Termination of Employment & Severance Pay

To Whom Does This Apply?

This document is based on information from the Ministry of Labour's Web site at http://www.labour.gov.on.ca/english/es/factsheets/fs_termination.html (last updated July 2006).

This Fact Sheet is provided for your information and convenience only.  It is not a legal document.  For further details, consult Employment Standards Act Brochure.  For complete information, refer to the Employment Standards Act, 2000 and its regulations.

Before you read this document, please read the Ministry's General Information Fact Sheet and find out if the ESA applies to you. 

Summary

What is termination of employment?
Common expressions for termination of employment include being "let go," "discharged," "dismissed," "fired" and "permanently laid off."

Under the ESA, employment is terminated if the employer:

What is a constructive dismissal?
A constructive dismissal may occur when an employer makes a significant change to a fundamental term or condition of an employee's employment without the employee's actual or implied consent.

• For purpose of the ESA, the employer will be considered to have terminated the employee's employment if the employee resigns within a reasonable period of time after the constructive dismissal.

An employee may be constructively dismissed if the employer makes changes to the employee's terms and conditions of employment that result in a significant reduction in salary or a significant change in such things as the employee's:

• work location
• hours of work
• authority or position.

The employee would have to resign in response 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.

Constructive dismissal may also include situations where an employer harasses or abuses an employee, or an employer gives an employee an ultimatum to "quit or be fired" and the employee resigns in response.

Constructive dismissal is a complex and difficult subject. An employee who thinks he or she may have been constructively dismissed should contact the Ministry of Labour for further information.

For further information:
visit the Web site:
Ministry of Labour Offices
http://www.labour.gov.on.ca/english/about/reg_offices.html

What is a temporary layoff?
A temporary layoff lets an employer suspend, cut back or stop an employee's employment without permanently ending it (e.g. laying someone off at times when there's not enough work to do).  An employer may put an employee on a temporary layoff without providing a recall date.

Employers are not required under the ESA to provide employees with a written notice of a temporary layoff, nor do they have to produce a reason.  However, this may not be the case under a collective agreement or an employment contract.

If the layoff exceeds the period of time considered under the ESA to be a temporary layoff, the employee's employment will be considered terminated.  The employee will be entitled to termination pay if notice of termination was not given.  For the purposes of the termination provisions of the Act, a week of layoff is a week in which the employee earned less than half of what he or she would ordinarily earn (or earns on average) in a week.

A week of layoff does not include any week in which the employee did not work for one or more days because the employee was not able or available to work, was subject to disciplinary suspension or was not provided with work because of a strike or lockout.

However, if the layoff exceeds the period of time considered under the ESA to be a temporary layoff, the employment and the employee will be considered terminated.  The employee will be entitled to termination pay if notice of termination was not given.

A temporary layoff can last:

a) not more than 13 weeks in any period of 20 consecutive weeks; or
b) more than 13 weeks in any period of 20 consecutive weeks, but less than 35 weeks in any period of 52 consecutive weeks, where certain conditions exist (e.g. where the employee continues to receive substantial payments from the employer, or the employee receives supplementary unemployment benefits; or
c) a longer period than described in b) above where the employer recalls an employee who is represented by a trade union within the time frames set out in an agreement between the union and the employer.

When can an employee's job be terminated?
In most cases, an employer can terminate an employee's job at any time, but employers must provide proper written notice, or termination pay instead of notice.

However, there are some situations where an employer can't terminate an employee's employment even if the employer is prepared to give proper written notice or termination pay.  For example, an employer can't end someone's employment, or penalize them in any 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 pregnancy, parental or emergency leave. (See the "Role of the Ministry of Labour" Fact Sheet at http://www.labour.gov.on.ca/english/es/factsheets/fs_role.html for more information.)

Do all employees qualify for termination notice and pay?
In certain cases, employees are exempt from (i.e., not covered by) the termination notice and pay requirements of the ESA.  For example, employees who are guilty of wilful misconduct, disobedience or wilful neglect of duty that isn't trivial, and has not been condoned by the employer, are not covered.  Other examples include construction employees, employees on temporary layoff and employees who refuse an offer of reasonable alternative employment.

