Severance Pay in Canada: Ontario, Federal & Common Law

Severance pay in Canada is not one universal benefit that everyone let go from a job automatically receives. What counts as "severance," who is entitled to it, and how much it is worth depends heavily on whether you work in Ontario, work for a federally regulated employer, or work in almost any other province.

"Severance Pay" vs. "Termination Pay": Why the Words Matter

In everyday conversation, "severance" usually means any money paid when a job ends without cause. Legally, that broader idea is closer to termination pay, sometimes called pay in lieu of notice. It is compensation an employer owes so an employee is not left without income or working notice during a transition period, and nearly every Canadian jurisdiction requires some version of it.

Statutory severance pay is a narrower, separate entitlement that exists on top of termination pay, and only in specific circumstances. In Canada, a distinct statutory severance pay obligation really only exists in two places: Ontario, under the Employment Standards Act, 2000 (ESA), and for federally regulated employers, under the Canada Labour Code. Most other provinces fold everything into notice or pay in lieu of notice and do not have a separate line item called severance pay at all.

Ontario: The ESA Severance Pay Rules

Ontario is the clearest example of a true, separate statutory severance entitlement. Under the ESA, an employee qualifies for severance pay only when their employment is "severed" and two further conditions are both met.

Employment is considered severed when an employer dismisses the employee (including through bankruptcy or insolvency), constructively dismisses them, lays them off for 35 or more weeks within a 52 consecutive week period, or permanently closes the business. First, the employee must have five or more years of service with the employer, counting all time employed, whether continuous or not. Second, either the employer's payroll is at least $2.5 million, calculated on a global basis including related businesses, or the employer 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 (years plus months divided by twelve). The ESA caps severance pay at 26 weeks, no matter how long the employee worked.

As an example, an employee with seven years and six months of service earning $1,200 per week would be owed 7.5 weeks of severance pay (7 + 6/12), or $9,000, before accounting for termination pay. This is separate from, and stacks on top of, ESA termination pay (notice or pay in lieu), which ranges from one week for under one year of service up to a maximum of eight weeks for eight or more years of service. That employee's termination pay would also fall in the 7-8 year band, worth 7 weeks.

That means the ESA statutory floor for a long tenured Ontario employee who qualifies for both entitlements can reach 34 weeks total: 8 weeks of termination pay plus 26 weeks of severance pay. Ontario also has separate mass termination notice rules (an additional 8, 12, or 16 weeks depending on how many employees are let go at once) layered on top of individual entitlements when a larger group is terminated together.

An employee generally cannot pursue both an ESA severance and termination pay claim and a common law wrongful dismissal lawsuit for the same job loss. Ontario's Ministry of Labour treats these as alternative routes, not cumulative ones, so the choice matters.

Federally Regulated Employees: Canada Labour Code Severance

If you work for a federally regulated employer, such as a bank, airline, telecommunications carrier, or interprovincial transportation company, a different statute governs: the Canada Labour Code. Section 235 requires severance pay once an employee has completed 12 consecutive months of continuous employment, unless the termination is for just cause.

The amount owed is whichever is greater: two days' wages at the employee's regular rate for each completed year of employment, or five days' wages. Unlike Ontario, there is no employer payroll threshold and no dollar or week cap; the formula simply scales with length of service.

For example, an employee with ten completed years of service would be owed the greater of 20 days' wages (2 days x 10 years) or 5 days' wages, meaning 20 days applies. Federal severance pay under section 235 also stacks on top of the Code's separate notice of termination requirement. Since a February 2024 amendment, that notice scales from two weeks after three months of service up to a maximum of eight weeks at eight or more years of service, replacing the previous flat two week minimum for most employees.

Most Other Provinces: Notice or Pay in Lieu, Not a Separate Severance Line

Outside Ontario and the federal sector, provincial employment standards legislation generally does not create a distinct statutory "severance pay" category at all. Instead, these laws require notice of termination, or pay in lieu of notice, scaled to length of service, and that is the full statutory entitlement.

Quebec is a good example. Under the Act respecting labour standards, administered by the CNESST, employers must give notice of termination, or an indemnity in place of it, based on length of service. Quebec does not impose a separate, additional severance pay requirement the way Ontario does. British Columbia, Alberta, and most other provinces follow a broadly similar pattern: one combined notice or pay-in-lieu obligation, rather than two stacked statutory entitlements.

This is why the same layoff can look very different depending on where an employee works. An Ontario employee with long service may be owed both termination pay and severance pay under one statute, while an employee doing similar work in another province may only be owed notice, or pay in lieu of notice, in full, under their applicable provincial standards.

The "Severance Package" People Actually Negotiate: Common Law Reasonable Notice

When people talk about negotiating a severance package after being let go, they are usually not talking about the statutory minimums described above. For non-unionized employees whose contracts do not contain a valid, enforceable termination clause limiting them to the statutory minimum, courts can award common law reasonable notice, which is often significantly larger than any statutory floor.

Reasonable notice is assessed case by case using the Bardal factors, drawn from the 1960 Ontario decision Bardal v. Globe & Mail Ltd.: the character of the employment, length of service, age of the employee, and the availability of similar employment given the employee's experience, training, and qualifications. Courts weigh these factors together. There is no fixed formula, though outcomes commonly range from a few weeks for short service in an easily replaced role up to roughly two years for long serving, senior, or older employees in a difficult job market.

Because this is a range assessed on individual facts, no article can tell a specific employee what notice period they will receive. Someone considering a wrongful dismissal claim for common law notice should know that it is generally an alternative to, not an addition to, a statutory ESA or Canada Labour Code severance claim for the same termination.

For a broader look at employment topics across the country, 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 severance and termination pay entitlements in Canada. It is not legal advice and does not account for the specific facts of any individual situation. Employment standards legislation and common law both change over time and vary by province, territory, and industry. Anyone facing a job loss should consult an employment lawyer licensed in their province for advice specific to their circumstances.