Employers and HR professionals in Ontario often use the terms severance pay and termination pay interchangeably. The terms have distinct definitions and impose unique legal obligations under the Ontario Employment Standards Act, 2000 (ESA).

TERMINATION PAY (pay in lieu of notice) is payable under these conditions:

•       The worker is being terminated after at least 3 months service. OR
•       Has been on lay off for more than 13 weeks in any 20 week period

•       The worker is being terminated without cause. Workers who quit or are fired for wrongdoing forfeit their right to notice or pay in lieu of notice. Some other workers are NOT entitled to termination pay.

•       The employer has not provided working notice of the termination. Paying termination pay can be avoided by providing the worker with notice of the pending termination.

•       Notice of termination, or pay instead of notice, is based on length of service. Consult your legal advisor or the Ontario Ministry of Labour website.

SEVERANCE PAY is payable, on top of termination pay, under these conditions:

•       The worker has five or more years of service; AND

•       The employer has a payroll of at least $2.5 million; OR
•       The employer is ceasing business and is laying off at least 50 people within a six month period

•       The worker is being laid-off, or otherwise terminated, without cause

•       The lay-off is permanent and the worker has no recall rights

•       A worker who retains recall rights abandons the right to severance pay and termination pay.

•       Union members have unique rights.

•       A permanent lay-off lasts more than 13 weeks in any 20 week period. Some longer layoffs are temporary when the employer contributes to the employee’s benefits or the employee receives EI benefits.