Severance and Termination Pay in Ontario

Ontario is one of the few places in Canada where a laid off employee can be owed two separate statutory payments for the same dismissal. The Employment Standards Act, 2000 (ESA) sets out both a termination pay entitlement and a distinct severance pay entitlement, and a long serving employee at a larger employer can be owed both at once.

This article explains how each entitlement works under the ESA, how they interact with each other, and how both relate to common law reasonable notice. It covers Ontario's statutory minimums only. It does not tell any individual employee what they are personally owed, since that depends on facts specific to their own job, employer, and contract.

Two Statutory Entitlements, Not One

Most Canadian provinces require only one thing when an employee is let go without cause: notice of termination, or pay instead of working through that notice. Ontario is unusual because the ESA layers a second, separate entitlement called severance pay on top of that first one, for employees who meet extra conditions.

The two entitlements use different qualifying tests and different calculations. It is entirely possible to owe termination pay without owing severance pay, which is how most terminations in Ontario actually work, and less common but real to owe both together on the same job loss.

ESA Termination Notice or Pay in Lieu (Section 57)

Under section 57 of the ESA, an employer terminating a non-unionized employee without cause must provide written working notice, termination pay in lieu of notice, or a combination of the two equal in length. This applies once an employee has been continuously employed for at least three months. Below three months of service, the ESA does not require notice at all.

The length of notice or pay owed scales with completed length of service:

Termination pay in lieu of notice is based on the employee's regular wages for a regular work week, and it must also include vacation pay calculated on that amount. If an employer gives working notice instead of pay in lieu, the employee's wage rate and other terms cannot be reduced during the notice period, and the employer must continue benefit and pension plan contributions as though the employee were still actively working. Employees guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial, along with a short list of other exemptions such as construction employees, are not entitled to this notice.

Employers letting go 50 or more employees at one establishment within a four week period must also consider Ontario's separate mass termination rules, which require 8, 12, or 16 weeks of notice depending on how many employees are affected, regardless of any individual employee's length of service. This mass termination notice applies instead of, not in addition to, the ordinary section 57 notice; whichever amount is greater controls for each affected employee.

ESA Statutory Severance Pay (Sections 63 to 65)

Severance pay is a narrower, additional entitlement. It is owed only when an employee's job has been severed, a defined term covering dismissal, constructive dismissal, a layoff of 35 or more weeks within a 52 week period, or a permanent business closure, and two further conditions are both met.

First, the employee must have five or more years of service with the employer, counting all periods employed, whether continuous or not. Second, the employer must either have a global payroll of at least $2.5 million, calculated across the whole business including related entities and not just its Ontario operations, or have severed 50 or more employees within a six month period because all or part of the business permanently closed.

If both conditions are met, severance pay equals one week of regular wages for every completed year of service, plus a proportional amount for each additional completed month, calculated as completed years plus completed months divided by twelve. Ontario's own guidance gives the example of an employee earning $1,000 a week with seven years and nine months of service: $1,000 multiplied by 7.75 (7 plus 9/12), for $7,750 in severance pay. The maximum payable under the ESA is 26 weeks of regular wages, no matter how much longer the employee's service continued beyond that point.

Do Termination Pay and Severance Pay Stack?

Yes, when an employee qualifies for both. An employee with, for example, exactly eight completed years of service at a large employer could be owed 8 weeks of termination pay under section 57 and 8 weeks of severance pay under sections 63 to 65, for 16 weeks total.

At the far end of the scale, the combined statutory ceiling is 34 weeks: the 8 week termination pay maximum plus the 26 week severance pay maximum. That is the outer limit of what the ESA itself requires, a statutory floor rather than a cap on what a dismissed employee might ultimately be entitled to receive, which is where common law comes in.

Beyond the ESA: Common Law Reasonable Notice

The ESA sets minimum standards; it does not set a maximum. Non-unionized employees dismissed without cause are, in most cases, also entitled to reasonable notice under the common law, unless their employment contract contains a valid, enforceable clause limiting them to the ESA minimums described above.

Common law notice is not calculated with a fixed formula. Courts weigh what are known as the Bardal factors, from the 1960 Ontario decision Bardal v. Globe & Mail Ltd.: the character of the employment, the employee's length of service, their age, and the availability of similar employment given their experience, training, and qualifications. Outcomes vary widely on these facts, but common law notice periods generally do not exceed roughly 24 months absent exceptional circumstances, and are often meaningfully longer than the ESA statutory floor described above, particularly for longer serving, older, or more senior employees.

Because common law notice depends on individual facts, it can only be described here as a range, not a number. It is generally treated as an alternative to, rather than an addition on top of, a statutory ESA termination or severance pay claim for the same job loss. The ESA amounts described above are usually a component within, not extra to, any larger severance pay in Canada settlement or termination without cause claim.

Employment Contracts and the ESA Floor

Many Ontario employment contracts include a termination clause that attempts to limit an employee to the ESA minimums described above, instead of common law notice. Whether such a clause is enforceable is itself a legal question, since Ontario courts have struck down termination clauses that, even inadvertently, could allow an employer to provide less than the ESA requires in some circumstance.

An employee reviewing their own situation should look closely at what their contract actually says about termination, alongside their own length of service, since both affect whether the ESA minimums or a larger common law notice period applies. For a broader look at these topics, see our Canada employment law hub, or browse Canadian law by province for other legal topics by jurisdiction.

Disclaimer

This article provides general information about termination pay and severance pay under Ontario's Employment Standards Act, 2000, and about common law reasonable notice. It is not legal advice and does not evaluate any individual's entitlement. Employment standards legislation and case law both change over time, and the actual amount owed for a specific dismissal depends on facts this article cannot assess. Anyone dealing with a job loss in Ontario should consult a licensed Ontario employment lawyer for advice specific to their situation.