What is Termination Pay in Ontario – Lawyer

In Ontario, termination compensation is an important aspect of employment law intended to safeguard workers’ rights who are terminated without just cause. Employees who do not receive an appropriate notice period prior to their termination may be entitled to termination compensation under the Ontario Employment Standards Act (ESA). This compensation helps individuals transition to other job prospects and provides financial support following unexpected termination.

If employers fail to provide this notice, they are required to offer termination compensation equivalent to what the employee would have earned during the notice period. This includes regular wages, as well as any other compensation the employee would have received, such as benefits, bonuses, and commissions.

However, some employees, including those with less than three months of continuous service or those terminated for just cause, might not be eligible for termination pay. For most employees, though, termination pay ensures financial stability during a potentially challenging time for employees who are transitioning jobs.

It is important for employers to understand how termination pay works so that employers can ensure they are in compliance with the ESA. Understanding how termination pay works also helps protect the rights and interests of all parties involved, including the rights and entitlements of the employees themselves.

What is Termination Pay?

Termination pay is money that an employee receives when their employment is terminated without proper notice as required by law. It can be viewed as a substitute for the notice period the employee should have received.

In Ontario, there are two kinds of termination pay. First, there is ‘pay in lieu of notice’ which is provided when an employer chooses to terminate an employee immediately without the required notice period. The second type of termination pay is ‘severance pay,’ which refers to the additional compensation provided to long-term employees who meet certain criteria, such as having worked for a company with a payroll of at least $2.5 million or being part of a mass layoff.

In Ontario, employees who are terminated without just cause and without sufficient notice are typically entitled to termination pay. However, it is important to note that there are several exclusions, including employees who have not completed three months of continuous employment, employees who are terminated for good reason, and workers in particular industries who are excluded from the ESA’s termination requirements.

Who is Eligible for Termination Pay in Ontario?

According to the ESA, employees who put in at least three continuous months of employment are entitled to one week of notice period pay for each year of service completed, up to a maximum of eight weeks. They are called “minimal statutory entitlements.”

Most employees in Ontario are entitled to termination pay if they are terminated without cause and not given sufficient notice. However, there are exceptions, such as employees who have not completed three months of continuous service, employees who are terminated for just cause, and those in specific industries exempt from ESA termination provisions. Additionally, certain professionals, like architects, lawyers, and teachers, might have different entitlements under their specific professional regulations.

Some professions that are generally exempt from termination pay include building contractors, seasonal employees, federally regulated employees, and students in work-study placements.

Can an Employee Receive both Termination Pay and Severance Pay in Ontario?

Yes, an employee can receive both termination pay, and severance pay, but they are two different kinds of entitlements. Termination pay compensates for the lack of notice, while severance pay is provided to long-term employees of larger employers (with a payroll of $2.5 million or more) who have worked for five or more years.

On the other hand, severance pay is calculated as one week of pay per year of service, up to a maximum of 26 weeks. An employee eligible for both would receive termination pay first, followed by severance pay.

How is Termination Pay Calculated in Ontario?

The ESA is responsible for setting the minimum notice period, which is generally one week per year of service, up to a maximum of eight weeks. For example, if an employee earns $1,000 per week and has been with that company for four years, they would be entitled to four weeks of termination pay, resulting in a total of $4,000.

Employees who have worked for less than three months are not eligible for notice; those who have worked for three months to a year are entitled to one week; and those who have worked for eight years or longer are entitled to eight weeks of notice.

Employers are mandated by law to preserve the employee’s normal employment conditions, including any benefits and incentives they would have received, during the notice period. This ensures that employees receive fair compensation and renumeration as they transition to other job prospects. By following these tips, employers can better ensure that they are in compliance with the ESA and can mitigate the risk of any potential legal challenges.

What to do if you Did not Received Termination Pay you are Entitled to?

If an employee believes they are entitled to termination pay but did not receive it, they should first review their employment contract and the ESA to understand their rights. If the employer is not compliant, the employee can file a claim with the Ministry of Labour, Training and Skills Development. The claim must be filed within two years of the date of termination. Given the nuanced nature of this area of law, employees would benefit from seeking legal advice to understand their options and ensure they receive the compensation they are entitled to.