Severance pay — Ontario Employment Law
See all 141 cases that mention severance pay
Related Keywords
About Severance pay
In Ontario employment law, the term 'severance pay' can be confusing because it has two distinct meanings. Understanding the difference is crucial for any worker who has been terminated. The first type is statutory severance pay, a specific entitlement defined under Ontario's Employment Standards Act, 2000 (ESA). This is a mandatory payment for long-serving employees of larger companies. To qualify, an employee must have worked for the employer for five or more years, and the employer must have a global payroll of at least $2.5 million. The ESA formula for severance is one week's regular pay for each year of service (plus a pro-rated amount for a partial year), up to a maximum of 26 weeks. It's important to note this is separate from and in addition to statutory termination pay.
The second, and often more significant, type of severance is what's known as common law severance. This isn't a separate payment but rather represents the money an employer owes an employee when they fail to provide sufficient 'reasonable notice' of termination. This common law entitlement applies to almost all terminated employees, regardless of the employer's payroll size or the employee's length of service (unless the employee was fired for just cause). The amount is based on what a court would consider a reasonable period for the employee to find comparable new employment. This calculation considers factors like age, length of service, the character of the employment, and the availability of similar jobs. This amount is almost always substantially more than the ESA minimums. An employment contract may attempt to limit this common law entitlement, but such clauses are often found to be unenforceable. Because the calculation of common law severance is complex and depends heavily on individual circumstances, having any severance offer reviewed by a legal professional is a critical step in protecting your rights.
Frequently Asked Questions
What is the difference between severance pay and termination pay in Ontario?
Termination pay under the ESA is notice pay (up to 8 weeks) for most terminated employees. Severance pay under the ESA is an additional payment for employees with 5+ years of service at a company with a payroll of $2.5M or more. You can be entitled to both, and they are separate from much larger common law entitlements.
Do I get severance pay if I was only employed for 3 years?
You would not qualify for statutory severance pay under the Employment Standards Act, which requires 5 years of service. However, you are almost certainly entitled to common law severance (or reasonable notice), which is based on factors like your age, role, and the job market, not just years of service.
Is severance pay taxable income?
Yes, severance pay is considered income and is subject to income tax. However, if structured correctly as part of a settlement, some portions may be directed to an RRSP on a tax-deferred basis, or allocated to legal fees, which can reduce the immediate tax burden.
My employer's payroll is less than $2.5 million. Am I still entitled to severance?
While you won't be eligible for statutory severance pay under the ESA's specific rules, you are still entitled to common law reasonable notice or pay in lieu of notice. This common law severance is often significantly more than the ESA minimums.
Is there a deadline to sue for more severance pay?
Yes. In Ontario, you generally have two years from the date of your termination to file a legal claim for wrongful dismissal to seek your full common law severance entitlement. It is crucial to act well before this deadline expires.
My severance offer only includes the minimums required by the ESA. Should I consult a lawyer?
Almost always, yes. An offer limited to ESA minimums often represents only a fraction of what you may be entitled to at common law. A lawyer can assess your situation and advise if the offer is fair or if you have grounds to negotiate for a significantly better package.
Common Scenarios
- A 55-year-old director with 15 years of service at a large bank is terminated without cause and offered 23 weeks of pay, covering both their ESA termination and severance pay entitlements, but failing to address their much larger common law notice period.
- An employee with 6 years of service at a tech company with a global payroll of $3 million is let go and only offered 6 weeks of termination pay, with the employer incorrectly claiming they don't owe severance pay.
- A 40-year-old skilled tradesperson is part of a mass layoff of 60 employees from a manufacturing plant and is unsure how this affects their severance pay calculation under the ESA.
- An employee signs an employment contract with a clause limiting severance to ESA minimums, but upon termination, discovers the clause may be legally unenforceable, potentially entitling them to common law damages.
What You Should Know
- Do not sign a Release or severance offer without having it reviewed. Once signed, you give up your right to pursue any further claims against your employer.
- Understand the two sources of severance: the Employment Standards Act (ESA) provides a minimum floor, while the common law often provides a much higher ceiling.
- Gather your key documents, including your employment agreement, termination letter, and recent pay stubs, as these are essential for calculating your full entitlements.
- Remember that you have a duty to mitigate your losses by looking for new work, but this does not negate your employer's obligation to provide proper severance.
- Consulting with an employment law expert can help you understand the true value of your claim, as the initial offer from an employer is rarely their best one.
Featured Cases
K. v. GoEasy Ltd
2026 ONSC 4238 (CanLII) · 2026-07-21Wrongful Dismissal: RSU Dividends Included in Severance
This is a post-judgment procedural ruling regarding the calculation of damages in a wrongful dismissal case. The court issued supplemental reasons to clarify that dividends flowing from a granted RSU are part of the plaintiff's Long-Term Incentive Plan award, rejecting the defendant's objection to their inclusion in the damages calculation.
