What Is a Severance Package?

A severance package is a bundle of compensation and benefits provided when your employer terminates you without cause—meaning you're losing your job through no fault of your own. This commonly happens during downsizing, restructuring, or position elimination.

Key Components of a Severance Package

Severance pay: The main component—money for losing your job. Paid as a lump sum or continued salary for a set period.

Unused vacation and commissions: Payment for earned but unused vacation days, plus any outstanding commissions or bonuses you're owed.

Benefits continuation: Extended health, dental, and insurance coverage for a period after termination to avoid gaps while job searching.

Pension considerations: Clarification on how termination affects retirement savings, vesting schedules, and withdrawal options.

Outplacement services: Some employers provide resume help, career counseling, or job search support.

Stock options: Details on what happens to company shares—which ones you keep and deadlines to exercise options.

Legal release: Most packages require you to waive your right to sue for wrongful dismissal. Once signed, you typically can't take legal action later, even if the package was inadequate.

How Is Severance Package Calculated?

Severance amounts depend on several factors. Longer service, older age, senior positions, and higher salaries typically result in larger packages. Your employment contract may limit or specify what you receive. Market conditions also matter—how quickly you can find comparable work affects reasonable notice periods.

In Ontario, the Employment Standards Act sets legal minimums, but most employees are entitled to much more under common law. ESA minimums might be only a few weeks, while common law reasonable notice can be several months or even up to 26 months for long-tenured senior employees.

Executives and senior managers often negotiate enhanced severance terms in their employment contracts. Regular employees usually receive packages based on company policy and common law entitlements.

Is Severance Package Mandatory?

Yes and no—it depends on the type of payment and your situation.

Termination pay under the Employment Standards Act is mandatory for most employees when terminated without cause. You get one week of pay per year of service, up to eight weeks maximum.

Severance pay under the ESA is only required if you've worked for the employer for five years or more AND the employer has a global payroll of $2.5 million or higher.

Common law notice goes beyond ESA minimums. Most employees without enforceable termination clauses in their contracts are entitled to reasonable notice, which can be significantly more—sometimes months of additional compensation based on your age, position, length of service, and ability to find comparable work.

Severance is not required if you're fired for just cause (serious misconduct), resign voluntarily, or refuse reasonable alternative employment offered by your employer.

How Severance Packages Are Offered and Negotiated

Employers typically present severance packages shortly after termination, often asking you to sign within a few days. Don't feel pressured—you have time to review carefully.

The typical process: Your employer terminates you, explains the reason, and presents a severance offer in writing. They'll ask you to sign a release giving up your right to sue. You should take the documents home, review them carefully, and consult Pinto Shekib LLP before signing anything.

Negotiation tips: First offers are rarely final. Employers often lowball initial packages expecting negotiation. Compare what's offered against what you're legally entitled to under common law. Consider your circumstances—age, health, job market, and family obligations. A lawyer can assess whether the offer is fair and negotiate on your behalf.

What to watch for: Release clauses that are too broad, restrictive covenants limiting future employment, inadequate compensation compared to legal entitlements, and unclear language about benefits or pension treatment.

Most importantly, never sign immediately. Once you sign a release, you lose your right to challenge the package later.

Conclusion

If you've been terminated: Take time to review your package, calculate what you're legally entitled to, and consult the Toronto Employment Lawyers at Pinto Shekib LLP to discuss your options.

Contact Pinto Shekib LLP at info@pintoshekib.ca or 416.901.9984 to schedule a confidential consultation about your severance package.