"Severance pay" is compensation that is paid to a qualified employee who
has his or her employment "severed." It compensates an employee for loss
of seniority and job-related benefits. It also recognizes an employee's
Severance pay is not the same as termination pay, which is given in place
of the required notice of termination of employment.
When Severance Occurs
A person's employment is "severed" when their employer:
stops employing the employee, including an
employee who is no longer employed due to the bankruptcy or insolvency
of his or her employer;
"constructively" dismisses (please refer to
in the "Termination of Employment" section of the Guide) the employee
and the employee resigns in response within a reasonable time;
lays the employee off for 35 or more weeks
in a period of 52 consecutive weeks;
For the purposes of the Severance
provision, an employee who receives less
than one quarter of the wages he
or she would have earned at the regular
rate for a regular work week is
considered to have been on a week of layoff. A week of layoff does not
include a week when the employee is unavailable for work, unable to
work, suspended for disciplinary reasons, or not provided with work
because of a strike or lockout at his or her place of employment or
elsewhere. Although the 52 weeks are consecutive, the 35 weeks are not
required to be consecutive.
lays the employee off because all of the business at an establishment
closes permanently (an "establishment" can, in some circumstances,
include more than one location); or
gives the employee written notice of termination and the employee
resigns after giving two weeks' written notice, and the resignation
takes effect during the statutory notice period.
Employee Resigns After Receiving Notice of Termination
An employee who has been given a written notice
of termination can resign and continue to keep the right to severance pay.
To keep this right, the employee must give the employer two
weeks' written notice of his or her
resignation. The resignation must also take effect during the statutory
notice period–the period of written notice
that is required to be given by the employer.
If an employer provides longer notice than is required, the statutory part
of the notice period is the last part of the period that ends on the date
Heather has worked for seven years, and is
entitled to seven weeks' notice of termination under the ESA.
Heather's employer gives her 10 weeks' notice. Heather must give her
employer at least two weeks' written notice of her resignation. As
long as Heather's resignation takes effect during the statutory notice
period, in this case the last seven weeks of the 10-week notice
period, she continues to be entitled to severance pay.
Qualifying for Severance Pay
An employee qualifies for severance pay when his or her employment is
severed and he or she:
has worked for the employer for five or
more years (including all the time spent by the employee in employment
with the employer, whether continuous or not and whether active or
his or her employer:
has a payroll in Ontario of at least
severed the employment of 50 or more employees in a six-month
period because all or part of the business closed.
See also: Severance
Amount of Severance Pay
To calculate the amount of severance pay an
employee is entitled to receive, multiply the employee'sregular
wages for a regular
work week by the sum of:
the number of completed years of
the number of completed months of employment divided by 12 for a year
that is not completed.
The maximum amount of severance pay required to
be paid under the ESA is
Calculating Severance Pay
A regular work week
Susan regularly works 40 hours a week and
is paid $15.00 an hour. Her employer has a payroll of more than $2.5
million. Her employer gives Susan seven weeks' notice of termination,
and Susan works for the notice period. At the end of the notice
period, Susan's employment is severed. On that date, Susan has been
employed for seven years, nine months and two weeks.
Here's how to calculate Susan's severance pay entitlement.
Calculate Susan's regular wages for a regular work week.
usually works 40 hours a week × $15.00 = $600.00
Number of Susan's completed years = 7
Divide the number of complete months Susan was employed in the
incomplete year by 12.
Susan worked 9 complete
months ÷ 12 = 0.75
Add the number arrived at in Step 2 (7) to the number arrived at
in Step 3 (0.75),
7 + 0.75 = 7.75
Multiply Susan's regular wages for a regular work week ($600.00)
by the number arrived at in Step 4 (7.75).
$600.00 × 7.75 = $4,650.00.
Result: Susan is entitled to $4,650.00 in severance pay.
A special method of calculating severance pay is used for employees who
are paid on a basis other than time worked.
Employee paid on a basis other than time worked
Kwesi works as a commission salesperson at
his employer's high-tech retail store, one of the biggest in the city.
