Written on behalf of Peter McSherry

The employment termination process is not always a smooth one, and may be contested by an employee, particularly if there are allegations that the termination constituted a wrongful or constructive dismissal. Understanding your employer’s obligations regarding severance pay, and your rights regarding severance packages, is vital to minimizing legal risks, fostering a positive workplace environment, and achieving a successful resolution for both the employer and the departing employee.

This guide explores key aspects of Ontario’s severance law, empowering employees to make informed decisions when navigating severance packages.

The Legal Framework for Severance Packages in Ontario

Ontario’s Employment Standards Act (also referred to as the “ESA”) governs minimum severance entitlements for employees in Ontario. Severance is mandatory under the Employment Standards Act in the following scenarios:

• Termination Without Cause: This applies when an employee’s employment is terminated for reasons unrelated to their performance or misconduct. This is the most common situation where severance obligations arise and litigation can ensue.
• Workplace Closure: If your employer permanently shuts down all or part of your operations, severance is generally required, even if the closure is due to economic downturn or unforeseen circumstances.
• Changes in Business: When a significant change in the employer’s business necessitates a workforce reduction, severance may be necessary for employees. This could include mergers, acquisitions, automation implementation, or a shift in core operations.

Calculating Severance Pay

The Employment Standards Act provides guidelines for a minimum severance pay formula based on an employee’s age, tenure, and position held. Severance pay also considers the employee’s regular wages and benefits like car allowances, bonuses, and commissions earned in a typical year, so it is important to factor in these elements to ensure an accurate calculation.

The legislation provides a basic formula to calculate the amount of severance pay an employee is entitled to receive, which consists of multiplying the employee’s regular wages for a regular work week by the sum of the number of completed years of employment and the number of completed months of employment, divided by 12 for a year that is not completed. Under the Employment Standards Act, the maximum amount of severance pay required to be paid is 26 weeks.

Exceptions to the Minimum Severance Formula

The Employment Standards Act offers some exceptions to the standard severance formula. For instance, employees who engage in severe misconduct that damages the company’s reputation, steals company property, or poses a safety threat may forfeit their severance rights. Additionally, when a business is sold as a going concern, the new owner typically inherits the existing employment contracts, potentially reducing severance obligations for the previous owner. However, there are legal nuances to consider, and it is important to consult with an employment lawyer for advice on your rights in such a situation.

Employers May Offer Additional Severance

While the Employment Standards Act sets a minimum standard that employers must abide by, some employers can offer more generous severance packages to departing employees. This can be beneficial to help the employer maintain positive workplace morale, as a fair severance package that acknowledges the employee’s contributions can demonstrate respect and goodwill towards terminated employees, fostering a more positive and productive work environment for remaining staff. Comprehensive severance packages and extended health benefits can also minimize potential disruptions during an employee’s transition to new employment without causing immediate financial strain.

Carefully Review the Severance Agreement and Release

Severance agreements often include a release clause where the employee waives their right to sue the employer in exchange for the severance package. This provides legal protection for the employer by mitigating the risk of wrongful dismissal lawsuits. However, it is crucial to ensure the agreement is drafted fairly and complies with all legal requirements. As such, employees should take time to review the severance package and release in their entirety and should not be pressured to sign anything immediately. Consulting with an employment lawyer can help you determine whether your severance offer is fair.

Key Takeaways for Employees Regarding Severance Pay

Ontario employees should be aware that severance pay is a legal entitlement under the Employment Standards Act. When an employer terminates employment without just cause, they are generally required to pay severance pay. The amount of severance pay depends on factors such as the employee’s length of service and salary. It is important to understand your rights and consult with an employment lawyer if you have questions about severance pay or believe you may be entitled to it.

Contact Peter A. McSherry Employment Lawyer in Guelph for Advice on Severance Packages

The employment law team led by Peter A. McSherry serves clients throughout southern Ontario and provides exceptional legal advice and representation for clients in a variety of employment law matters. Whether you have questions about a wrongful or constructive dismissal claim, are unsure whether your severance package is fair, or want to know whether you are entitled to employment insurance benefits, the Law Office of Peter A. McSherry can help. To speak with an employment lawyer about your matter, contact us by phone at 226-213-5843 or reach out to us online.