A Short Guide To A Severance Pay

Losing your job can be a highly alarming state. In Ontario, many employees have a right to a severance payment at the end of their employment which minimizes some of the short-term financial anxiety of losing your job. In this article, we will try to understand how much and when such a payment is to be made at the termination of an employment.

What Is Severance Pay?

Severance is a payment awarded to an employee at the end of their employment that is distinct from the regular pay-in lieu of notice.

It is important to note that severance pay is dealt differently for federally regulated industries (i.e.: banking), for the purposes of this article we will only be following severance pay for provincially regulated industries, who are covered by the Employment Standards Act, 2000 (“ESA, 2002”). 

When Are You Entitled To Severance Pay Under The Employment Standards Act?

Provincially regulated employees, covered by the Employment Standards Act (some workers are not covered, i.e., agricultural workers) in Ontario, are entitled to severance pay if you have been dismissed by your employer or if the employee has been subject of lay-off or the discontinuance of a business.

Additionally, the employee is eligible for severance pay if he or she has worked for the employer for five or more than five years and either

1. You are one of 50 or more employees who have been fired or laid off within 6 months; or
2. Your employer has a payroll of $2.5 million or more.

Length Of Employment

As pointed out, consideration for severance is the length of service of the employee. Only employees who have been with the company for 5 or more years are considered to be qualified for severance pay. In case, an employee who has been terminated for just cause (i.e., illegal behaviour in the workplace) is also not entitled to severance.

On top of severance pay, another consideration at the termination of employment is Notice of Termination or payment in lieu of notice. If the employer plans to terminate an employee, then the employer is supposed to provide the employee with a written notice whose period varies from province to province and is dependent upon the length of the service.

How Much Severance You Might Be Entitled To?

There are certain rules for how much severance should be awarded to employees, however certain factors have led to courts increasing the amount. The basic severance entitlement as stipulated by the ESA, 2002 is 1 week’s compensation for every year worked (and for the remaining months completed for the year as an employee at the job), to a maximum of 26 weeks.

When Is Severance Payment Due?

Severance has to be paid either 1 week after the last day of employment or at the next pay period, whichever is later. However, by obtaining an order from the Ministry of Labour orders, or if agreed to in writing, the severance pay can be paid out in small installments.

Undoubtedly, losing your job can be a challenging time for families. To ensure that you are getting the due amount of severance you owe, you should engage the services of an employment lawyer to review your case. A skilled lawyer at Ayaz Mehdi Professional Corporation can assess your case professionally.

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