The Difference Between Termination Pay, Severance Pay, and a Severance Package

August 24, 2019


group of business people sitting at table reviewing documents

 

Termination Pay

With some exceptions, employees who are dismissed without cause are automatically entitled to a minimum notice period calculated in accordance with Ontario’s Employment Standards Act.  It is a straight-forward mathematical formula based solely on an employee’s continuous length of service.

If the employer opts to provide pay in lieu of notice, this pay is called “Termination Pay”.  The maximum available notice period (or Termination Pay) under the Employment Standards Act is 8 weeks.

Severance Pay

Under the Employment Standards Act, some employees are also entitled to additional compensation called “Severance Pay” (but don’t confuse this with “severance” or “severance package” — the terms are not interchangeable).  Employees are entitled to Severance Pay if they have been with the employer for five years or more (including all the time spent by the employee in employment with the employer, whether continuous or not and whether active or not) and:

a) the employer has a payroll in Ontario of at least $2.5 million; or
b) the employer severed the employment of 50 or more employees in a six-month period because all or a part of the business closed.

Under the Employment Standards Act, Severance Pay is paid out at the rate of 1 week’s wages per year (or part year) of service, up to a maximum of 26 weeks.  There are rules for the calculation of Severance Pay, which can be found on-line by visiting the Ontario Ministry of Labour’s website.

Severance Pay is intended to compensate an employee for accumulated seniority and job loss (like an earned benefit).

Severance Package

The term “severance package” does not have a precise meaning.  It is not even defined in Ontario’s Employment Standards Act.  Rather, the term “severance package” generally means a bundled package of financial compensation and benefits that an employer offers to an employee usually upon a without cause termination of employment or to entice an employee to leave.

Final Word

Employees should remember that their statutory entitlements upon termination (i.e.  Termination Pay and Severance Pay) are minimums only.  Often employees are entitled to greater compensation under the common law doctrine of “reasonable notice”.  For that reason, employees should consult with an employment lawyer to determine their full entitlements.

Ertl Lawyers – Ontario Employment Lawyers

If you have questions regarding wrongful dismissal, constructive dismissal, severance pay, or any other employment matter, contact Ertl Lawyers today for a free phone consultation!

Get the Severance You Deserve

Ertl Lawyers are here to assist you with your wrongful dismissal claim. Contact us today

Toronto Office

330 Bay St., Suite 1400
Toronto, ON M5H 2S8
info@ertl-lawyers.com
888-222-6184

View Directions

Durham Office

1315 Pickering Pkwy Suite 300
Pickering, ON L1V 7G5
info@ertl-lawyers.com

View Directions


Providing services to the following areas

Toronto, Windsor, Chatham-Kent, London, Kitchener-Waterloo, Brantford, Guelph, Cambridge, St. Catharines, Hamilton, Burlington, Oakville, Milton, Halton Hills, Guelph, Brampton, Mississauga, Caledon, Aurora, Markham, Newmarket, Barrie, Richmond Hill, Vaughan, Peterborough, North Bay, Sudbury, Whitchurch-Stouffville, Pickering, Ajax, Whitby, Oshawa, Bowmanville, Clarington, Brock, Scugog, Uxbridge, Port Hope, Cobourg, Belleville, Kingston , Brockville, Ottawa and Sarnia.