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Understanding Severance Pay

Severance pay is a highly important aspect of employment law in Ontario, serving to provide financial assistance to employees who lose their jobs under specified conditions. Severance pay is one of two kinds of termination pay. This form of compensation recognizes the long-term service of employees and assists workers throughout their transition after termination to another employment opportunity. Understanding severance pay is essential for both employers and employees to ensure compliance with the Employment Standards Act (ESA) and to maintain fair employment practices.

In 2024, Ontario’s severance pay regulations continue to safeguard employees by mandating appropriate compensation based on the number of years of service and other specified eligibility criteria.

What is Severance Pay, and Who is Eligible?

In Ontario, severance pay is a type of compensation provided to employees who are terminated from their job, given that certain conditions are met. It important to note that severance pay is distinct from termination pay. Severance pay aims to compensate long-term employees for their service and help them transition after losing their job. On the other hand, termination pay applies to employees who are terminated without just cause and replaces the required notice period for dismissal.

To be eligible for severance pay in 2024, an employee must have worked for the same employer for at least five years, and the employer must have a payroll of $2.5 million or more. Additionally, severance pay is mandated if 50 or more employees are terminated within a six-month period due to the closure of all or part of the business.

Severance pay is determined based on the employee’s length of service, with the employee receiving one week of severance pay for each year of employment, up to a maximum of 26 weeks. It is important to note that severance pay is in addition to any termination pay or notice period owed under the Employment Standards Act (ESA).

How is Severance Pay Calculated in Ontario?

Severance pay in Ontario is determined based on the employee’s duration of service with the employer. In other words, it depends on how many years the employee has been working for the company.

The calculation involves multiplying the employee’s regular wages for a regular work week by the number of years of service. For instance, if an employee has been with the company for 10 years and their regular weekly wage is $1,000, their severance pay would be 10 weeks’ worth of pay, which would be a total of $10,000. The highest amount of severance pay an employee can receive is 26 weeks of pay, regardless of how long they have been working for their employer.

This means that even if an employee has worked for more than 26 years, they will only be entitled to a maximum of 26 weeks of severance pay. The purpose of severance pay is to provide financial assistance to employees who have dedicated a significant portion of their career to a single employer and to show appreciation for their long-term service. Employers must be careful to calculate severance pay accurately and comply with the Employment Standards Act (ESA) to avoid potential legal issues.

The employee may also be owed Common Law severance which could be subtantially higher, so it’s important to get legal advice.

Exemptions from Severance Pay Requirements in Ontario

There are particular cases in Ontario where an employee who is terminated will not be entitled to severance pay. Not every employee qualifies for severance compensation, even if they fulfill the employer’s payroll level and the standard requirements of length of service.

A few examples of cases where exemptions may apply include dismissals for willful misconduct, disobedience, or willful neglect of duty that extends beyond insignificance or triviality and for which the employer has not given its approval. Employees are also not entitled to severance pay if they retire from their post or turn down a reasonable offer of other employment from their employer.

Furthermore, construction employees, certain kinds of salespeople, and employees who work in a specified managerial or confidential capacity may also be excluded from severance pay entitlement. It is important for both employers and employees to understand these exemptions to ensure compliance with the ESA and to avoid misunderstandings or legal disputes pertaining to severance pay eligibility.

Understanding Workplace Investigations

Severance Pay and Other Forms of Termination Compensation

Other types of termination compensation, including notice of termination and termination pay, are notably distinct from severance pay. When an employee is fired without just cause, they are entitled to termination pay, which is determined by considering how much the employee would have made during their notice period.

On the other hand, severance pay is additional money given to long-term workers who satisfy certain requirements. If an employee meets the eligibility requirements, they will be paid both the severance benefit and termination compensation (or notice of termination). An employee with ten years of service, for instance, would receive severance pay based on their years of service (e.g., ten weeks) plus termination compensation equal to their notice period (e.g., eight weeks) if they were fired without cause.

Employers must ensure they fulfill all their obligations regarding termination compensation to comply with the Employment Standards Act (ESA), the Common Law and to support the employee’s transition out of the company.

What Should I do if I did not Receive Severance Pay I am Owed?

In order to determine their rights under the Employment Standards Act (ESA), an employee in Ontario who feels they have not received the appropriate severance pay should first review their employment contract and the specifics of their termination.

If inconsistencies are evident, the employee can bring up the matter with their employer, offering any corroborating evidence to back up their assertion. The employee has the option to submit a claim with the Ontario Ministry of Labour if the issue is not handled to their satisfaction.

The Ministry offers a simple procedure for providing information regarding the employment relationship and the purportedly underpaid severance pay in order to file employment standards claims. The Ministry may compel the employer to pay the unpaid severance if it concludes that the employee has a valid claim after conducting an investigation.

