Severance pay is an entitlement under the Employment Standards Act (“ESA”) that is paid out over and above termination pay. Severance pay is reserved for specific situations, such as long-term employees of companies of a certain size. Specifically, employees are entitled to severance pay in the following circumstances:
- 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.
There are also certain exemptions from the entitlement to severance pay, including situations where the employee:
- refused an offer of “reasonable alternative employment” with the employer;
- had their employment severed because of a permanent closure of all or part of the employer’s business that the employer can show was caused by the economic effects of a strike;
- was employed in construction or in the on-site maintenance of buildings, structures, roads, sewers, pipelines, mains, tunnels or other works; and
- was guilty of wilful misconduct, disobedience or wilful neglect of duty that was not trivial and was not condoned by the employer.
Severance pay is calculated as follows: Multiply the employee’s regular wages for a workweek 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.
It should be noted that the term “severance package” is commonly used as a way of referring to any termination package an employee may receive at the end of their employment. This is not the same as the severance pay referenced above.
If you believe you are entitled to a severance package and are seeking legal advice, please contact Toronto employment lawyers, Sultan Lawyers at 416-214-5111 or via email to mlahert@sultanlawyers.com.