A Quick Guide on How to Calculate Your Severance Pay

If you are terminated from your job tomorrow, do you know how much of a cushion you would have while you look for a new job? Unfortunately, many Ontario workers are unaware that an employer doesn’t need a reason to terminate the employment contract. So, it’s always best to know where you’d stand in a worst-case scenario.

The first step you need to take to calculate your severance is to confirm whether the industry you work in is regulated by the provincial or federal government.

Federally-regulated employment sectors like banks and postal services are subject to the laws in the Canada Labour Code. All other industries are under provincial jurisdiction (Ontario), and employment rights are contained in the Employment Standards Act (ESA). The laws in these statutes are the legal minimum entitlements. If your employment contract or union CBA, however, provides more than the legal minimum, your employer must honour what’s in the contract.

If you don’t have an employment contract, your employment contract doesn’t have a severance clause, or it’s unenforceable, you may be entitled to a common law calculation of severance pay. More on that in the last section.

How Much Severance Pay Does the ESA Provide?

If an employee is terminated without cause, they are entitled to be notified by their employer of their intention to terminate the employment before it takes place. During this ‘notice period,’ the employee can continue to work and earn wages while they look for a new job.

An employer, however, has the option to pay the employee what they would have earned during the notice period and end the employment immediately. This is called ‘termination pay’ or ‘pay in lieu of notice.’

An employee who has been with an employer for at least three months is entitled to notice of one week if they have been with their current employer for less than a year, or:

• Two weeks for 1 to 3 years of service
• Three weeks for 3 to 4 years
• Four weeks for 4 to 5 years
• Five weeks for 5 to 6 years
• Six weeks for 6 to 7 years
• Seven weeks for 7 to 8 years
• Eight weeks for 8 years or more.

In addition to termination pay, if the employee worked for 5 years or more with their employer, and that employer has a total global payroll of at least $2.5 million, the employee is owed a lump sum payment of one week’s pay for every year of service to a maximum of 26 weeks as severance pay.

A provincially-regulated employment contract cannot provide less than these amounts unless the employee works in a sector that is exempt from the ESA minimums. Examples include healthcare and emergency workers and those in manufacturing.

What is Common Law Severance Pay?

If you don’t have an employment contract, or your contract doesn’t have a clear, legally enforceable severance clause, you could be entitled to more than the minimum severance package as outlined by the ESA.

Common law refers to decisions by judges in cases regarding severance pay. Because the wording of the ESA states that an employee is entitled to a ‘reasonable’ amount of notice, judges in wrongful termination lawsuits have historically agreed that the minimums in the ESA do not provide someone with a reasonable amount of time to find a new job.

To come to a determination of what is reasonable in any given case, judges look at the individual’s personal circumstances, including but not limited to:

• The type of work they did.
• How long they worked with their employer.
• Their age.
• The position they held.
• Their ability to find similar employment.

Common law notice periods are typically much longer than the ESA minimums, which means a significantly higher severance package. That’s why you should always consult an employment lawyer if you’ve been terminated, regardless of what your employment contract says or the circumstances of your termination. It’s always better to get the opinion of an expert to be on the safe side.