Termination and Severance
A number of expressions are commonly used to describe situations where employment is terminated. These include “let go”, “discharged”, “dismissed”, “fired”, and “permanently laid off.”
Irrespective of the term used, they all mean the employer no longer wishes to employ the individual and has advised the individual of its wishes.
Termination happens if the employer:
- Dismisses or stops employing an employee;
- “Constructively” dismisses an employee and employee resigns within reasonable time; or
- Lays an employee off for a period longer than “temporary layoff”.
Where the employee has been continuously employed for 3+ months, the employer must provide the employee with:
- Written notice of termination;
- Termination pay; or
- A combination of both.
NOTE: the employer does not need to have or provide the employee a reason for terminating the employment.
However, there are some situations where an employer cannot terminate an employee’s employment even if they are prepared to give proper written notice or termination pay.
An employer cannot end someone’s employment, or penalize them in any other way, if any part of the reason for the termination of employment is based on the employee asking questions about the ESA or exercising a right under the ESA, such as refusing to work in excess of the daily or weekly hours of work maximums, or taking a leave of absence specified in the ESA. This is considered a reprisal under the ESA. An employer who is found to have dismissed or otherwise punished an employee for claiming his or her rights under the ESA may be found to have committed a reprisal. The penalties for this include an order to compensate the employee for the losses they suffered as a result of the employer’s reprisal, up to and including ordering the employee reinstated in their pre-dismissal position.
Termination vs. Severance Pay
Termination pay: given in place of required notice under the ESA.
- Maximum of 8 weeks is provided
Severance pay: compensates long-term employees for losses when dismissed.
- Maximum of 26 weeks is provided
Qualifying for Severance Pay – Employee
An employee qualifies for severance pay where:
- The employee’s employment with the employer is severed; and
- The employee has 5+ years of employment with the employer.
Qualifying for Severance Pay – Employer Criteria
Where the employee meets the criteria above, and the employer meets one of the following two criteria, the employee will be entitled to severance pay:
- Employer has a payroll in Ontario of at least $2.5 million; or
- Severed employment of 50+ employees in a 6 month period due to complete/partial business closure.
When Severance Occurs
Employment is “severed” when the employer:
- Dismisses or stops employing the employee (includes insolvency or bankruptcy of employer)
- “Constructively” dismisses the employee and the employee resigns within reasonable time.
Employment is “severed” when the employer:
- Lays the employee off for 35+ weeks in 52 week period;
- Lays the employee off due to permanent business closure; or
- Gives the employee written notice of termination and the employee resigns after giving two weeks’ notice and resignation takes effect during the statutory notice period.
Example: Jacquelyn has worked for seven years, and is entitled to seven weeks’ notice of termination under the ESA. Jacquelyn’s employer gives her 10 weeks’ notice. Jacquelyn must give her employer at least two weeks’ written notice of her resignation.
As long as Jacquelyn’s resignation takes effect during the statutory notice period, in this case the last seven weeks of the 10-week notice period, she continues to be entitled to severance pay.
Calculating Severance Pay
To calculate the amount of severance pay an employee is entitled to receive, multiply the employee’s regular wages for a regular work week by the sum of:
# of completed years of employment X # of completed months of employment (divided by 12 for a year that has not completed)
Note: the maximum amount of severance pay required to be paid under the ESA is 26 weeks.
Theresa regularly works 40 hours a week and is paid $17.00 an hour. Her employer has a payroll of more than $2.5 million. Her employer gives Theresa seven weeks’ notice of termination, and Theresa works for the notice period. At the end of the notice period, Theresa’s employment is severed. On that date, Theresa has been employed for seven years, nine months and two weeks.
- To calculate Theresa’s regular wages for a regular work week. Theresa usually works 40 hours a week $17.00 x 40 = $680.00
- # of Theresa’s completed years 7 years
- Divide the # of completed months Theresa was employed in the incomplete year by 12. 9 complete month’s ÷ 12 = 0.75
- Add the # arrived at in Step 2 (7) to the number arrived at in Step 3 (0.75), 7.75
- Multiple Theresa’s regular wages for a regular work week ($680.00) by the number arrived at in Step 4 (7.75) $680.00 x 7.75 = $5270.00
Therefore Theresa is entitled to $5270.00 in severance pay.
