Who Is Entitled to Severance Pay Under the Employment Standards Act

Under the Employment Standards Act (“ESA”) in Ontario, terminated employees are entitled to both Termination Pay (s.57) and Severance Pay (s.65) under certain circumstances.  While severance pay has a different meaning under the common law, and all employees are entitled to reasonable notice of termination or payment in lieu thereof in accordance with the common law, except those that have signed an employment contract with an enforceable termination clause, the meaning of severance pay has a specific definition under the ESA.

Entitlement to severance pay

64 (1)   An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and,

(a)   the severance occurred because of a permanent discontinuance of all or part of the employer’s business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result; or

(b)   the employer has a payroll of $2.5 million or more.

Based on the above-noted definition, in order to be entitled to severance pay, in addition to termination pay, under the ESA, an employee must be employed for over 5.0 years with the same employer with a payroll over $2.5MM.  In the event of termination from employment, an employer is required to pay the minimum obligations under the ESA, which can include both termination pay, benefits continuation for the statutory notice period, and severance pay entitlements if the employees are eligible based on the definition referenced above.

It is imperative that, as an employer, you comply with your minimum obligations under the ESA or else you can be sanctioned by the Ministry of Labour and by a Court should your former employee wish to commence Court Action. If you are an employee, have your severance package reviewed by an employment lawyer to ensure that your rights are fully accounted for.