How Severance Pay is Calculated in Ontario

Johnson
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Welcome to my another blog post. Today I am going to discuss How Severance Pay is Calculated in Ontario or How does severance pay work in Ontario. Hope you will enjoy.

What is often called severance pay or a severance package is commonly a combination of two types of end-of-employment compensation – termination pay and severance pay. 

For more detailed information on how severance pay is calculated, check out this Canada severance pay calculator, where you’ll gain a better understanding of severance packages, and you can use the calculator to get an idea of how much severance you might be entitled to at your current job.

Below is a nutshell version of how severance packages should be calculated.

The Right to Notice of Termination or Termination Pay

Despite what many believe – that an employer in Ontario needs a valid reason to fire someone – employers are allowed to terminate an employment contract at any time and without having a reason so long as it does not violate your human rights. 

If an employer does terminate an employee without cause, however, they are required to give notice to the employee with enough time for the employee to find a comparable position while they continue working until the termination date. This gives the employee a bridge between jobs instead of suddenly being without an income. 

Alternatively, an employer can pay the employee what they would have made during the notice period and terminate them immediately. This is known as “pay in lieu of notice” or “termination pay.”

If your employment contract contains a clear, unambiguous and legal clause regarding how much notice you are entitled to upon termination, you may only be entitled to that notice period, even if it is not a reasonable amount of time to find new work. You should, however, always have an employment lawyer look it over to make that determination. Employers and employees who are not employment law experts are often mistaken about whether a clause or a contract is legally valid.

For similar reasons, you should also consult an employment lawyer if your employment contract states that you are only entitled to the minimum notice periods in the Employment Standards Act (ESA) (one week of notice for every year of completed service, up to a maximum of 8 weeks). There may be an opportunity for your lawyer to argue the clause is invalid and unenforceable.

If your employment contract does not contain a valid notice of termination clause, or you don’t have a written employment contract, you may have a case for wrongful dismissal and a legitimate claim for increased compensation.

Severance Pay Entitlements in Ontario

If you’ve been with the same employer for at least five years, you may also be entitled to severance pay if your employer meets these requirements.

The minimum amount of severance pay provided by the ESA is one week’s pay for every year worked, to a maximum of 26 weeks. Severance pay is provided in addition to termination pay.

Severance Pay for Employees Without an Employment Contract or Termination Clause

Employees without a written employment contract or who have a contract that does not include an enforceable clause regarding notice of termination and/or severance pay may qualify for what is known as “common law” entitlements to a severance package. 

These entitlements are based on court decisions that, by and large, have found that the ESA minimum notice periods/severance do not provide someone with a reasonable amount of time to find suitable work. 

The determination of how long an employee should be entitled to as a notice period and for severance pay is unique to that employee’s circumstances; however, there are some factors that are commonly considered by the courts to help them decide how much time is reasonably needed by a specific person as notice of termination. Examples include:

  • How old the employee is.
  • How long have they worked with their employer?
  • The position they held and any specializations/expertise required.
  • The availability of comparable jobs considering the current economic climate.
  • Any other factor that will influence the amount of time a particular employee will need to find similar work (i.e., parental leave, medical leave, disability, etc.).

Using this perspective to determine how much time a person will need to find a new job usually increases the notice period and severance package considerably. This is why it’s crucial to get an employment lawyer’s opinion on whether you have a legitimate claim for the higher entitlement amounts if you are ever let go from a job – even if you don’t feel that you do.

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