Breaking Down Severance Pay – Why Many Ontarians Get Less Than They’re Owed

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Many Ontarians are owed significantly more than what they are offered in a ‘severance package’ from their employers.

Unless your employment contract contains a clear, unambiguous and legal policy regarding how much notice you are entitled to upon termination, you may still have the leverage to negotiate a higher payout.

Even with a seemingly iron-clad termination clause, it’s always best to have an employment lawyer review it, even if it’s just to confirm that you aren’t leaving money on the table. Employment contracts written by employers who aren’t experts in employment law can create the possibility of a higher severance entitlement than what’s stated in the contract.

Check out this Ontario severance pay calculator for a rough estimate of what you could potentially be entitled to in a severance package. Below is a summary of why employees are sometimes owed more than what they and their employers believe.

The Minimum Notice of Termination

In Ontario, an employer does not need a ‘valid reason’ to terminate an employment contract. They are required, however, to give the employee a ‘heads up’ (called a “notice of termination”) that they intend to fire the employee.

The intention being that a notice period gives the employee some time to find a new job while they continue working and earning a paycheque.

The employer can also pay the employee (known as “termination pay”) what they would have earned if they had continued working between when they were given notice and the termination date, known as the “notice period.”

The Employment Standards Act requires that an employer gives the employee:

  • 1 week of notice for employees that have between 3 months and 1 year of service.
  • 2 weeks of notice for employees with between 1 year and 3 years of service.
  • 3 weeks of notice for employees with between 3 years and 4 years of service.
  • 4 weeks of notice for employees with between 4 years and 5 years of service.
  • 5 weeks of notice for employees with between 5 years and 6 years of service.
  • 6 weeks of notice for employees with between 6 years and 7 years of service.
  • 7 weeks of notice for employees with between 7 years and 8 years of service.
  • 8 weeks of notice for employees with 8 or more years of service.

Additionally,  if the employee worked for 5 years or more with their employer, and that employer has a total global payroll of at least $2.5 million, the employee is owed a lump sum payment of one week’s pay for every year of service to a maximum of 26 weeks as severance pay.

An employment contract can not provide less than these amounts.

If, however, there is no employment contract, the employment contract does not contain a termination clause, or the termination clause is legally unenforceable, the employee may be entitled to what’s known as a “common law” notice period.

Court Decisions and Reasonable Notice

Common law refers to decisions rendered by judges that remain relatively consistent with each other. When it comes to notice periods and termination pay, judges use the standard of a “reasonable” amount of time in a notice period for an employee to find a comparable job.

To come to a determination of what is reasonable in any given case, judges look at the individual’s personal circumstances, including:

  • their age,
  • length of service,
  • type of position held,
  • the availability of similar jobs,
  • the economic climate,
  • the employee’s health, and
  • any other factor that could affect how long it would reasonably take for that person to find a comparable job.

The end result is that common law notice periods, in contrast to those provided for in the ESA, are typically much longer and are measured in months, not weeks, significantly increasing how much termination pay the employee is entitled to.

To find out if you are eligible for common law notice, contact an employment lawyer today.

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