Example 2: Commission/Other pay
Charlie works as a commission salesperson at his employer’s high-tech retail store. He is paid commissions on sales made and not on the basis of time worked. Charlie’s employer decides to downsize and Charlie is given eight weeks’ written notice of termination of employment. He works the notice period and his employment is severed. On the date his employment is severed, he has been employed for nine years, six months and three weeks.
Charlie’s employer has a payroll of more than $2.5 million. In the last 12 weeks of his employment, Charlie has received $7,723.00.
- Calculate Charlie’s “regular wages for a regular work week” – the average of the regular wages he received in the weeks he worked during his last 12 weeks of employment $7,723.00 ÷ 12 = $643.58
- Number of completed years 9 years
- Divide the number of completed months Charlie was employed in the incomplete year by 12 6 months ÷ 12 = 0.5
- Add the number arrived at in Step 2 and the number arrived at in Step 3 (0.5) 9 + 0.5 = 9.5
- Multiply Charlie’s regular wages for a regular work week by the number arrived at in Step 4 $643.58 × 9.5 = $6,114.01.
Therefore, Charlie is entitled to $6114.01 in severance pay.
When to Pay Severance Pay
The employer must pay the employee’s severance pay by the later of:
- 7 days after employment is severed; or
- The employee’s next regular pay day.
Severance Pay – Installment Plan
An employer may pay severance in installments where:
- The employee has agreed electronically or in writing to receive payment in installments; or
- With approval from Director of Employment Standards
- Cannot be more than 3 years; and
- If payment is not made, full sum is due immediately.
No Entitlement to Severance Pay
An employee will not be entitled to severance pay where the employee:
- Refused a reasonable alternative employment offer;
- Refused a reasonable alternative employment offer through a seniority system;
- Retires on full pension after employment is severed;
- Has employment severed because of permanent closure due to strike;
- Is employed in construction;
- Is employed in on-site maintenance;
- Is guilty of willful misconduct, disobedience, or willful neglect of duty that is not trivial/condoned; or
- Lost his or her employment because the contract is impossible to perform due to unforeseen circumstances.
Unforeseen circumstances do NOT include bankruptcy or insolvency, or when the contract is frustrated or impossible to perform as the result of an injury or illness suffered by an employee.
Recall right is the right of an employee on layoff to be called back to work by the employer under terms/conditions of employment. This is commonly found in collective agreements.
An employee with recall rights who is laid off for 35 or more weeks may:
- Keep their recall rights and not be paid termination or severance pay; or
- Give up their recall rights and receive termination and/or severance pay.
The employee must make the same decision for termination and severance pay, where entitled to both.
The ESA provides the minimum employer payment obligations. Some employees could have rights under common law which give them greater rights than notice of termination (or pay) and severance pay under the ESA.
Under the ESA and the common law, the employee has a right to reasonable notice of their employer’s intention to sever their employment contract.
When the employer does not provide this, it will have wrongfully dismissed the employee.
Qualifying for Notice of Termination of Pay in Lieu
Some employees are not entitled to notice of termination/termination pay under the ESA, including:
- An employee who is guilty of willful misconduct, disobedience or willful neglect of duty;
- A construction employee;
- An employee on a temporary layoff;
- An employee with less than three months employment; or
- An employee who refuses an offer of reasonable alternative employment.
A constructive dismissal may occur when an employer makes a significant change to fundamental term(s)/condition(s) in employment imposed by the employer without the employee’s consent. This can include:
- A significant negative change; (work location, authority, position etc.)
- An employer harassing or abusing the employee into resigning; and/or
- An employer giving the employee an ultimatum such as “quit or be fired”.
The employee would have to resign in response to the change within a reasonable period of time in order for the employer’s actions to be considered a termination of employment for purposes of the ESA.
Temporary layoff is when an employer is cutting back or stopping an employee’s work without ending employment. If a recall date has not been provided, layoff can still be temporary.
A layoff may result in a constructive dismissal if it is not allowed by the employment contract.
Week of Layoff
Is a week in which the employee earned less than half of what they would ordinarily earn in a week.
A week of layoff does not include any week where the employee did not work for one or more days because he/she was:
- Not available to work;
- Subject to disciplinary suspension; or
- Affected by strike/lockout.
