Severance pay is mandated by Ontario’s Employment Standards Act. It is designed to compensate a long-term employee who loses their job. “Severance pay” as described in the Employment Standards Act is different than “termination pay,” which is paid to an employee in lieu of the statutorily required notice period. The notice period is designed to provide an employee with fair warning that their employment is coming to an end so they have time to look for new employment.
A severance package offered to an employee whose position has been terminated may be designed to address both an employee’s right to severance pay and termination pay. It may or may not offer an employee more than the bare minimum required by the legislation. Keep in mind that an employee who loses their job through no fault of their own may be entitled to more than the minimum severance or termination pay set out in the Act. Before you accept a severance package offered by a former employer, get advice from a professional. Our Richmond Hill employment lawyers can help you to understand your rights and your options during this difficult time.
When you might be entitled to severance pay?
The right to receive severance pay is triggered when an employee loses their job. Resigning from your employment does not qualify but some situations that do qualify include when:
- your employer terminates your position because they no longer require your services
- your employer closes down or goes bankrupt
- you are laid off for a minimum length of time
- you resign after receiving a notice of termination (provided you give at least two weeks’ notice).
However, not every employee who loses their job qualifies for severance pay. In order to qualify, you must have been employed for at least five years (not necessarily continuously) and your employer must have a global payroll of at least $2.5 million or have terminated the employment of at least 50 employees in a six-month period because all or part of the business is closing.
How much severance pay will you receive?
Severance pay is calculated by multiplying the number of years an employee worked for an employer by the amount the employee regularly earned in a week.
Even if you don’t qualify for severance pay, you may be entitled to termination pay pursuant to the Employment Standards Act or you may be entitled to various benefits pursuant to your employment contract, a collective agreement or the common law. Multiple factors will be relevant to determining a fair severance package, which is why you should speak to a lawyer before signing your severance package in Ontario.
Taxes and other consideration
A severance package may offer to pay an employee as a lump sum, as a salary continuance or in a series of deferred payments. Often, the employee has an option as to how they want to be paid. How and when you are paid will affect your income tax liability and may affect your ability to collect Employment Insurance.
Book a Consultation with our Richmond Hill Employment Lawyers Today
Loss of employment is stressful and can have long-term ramifications for your entire family. Analysing a severance package is a complex matter, which is why you should speak to a lawyer before signing your severance package in Ontario. Book a consultation with our Richmond Hill employment lawyers today.
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
