(This Client Guide provides general information and is made available to provide a general description of statutory employment standards in Ontario. This is not intended to constitute legal advice, which by its nature is situation specific. The legal consequences of the minimum employment standards can be confusing and if you have questions about a specific employment standard or other legal problem, you should consult a lawyer who will provide legal advice only after reviewing all the facts relevant to your situation, rather than relying on the general information provided in this Guide.)

The Employment Standards Act of Ontario (the "Act") sets out provincial minimum standards for certain specified employment conditions in Ontario. Since these standards are minimums only, an individual contract of employment may well entitle an employee to benefits beyond the statutory minimum standards. These standards do not apply to employees governed by the Canada Labour Code.

The term "severance" is often used colloquially to describe the end of an employment relationship and the payment that employers sometimes make at that time. Severance pay under the Employment Standards Act is a specific statutory benefit paid in addition to termination pay and should not be confused with the general concept of a severance.

This standard applies to employees who have been employed for 5 years or more and whose employment is terminated by an employer who has an annual payroll in excess of $2.5 million or by an employer who is terminating more than 50 employees in a 6 month period caused by the permanent discontinuance of all or part of the business, unless

• they have refused an offer of reasonable alternate employment with the employer;
• they have refused to exercise seniority rights to obtain reasonable alternate employment;
• they are subject to a lay-off that is less than 35 weeks and does not constitute a permanent discontinuance of all of an employer's operations at an establishment;
• they have been guilty of wilful misconduct or disobedience or wilful neglect of duty that has not been condoned by the employer;
• they will receive an actuarially unreduced pension benefit;
• they are engaged in the construction, alteration, maintenance or demolition of buildings, structures, roads, sewers, pipelines, mains, tunnels or other works where the employee works at the site of thereof;or
• they are employed under an arrangement under which they can elect to work or not to work when requested to do so.

Termination includes specific termination, constructive dismissal, a lay-off that is equal to or greater than 35 weeks or a lay-off that constitutes a permanent discontinuance of all of an employer's operations at an establishment.

Severance pay is determined by length of service to a maximum of 26 weeks as follows:

1 week of non-overtime wages per completed year of service, plus

a pro-rated portion of an incomplete year of service calculated on a completed months basis.

Non-overtime wages means any monetary remuneration payable to an employee, except for:

• tips and gratuities;
• bonuses based on the discretion of the employer;
• traveling allowances and expenses; and
• benefits.

Employees that are entitled to severance pay include:

• regular full-time employees;
• regular part-time employees;
• employees terminated by a strike or lock-out (except where there is a permanent discontinuance of all or part of a business at a location caused by a strike or lock-out);
• employees on sick leave (provided that the employment contract has not been frustrated by that illness or injury);
• employees who would have received notice of termination or termination pay who died before notice of termination was or would have been given;
• employees terminated by reason of the exercise of a seniority right by another employee; and
• employees who retire on termination with a reduced pension benefit.

This is a minimum standard only. The common law (or judge-made law) of Ontario implies a term into every contract of employment that it can only be terminated on reasonable notice, in the absence of any specific termination provision in the contract itself. This effectively means that many long-term employees will be entitled to more compensation by way of damages in lieu of reasonable notice than the combined minimum termination pay and severance pay provided for in the Act.

The employment standard for severance pay is the same in the New Act.

   FURTHER QUESTIONS

If you have any questions or wish further information on employment standards, please contact a member of our Employment Group.

This page was originally created on July 31, 2001.

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