay: the basics

If you've worked at least 3 months, your employer must give you advance written notice of termination or pay in lieu: roughly one week per year of service, up to a maximum of 8 weeks. This applies to most non-union employees terminated without cause.

Termination pay is based on your regular wages — and it continues your benefits for the notice period. It is separate from, and in addition to, any severance pay you may also be owed.

ESA severance pay: the extra only some get

On top of termination pay, some employees get statutory severance pay: one week per year of service (pro-rated for partial years), up to 26 weeks. But it only applies if you have 5+ years of service AND either the employer has an Ontario payroll of $2.5 million or more, or 50+ employees were severed within 6 months.

Severance pay under the ESA is calculated on total compensation — base salary plus commissions, bonuses, and the value of benefits — not just base pay.

Common law notice: often the bigger number

Courts assess 'reasonable notice' using the Bardal factors: your age, length of service, the character of your position, and the availability of similar work. Long-service, older, senior, or specialized employees get more — awards commonly reach 12 months and can approach 24 months in exceptional cases.

In practice, each factor pushes the number up or down. Age matters because an older employee typically faces a harder job search. Length of service is the heaviest weight: courts reason that years of loyalty deserve years of runway. Character of employment means seniority and specialization — a manager or a specialist with rare skills gets more notice than an entry-level generalist, because equivalent work is scarcer. And availability of similar work asks what the local labour market actually offered someone with your experience and training.

The award is damages, not continued employment: the employer pays the compensation you would have earned during the notice period — salary, commissions, bonuses that would have vested, and the value of benefits. This is why the release your employer asks you to sign matters so much: it almost always trades away your common law rights for something close to the ESA minimums, in exchange for a short signing deadline designed to rush you.

Does your contract limit you to ESA minimums? Maybe not.

Many Ontario employment contracts contain a termination clause that purports to cap the employee at ESA minimums. A growing share of them are unenforceable. Two cases define the test:

Machtinger v. HOJ Industries (Supreme Court of Canada): a clause that dips below the employment standards minimums in any plausible scenario fails to rebut the presumption of common-law reasonable notice. The clause must never violate the ESA, not just in your case but in any case it could apply to.

Waksdale v. Swegon North America (Ontario Court of Appeal): the contract is read as a whole. If even one termination-related clause could violate the ESA — including the 'termination for just cause' clause — every termination provision in the agreement is void, and a severability clause can't rescue them.

So if you're being offered only ESA minimums, the first question for your lawyer is not the number — it's whether your termination clause survives Machtinger and Waksdale. Many don't.

EI, taxes, and the money behind the number

Separation payments — pay in lieu of notice and ESA severance — are generally allocated to the weeks following your last day of work, which can delay when Employment Insurance benefits begin. They don't automatically disqualify you from EI, but you must report every separation payment to Service Canada. Keep your Record of Employment and check that it was issued correctly; errors here are common and costly.

Lump-sum severance is taxable income. The cheque you negotiate is not the cheque you keep — plan for the tax hit, and don't let a big gross number distract you from the net. If the package is paid out over months, that can spread the tax, which is one more thing worth asking about before you sign.

Before you sign anything

Do not sign a release on the spot. Ask for the offer in writing, check the deadline (you can usually negotiate more time — short deadlines are a tactic, not a law), and get the package reviewed — an employment lawyer's review often pays for itself many times over, and many offer free initial consultations.

Document everything: your start date, position history, compensation details including bonuses and commissions, and the termination letter itself. If you decide to negotiate or pursue a claim, that paper trail is your leverage.

And watch the clock: limitation periods keep running while you negotiate. Two years is the general limit for civil claims in Ontario, but don't leave it to the last month — evidence fades and lawyers need time.