Cecily Zamora
In Ontario, employees who have lost their jobs may be entitled to termination pay or severance pay, depending on the circumstances of their dismissal. Termination pay is compensation provided when an employer ends an employment relationship without sufficient notice. Severance pay, on the other hand, is meant to recognize an employee's years of service and compensate for the financial impact of job loss. While the minimum standards for termination and severance pay are outlined in the Ontario Employment Standards Act (ESA), common law entitlements upon termination can provide significantly higher compensation based on factors such as age, position, length of service, and ability to find new work. This paragraph introduces the topic of common law termination pay in Ontario, highlighting the distinction between termination pay and severance pay, as well as the role of the ESA and common law in determining employee entitlements.
| Characteristics | Values |
|---|---|
| Applicable scenarios | No employment contract, termination clause is missing or void, or contract violates the Employment Standards Act |
| Basis of calculation | Factors like age, position, length of service, and ability to find new work |
| Range of compensation | 12-24 months' pay |
| Maximum compensation under Employment Standards Act | 8 weeks' termination pay and 26 weeks' severance pay |
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What You'll Learn
Termination pay vs severance pay
Termination pay and severance pay are two distinct entitlements with different purposes, although they are often used interchangeably and can be part of a "`severance package'". Termination pay is a lump-sum payment given to an employee upon termination instead of providing them with reasonable notice of their termination. The amount of termination pay must be equal to what the employee would have earned had they been given proper notice. Severance pay, on the other hand, is compensation for long-term employees in recognition of their years of service and the financial impact of losing their job.
In Ontario, the minimum requirements for termination and severance pay are set out in the Employment Standards Act (ESA). Under the ESA, the minimum amount of severance pay is typically one week per year of service, up to 26 weeks. However, this is just the starting point, as employees may be entitled to significantly more under common law. Common law severance is based on factors such as age, position, length of service, and ability to find new work. For example, if an employee has no termination clause in their contract or if the clause is unenforceable, they may be entitled to greater rights under common law than the minimum severance under the ESA.
It is important to note that employees cannot sue an employer for wrongful dismissal and simultaneously file a claim for termination or severance pay for the same termination. Therefore, it is advisable to consult with an employment lawyer to understand your full entitlements and ensure you are receiving a fair severance package.
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Employment Standards Act (ESA) minimums
The Employment Standards Act (ESA) sets out the minimum standards for most workplaces in Ontario. It covers crucial areas such as wages, working hours, and leaves, ensuring fair and equitable treatment for employees.
Under the ESA, there are two types of payments that can form part of a severance package: Termination Pay and Severance Pay. Termination Pay is owed to employees who are fired without just cause. The formula for calculating this is one week's pay per year of service, up to a maximum of eight weeks. Severance Pay, on the other hand, recognises an employee's years of service and the impact of losing their job. The minimum amount under the ESA is typically one week's pay per year of service, up to 26 weeks.
It's important to note that these ESA amounts are just the minimums. In many cases, employees are legally owed more. For example, employees with long tenures or those working for large employers may be entitled to additional severance pay. Additionally, if there is no valid employment contract or if the contract's termination clause violates the ESA, employees may be entitled to common law severance pay, which can be significantly higher.
To summarise, while the ESA provides minimum payments that employers must adhere to, employees may be entitled to greater benefits under common law or through specific circumstances outlined in their employment contracts.
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Common law entitlements
In Ontario, the Employment Standards Act (ESA) sets out the minimum standards for termination and severance pay. However, common law entitlements can provide greater rights to employees than the minimums outlined in the ESA.
If an employee does not have an employment contract or if their contract does not contain a valid and enforceable termination clause, then common law severance pay applies. Common law severance pay is based on factors such as age, position, length of service, and the availability of similar employment. It is meant to recognize an employee's years of service and the impact of losing their job.