An employee who has been employed less than three months and has his or her employment terminated is not entitled under the ESA to notice of termination or termination pay.

Many of the exemptions from the ESA are complex.  Consult Employment Standards Act Publications at http://www.labour.gov.on.ca/english/es/es_pubs.html for a list of exemptions, and contact the Ministry of Labour for further information.

How much notice of termination do employees get?
In most cases, when an employer ends the employment of someone who has been continuously employed for three months or more, the employer must provide either written notice of termination or termination pay or a combination of the two.

How much written notice is required depends on how long someone has been working for an employer.  Employers must continue to make the benefit plan contributions required to maintain an employee's benefit plans during the notice period.  This applies even if the employee has received termination pay instead of working part or all of the notice period.

In most cases, written notice of termination of employment must be addressed to the employee.  It can be delivered in person or by mail, fax or email, as long as delivery can be verified.

The following chart specifies the periods of notice an employer must give an employee: 

Note: Special rules apply in the case of "mass terminations", where 50 or more employees receive notice of termination at an employer's establishment within a four- week period.  For additional information please see Employment Standards Act Publications at http://www.labour.gov.on.ca/english/es/es_pubs.html.

How much termination pay do employees get?
An employee who doesn't get the required written notice (see chart above) must get termination pay instead.  If the employee does get the required notice, he or she is not entitled to termination pay.

Termination pay is a lump sum payment equal to the regular wages for a regular work week that an employee would otherwise have earned during the written notice period.  A special method for calculating termination pay applies to employees who don't have a regular work week or are paid on a basis other than time worked (e.g., piece-work rate, commission).

Termination pay must be paid to an employee no later than the later of seven days after the employee's employment is terminated and the employee's next regular payday, whichever is later.

For some examples of how to calculate termination pay see Employment Standards Act Publications at http://www.labour.gov.on.ca/english/es/es_pubs.html.

Regular wages
"Regular wages" are wages other than overtime pay, vacation pay, public holiday pay, premium pay, termination pay and severance pay.

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.

What is severance of employment?
A person's employment is "severed" when the employer:

• dismisses or stops employing someone, even when it is due to the employer's bankruptcy or insolvency;
• "constructively" dismisses the employee and the employee resigns in response within a reasonable period of time (see What is a constructive dismissal?);
• lays the employee off for 35 weeks or more in any period of 52 consecutive weeks;
• lays the employee off because all of the business at an establishment is permanently discontinued; or
• gives the employee written notice of termination and the employee resigns after giving two weeks' written notice, and the resignation takes effect during the required notice of termination period.

What is severance pay?
"Severance pay" is compensation that's paid to a qualified employee who has his or her employment "severed".  It compensates an employee for loss of seniority and job-related benefits.  It also recognizes an employee's years of service.

Severance pay is not the same as termination pay, which is given in place of the required notice of termination of employment.

Who qualifies to receive severance pay?
An employee qualifies for severance pay when his or her employment is severed and he or she:

• has worked for the employer for five or more years (including all time spent by the employee, whether continuous or not and whether active or not); and
• was employed by an employer who has a payroll in Ontario of at least $2.5 million; or
• severed the employment of 50 or more employees in a six-month period because all or part of the business was permanently discontinued.

Certain employees are not entitled to severance pay under the ESA. For example, employees who are guilty of wilful misconduct, disobedience or wilful neglect of duty that isn't trivial, and has not been condoned by the employer, are not entitled to severance pay.  Also, certain construction employees aren't covered, nor are employees who refuse an offer of reasonable alternative employment.

Many of the exemptions from the ESA are complex.  Consult Employment Standards Act Publication at http://www.labour.gov.on.ca/english/es/es_pubs.html for a list of exemptions, and contact the Ministry of Labour for further information.

How much severance pay are employees entitled to?
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:

• the number of completed years of employment; and
• the number of completed months of employment divided by 12 for a year that is not completed.

Note: A special method of calculating severance pay applies to employees who don't have a "regular work week" or are paid on a basis other than time worked (e.g., piece-work rate or commission.)

