Quick answer: If you're terminated without cause in Ontario, you're entitled to the ESA minimums (termination pay of up to 8 weeks, plus severance pay of up to 26 weeks if you qualify) and, unless a valid termination clause limits you, reasonable notice at common law, which is often several times higher. Don't sign a release until you know which applies to you.
Most people only learn how severance works on the day they lose their job, usually with a package in front of them and a deadline to sign it. This guide explains what Ontario law actually entitles you to, how the amounts are worked out, and what to check before you accept anything.
To get a quick estimate of your own numbers, use our severance pay calculator.
The two layers of severance in Ontario
When you're terminated without cause, your entitlement comes from two places:
- The Employment Standards Act, 2000 (ESA). This sets the legal minimum. Every employer must pay it, and you can't contract out of it.
- The common law. Unless your employment contract has a valid clause limiting you to the ESA minimums, you're also entitled to "reasonable notice", which courts set based on your circumstances. This is usually far more than the ESA minimum.
Many first offers include only the ESA minimum, or a little more. Understanding the difference between the two layers is the most important thing in this guide.
ESA termination pay
You're entitled to written notice of termination, or pay instead of notice ("termination pay"), once you've worked for your employer for at least three months:
| Length of employment | Minimum notice or pay |
|---|---|
| 3 months to less than 1 year | 1 week |
| 1 year to less than 3 years | 2 weeks |
| 3 to less than 4 years | 3 weeks |
| 4 to less than 5 years | 4 weeks |
| 5 to less than 6 years | 5 weeks |
| 6 to less than 7 years | 6 weeks |
| 7 to less than 8 years | 7 weeks |
| 8 years or more | 8 weeks |
Your employer must also continue your benefit plan contributions during the statutory notice period.
If 50 or more employees are terminated at one establishment within four weeks, longer "mass termination" notice rules apply: 8, 12 or 16 weeks depending on how many people are affected.
ESA severance pay
ESA severance pay is a separate payment on top of termination pay. You qualify if both of these are true:
- You've been employed for five years or more, and
- Your employer has a payroll of $2.5 million or more, or is ending the employment of 50 or more people within six months because all or part of the business is permanently closing.
How much: one week of regular wages for each year of employment, plus a proportionate amount for any partial year (completed months divided by 12), up to a maximum of 26 weeks.
The payroll test can include global payroll. Courts have held that the $2.5 million test isn't limited to Ontario payroll. Paquette v. Quadraspec Inc. (2014) counted the employer's payroll across Canada, and in Hawkes v. Max Aicher (North America) Limited (2021), the Divisional Court counted payroll outside Canada as well. If you work for an Ontario branch of a larger international company, you may qualify even if your local office is small.
Common-law reasonable notice
This is where most of the money usually is. Unless your contract validly limits you to the ESA, you're entitled to reasonable notice of termination, or pay in lieu of it. There is no fixed formula. Courts apply the Bardal factors, from Bardal v. Globe & Mail Ltd. (1960):
- Character of employment. Your role, responsibilities and seniority.
- Length of service. Longer service usually means more notice.
- Age. Older employees often take longer to find similar work.
- Availability of similar employment. Your experience, training and qualifications, and the job market for someone like you.
Courts also look at whether you were recruited away from secure employment ("inducement"), and courts have awarded more than many expect to short-service employees.
There is no "one month per year of service" rule, though it's a common starting point in conversation. Awards are generally capped at around 24 months, with longer periods only in exceptional cases.
What common-law notice includes
Reasonable notice is meant to put you in the position you'd have been in if you had worked through the notice period. Depending on the facts, that can include:
- Base salary
- Bonuses and commission you would have earned
- Health, dental and life insurance benefits, or their value
- Pension and RRSP matching contributions
- Car allowance, phone and other regular perks
- In some cases, stock options or other incentive pay, depending on the plan wording
The duty to mitigate
At common law, you're expected to make reasonable efforts to find new work during the notice period, and money you earn may reduce what you're owed. This duty doesn't apply to your ESA minimums. A good settlement often resolves this upfront with a lump sum, so you don't have to report new income later.
