Severance Pay Versus Termination Pay

Dec 9, 2013

When an employee is fired without cause, the employer is generally required to give notice or pay the employee in lieu of notice. Most of the time an employee is terminated without notice and given a severance package.

Termination pay

Employees who are terminated without cause are generally entitled to notice of termination. For information on what constitutes just cause see here.

The Employment Standards Act (“ESA”), sets the minimum amount of notice required. If an employee has an employment contract that specifies the amount of notice required for termination, then the contract applies, as long as it is the same or more than what is required by the ESA. The ESA notice periods vary from 0-8 weeks depending on length of service.

If the employee does not have an employment contract, than s/he is entitled to “reasonable notice”. To determine what reasonable notice is, the courts will consider whether the employee was lured from secure employment, the employee’s age, length of service, duties and the availability of similar employment given the employee’s education and experience. For more information on reasonable notice see here. Currently, the maximum amount of notice under the common law is 24 months.

An employer may choose to pay the employee a lump sum equivalent to the salary and benefits that would have been earned in the notice period. This amount is called “termination pay” under the ESA. It is otherwise referred to as payment in lieu of reasonable notice.

Severance pay

The ESA provides additional payments to long-term employees. This is called “severance pay”. If the employee has worked for the employer for five years or more and the employer has a payroll of $2.5 million or the employer terminates 50 or more employees at the same time, the terminated employee is entitled to severance pay.

Severance pay is one week per year of service up to a maximum of 26 weeks.

Severance pay is in addition to termination pay under the ESA. If the employee receives a lump sum payment in lieu of reasonable notice, the total must be more than the equivalent of the minimum required for termination and severance pay under the ESA.

If your employer has presented you with a termination or severance package, and you would like to speak with an employment lawyer, contact us at [email protected] or 647-633-9894.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

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