Severance vs. Termination Pay: What’s the Difference Anyway?

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Though sometimes used interchangeably, termination pay and severance pay are not the same thing. While all employees of three months or longer with a company are entitled to termination pay (in place of notice) upon dismissal, not everyone is entitled to severance pay. To clarify the difference between the two, we’ve prepared a handy refresher for you.

What Is Termination Pay?

Termination pay is, quite simply, pay that is given in place of required notice of termination. Normally, an employee who is terminated without cause is entitled to either a statutory period of notice during which they continue working and receiving pay and benefits,  or they are entitled to pay in place of said notice. The amount of notice to which an employee is entitled will likely be set out in their employment contract, otherwise they are entitled to certain minimum standards guaranteed under the Employment Standards Act (ESA).

What is termination pay - Employment Lawyers

Required Notice for Termination in the ESA

The length of notice to which employees are entitled depends on how long they have been working with a company. The ESA guarantees the following notice durations or pay in lieu thereof:

Duration of Employment Notice or Pay-in-lieu Entitlement
3 months to less than a year 1 week
1 – 2 years 2 weeks
3 years 3 weeks
4 years 4 weeks
5 years 5 weeks
6 years 6 weeks
7 years 7 weeks
8 or more years 8 weeks

For example, If you worked for 4 years and 6 months at a company with a weekly pay of $1,000 and were terminated without cause, you would receive either four weeks’ notice or $4,000 (4 x $1,000) upon termination.

What is Severance Pay - Employment Lawyers

What Is Severance Pay?

As mentioned above, not everyone is entitled to severance pay. Severance pay is considered an earned benefit for long-serving employees. Or, as the Ontario Ministry of Labour puts it, severance pay “compensates an employee for loss of seniority and the value of firm-specific skills, and recognizes his or her long services.”

Additionally, to qualify for severance pay you must have worked for a company with a total annual payroll of $2.5 million or more for at least five years.

Severance pay is calculated differently from termination pay. To determine severance pay, you must multiply your regular week’s wages by your number of years of employment with the company.

For example, if you worked 7 years and 6 months (with a qualifying company) at a regular weekly pay of $1,000, your severance pay would be $7,500 ($1000 x 7.5).

Severance and Termination Pay Entitlements Lawyers

Consulting with an experienced employment lawyer is the best way for you to determine your full severance and termination pay entitlements. KCY at LAW have the expertise to ensure you your full entitlements under the ESA and your employment contract. Reach us at 905-639-0999 or contact us to book your consultation.

Downsizing: A Legal Guide for Canadian Employers & Employees

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Downsizing is never a fun experience. Not for employers and certainly not for employees. For employees, downsizing means worrying about losing your job. For employers, it usually means that demand for your product or services has decreased and you need to reduce your workforce in order to stay open and profitable.

Regardless of the situation that has precipitated your need to downsize, it is important that, as an employer, you do so with caution, care and consideration. Failing to do so can cost you time, money and confidence from your remaining employees.

Assessing the costs of downsizing

Your first step when downsizing your workforce will be to determine how many people you will have to terminate. It probably goes without saying that you will want to terminate as few employees as possible. Naturally, you will not want to put any more people out of work than is absolutely necessary.

But you must also consider that terminating employees can be costly in terms of notice or termination pay, benefits continuance, severance pay and common law obligations. What’s more, if you find that you have fired too many employees and need more workers, the costs of recruiting, hiring and training new workers can be prohibitive. The knowledge and skills of long-serving employees is incredibly valuable and difficult to replace.

Temporary Layoffs

Given the potential costs of downsizing and the unpredictability of the market, wouldn’t it be wise to temporarily lay off your employees instead and then recall them should you need to?

Probably not.

The trouble is, employers have no common law right to lay off employees – it must be written into an employee’s contract or collective agreement. Furthermore, while a temporary layoff can delay your need to pay severance and notice, in the end it could cost you more should the temporary layoff exceed 13 weeks and become permanent.