An employee can receive a maximum of 26 weeks of severance pay.  For examples of how to calculate severance pay please see Employment Standards Act Publications.

When must employees receive their severance pay?
An employee must receive severance pay no later than seven days after his or her employment is severed or what would have been his or her next regular pay day, whichever is later.

However, an employer may pay severance pay in instalments with the written agreement of the employee or the approval of the Director of Employment Standards, Ministry of Labour.  An instalment plan can't exceed three years.  If an employer fails to make a scheduled payment, all of the severance pay still owing to the employee becomes due immediately.

How do recall rights affect termination pay and severance pay?
A "recall right" is the right of an employee on layoff to be called back to work by his or her employer under a term or condition of employment.  This right is commonly found in a collective agreement.

Employees who are eligible for termination pay and/or severance pay because they have been on layoff for 35 weeks or more, and who also have recall rights, must choose either :

• to keep their recall rights, and not be paid for termination pay and/or severance pay at that time (In this case, the employer pays the termination and/or severance pay to the Director of Employment Standards, Ministry of Labour, and it is held in trust* until the employee is recalled or the employee gives up his or her recall rights or the recall rights expire.  If the employee is recalled, the money is paid back to the employer.  If the employee gives up his or her recall rights or the recalls rights expire, the money is paid to the employee.);
  or
• to receive the termination and/or severance pay, and give up their recall rights.

If an employee is entitled to both termination pay and severance pay, he or she must make the same choice for both.

*If the employee is represented by a union, the employer and union must attempt to come to an arrangement to hold the money in trust.  If that attempt is not successful, the union must notify the Director of Employment Standards and the employer in writing and the employer will then pay the termination and/or severance pay to the Director of Employment Standards to hold in trust.

What about Employment Insurance?
For questions about Employment Insurance call Human Resources Development Canada-Employment Insurance Telemessage General Inquiries.  For the office nearest you please visit http://www.sdc.gc.ca/en/gateways/nav/top_nav/our_offices.shtml or the telephone number is listed in the Blue Pages of your telephone book under "Employment".

With regard to termination or severance, is it possible that there are more rights for employees or obligations for employers?

Yes. The ESA provides minimum standards only. Some employees may have rights under the common law or other legislation that give them greater rights relating to notice of termination (or termination pay) and severance pay than the ESA. Employers and employees may wish to obtain legal advice concerning their rights.

It should be noted that if an employee has filed a complaint with the Ministry for termination pay or severance pay, he or she is generally not entitled to commence an action in court for the wrongful dismissal related to that same termination/severance of employment unless the employee withdraws the complaint within two weeks of filing with the Ministry. An employee who has commenced a wrongful dismissal action in court cannot file a complaint with the Ministry of Labour for termination pay and/or severance pay entitlements related to the same termination/severance of employment.

What if the employer does not follow the ESA?

If an employee thinks the employer is not complying with the ESA, he or she can call the Employment Standards Information Centre at 416-326-7160 or toll free at 1-800-531-5551 for more information about the ESA and how to file a complaint. Complaints are investigated by an employment standards officer who can, if necessary, make orders against an employer—including an order to comply with the ESA. The ministry has a number of other options to enforce the ESA, including requesting voluntary compliance, issuing an order to pay wages, an order to reinstate and/or compensate, a notice of contravention, or issuing a ticket or otherwise prosecuting the employer under the Provincial Offences Act.

• Important Notices
• Vacation
• Public Holidays
• Ontario Minimum Wage
• Hours of Work & Overtime
• Pregnancy Leave and Parental Leave
• Domestic Workers
• Homeworkers
• Retail Workers
• Personal Emergency Leave
• Employment Regulations Info-Guide

DISCLAIMER
Information contained in this section is of a general nature only and is not intended to constitute advice for any specific fact situation. For particular questions, the users are invited to contact their lawyer. For additional information, see contact(s) listed below.

Ontario Contact(s):
Employment Standards Information Centre
Ministry of Labour - MOL
Ontario 
Telephone: (416) 326-7160
Fax: (416) 314-8725
Toll-free (information): 1-800-531-5551
E-mail: webes@mol.gov.on.ca
Web site: http://www.gov.on.ca/LAB