The Basics: What You Need to Know
In Ontario, and pursuant to the Employment Standards Act, 2000 (“ESA”) employees are entitled to notice of the termination of their employment or pay in lieu of such notice. Rather than providing employees with notice (i.e. informing employees that their employment will be terminated at some point in the future), most employers in Ontario opt to terminate employees immediately and provide them with pay in lieu of the notice that they are entitled to.
The amount of pay in lieu of notice that an employee is entitled to can be determined by reviewing three key sources of rights:
- The ESA;
- The employee’s employment contract; and
- The common law.
The ESA: The Minimum Amount of Pay In Lieu of Notice
The ESA sets out the minimum payments that every employer must generally provide to an employee upon the termination of the employee’s employment. Unless an employee’s employment has been terminated for cause, employers cannot refuse to pay the ESA minimums, or, for example, use the payment of such minimums as a bargaining chip in exchange for a release.
There are generally two types of payments under the ESA that forms part of a severance package: termination pay and severance pay.
Provided an employee has been continuously employed by the employer for at least three months, the amount of notice or pay in lieu of notice (i.e. termination pay) an employee is entitled to under the ESA is as follows:
Period of employment
Notice required
Less than 1 year
1 year but less than 3 years
3 years but less than 4 years
4 years but less than 5 years
5 years but less than 6 years
6 years but less than 7 years
7 years but less than 8 years
8 years or more
1 week
2 weeks
3 weeks
4 weeks
5 weeks
6 weeks
7 weeks
8 weeks
Severance Pay is only owed to an employee if:
- The employee has at least 5 years of service with the employer; and
- The employer has a payroll of at least $2.5 million; or
- The employee is one of 50 or more employees whose employment was terminated within a 6-month period.
The maximum amount that an employee can be awarded in severance pay is 26 weeks.
What if I Signed an Employment Contract?
If an employee signs an employment contract that defines the severance amount that they are entitled to, then as long as the relevant clause is valid/enforceable under law (including meeting the minimum ESA requirements), a court/decision maker will likely award the employee with what the contract requires, no matter how long or meritorious the employee’s service.
That being said, there are many ways to challenge the enforceability of a termination clause in an employment contract and this is one of the reasons it is important for employees to have an employment lawyer review their employment contract and severance packages together prior to agreeing to any severance package.
What if I Don’t Have an Employment Contract or my Contract Does Not Address Termination?
If an employee does not have a written employment contract, or if their employment contract does not contain a termination clause, then the employee is entitled to reasonable notice of the termination of their employment (or pay in lieu thereof). Further, if the employee’s employment contract contains a termination clause but there is a way to argue that the clause shouldn’t be enforced, the employee may also be entitled to common law notice.
The common law generally imposes greater obligations on employers when compared to the ESA. In other words, under the common law, employees are generally entitled to more notice of the termination of their employment (or pay in lieu thereof), than under the ESA.
In determining the length of reasonable notice at common law (or how much pay the employee is entitled to), courts generally look to four major factors:
Character of the employment
- Employees in senior roles tend to be entitled to more notice/pay in lieu than employees in junior positions.
Length of the employee’s service
- A longer serving employee will generally be entitled to more notice/pay in lieu than an employee who has worked for the employer for less time.
Age of the employee
- Generally, the older the employee, the more notice/pay in lieu they are entitled to receive.
Availability of similar employment
- Employees who will have a harder time securing new employment are generally entitled to more notice/pay in lieu. For instance, employees who work in specialized fields, where there are fewer available opportunities for re-employment tend to be entitled to larger severance packages as compared to employees in less specialized roles.
While there is no “rule of thumb” for determining common law notice, generally employees with 1-5 years of service can expect between 1-2 months’ notice per year of service, while employees with longer periods of service can expect a notice period more closely restricted to 1 months’ notice per year of service.
It is important to consult with an employment lawyer in order to determine how much notice or pay in lieu of notice you may be entitled to.
How Can I Get Help Assessing my Package?
Determining what constitutes a ‘fair’ termination package requires that we review multiple sources of rights – the ESA, any written employment contract and case law (which guides what constitutes “reasonable notice”). Before agreeing to a severance package and/or signing a release, it is important to have an employment lawyer review your documents to make sure you are being treated fairly.
If you require more information or have questions relating to any of the above, please contact Toronto employment lawyers at Sultan Lawyers by telephone at 416-214-5111, by here, or by filling out the form below.