He is paid commissions on sales made and not on the basis of time
Kwesi's employer decides to downsize and Kwesi is given eight weeks'
written notice of termination of employment. He works the notice
period and his employment is severed. On the date his employment is
severed, he has been employed for nine years, six months and three
Kwesi's employer has a payroll of more than $2.5 million. In the last
12 weeks of his employment, Kwesi has received $7,723.00.
To calculate Kwesi's severance pay entitlement.
Calculate Kwesi's "regular wages for a regular work week"-the
average of the regular wages he received in the weeks he worked
during his last 12 weeks of employment.
$7,723.00 ÷ 12 = $643.58
Number of completed years = 9
Divide the number of complete months Kwesi was employed in the
last year he was employed by 12
Kwesi worked 6 complete months ÷ 12 = 0.5
Add the number arrived at in Step 2 (9) and the number arrived at
in Step 3 (0.5) 9 + 0.5 = 9.5
Multiply Kwesi's regular wages for a regular work week ($643.58)
by the number arrived at in Step 4 (9.5)
$643.58 × 9.5 = $6,114.01.
Result: Kwesi is entitled to $6,114.01 in severance pay.
When to Pay Severance Pay
An employee must receive severance pay either
seven days after the employee's employment is severed or on what would
have been the employee's next regular pay day, whichever is later.
However, an employer may pay severance pay in
installments with the written agreement
of the employee or the approval of the Director of Employment Standards,
Ministry of Labour. An installment plan cannot be for more than three
years. If an employer fails to make a scheduled payment, all of the
employee's severance pay becomes due immediately.
Exemptions from Severance Pay
Many of these
exemptions are complex. Please contact the Employment Standards
Information Centre, 1-800-531-5551, if you need help with these
exemptions. Please also refer to the Special
An employee is not entitled to severance pay if he or she:
has refused an offer of "reasonable alternative employment" with the
has refused "reasonable alternative
employment" that is available to the employee through a seniority
is severed and retires on a full pension (not including Canada Pension
has his or her employment severed because of a strike, as long as the
employer can show that the economic effects of the strike caused the
closing of part or all of the business;
is employed in construction, including employees who are working
off-site and who are commonly associated in work or collective
bargaining with employees who work at the construction site;
is employed in the on-site maintenance of buildings, structures,
roads, sewers, pipelines, mains, tunnels or other works;
is employed to provide professional
services, personal support services or homemaking services as defined
in the Long-Term
Care Act, 1994 for
an employer who has a contract to provide those services with a
community care access corporation within the meaning of the Community
Care Access Corporations Act, 2001 ,
if the employee’s arrangement with the employer allows the employee to
elect to work or not to work when requested to do so by the employer;
is guilty of wilful misconduct, disobedience or wilful neglect of duty
that is not trivial and was not condoned by the employer; or
has lost his or her employment because the contract of employment is
impossible to perform or has been frustrated by an unexpected or
unforeseen event or circumstance. This does not include bankruptcy or
insolvency or when the contract is frustrated or impossible to perform
as the result of an injury or illness suffered by an employee.
See also: Severance
A "recall right" is the right of an employee on
layoff to be called back to work by his or her employer under a term or
condition of employment. If an employee is entitled to both termination
pay--because of a layoff of 35 weeks or more--and severance pay, he or she
must make the same choice for both. Please refer to "Recall
Rights" in the "Termination of Employment"
The rules under the ESA about
termination and severance of employment are minimum requirements. An
employee may choose instead to sue an employer in a court of law for
"wrongful dismissal." An employee cannot sue an employer for wrongful
dismissal and file
a claim for termination pay or severance pay with the ministry for the
same termination or severance of employment. The employee must choose one
or the other and may wish to obtain legal advice concerning their rights.
Greater Right to Termination Notice, Pay in Lieu, and Severance
The ESA provides
minimum standards only. Some employees may have rights under the common
law or other legislation that give them greater rights relating to notice
of termination (or termination pay) and severance pay than the ESA.
Employers and employees may wish to obtain legal advice concerning their