Employment / Labour Law
 
Severance
 

When you are terminated without notice (please refers to the wrongful dismissal section), you have two possible theories of recovery: 1. The common law remedy of wrongful dismissal (please refers to the wrongful dismissal section), or 2. ESA Notice plus severance if certain conditions are met.

Who is not Entitled to Severance?

The employer – employee relationship is governed by the Labour Relations Act for unionized workers and the Employment Standards Act for non-unionized workers. Only non-unionized workers are caught by the Employment Standards Act (ESA). In unionized environments, collective agreements provide for employees’ rights and responsibilities. All our discussion here regarding severance only applies to non-unionized workers.

Under the Sub-section entitled Termination and Severance of Employment under the Employment Standards Act (ESA), an employee is not entitled to notice of termination, termination pay, or severance pay if the employee has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer. To rely on this provision, the employer must generally show that the employee’s conduct was both serious and intentional (i.e., the product of a deliberate or intentional act or failure to act). It’s strictly statutory. This standard is not the same as the common-law “just cause” standard which was much broader. Thus, it is possible that an employee’s misconduct may provide just cause for dismissal at common law but not be sufficiently culpable to disentitle him or her to ESA termination and severance pay.

 

What is ESA Notice and how is it calculated?

Under the ESA, employees who have been continuously employed for three months or more and less than one year are entitled to at least one week of notice of termination; two weeks if the period of employment is one year or more and fewer than three years, and thereafter an additional week of notice for each additional year of employment up to a maximum of eight weeks. However, employers are allowed to terminate employment without notice by paying termination pay equivalent to the required period of notice and maintaining any benefits the employee would otherwise have received over that period.

Employers who terminate 50 or more employees in a four-week period, on the other hand, are subject to different notice provisions. Under the Sub-section entitled Termination and Severance of Employment under the Employment Standards Act (ESA), the notice period is increased depending on the number of employees being affected (eight weeks for 50–199 employees; 12 weeks for 200–499 employees; and 16 weeks for 500 or more employees). Notice to government authorities is also required.

 

Who is Entitled to Severance?

Termination without cause requires ESA Notice or payment in lieu of notice. In addition, severance pay is required, under the ESA when an employer “severs” the employment of an employee with five years or more of service and:

  • the severance occurred because of a permanent discontinuance of all or part of the employer’s business 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

  • the employer has a payroll of $2.5 million or more.

Under ESA, the calculation of an employer’s payroll relates to its payroll in all jurisdictions, and not just in Ontario.

 

 

 

How Are Severance Calculated?

The severance that an employer needs to pay to a terminated employee depends on a list of factors such as the length of service, age, reason for dismissal, the position the employee held within the company, compensation, whether the employee was actively recruited and the general economy. Approximately one further week of notice is required for each additional year of employment. The maximum severance entitlement under the Act is an amount equal to the employee’s regular wages for a regular work week for a period up to 26 weeks.

The statutory severance benefit is calculated specifically by multiplying the employee’s regular wages (excluding overtime) for a regular work week by the sum of:

(the number of completed years of employment) + (the number of completed months of employment of the final year divided by 12)

Severance pay must be paid as a lump sum within seven days after termination of employment or on the next regular pay day, whichever is later, unless the employee agreed otherwise.

 

Entitlements under common law for damages for wrongful dismissal may dramatically exceed the statutory entitlements described in this section. However, as you can see there's much less uncertainty involved in a severance determination as compared to that of a wrongful dismissal action, thus it allows a more speedy resolution.

We recommend that legal advice be obtained whenever a severance proposal is provided by an employer. In many cases the severance package offered is of much lower value than what you would otherwise be entitled to under the ESA or the common law wrongful dismissal.

If you are an employer contemplating a severance package to workers, it's important that you comply with all statutory requirement, which can be tedious at times.

 

HTW Law can help. Call us now at 647-849-6582 or send us a message if you have some legal questions / inquiries or want to schedule an appointment with HTW Law.

 
 
 

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