Labour & Employment Law Blog

Termination vs. Severance Pay?

Learn about the important differences between termination and severance payments.

The terms “termination pay,” “severance pay,” “severance package,” “termination pay,” or “severance” are commonly a source of confusion for a lot of employees. For instance, “termination pay” and “severance pay” are often used interchangeably, when in fact these terms are not the same. However, it is true that both these terms come into play after an employee has been terminated or dismissed (or fired) from their employment by their employer.

First, let’s discuss termination pay. When an employee has been dismissed, the employer must provide the employee with either written notice of the termination, termination pay in lieu of that notice or a combination of both. Termination pay is simply monetary compensation to the employee in lieu of notice of the termination. Sometimes the employer will provide no notice to the employee or less notice than what the employee should have received from the employer.

The amount of termination pay can be calculated statutorily; at common law the amount will be considered as “pay in lieu of reasonable notice.” However, it is only if the employee’s employment agreement or contract does not contain an enforceable termination clause limiting the employee’s compensation to the entitlements under the statute, that the employee may be also entitled to compensation for pay in lieu of reasonable notice at common law.

Ontario’s Employment Standards Act, 2000, sets out what the employee’s minimum notice period should be statutorily. For federally regulated employees, minimum standards for notice are set out in the Canada Labour Code, 1985. Again, these statutory entitlements are minimum entitlements. An employee may be entitled to a significantly longer notice period under the common law. For instance, depending on the individual nature of the case, a wrongfully dismissed employee may be entitled to over 24 months of common law notice. The amount of common law notice is determined using a variety of factors. These factors include:

  • the employee’s age
  • length of service
  • character of employment (such as the employee’s job description or position) and
  • the availability of similar employment, having regard to the experience, training and qualifications of the employee.

The general rule of thumb is that an employee is entitled to receive a greater notice period the longer they have been working with the employer and the older that the employee is. Ontario courts will award an employee with pay in lieu of reasonable notice between three months of notice and up to 24 months’ common law notice depending on the various factors we have mentioned above. In exceptional circumstances, Ontario courts can award notice periods to dismissed employees of above 24 months. For more information about common law notice, please see our blog entitled What You Need to Know About Common Law Notice.

Secondly, when it comes to severance pay, the employee is only entitled to severance pay compensation if they meet certain criteria that are set out in statute. For provincially regulated employees, the employee must have worked for the employer for five (5) or more years. The time may or may not be continuous or may sometimes be active or not, but the time spent in employment with the employer must be at least five (5) years. The second criterion is that the employer must have a payroll of at least $2.5 million. An employee may also be entitled to severance pay if the employee was subjected to a mass termination in accordance with the various rules set out in Ontario’s Employment Standards Act, 2000. These criteria act as a limiting factor for severance pay, so while every employee is entitled to notice under statute not all employees will be entitled to severance pay under statute. For more information on severance pay please see our blogs entitled What You Need to Know About Severance Pay and Some Information About Severance Pay.

How Zeilikman Law Can Help

Zeilikman Law has helped hundreds of employees all over Ontario learn about their rights upon termination. It is very important that if you have been fired, dismissed or “laid off” from your job, that you approach an employment lawyer to help you determine if you are entitled to compensation both statutorily and under the common law. An employment lawyer will be able to properly assess your case and figure out how much you are owed. The difference between what the employer has offered you and what you are legally entitled to may be substantial.

The above article is for general information purposes only, does not constitute legal advice or create a solicitor-client relationship. Because each case is unique and factually driven, if you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere. We represent clients in the Greater Toronto Area including Toronto, North York, Markham, Vaughan, Thornhill, Newmarket, Aurora, Brampton, Mississauga, Barrie, Ajax, Whitby, Pickering and Oshawa.