The amount of severance pay you are entitled to depends on several factors. Common law reasonable notice is the default position unless the employment contract explicitly restrict the employee to Employment Standards Act statutory minimum termination pay and severance pay with employee consent.
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Most companies provide a severance agreement that spells out the financial conditions of the employee's departure. In Ontario, a severance package is mandatory. The common everyday usage of the word severance is very different than what it meant in employment law context. How much "severance pay" you are entitled to legally depends on whether you intend to sue under common law or if you intend to file an ESA claim after you have been terminated.
Common Law Severance, also referred to as reasonable notice, share nothing in common to ESA Severance and they mean very different things.
The Employment Standards Act breaks down the amount an employee might receive after termination into ESA termination pay (the amount you get depends on how long you have been working for the company) and ESA severance pay (an amount to award long term service employees if certain conditions are met).
The Common Law, on the other hand, does not draw a distinction between termination pay and severance pay, and instead award a monetary amount depends on a number of factors.
The amount an employer is required to give to a terminated employee in the form of a severance package is decided by a variety of factors, such as the length of service, age, reason of termination, position held within the company, wages and compensation previously earned, whether the individual was actively recruited, and the general economy.
It is important to note that under common law in a wrongful dismissal case or a constructive dismissal case, all damages are packaged together and referred to as "reasonable notice".
Entitlements under common law reasonable notice may dramatically exceed the statutory entitlements under ESA. A damage award in a successful case be as high as 24 to 26 months in some extreme cases.
here’s no minimum length of duration an employee needs to work to qualify for Common Law reasonable notice. Unfortunately, Common Law severance is not rocket science, and there’s no clear formula like in the case of ESA Severance. All we can do is comply the quantum of damage by keeping a list of cases involving common law reasonable notice, and then compare each employment law case at hand with the that list.
Under Employment Standards Act (ESA), the entitlement in the form of a severance package is broken up into two components, termination pay and severance pay. Click here to learn more about termination pay from the Ministry of Labour website. Click here to learn more about severance pay from the Ministry of Labour website.
Under most circumstances, entitlements under the common law principles of wrongful dismissal or constructive dismissal are substantially more than those under the ESA.
Deadline to Pay Severance Package Under Employment Standards Act (ESA)
According to the Ministry of Labour:
Employees are entitled to termination pay and severance pay, if applicable, under ESA, seven days after their employment is ended or on their next normal pay day, whichever comes first.
An employer may, however, give severance pay in instalments with the employee's electronic or writing agreement or with the authorization of the Director of Employment Standards, Ministry of Labour, Training, and Skills Development.
A payment plan cannot be extended beyond three years. If an employer fails to make a scheduled severance payment, the employee's whole severance pay is due immediately.
Do note that while severance pay may be made in instalments, termination pay MUST be paid in full within 7 days or the next normal pay day, whichever is later.
