In Ontario, severance pay is a type of compensation provided to employees when their employment is terminated without cause, designed to support them financially during their transition to new employment.
Eligibility for Severance Pay
To qualify for severance pay under Ontario's Employment Standards Act (ESA), the following conditions must be met:
- The employee must have worked for the employer for at least 5 years.
- The employer must have a payroll of at least $2.5 million or have terminated 50 or more employees in a 6-month period due to a permanent closure of all or part of the business.
Severance Pay Calculation
- The minimum severance pay under the ESA is one week's pay for each year of service, up to a maximum of 26 weeks.
- For example, if an employee has worked for 10 years and meets the ESA conditions, they would be entitled to at least 10 weeks of severance pay.
- However, many employees in Ontario may be entitled to more severance pay under common law, which can be equivalent to several months or even up to 24 months of pay, depending on factors such as age, position, length of service, and availability of similar employment.
Important Distinctions
- Severance pay is different from termination pay; the latter compensates for the lack of advance notice of termination.
- Severance pay is mandatory in Ontario when the conditions are met, ensuring fair financial compensation for eligible employees.
Thus, in Ontario, employees with five or more years of service at a qualifying employer are entitled to a minimum severance of one week's pay per year of service, up to 26 weeks, with the possibility of higher compensation under common law.