Severance pay

Region: Ontario Answer # 604

What is severance pay?

Severance pay is an additional amount of money paid to some employees who are fired or laid off without good legal reason. It is usually paid to a long-term employee to recognize their services and compensate them for certain losses, such as seniority, when that employee loses his or her job. It is not the same as termination pay, which is pay given instead of the required notice of termination.

How much is severance pay?

Generally, severance pay is equal to one week’s pay for every year you worked, to a maximum of 26 weeks of pay. Severance is paid on a pro rated basis for a year that was not completed.

Who qualifies for severance pay?

The Employment Standards Act (ESA) states that an employee qualifies for severance if he or she has worked for their employer for at least five years and loses their job through no fault of their own, and that employer:

  • has an annual payroll of at least $2.5 million, or
  • severed the employment of 50 or more employees in a six-month period because all or part of the business permanently closed.

Who is not entitled to severance pay?

In Ontario, there are many circumstances under which employees are not entitled to severance. These circumstances include, if:

  • they refused a reasonable offer of a different job with the employer,
  • they retire on a full pension,
  • the employment is ended because a strike resulted in the closing of the business,
  • the employee is fired based on their behaviour, such as wilful misconduct, disobedience or wilful neglect of duty, and so on.

When is severance paid?

If you are entitled to severance pay, it must be paid to you either seven days after your employment is severed, or, on what would have been your next regular pay day, whichever is later.  Your employer is also required to pay all wages and vacation pay owed to you within the same time period.

If you are entitled to severance pay and have not received it within the required time period, you may be able to get assistance from the Employment Standards office. However, a claim under the Employment Standards Act for termination or severance pay prevents you from suing for wrongful dismissal. Before making such a claim, you should consult with a lawyer.

For additional information about severance pay, contact the Employment Standards office at the Ministry of Labour.

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