Severance in Ontario: What Employers Actually Owe and How to Get It Right.
Every termination carries legal risk. The question is not whether you will ever need to let someone go, it is whether you will handle it in a way that minimizes your exposure and treats the employee fairly. In Ontario, those two goals are not in conflict. Getting terminations right protects your business and reflects well on how you operate.
Here is what you need to know about severance obligations in Ontario.
Two Sources of Entitlement
When you terminate an employee without cause in Ontario, their entitlement to notice or pay in lieu comes from two places: the Employment Standards Act, 2000 (ESA) and the common law.
The ESA sets out minimum entitlements that cannot be contracted out of. The common law can require significantly more, unless you have a valid and enforceable termination clause in your employment agreement that limits the employee’s entitlement to the ESA minimum. As discussed in our previous post on Waksdale and Dufault, many employers discover, too late, that their termination clauses do not actually do that job.
ESA Minimums: Notice and Severance Pay
Under the ESA, employees with at least three months of service are entitled to notice of termination or pay in lieu. The notice entitlement scales with length of service, from one week for employees with less than one year of service to a maximum of eight weeks for employees with eight or more years of service.
Separately, employees with five or more years of service who work for an employer with a payroll of $2.5 million or more are entitled to severance pay, a distinct entitlement from notice pay. Severance pay is calculated at one week per year of service, capped at 26 weeks. An employee with 10 years of service at a qualifying employer could be entitled to both eight weeks of termination pay and ten weeks of severance pay under the ESA, eighteen weeks of pay in total before any common law consideration.
Common Law Notice: The Real Exposure
Where no enforceable termination clause exists, employees are entitled to common law reasonable notice. Courts determine reasonable notice based on a set of factors established in Bardal v. Globe and Mail, the employee’s age, length of service, character of employment, and availability of similar employment. There is no fixed formula, but the general range runs from one month per year of service as a rough starting point, with significant variation depending on circumstances.
For a 50-year-old manager with 15 years of service in a specialized role, reasonable notice could be 18 to 24 months. That is a substantial liability that no employer wants to discover exists after a termination has already been handled badly.
Structuring a Termination Properly
A well-handled termination involves several steps that are easy to get right and costly to get wrong.
Before the meeting, confirm the amount of notice or pay in lieu you are offering, whether any ESA severance pay is owed, what happens to benefits during the notice period (the ESA requires that benefits continue), whether any bonus, commission, or variable pay has accrued and must be paid out, and what the terms of any separation agreement will be.
At the termination meeting, be direct, brief, and respectful. Do not provide extensive reasons for the termination, the more you say, the more material you potentially create for a wrongful dismissal claim. Provide the termination letter at the meeting.
After the meeting, give the employee time to review the separation agreement. Do not pressure for an immediate signature, a release signed under duress or without adequate time for review is vulnerable to being set aside. Employees are entitled to seek legal advice before signing, and you should expect them to do so.
The Separation Agreement and Release
A properly drafted separation agreement that includes a full and final release of all claims is one of your most important tools for managing termination risk. It gives the employee certainty about what they are receiving and gives you certainty that no further claims will follow.
To be enforceable, a release must be signed voluntarily, with adequate time for review and the opportunity to seek independent legal advice, and in exchange for something the employee is not already owed, consideration beyond the ESA minimum. A release signed in exchange only for amounts the employee was already legally entitled to will not hold up.
The Bottom Line
Terminations done well are rarely litigated. The employers who end up in wrongful dismissal proceedings are usually those who terminated without adequate notice, failed to honour ESA minimums, pressured employees into signing releases, or handled the process in a way that felt disrespectful. None of those outcomes is necessary.
If you are approaching a termination and want to make sure it is handled correctly, speak to an employment lawyer before the meeting, not after.
This article is for informational purposes only and does not constitute legal advice. Contact Yombo Grossman Law for advice specific to your situation.