It is highly recommended to seek advice from a lawyer skilled in labour and employment law, as these kinds of cases involve complex issues. A lawyer can provide guidance on the best course of action and represent the employee in negotiations or legal proceedings if necessary.

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Relevant Cases

J.W. v. Atomic Energy of Canada Ltd., 2016 SCC 29

This case focuses on the dismissal of J.W., a non-unionized employee of Atomic Energy of Canada Limited (AECL). Wilson was terminated without cause but received a severance package. He filed a complaint under the Canada Labour Code (CLC), alleging unjust dismissal.

The main question here was whether non-unionized workers protected by the CLC may be fired arbitrarily in the event that severance pay was given. Wilson said that even with the severance pay, his firing was unfair and that the CLC’s safeguards were similar to those for unionized workers, who must have a valid reason for termination.

The Supreme Court of Canada (SCC) reviewed the case and concluded that an employer could not circumvent the unjust dismissal protections simply by offering severance pay. The SCC emphasized that the CLC’s unjust dismissal provisions offer robust protections similar to those available under collective agreements. These provisions mandate that non-unionized employees cannot be dismissed without cause, requiring employers to justify terminations with valid reasons. The ruling clarified that severance pay alone does not exempt employers from demonstrating just cause for termination under the CLC.

Employers must comply with the stringent requirements of the unjust dismissal provisions to ensure fair treatment and adequate protections for all employees, including those not covered by collective agreements. This case reinforces the importance of understanding and adhering to the CLC to avoid legal disputes and uphold employee rights in the workplace.

V.S. v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160

In this case, the Supreme Court of Canada (SCC) dealt with some crucial aspects of severance pay and the entitlement of employees set out by the Canada Labour Code. The case involved the termination of V.S., who was employed by Alliance Pipeline Ltd. V.S. asserted that he was entitled to severance pay under the provisions of the Canada Labour Code because his termination was not for just cause and that the severance package offered by the employer was not adequate.

V.S. had been employed by Alliance Pipeline Ltd. for several years when he was terminated without just cause. Following his termination, the employer provided V.S. with a severance package. However, Mr. Smith contended that the severance package did not meet the statutory requirements outlined in the Canada Labour Code, and he filed a complaint for additional severance pay.

The Court examined whether the severance package offered by the employer met these statutory requirements and whether the calculation of severance pay was done appropriately. The Supreme Court of Canada (SCC) ruled in favor of V.S., determining that the severance package provided by Alliance Pipeline Ltd. was insufficient under the Canada Labour Code. The Court reiterated that the Canada Labour Code sets a minimum standard for severance pay that employers must comply with.

This holding reinforced the idea that severance pay must be calculated based on the employee’s regular wages and that employers cannot unilaterally determine the severance package without considering the statutory entitlements of the employee.

The principles established in this case are directly applicable to severance pay entitlements in 2024. Employers must ensure that severance packages meet the statutory requirements, and employees should be aware of their rights to fair compensation upon termination. This case serves as a crucial reminder of the safeguards provided to employees under the law and the importance of following the law in regard to severance pay.

Toronto (City) v. C.U.P.E., Local 79, [2003] 3 S.C.R. 77, 2003 SCC 63

In this case, the main legal issue was whether the Canadian Union of Public Employees (CUPE) was allowed to re-litigate the facts underlying a criminal conviction during a subsequent arbitration process regarding employment termination. The issue came about after a recreation instructor, referred to as O, was convicted of sexually assaulting a boy under his supervision. Despite the conviction being upheld on appeal, O’s dismissal by the City of Toronto was disputed by CUPE through an arbitration process.

The arbitrator initially ruled that while the criminal conviction was admissible as prima facie evidence of guilt, it was not conclusive. This meant the arbitrator believed the presumption of guilt raised by the conviction could be rebutted. No new evidence or allegations of fraud were introduced, yet the arbitrator concluded that O had been dismissed without just cause.

The Supreme Court of Canada (SCC) indicated that re-litigation would be detrimental to the adjudicative process. This case has important implications in the field of employment law because it stresses the principle that criminal convictions and proceedings should not be undermined through subsequent arbitration proceedings. It highlights the need for finality in legal decisions and the protection of judicial resources, ensuring that issues resolved in criminal proceedings are not to be re-examined in other forums.

About the Author

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Jordan Donich

Jordan Donich has been a Lawyer for over 10 years and is a trusted legal analyst by Canadian Media. He is as a leader in Canada’s tech sector for lawyers and developer of Law Newbie. Jordan is a Black Belt with the Japan Karate Association and trained in Krav Maga. He won a Gold Medal at 2004 Canadian National Championships and was published in the National Newspaper Awards.

Jordan has been featured in Forbes and is a member of DMZ Angels in Toronto.