Does your contract limit you to the ESA minimum?
Many employment contracts include a termination clause that tries to limit you to the ESA minimum. Ontario courts have found a large number of these clauses unenforceable. For example:
- In Waksdale v. Swegon North America Inc. (2020), the Ontario Court of Appeal held that if any part of the termination provisions breaches the ESA, including the "for cause" section, the whole termination clause fails.
- Clauses that let an employer end your employment "at any time" or "at its sole discretion", or that fail to promise benefits and all wages during the notice period, are often struck down.
If the clause is unenforceable, you're entitled to common-law reasonable notice instead. This is one of the most valuable things a lawyer checks. See our employment contract review guide.
Before you sign a release
Most packages above the ESA minimum come with a release: a document in which you give up your right to sue in exchange for the payment. Before you sign:
- Your ESA minimums aren't conditional. Your employer must pay them whether or not you sign.
- Deadlines are often short, but usually negotiable. Ask for more time to get legal advice if you need it.
- Check what you're giving up. That includes human rights claims, bonus and commission entitlements, and anything else you might be owed.
Read more: Do not sign a release or severance agreement at your termination meeting.
How severance is taxed
Severance and pay in lieu of notice are taxable. For tax purposes, a lump-sum severance payment is generally treated as a "retiring allowance":
- Your employer withholds tax on a lump sum at set rates: 10% on amounts up to $5,000, 20% on $5,001 to $15,000, and 30% over $15,000 (outside Quebec). Your actual tax is settled when you file your return.
- If you have unused RRSP room, you can ask your employer to transfer part of the payment directly into your RRSP, which avoids withholding on that portion.
- If you worked for the employer before 1996, part of a retiring allowance may qualify for an additional RRSP transfer beyond your normal room.
- Spreading payments over two calendar years can lower the overall tax in some situations.
Talk to an accountant about your own situation. A lawyer can then build the right structure into your settlement.
Severance and Employment Insurance
You can apply for EI even if you're receiving severance. Apply as soon as possible after your last day. Severance and pay in lieu of notice can delay when your EI payments start, rather than cancelling them, and Service Canada's rules on this have changed at times, so check how they apply to you. See how severance pay affects EI.
Temporary layoffs
Your employer can only lay you off temporarily if your contract allows it or you agree. The ESA also limits how long a temporary layoff can last: generally up to 13 weeks in any 20-week period, or up to 35 weeks in a 52-week period if certain conditions are met, such as continued benefits. If the layoff goes longer, it's treated as a termination. A layoff without a right to lay you off may also be a constructive dismissal. See what is a temporary layoff in Ontario.
Fired "for cause"?
An employer that alleges just cause is trying to pay you nothing. Just cause is a high bar, and courts expect serious misconduct and, usually, warnings. Even when there's some misconduct, terminating without notice is often found to be disproportionate. See do you get severance if fired with cause in Ontario.
How to negotiate a better package
- Don't sign on the spot. Take the documents home.
- Gather your paperwork. That means your contract, the termination letter, the package, recent pay stubs, and bonus, commission and benefit details.
- Work out your real entitlement: the ESA minimums, whether your termination clause holds up, and a realistic common-law range.
- Respond in writing, with reasons, through a lawyer if possible. Employers often expect a counteroffer.
- Negotiate the terms as well as the amount. That includes benefit continuation, a reference letter, how the departure is announced, the timing of payments for tax purposes, and outplacement support.
Time limits
You generally have two years from your termination to start a lawsuit for wrongful dismissal in Ontario. Some other claims and complaints have shorter deadlines, so don't wait.
Related guides
- Termination without cause in Ontario
- Wrongful dismissal in Ontario
- How much severance are you owed after 6 years?
- What is pay in lieu of notice?
- Ontario termination pay
- Wrongful termination settlements in Ontario
Employment lawyer in Toronto. JD, University of Ottawa. About Faisal
This article is general information about Ontario employment law, not legal advice. Every situation is different. For advice about yours, book a free consultation.