Length of Temporary Layoff
The maximum length of a temporary layoff under the ESA is either:
- Not more than 13 weeks in any period of 20 consecutive weeks; or
- More than 13 weeks in any period of 20 consecutive weeks, but less than 35 weeks of layoff in any period of 52 consecutive weeks, where:
- The employee continues to receive substantial payments from the employer
- Insurance/benefit coverage continues;
- The employee receives supplementary unemployment benefits;
- The employee would be entitled to receive supplementary unemployment benefits but isn’t receiving them because they are employed elsewhere;
- The employer recalls the employee to work within the time frame approved by the Director of Employment Standards; or
- The employer recalls the employee within the time frame set out in an agreement with an employee who is not represented by a trade union.
Where Notice of Termination or Termination Pay Required
Under the ESA, an employer may terminate the employment of an employee of 3 months or more if the employer provides:
- Written notice of termination and the notice period has expired; or
- Without written notice/less notice than required and termination pay in lieu of notice.
Written Notice of Termination Pay in Lieu of Notice
An employee is entitled to written notice of termination or pay in lieu of notice where the employee has been continuously employed for the same employer for a minimum 3 months.
The amount of notice an employee is entitled to depends on the employee’s “period of employment”.
Period of Employment
A person is considered “employed” not only while he or she is actively working, but also during any time in which he or she is not working but the employment relationship still exists. (Ex. Sick leave, or on layoff).
The following are exceptions:
- Layoff is extended longer than a temporary layoff;
- If 2 separate periods of employment are separated by more than 12 weeks, only the most recent period counts for purposes of notice of termination.
Required notice (3 months +)
|Amount of notice required if an employee has been continuously employed for at least three months|
|Period of Employment||Notice Required|
|Less than 1 year||1 week|
|1 year but Less than 3 years||2 weeks|
|3 years but Less than 4 years||3 weeks|
|4 years but Less than 5 years||4 weeks|
|5 years but Less than 6 years||5 weeks|
|6 years but Less than 7 years||6 weeks|
|7 years but Less than 8 years||7 weeks|
|8 years or more||8 weeks|
NOTE: Special rules determine the amount of notice required in the case of mass terminations – where the employment of 50 or more employees is terminated at an employer’s establishment within a four-week period.
Employer Requirements during the Statutory Notice Period
The employer must:
- Not reduce employee’s wage rate/alter any employment terms/conditions;
- Not schedule employee’s vacation without agreement;
- Continue to make benefit contributions; and
- Pay the employee’s wages they are entitled to
- This may not be less than the employee’s regular wages for a regular work week.
Are wages other than overtime pay, vacation pay, public holiday pay, premium pay, personal emergency leave pay, domestic or sexual violence leave pay, domestic or sexual violence leave pay, termination of assignment pay, termination pay/severance pay, and certain contractual entitlements.
Regular Work Week
For an employee who usually works the same number of hours every week, a regular work week is a week of that many hours, not including overtime hours.
For these employees, the “regular wages” for a “regular work week” is the average amount of the regular wages earned by the employee in the weeks in which the employee worked during the period of 12 weeks immediately preceding the date the notice was given.
Where Employer Provides Notice beyond Statutory Minimum
An employer may provide notice of termination or pay in lieu longer than the statutory minimum.
The statutory part of the notice period is the last part of the period that ends on the date of termination.
Delivery of Notice of Termination
In most cases, written notice of termination of employment must be addressed to the employee. It can be provided in the following ways as long as delivery can be verified:
- In person
- By mail
- By fax
- By email
There are special rules for providing notice of termination if an employee has a contract of employment or a collective agreement that provides seniority rights that allow an employee who is to be laid off or whose employment is to be terminated to displace (bump) other employees.
In that case, the employer must post a notice in the workplace (where it will be seen by the employees) setting out the names, seniority and job classification of those employees the employer intends to terminate and the date of the proposed termination.
Termination pay may replace a written notice, and is a lump sum payment of regular wages for regular work weeks an employee would have received during the notice period.
The employer must also:
- Pay vacation pay that would be earned during the notice period; and
- Continue to make benefit contributions.
Example 1: Regular Work Week
Fatimah has worked for three and a half years. Now her job has been eliminated and her employment has been terminated. Fatimah was not given any written notice of termination.
Fatimah worked 40 hours a week every week and was paid $17.00 an hour. She also received four per cent vacation pay. Because she worked for more than three years but less than four years, she is entitled to three weeks’ pay in lieu of notice.
