How Much Severance Pay Do I Get?
The amount of severance pay you are entitled to depends on several factors. Some employees are entitled to severance on top of termination pay. Common law severance is the default position unless the employment contract explicitly restrict the employee to Employment Standards Act statutory minimum with employee consent.
Do note that the common everyday usage of the word severance is very different than what it meant in employment law context. In employment law context, severance is commonly referred to as Employment Standards Act (ESA) severance, while severance pay is commonly referred to as termination pay interchangeably. Common Law Severance share nothing in common to ESA Severance and they mean very different things.
Common Law Severance
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. Do note that common law doesn't draw a distinction between Payment in lieu of working notice and "severance" (payment for long term service), everything is calculated as a full package in a wrongful dismissal claim. In wrongful dismissal cases, all the damages are aggregated together and being labelled as “reasonable notice”.
Entitlements under common law for damages for wrongful dismissal may dramatically exceed the statutory entitlements described in this section. A damage award in a successful wrongful dismissal case be as high as 24 to 26 months in some extreme cases.
There’s no minimum length of duration an employee needs to work to qualify for Common Law reasonable notice. Unfortunately, Common Law severance is not rocket science, and there’s no clear formula like in the case of ESA Severance. All we can do is comply the quantum of damage by keeping a list of cases involving common law reasonable notice, and then compare each employment law case at hand with the that list.
Click here to learn more about wrongful dismissal.
ESA Termination Pay and Severance
Under ESA, the Common Law Severance is broken up into two components, termination pay and severance pay. Click here to learn more about termination pay from the Ministry of Labour website. Click here to learn more about severance pay from the Ministry of Labour website.
ESA Termination Pay
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.
Unpaid temporary layoffs lasting 13 weeks or more will be deemed a termination of employment; and paid temporary layoffs lasting 35 weeks or more will be deemed a termination of employment. Click here to learn more about ESA temporary Layoffs.
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.
ESA severance 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.
The statutory termination pay 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)
The maximum termination pay 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. Severance 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.
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