Severance Pay

Ontario employment laws are regulated by the Employment Standards Act (ESA), which outlines minimum severance pay requirements. The ESA stipulates that the baseline for severance pay should be one week of severance pay for every year of employment.

Severance pay is not to be confused with termination pay. Termination pay refers to pay in lieu of notice for employees who are terminated with or without cause. Severance provides the severed employee with additional pay based on the guidelines of the ESA.

Per the ESA, severance pay should only be offered to employees who:

  • Have worked for the employer for five years or more; and
  • The employer manages a payroll of a minimum of $2.5 million or
  • The employer has overseen the termination of 50 or more employees within a short period due to the business failing or closing.

When is Severance Pay a Factor?

An employer can sever an employee’s employment due to the company having to file for bankruptcy, insolvency or because they had to permanently close.

Severance pay isn’t normally paid if the employee was terminated for inappropriate conduct or failing to meet job expectations. These situations need to be handled differently and may require the employer to prove that the employee was a poor fit, given adequate warning and/or adequate resources to turn their performance around.

If an employee feels they have been treated improperly or were not given severance when it was required, they should speak with an experienced employment lawyer. Likewise, an employer can work with an employment lawyer to protect their company against severed employees who believe they have been wronged.

Executive Severances

Preparing executive severance packages presents additional challenges. One of the challenges is that people at the executive level are more likely to have the legal resources to ensure they receive what they feel entitled to. Another challenge could be that the executive being considered for termination could have a stake or shares in the company.

Whether a company is laying off an employee working an entry-level position or an executive who oversees a large portion of the company’s operations, it comes down to the language used in the initial employment contract and in the compensation package. This is where both employees and employers need to be extra diligent.

Notice of Termination

Employees in Ontario are entitled to a notice of termination, which notifies them that their employment at a company is coming to an end or what they will be paid in lieu of notice.

Most employers feel that having an unmotivated, disgruntled employee in the workplace is not a good idea. In these cases, the employer can provide pay in lieu of notice (termination pay).

If it is agreed that the employee is to work during their notice period, then they are expected to carry out the function of their job to the best of their ability, as they normally would.

The length of notice an employee legally deserves depends on how long the employee worked at the company. This model was designed to make sure loyal employees were given adequate notice to find new employment, or were paid a reasonable amount to keep them financially afloat until they can secure new employment.

If an employee has been consistently employed by the same employer for less than a year, then they are entitled to 1 week of notice. For more than 1 year but less than 3 years, they are entitled to 2 weeks. This pattern continues, for every year of employment the employer must provide one weeks’ notice.

Constructive Dismissal

Constructive dismissal is the proverbial wrench in the works. It is defined as an employer attempting to coerce an employee into dismissal by making changes to their position, department or the company without the employee’s consent. Often, the employee can treat this as wrongful termination and take legal action. Keep in mind, these changes to the employment contract must be substantial. Minor changes are legally viable and are the right of the employer.

Determining if you have a case of constructive dismissal can be complicated. It’s best to work with an employment lawyer to better understand your situation and to determine if there is a case.

Seek Legal Help

Ontario employment law can be quite complex. Understanding your options and which route to take is best left under the guidance of employment lawyers. If you have experienced issues in your place of employment, contact the employment lawyers at Mackesy Smye for your no obligation legal consultation.