Fatimah’s regular wages for a regular work week are calculated:
$17.00 an hour X 40 hours a week = $680.00 a week
Her termination pay is calculated:
$680.00 X 3 weeks = $2040.00
Then her vacation pay on her termination pay is calculated
4% of $2040.00 = $81.60
Finally, her vacation pay is added to her termination pay:
$2040.00 + $81.60 = $2121.60
. The employer must also ensure continued coverage for any benefit or pension plans that applied to her for three weeks.
Example 2: No regular work week
Harris has worked at a nursing home for four years. He works every week, but his hours vary from week to week. His rate of pay is $17.00 an hour, and he is paid 6 per cent vacation pay.
Harris’ employer eliminated his position and did not give Harris any written notice of termination. Harris was ill and off work for two of the 12 weeks immediately preceding the day his employment was terminated. Harris earned $1,800.00 in the 12 weeks before the day on which his employment ended.
Harris is entitled to four weeks of termination pay.
Harris’ average earnings per week are calculated:
$1,800.00 for 12 weeks / 10 weeks (Harris was off sick for two weeks therefore these weeks are not included in the calculation of average earnings) = $180.00 a week
His termination pay is calculated:
$180.00 × 4 weeks = $720.00
Then his vacation pay on his termination pay is calculated:
6% of $720.00 = $43.20
Finally, his vacation pay is added to his termination pay:
$720.00 + $43.20 = $763.20
. The employer must also ensure continued coverage for any benefit or pension plans that applied to him for four weeks.
When to Pay Termination Pay
The employee must receive termination pay on the later of:
- 7 days after employment is terminated; or
- On the employee’s next regular pay day.
A mass termination is where:
- 50+ employees are dismissed within a 4 week period;
- At an employer’s establishment (this may refer to multiple locations)
In cases such as these, the employer is obligated to:
- Submit Form 1 to Director of Employment Standards
- Notice of termination is not effective until Director receives Form 1
- Copy of Form 1 must be posted in the workplace for the attention of the affected employees on first day of the notice period.
Form 1 Sample
Mass Terminations: Amount of Notice Due
|# Assignment Employees Terminated||Minimum Notice Required|
Exceptions to Mass Termination Rules
The mass termination rules do not apply if:
- The number of employees being terminated is 10% or less of the number of employees who have been employed for at least 3 months; and
- None of the terminations are caused by the permanent discontinuance of all or part of the employer’s business at the establishment.
Employee Resignation and Mass Termination
An employee whose employment is part of a mass termination may resign, but must provide written notice to the employer:
- Less than two years’ employment: 1 week
- More than two years’ employment: 2 weeks
NOTE: The employee does not have to give notice of resignation if the employer constructively dismisses the employee or breaches a term of the contract.
Temporary Work after Termination Date in Notice
An employer may provide work to an employee who has been given notice on a temporary basis in the 13-week period after the termination date set out in the notice, without affecting the original date of termination and without being required to provide any further notice when the temporary work ends.
If an employee works beyond the 13-week period after the original termination date, and then has their employment terminated, the employee will be entitled to a new written notice of termination as if the original notice had never been given.
Is the right of an employee on a layoff to be called back to work by their employer under a term or condition or employment.
This right is commonly found in collective agreements. This is not a right under the ESA and must be contracted for with the employee.
An employee who has recall rights and is entitled to termination pay because of 35 week + layoff may:
- Keep recall right and not be paid termination pay at that time; or
- Give up recall rights and receive termination pay and severance pay, if entitled.
NOTE: If an employee is entitled to both termination and severance pay, he/she must make the same choice for both.
No Entitlement to Termination Pay
An employee is not entitled to termination pay where the employee:
- Refused a reasonable alternative employment offer;
- Refused a reasonable alternative employment offer through a seniority system
- Is on a temporary layoff;
- Is dismissed during or because of strike/lockout;
- Employed in construction;
- Terminated at retirement;
- Guilty of willful misconduct, disobedience, or willful neglect of duty; or
- Lost employment because contract is impossible to perform due to unforeseen circumstances*.
*NOTE: Unforeseen circumstances include fire, flood, etc, but DOES NOT include bankruptcy, insolvency, or when contract is impossible to perform as the result of an injury or illness suffered by an employee.
An employee is not entitled to termination pay where the employee:
- Does not return after being recalled from temporary layoff within a reasonable time; or
- Was hired for a specific length of time or until completion of specific tasks
UNLESS: the employment ends before the term expires or task is completed; or
- Task is not completed more than 12 months after employment started; or
- Employment continues for three months or more after the term expires or task has completed