What is a Severance Package? Am I Entitled to Severance Pay?

The term “severance package” refers to compensation that an employee receives when their employment is terminated without cause. Often, this includes payments for termination pay or minimum notice, severance pay or reasonable notice. Sometimes it can include compensation for things like lost benefits or pension participation, re-training costs, or even human rights damages.

WHAT IS SEVERANCE PAY OR A SEVERANCE PACKAGE ANYWAY?

The term “severance pay” means something specific to lawyers or the Ministry of Labour. When most people use this term, they mean any type of compensation you get after a termination. This might refer to any of the following categories of payment which can make up part of a Severance Package:

• Termination Pay: The Ontario Employment Standards Act (or “ESA”) entitles provincially regulated workers with more than 3 months’ service to notice if they are dismissed without cause. Under this law, employees get 1 week’s notice per year of service up to a maximum of 8 weeks. Your employer can choose to give you working notice (when you stay on the job until these weeks expire). Or they may pay you an amount equivalent to the right number of weeks as part of a Severance Package.
• Severance Pay: The ESA entitles longer term employees at larger companies to additional compensation. If you have worked for a company with a payroll of more than $2.5 million (or is doing a mass layoff) for 5 years or more and are let go without cause, you may be entitled to an additional one week per year of service up to a maximum of 26 weeks. This is actually called “Severance Pay”.
• Contractual Notice: Your employment contract may require your employer to give you a certain amount of notice or compensation if you’re dismissed without cause. This is called “contractual notice” and applies if there is a valid, binding contract in place.
• Reasonable Notice: Employees without written employment contracts (or whose contracts aren’t valid or binding for some reason) are entitled to what lawyers call “reasonable notice at common law”. For many employees, this is greater than their termination pay or severance pay rights. It is a little less predictable though! A lawyer or judge will consider a number of factors to determine what might be reasonable as part of a severance package or wrongful dismissal award. These include your age, length of service, and the type of work you did. Older, long-service employees in specialized jobs tend to get more compensation.

WHO IS ENTITLED TO A SEVERANCE PACKAGE?

In Ontario, most non-union employees can be dismissed by their employer for any reason. However, if your employer doesn’t have a good reason (aka “cause”), they have to either provide you working notice or compensate you for not giving you notice.

Cause is a high standard for employers to meet. Unless an employee’s misconduct is very serious, Ontario courts and the Ministry of Labour generally require more than one mis-step and that a worker be given an opportunity to improve before an employer can fire and pay nothing.

Most employees dismissals are without cause. This can happen for all kinds of reasons: layoffs due to loss of business, a change in direction at your company, “fit” issues,… And if these employees have been on the job long enough, they will normally be entitled to some compensation.

In most cases, you aren’t entitled to a Severance Package if you quit your job. There are some exceptions to this rule, and lawyers call these exceptions “constructive dismissal”. But that’s a subject for another blog post!

WAIT, WHAT ABOUT UNIONS?

Most unionized employees have a “just cause” provision in their Collective Agreements. This means that for them, their employer needs a good reason to dismiss them. It’s a higher standard for employers. If their employer doesn’t have a good enough reason, a labour arbitrator can order them to reinstate the employee and compensate them for their time off work. If you’ve been dismissed from a unionized position, your Union Steward or Union Representative should be able to explain your options to you.

CAN MY BOSS REALLY FIRE ME FOR ANY REASON?

Mostly, yes. But there are some important exceptions.

For example, the Human Rights Code makes it illegal for Ontario employers to dismiss employees for discriminatory reasons. The Code protects employees from discrimination based on or related to their age, ancestry, citizenship, colour, creed, disability, ethnic origin, family status, gender expression, gender identity, marital status, place of origin, race, sex or sexual orientation. You don’t have to have been on a job for a certain amount of time to be protected by the Code. Sometimes, a Severance Package will address allegations of discrimination by compensating an employee for “human rights damages” or “general damages”.

Similarly, the Ontario Labour Relations Act bans the firing of employees because of their support for a union and the ESA bars employers from dismissing employees for taking protected leaves of absence (like sick days or maternity leaves/parental leaves).

MY SEVERANCE PACKAGE ISN’T GOOD ENOUGH OR MY EMPLOYER DIDN’T GIVE ME ONE, WHAT CAN I DO?

Employees who have been dismissed without cause but not paid a Severance Package or who think they may not have been paid enough have options.

One option is to file a Ministry of Labour complaint seeking termination pay and/or ESA severance pay (see above). The maximum amount that an employee can receive through the Ministry is 34 weeks, and that’s a long-service employee at a large company.

Another option is to sue your employer for wrongful dismissal seeking either compensation for Reasonable Notice or Contractual Notice. There is no formal cap on amounts that employees can sue for in Court.

For some employees, a Human Rights Tribunal Application may be appropriate.

An employment lawyer can help you assess what a fair severance package might look like and give you more information to help you decide whether any of these options might be right for you.

Note: some employees working in Ontario fall under federal labour and employment laws. The rules are slightly different and not covered in this post.

RESOURCES

• Ontario Ministry of Labour Termination Pay Calculator
• Your Guide to the Employment Standards Act: Termination of Employment