Saturday, November 06, 2010

Ontario Employment Law: Termination Pay and Severance Pay under the Employment Standards Act

Under the Ontario Employment Standards Act (ESA), an employer who dismisses an employee without cause must give him or her notice of termination or pay in lieu thereof calculated on the basis of years of service (see sections 54, 57, and 61). As a practical matter, most employers choose to give an employee "termination pay" as opposed to "notice of termination."

The maximum termination pay an employee is entitled to under the Act is 8 weeks, for 8 years or more of service.

In addition to termination pay, certain classes of employees are also entitled to severance pay, the other major entitlement given employees terminated without cause under the Act (see section 64). The maximum severance pay an employee is entitled to under the Act is 26 weeks, for 26 years or more of service.

In Suzanne Lebel v. Vanbots Construction Corporation and Director of Employment Standards, the Ontario Labour Relations Board makes plain that termination pay and severance pay are two completely separate entitlements:

Termination pay is different and distinct from severance pay and the fact that she received an additonal week of termination pay does not permit the employer to reduce her entitlement to six weeks severance pay.

What this means is that the maximum an employee can receive in severance pay and termination pay is 34 weeks of salary, which works out to be 8 weeks of termination pay and 26 weeks of severance pay.

The Act does not permit an employer to set-off or make deductions from "termination pay" or "severance pay," regardless of the circumstances, where an employee has been dismissed without cause.

In Suzanne Lebel, the employer mistakenly paid the employee it terminated without cause an extra week of "termination pay". While the Board ruled that this could not reduce the employee's severance entitlement, it did rule in favour of the employer that the fact that such over-payment was characterized as "termination pay" did not mean it could not qualify as part of the severance payment required to be made by it under the Act:

The fact that the employer referred to the extra week as “termination pay” does not, in all the circumstance The fact that the employer referred to the extra week as “termination pay” does not, in all the circumstances of this case, make the payment “termination pay” under section 61 of the Act. If that were the case, then it would mean that if a employer made a payment to a terminated employee but then failed to accurately or precisely identify the payment(s) as termination pay and/or severance pay under the Act the employer could be obligated to make an additional payment to satisfy its obligations under Part XV of the Act.

Accordingly, the fact that the employer refers to a payment as "severance pay" or "termination pay" may be inconsequential where the employer has made the payment in good faith and for the purpose of paying an employee his or her termination pay and severance pay entitlements.

Employees also have other specific statutory entitlements under the Act upon termination, including the right to payment of outstanding vacation pay and overtime pay.

Severance and termination pay reflect only the statutory minimum entitlements of employees who are dismissed without cause. Employees who are wrongfully dismissed may have additional entitlements at common law, over and above these ESA entitlements.

Entitlements in wrongful dismissal claims can be as much as one month's salary per year of service (generally, with a soft cap of 24 months), subject to credit to the employer for amounts already paid under Employment Standards legislation.

If you believe you have been terminated by your employer without cause, seek legal advice as to your specific entitlements and rights under the ESA and at common law.

- Robert Tanha, Toronto

Visit our Toronto Law Firm website: www.wiselaw.net

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