When an employee is terminated in Ontario, their entitlements are governed—at a minimum—by the Employment Standards Act, 2000 (ESA). The ESA sets out statutory minimums for both notice of termination and, in some cases, severance pay.
While calculating notice entitlements is relatively straightforward, severance entitlements can be more nuanced—especially when it comes to determining whether an employer meets the payroll threshold required under the ESA.
Notice of Termination Under the ESA
The ESA provides a clear formula for notice based on an employee’s length of service. Employees are entitled to:
- 1 week of notice per year of service, up to a maximum of 8 weeks.
This entitlement applies to most non-unionized employees who have been continuously employed for at least three months.
Severance Pay: More Complex Than You Might Think
In addition to notice, severance pay may also be owed—but only if specific criteria are met.
To qualify for severance under the ESA, an employee must:
- Have at least five years of service with the employer; and
- Work for an employer with:
- A payroll of $2.5 million or more, or
- A permanent discontinuance of operations affecting 50 or more employees.
What Counts Toward the $2.5 Million Payroll Threshold?
There has been ongoing debate about whether “payroll” refers only to Ontario employees, or to an employer’s entire Canadian payroll. Traditionally, employers limited the calculation to Ontario wages. But a recent Ontario court decision has broadened that interpretation which could extend to a company’s worldwide payroll.
Case Highlight: Global Payroll Counts
In a recent case, the employer—a medical diagnostic company operating in both Ontario and Quebec—terminated a 15-year employee. The company provided ESA notice but refused to pay severance, arguing that its Ontario payroll did not exceed the $2.5 million threshold.
However, the Court disagreed.
It found that the employer’s total payroll across all Canadian jurisdictions must be considered. Because the employer’s combined Ontario and Quebec payroll exceeded $2.5 million, the employee was entitled to ESA severance pay in addition to notice.
This case serves as an important precedent for both employers and employees: an employer’s national payroll, not just Ontario payroll, is what counts when assessing severance entitlement under the ESA.
Key Takeaways
- Notice and severance are separate entitlements under Ontario’s ESA.
- ESA notice is capped at 8 weeks, but severance pay can be up to 26 weeks, depending on length of service.
- Employees with 5+ years of service at a company with a $2.5M+ payroll (nationally) may be entitled to both notice and severance.
- Common law entitlements (which can far exceed ESA minimums) may also apply, depending on the employment contract and circumstances of termination.
Consult an Employment Lawyer to Understand Your Rights
Whether you’re an employee trying to assess your entitlements or an employer looking to comply with your legal obligations, it’s critical to seek legal advice. Small drafting errors or misinterpretations of payroll thresholds can lead to significant financial consequences.
At Singh Lamarche LLP, our employment lawyers regularly advise clients on terminations, severance entitlements, and ESA compliance. Contact us today to ensure your rights—or your policies—are on solid legal ground.
