What is Termination Pay in Ontario – Lawyer

Termination pay is a highly important topic in Ontario under Employment and Labour law, and is intended to safeguard workers’ rights. The concept of termination pay is specifically designed to protect workers who are terminated without just cause. Employees who do not receive an appropriate, adequate notice period prior to their termination might be entitled to termination compensation under the Ontario Employment Standards Act (ESA). This compensation assists individuals with the transition to other job prospects. It additionally provides financial support following unexpected termination.

If employers fail to provide this notice, they are required to offer compensation at termination equivalent to what the employee would have earned during the notice period had they not been terminated. This encompasses regular wages, in addition to any other compensation the employee would have received, such as benefits, bonuses, and commissions.

However, it is important to note that some employees might not be eligible for termination pay. For instance, termination pay might not encompass those with less than three months of continuous employment or employees who are terminated for just cause. 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 seen as a kind of 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. Some of these exceptions include 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 have worked for three continuous months are entitled to one week of notice period pay for each year of service completed, up to a maximum of eight weeks. They are referred to as “minimal statutory entitlements.”

There are some exceptions which includes employees in specific industries. Certain professionals, such as 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 who are 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 typically 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 required 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 guidelines, employers can better ensure that they are complying the ESA and thereby mitigate the risk of 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.