ESA “severance” pay applies to a lot more employees than it used to

Qualifying employees typically have two “buckets” of entitlements when they are let go by their employers:

  • Common law entitlements.
  • Statutory entitlements.

Common law notice is often the most significant of entitlements. Employees will typically be entitled to a month of notice for each year they have been employed by the Company. However, this is subject to qualifying criteria, and also requires the employee to “mitigate” by looking for another job. If they do quickly find another job, common law notice could theoretically be extremely limited.

Statutory entitlements pursuant to the Employment Standards Act, which applies to most provincially-regulated employees, are not subject to the duty to mitigate. It doesn’t matter if you find a new job the day after you are terminated – you will still be entitled to the statutory payments.

These statutory payments fall under two main categories:

  • Notice. (Up to 8 weeks of pay or “working notice”.) And,
  • “Severance,” which is a defined term in the Employment Standards Act. (Up to 26 weeks’ worth of pay).

The ESA “severance” amount can be quite significant for a terminated employee. There are two qualifying conditions in the ESA for receiving it:

  • The employee has been employed for 5 years or more.
  • The employer has a payroll of $2.5M or more. (See the ESA excerpt below).

“Entitlement to severance pay

64 (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and,

(a) the severance occurred because of a permanent discontinuance of all or part of the employer’s business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result; or

(b) the employer has a payroll of $2.5 million or more.  2000, c. 41, s. 64 (1).

If you have been let go, it is wise to get your termination package reviewed by an employment lawyer. A lawyer can advise with respect to your entitlement to ESA severance and common law damages. Very often, a more advantageous package can be negotiated, often including partial or full coverage of legal fees.

Employers often made the argument that only their Ontario-based payroll should count toward the $2.5M threshold. This was in fact the Ministry’s policy as well, limiting the calculation to Ontario-based payroll.

However, last week, the Courts indicated that a company’s “global” payroll is the relevant figure, finding the previous interpretation was “indefensible, unreasonable, and unavailable,” and was akin to “a house of cards, built on a flimsy foundation” [See: Hawkes v Max Aicher (North America) Limited, 2021 ONSC 4290 (CanLII)].

The takeaway? Get your severance package reviewed by an employment lawyer before you sign off. Especially in the coming weeks, innocent mistakes by employers in severance offers are likely. (Which could short an employee up to 26 weeks’ worth of pay).  

Disclaimer: This article is provided as an information resource. This article should not be relied upon to make decisions and is not intended to replace advice from a qualified legal professional. In all cases, contact your legal professional for advice on any matter referenced in this document before making decisions. Any use of this document does not constitute a lawyer-client relationship. Please note that this information is current only to the date of posting. The law is constantly changing and always evolving. I encourage you to reach out with any specific questions.

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