1001270243 Ontario Inc.
2026 ONSC 3967 (CanLII) · 2026-07-07CCAA: ResidualCo as Former Employer under WEPPA
A procedural application in CCAA proceedings seeking declarations on whether a residual company qualifies as a 'former employer' under the Wage Earner Protection Program Act (WEPPA) following a reverse vesting transaction. The court determined that the residual company was the former employer and granted declarations under the relevant statutes to facilitate employee wage claims.
W., W. v. P.
2026 ONCA 417 (CanLII) · 2026-06-15Post-Termination Commission & Unjust Enrichment Appeal
This is an appeal from a trial decision concerning a former employee's entitlement to post-termination compensation for fees billed and collected after departure, as well as claims for unjust enrichment and damages for breach of the duty of good faith. The Court of Appeal allowed the appeal in part, finding that the obligation to pay for files settled prior to departure survived termination, but denied entitlement for unbilled work in progress and dismissed the claim for unjust enrichment. The appeal was dismissed regarding the finding that the employee did not breach the duty of good faith, and the employer's damages claim was dismissed due to lack of evidence.
M. v. Salesfloor Inc.
2025 ONSC 3739 (CanLII) · 2025-06-24Unpaid Commissions: Resignation & Policy Incorporation
This case concerns a dispute over unpaid commissions owed to a former employee after her resignation. The court determined that the 2020 Commission Policy governed the plaintiff's entitlements because she did not consent to the 2021 policy changes. Applying the principle of contra proferentem to resolve ambiguities in the disbursement clause, the court found the plaintiff was the effective cause of the deals and entitled to the commissions earned before her resignation.
B. v The Bank of Nova Scotia
2025 ONSC 323 (CanLII) · 2025-01-14B. v Bank of Nova Scotia: Privilege in Employment Docs
This is an interlocutory motion concerning document production in an employment dispute where the plaintiff challenged the defendant's claims of solicitor-client and litigation privilege over workplace investigation documents. The court addressed whether common interest privilege applied and affirmed the defendant's search efforts, while deferring costs to avoid halting the litigation.
P. v. Cervus Equipment Corporation
2024 ONCA 804 (CanLII) · 2024-11-01Employment Settlement: Stock Units Release Interpretation
This is an appeal from a motion judge's decision regarding the interpretation of a settlement agreement and release in an employment context. The Court of Appeal for Ontario allowed the appeal, determining that the broad language of the release covered vested stock units and that the motion judge impermissibly allowed surrounding circumstances to overwhelm the text of the agreement.
Stock Transportation Ltd. v. L.
2024 ONSC 575 (CanLII) · 2024-01-25Severance Pay: Sale of Business Appeal Dismissed
This is an appeal to the Divisional Court from a decision regarding statutory severance pay entitlements under the Employment Standards Act. The court addressed whether the expiry of a service contract and the existence of an Employee Introduction Agreement constituted a 'sale of a business' triggering severance obligations under s. 9 of the ESA. The appeal was dismissed, confirming the employees' entitlement to statutory severance under s. 64.
In the Matter of the Proposal of Metroland Media Group Ltd.
2023 ONSC 5805 (CanLII) · 2023-10-13Employee Rep in Insolvency: Metroland Media
This is an interlocutory proceeding regarding the appointment of Representative Counsel and an ad hoc committee to represent non-unionized employees of Metroland Media Group Ltd. during insolvency proceedings. The court addressed whether such representation was necessary to protect vulnerable stakeholders' claims for severance, pension, and benefits, and whether personal information could be disclosed to counsel under PIPEDA. The court also determined that the debtor should bear the reasonable legal costs of the Representative Counsel.
Maynard v. Johnson Controls Canada LP
2023 ONCA 392 (CanLII) · 2023-05-31Maynard v. Johnson Controls: Severance Pay Appeal
This is an appeal from a summary judgment decision concerning the calculation of termination pay and severance under an employment agreement. The Court of Appeal for Ontario dismissed the appeal, upholding the lower court's finding that the employer's Share and Incentive Plan forfeiture provision was undisclosed and that RSUs and bonuses must be included in the para. 16 payment calculation. The court also rejected the employer's argument that the agreement limited entitlements to Employment Standards Act minimums.
Nordstrom Canada Retail, Inc.
2023 ONSC 1422 (CanLII) · 2023-03-03CCAA: Employee Trust for Severance Pay
This is an interlocutory proceeding in a CCAA insolvency case where the court addressed the wind-down of Nordstrom Canada's operations. A key issue was the approval of an Employee Trust to ensure financial security for employees and compliance with employment standards legislation regarding termination and severance pay during the liquidation process.
