Termination vs. Severance in Ontario: Your Rights

When you lose your job in Ontario, understanding the difference between termination pay and severance pay is crucial. Many people use these terms interchangeably, but they’re actually two separate entitlements under Ontario law.

Termination pay is money your employer must pay you in lieu of working notice under the Employment Standards Act (ESA). It represents the minimum notice period you’re entitled to when terminated without cause.

ESA minimum notice periods:

• Less than 1 year of service: 1 week
• 1 year: 2 weeks
• 2 years: 2 weeks
• 3 years: 3 weeks
• 4 years: 4 weeks
• 5 years: 5 weeks
• 6 years: 6 weeks
• 7 years: 7 weeks
• 8+ years: 8 weeks maximum

Severance pay is an additional payment under the ESA, separate from termination pay. It’s only required if you meet both conditions:

1. You worked for the employer for 5 years or more
2. Your employer has a payroll of $2.5 million or more globally

If both conditions are met, severance pay is 1 week of pay per year of service, up to 26 weeks maximum.

Termination pay: Replaces notice, everyone gets this when fired without cause (minimum 1 week, maximum 8 weeks under ESA).

Severance pay: Additional compensation for long service with large employers – only some employees qualify (1 week per year of service, maximum 26 weeks).

You can receive both if you qualify.

ESA minimums are just the floor. Most employees are entitled to much more under common law, often called “reasonable notice.”

Courts determine reasonable notice based on:

• Your age
• Length of service
• Position and responsibilities
• Ability to find comparable employment

Common law notice ranges:

• Junior employees, short service: 2-6 months
• Mid-level employees, moderate service: 6-12 months
• Senior employees, long service: 12-26 months

Some employment contracts include termination clauses limiting your entitlements to ESA minimums only, eliminating common law reasonable notice.

Example clause: “Upon termination without cause, the Company’s obligation is limited to the minimum notice or pay required under the Employment Standards Act.”

However: Many termination clauses are unenforceable because they violate the ESA or are poorly drafted. If your termination clause is invalid, you’re entitled to full common law notice despite what the contract says.

Termination without cause: Your employer ends your employment but hasn’t accused you of serious misconduct. They must provide notice or pay in lieu of notice. This is the most common type of termination.

Termination with cause: Your employer alleges you committed serious misconduct – theft, violence, fraud, or willful neglect of duties – and fires you with no notice or severance.

Just cause is extremely difficult to prove. Many employers incorrectly claim cause to avoid paying severance. 

At minimum (ESA):

• Termination pay: 1-8 weeks based on service
• Severance pay: 1 week per year (if eligible)
• Payment for unused vacation days
• Benefits continuation during notice period

Under common law (most employees):

• Reasonable notice: Typically much more than ESA minimums
• Benefits continuation during notice period
• Bonus/commission earned during notice period
• In some cases, damages for bad faith termination

Your entitlement depends on:

• Whether your employment contract has an enforceable termination clause
• Your age, position, length of service
• Circumstances of your termination

ESA severance calculation:

1. Count completed years of service
2. Multiply by 1 week of regular wages
3. Maximum 26 weeks

Common law reasonable notice: Courts use the “Bardal factors”.

• Age: Older workers get more notice (harder to find work)
• Length of service: Longer service = more notice
• Character of employment: Senior positions = more notice
• Availability of similar employment: Specialized roles = more notice

Offering only ESA minimums: Many employers present ESA minimums as your full entitlement when you’re actually owed more under common law.

Claiming cause improperly: Employers stretch the definition of “just cause” to avoid paying severance for performance issues that don’t meet the legal standard.

Invalid termination clauses: Employers rely on unenforceable termination clauses that violate the ESA.

Pressure to sign quickly: Employers rush you to sign releases without time to get legal advice, hoping you’ll accept inadequate offers.

Misclassifying termination: Constructive dismissal (forcing you to quit) treated as resignation when you’re entitled to severance.

Don’t sign immediately: You’re under no obligation to accept the first offer. Take time to review it.

Understand what you’re signing: Release clauses waive your right to sue. Once signed, you can’t challenge the adequacy of the package later.

Negotiate: Initial offers are rarely final. Lawyers routinely negotiate packages 2-5 times higher than first offers.

Don’t accept inadequate severance out of fear or pressure. Understanding your rights ensures you receive fair compensation.

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