Ontario Workplaces Navigate Termination and Severance Pay Obligations

Terminated employees in Ontario may be entitled to more compensation than they thought, legal experts say. All employees terminated without cause in Ontario, which has the highest number of full-time workers among Canadian provinces, are entitled to termination pay, but not all are eligible for severance pay.

Most people use the terms “termination pay” and “severance pay” interchangeably, but the Ontario government has specific definitions for each in its Employment Standards Act, said Andrew Monkhouse, an attorney with Monkhouse Law in Toronto.

“Employees in Ontario who are terminated without cause are entitled to either notice of termination or pay in lieu of notice, [which] is referred to as termination pay,” said Gayle Wadden, chief legal officer and co-founder of Compliance Works in Toronto. “Employees in Ontario are generally entitled to a notice of termination, unlike in the United States, where employment is at-will.”

An employer in Ontario can either provide working notice of termination or can pay the employee in lieu of the notice, she explained. If an employee is entitled to three months’ notice of termination pay, then the employer can give the employee three months’ notice and have them work for those three months. Alternately, the employer may opt to terminate the employee immediately, but then pay them for the three-month notice period.

“An employer in Ontario does not have to give a reason for termination unless they are terminating for cause,” Wadden added.

Qualifying for Severance Pay

In Ontario, some—but not all—employees are also entitled to severance pay on top of termination pay, Wadden said.

Monkhouse explained that employees must meet the following criteria to qualify for statutory severance pay in Ontario:

• The employee must have worked for an employer for at least five years.
• The employer must have a global annual payroll of $2.5 million Canadian or more.
• The employee must be part of a group termination of 50 or more employees within a six-month period.

Also, employees may sue their employer for additional severance, said Eduard Matei, an attorney with Peninsula Canada in Toronto. Employment lawyers in Ontario spend a lot of time on “common law notice,” a type of severance that employers may have to pay one week per year of employment, up to a maximum of 26 weeks, to a terminated employee.

Courts in Ontario require employers to offer a financial safety net while their former employees hunt for new jobs, Matei explained. “This type of severance payment is not an entitlement in every case and is contingent upon whether a written employment contract exists,” he said.

Best Practices for Handling Termination, Severance

Wadden said HR should implement the following best practices when it comes to termination and severance pay in Ontario:

• Document everything related to termination, including the reason for termination and the length of employment duties.
• Review all rules that apply to termination and/or severance pay, including when to make payments, how payments must be paid—either in a lump sum or in increments—and which payments need to be continued, such as benefits.
• Get a lawyer’s input.

“It is a best practice for HR to be clear when terminating employees and have a process in place to have the information conveyed to the employee and what will happen afterward in terms of their belongings, their digital assets and other property,” Monkhouse said. “It is also worthwhile to make an opening offer to employees in exchange for a full and final release in order to resolve the severance issues.”

Catherine Skrzypinski is a freelance writer based in Vancouver, British Columbia.