Consider Morale

An oft-overlooked aspect of downsizing is the impact it has on the employees who remain. Seeing your coworkers let go (for reasons beyond their control) can be an unsettling experience. If handled poorly, downsizing may leave remaining employees feeling insecure about their own employment security and lead them to pursue alternative employment opportunities in the hopes of avoiding what they might interpret as their own impending termination.

Therefore, employers should avoid incremental downsizing. While reducing your workforce bit by bit may seem like a way to ease the blow, in reality, it is likely to put employees on edge as they wonder “am I next?” Your top talent may even begin to seek other, seemingly more secure, employment opportunities.

The best way to downsize smoothly and successfully is to communicate openly and honestly with your employees. Tell them why you need to downsize. You should also meet with each employee who is going to be terminated, provide them with reference letters and include a proper release.

Mass Terminations

In some unfortunate situations, large employers may have to lay off vast numbers of their employees all at once. In these situations, special rules apply regarding terminated employees’ notice entitlements.

Companies who dismiss over 50 employees in a 4-week period must give all these employees at least 8 weeks’ notice or pay in lieu thereof. Furthermore, the employer must complete the appropriate form and submit it to the Director of the Employment Standards Branch of the Ministry of Labour before giving notice to employees. This form must also be posted in your establishment during the notice period.

When over 200 employees are laid off within a four-week period they must all receive at least 12 weeks’ notice and if over 500 employees are being laid off, they must each receive at least 16 weeks’ notice.

Who to downsize?

This is often one of the trickiest questions facing downsizing employers. The good news is that, as an employer, it is your prerogative to terminate whoever you want as long as your terminations do not conflict with human rights laws or your collective agreement.

Seek Legal Counsel

Downsizing is always a difficult affair. It can also be exceedingly complicated from an employment law perspective. Navigating your obligations – both contractual and common law – is no simple task and any mistakes can be incredibly costly. Consulting with the employment law experts at KCY at LAW will ensure that your downsizing goes as smoothly and economically as possible.

Get in touch with the experienced employment law team at KCY at LAW by calling (905) 639-0999 or contact us to find out more.

Wage Raises – Ontario Employment and Labour Laws

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Wage Raises – What are your Legal Rights in Ontario?

So you’ve been at your job for a some time – maybe a couple of years – and you’re thinking to yourself: “aren’t I about due for a raise? I’ve been here a while, the cost of living has gone up, I’ve been a good, hard-working employee, shouldn’t my pay be going up?”

Many employees have found themselves in a similar situation with similar thoughts. So what are your entitlements when it comes to pay raises?

Unfortunately, the answer is often ‘nothing’.

Ontario employment and labour laws do not set out when or if pay increases shall be made with one exception: the minimum wage. The Employment Standards Act sets out the minimum wage and this wage is generally increased on an annual basis according to inflation.

Pay raises are entirely at the discretion of your employer. When, if and how much your pay increases are up to them to decide. Many employers will offer cost of living adjustments to ensure employees’ wages keep up with inflation but they are not obligated to do so. Theoretically, an employee could be with a company for 20 years and never see their wages increase so long as they remain above the minimum wage.

Most often, an increase in pay will be linked to performance or bonuses.

But then how does one get a raise?

Some employment contracts provide for specified wage raises and you are entitled to any pay increases specified in your employment agreement. Unionized employees, for example, often have annual wage increases included in their collective agreements.

You may now be asking yourself: “if there’s no provision for wage increases in my contract, how can I get a raise?”

The answer is that you will have to advocate for yourself and ask for one. If you are seeking a raise you should go to your manager with a proposal that justifies your wage increase. Present them with information that demonstrates the value you have added to the company such as your sales record or successful product design. In short, show them that you are worth it. That said, your employer is still under no obligation to increase your wage.

Talk to the employment law experts at KCY at LAW. Call us at 905-639-0999 to book your consultation today!