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Here is Everything You Need to Know About Severance Pay

Whitten and Lublin | Sep 21, 2018

When an employer wishes to terminate employment, the employee is entitled to a notice or pay in lieu, and a severance pay in certain instances. Depending upon various scenarios, the total severance package may vary considerably.

Notice or pay in lieu:
Under the employment standards law, an employee is owed a notice period when employment is being terminated. This generally works out to one week per year of service, up to a maximum of eight weeks of notice. An employer may, which is common, choose to pay wages equivalent to earnings over the notice period. This must also include continuation of all benefits an employee would have received during the notice period, such as pension contributions, health benefits, etc.

Common Law Notice:
Employees may be owed substantially more notice or pay in lieu under common law if not limited by a termination clause. Common law notice is judge-made-law, and the courts have used the ‘Bardal Factors’ in estimating notice pay. The Bardal Factors include an employee’s length of service, age, skillset, position, and availability of similar employment as factors in determining the notice period. This is a non-exhaustive list, as common law, unlike employment standards law, seeks to estimate the amount of notice or pay in lieu, an employee would need to find comparable employment. As such, a senior employee may be owed much more notice than entitled under employment standards law, which is minimal guarantees.

Severance Pay:
Severance pay in Ontario applies if an employee has five (5) or more years of service and the employer has a payroll of 2.5 million or more or 50 or more employees are being laid-off within 6 months. Severance pay is calculated by an employee’s weekly earnings multiplied by the number of years the employee has served, plus the number of months divided by 12 for partial years.
Severance is paid for the following reasons: when an employee is dismissed absent of misconduct; when an employee is ‘constructively’ dismissed; if the employee is laid off for 35 weeks or more in a 52 week period; if the employee is laid off due to business closure; if the employee resigns by providing 2 weeks notice after the employer has given termination notice provided the resignation takes place within the statutory notice period.

Overall, it is important to seek advice from an employment lawyer when offered a termination package to ensure you are provided full entitlements.

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