N. v. University Health Network
2022 ONCA 856 (CanLII) · 2022-12-08Bonus During Severance: N. v. UHN Appeal
This is an appeal from a motion judge's decision regarding an employee's entitlement to a discretionary bonus and secondment payout during a 12-month severance period. The Court of Appeal allowed the appeal in part, finding the bonus was an integral part of compensation and awarding it for the severance period, while dismissing the claim for the remaining term of the secondment agreement.
K. v. Connor, Clark & Lunn Financial Group Ltd.
2022 ONCA 518 (CanLII) · 2022-07-07Post-Retirement Compensation Limitation Appeal
This is an appeal concerning the application of limitation periods to a dispute over post-retirement compensation and equity interests under a partnership agreement. The Court of Appeal for Ontario addressed whether rolling limitation periods apply to periodic payments and whether a request for declaratory relief was statute barred under the Limitations Act, 2002.
Render v. ThyssenKrupp Elevator (Canada) Limited
2022 ONCA 512 (CanLII) · 2022-07-05Motion to Vary Appeal on Severance Pay Dismissed
This was a motion to amend or vary a decision of the Court of Appeal regarding statutory severance pay. The employee asked the court to infer the employer had a $2.5 million payroll based on trial transcripts, which is a requirement for severance pay under the Employment Standards Act. In the main appeal, the court previously declined to award the severance pay because the employee had not directed the court to this evidence. The Court of Appeal dismissed the motion. The court held that the motion was an improper attempt to reargue the appeal and did not fall under the rule for correcting accidental slips or omissions.
Clarion Lakeside Inn v. UFCW Local 175
2022 ONSC 3850 (CanLII) · 2022-06-30Judicial Review: Termination Pay & Frustration of Contract
This is a judicial review application concerning a labour arbitrator's award of termination pay to employees whose employment was deemed frustrated by a fire causing temporary closure. The Divisional Court reviewed whether the arbitrator's interpretation of the Employment Standards Act and the common law test for frustration was reasonable.
R. and B. v. Premier Conferencing
2022 ONSC 1896 (CanLII) · 2022-03-25Enforcement of Severance Agreements: 6 & 12 Months Salary
This is a costs ruling and merits decision regarding the enforcement of severance agreements in a wrongful dismissal context. The plaintiffs sought enforcement of agreements providing for six and twelve months' salary, which the court enforced based on the unconditional nature of the terms and the defendant's waiver of the mitigation defense. The court also addressed a procedural motion for an adjournment and awarded costs to the plaintiffs.
H. v. Max Aicher (North America) Limited
2021 ONSC 4290 (CanLII) · 2021-06-15Severance Pay: Global Payroll Threshold Review
This is a judicial review of an Ontario Labour Relations Board decision concerning the calculation of severance pay under section 64 of the Employment Standards Act, 2000. The central issue was whether the employer's payroll threshold should be determined by global operations or restricted to Ontario payroll.
K. v. Canadian Tire Corporation, Limited
2020 ONCA 709 (CanLII) · 2020-11-09Enforcement of Employment Settlement Agreement Appeal
This is an appeal from a motion judge's decision enforcing a settlement agreement that resolved employment claims. The Court of Appeal for Ontario dismissed the appeal, upholding the enforcement of the minutes of settlement and rejecting arguments regarding unilateral mistake, fraud, and bad faith by the employer.
F. v. Manulife
2019 ONSC 6861 (CanLII) · 2019-11-27F. v. Manulife: Disability & Termination Notice
This is a summary judgment motion in a wrongful dismissal and benefits dispute where the plaintiff, a former employee, sought long-term disability benefits and challenged the employer's termination obligations. The court considered whether the statutory eight-week notice period under the Employment Standards Act, 2000 or the common law notice period applied, and whether the plaintiff's disability excused non-compliance with mitigation obligations in the termination agreement. The motion was dismissed as genuine issues regarding policy interpretation and the timing of the disability required a trial.
S. v. Royal & Sun Alliance Insurance Company of Canada
2019 ONCA 201 (CanLII) · 2019-03-14Severance Release Unconscionability: 14-Year Employee Appeal
This is an appeal from a summary judgment decision regarding the enforceability of a release of claims signed by an employee as part of a severance package. The employee, terminated after 14 years of service, argued the release was unconscionable because they did not seek independent legal advice. The Court of Appeal found insufficient evidence on the fairness of the transaction and the value of the claim, referring the issue to trial.
P. v. Richmond Hill (Town)
2018 ONSC 6414 (CanLII) · 2018-11-08Municipal Severance Deduction Reviewed for Bad Faith
This is a judicial review of a municipal by-law enacted to deduct severance payments from a former councillor. The Divisional Court addressed whether the Town acted in bad faith by enacting the by-law without notice and whether the limitation period defence was valid. The court reviewed the specific section of the by-law targeting the severance payment.