For example, in the case of Lamontagne v. J.L. Richards & Associates, the Court found the employer's termination clause to be unenforceable because its usage of "for cause" and "without cause" language did not adhere to the ESA. As a result, the employee, who had worked for the employer for over six years, was awarded 10 months' reasonable notice, as well as benefits and a bonus.
It is important to note that common law entitlements can vary depending on the specific circumstances of each case, and there may be hundreds of potential factors to consider. Therefore, employees should seek expert advice or review to determine their full entitlements and ensure they are being treated fairly.
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Termination clauses
The ESA outlines that employees with three months of service should receive a minimum of one week's severance or one week's working notice per year of service, up to a maximum of eight weeks. Employees with longer tenures at large companies should receive an additional week of severance per year, with a maximum of 26 weeks. If a contract does not contain a termination clause, or the clause is deemed void, the employer must refer to common law to calculate severance pay.
In the case of Bertsch v. Datastealth Inc., the Court of Appeal for Ontario upheld a termination clause that limited an employee's entitlements to ESA minimums. Mr Bertsch, a Vice President with under nine months of service, was given four weeks' pay, in accordance with the ESA. His contract included a detailed termination clause, confirming he would only receive the ESA minimum, and explicitly stated he would not be entitled to common law notice. Mr Bertsch sued, arguing the clause was ambiguous and allowed for termination without pay for less serious conduct. However, the court rejected his arguments, deeming the clause to be unambiguous and not in conflict with the ESA.
In contrast, the case of Perretta v. Rand A Technology Corp. demonstrates how employer conduct can void an agreement. Ms Perretta's contract allowed the company to terminate her employment with ESA minimums plus an extra two weeks' notice or pay. However, upon her dismissal, the employer only offered the ESA minimum and made the additional two weeks conditional on her signing a release. Ms Perretta challenged this, and the employer ultimately conceded, paying her the extra two weeks.
These cases highlight the importance of carefully drafted termination clauses that comply with the ESA and the potential consequences of employer conduct when relying on termination provisions.
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Severance packages
In Ontario, severance packages are governed by the Employment Standards Act, 2000 (ESA) and common law. The ESA sets out the minimum standards for severance packages, while common law can entitle employees to greater rights and compensation.
Termination Pay vs. Severance Pay
Termination pay and severance pay are two distinct types of compensation that can be included in a severance package. Termination pay is provided when an employer ends an employment relationship without sufficient notice or the required notice period. It is often calculated based on the number of years of service, with a minimum of one week per year of service up to a maximum of 8 weeks. Severance pay, on the other hand, recognizes an employee's long-term service and the financial impact of job loss. It is also typically calculated based on the length of service, with a minimum of one week per year of service up to a maximum of 26 weeks. However, it is important to note that these ESA minimums are just the starting point, and employees may be entitled to more under common law.
Common Law Severance Pay
Common law severance pay is often significantly higher than the ESA minimums and takes into account various factors such as age, position, length of service, and the availability of similar employment. In some cases, employees may be entitled to up to 24 months' pay under common law. This typically applies when there is no valid termination clause in the employment contract or when the termination clause violates the ESA.
Expert Review
It is important for employees to understand their rights and entitlements when it comes to severance packages. Before agreeing to a severance package and signing any release, employees should seek expert advice from an employment lawyer to ensure they are receiving a fair and compliant package.
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Frequently asked questions
Common law termination pay in Ontario is the severance pay an employee is entitled to when their employment contract does not contain a valid termination clause. This pay is calculated based on factors like age, position, length of service, and ability to find new work.
Termination pay covers the notice period if an employee is let go without warning. Severance pay, on the other hand, compensates for long-term service and the financial impact of job loss.
In Ontario, the minimum termination pay is one week's pay per year of employment, up to 26 weeks. However, if there is no valid termination clause in the contract, common law may entitle the employee to up to 24 months' pay.
Common law termination pay in Ontario is determined by four main factors: the employee's length of service, their salary, their age, and the availability of similar employment. These factors are applied on a case-by-case basis and may be considered alongside other factors, such as whether the employee was induced from other employment.
