Termination Pay & Severance Rights

Overview

When a Canadian employer terminates an employee without cause, the employee is entitled to notice of termination (or pay in lieu). There are two completely separate legal frameworks governing this entitlement, and most employees only know about one of them:

Statutory minimums — set by provincial employment standards legislation (e.g., Ontario’s Employment Standards Act, 2000). These are the floor, not the ceiling.
Common law reasonable notice — a judge-made doctrine that typically entitles employees to significantly more than the statutory minimum, unless the employment contract clearly and lawfully limits the entitlement.

The gap between these two amounts can be enormous. A 10-year employee earning $80,000 per year might be entitled to only 8 weeks under statute — but 12–18 months at common law. That is the difference between approximately $12,300 and $92,000–$138,000.

Part 1: Statutory Minimums Under the Ontario ESA

(Other provinces have similar but not identical legislation. Check your provincial employment standards act for exact figures.)

The Employment Standards Act, 2000, SO 2000, c. 41 (Ontario ESA) creates two separate entitlements on termination:

A. Termination Pay (Notice Pay) — ESA Part XV

Who qualifies: Any employee who has been continuously employed for at least 3 months and is terminated without cause.

Entitlement formula (sections 57–58):

Length of Service	Notice/Pay in Lieu
3 months to under 1 year	1 week
1 year to under 3 years	2 weeks
3 years to under 4 years	3 weeks
4 years to under 5 years	4 weeks
5 years to under 6 years	5 weeks
6 years to under 7 years	6 weeks
7 years to under 8 years	7 weeks
8 or more years	8 weeks (maximum)

Pay in lieu is calculated based on regular wages — your regular weekly pay rate, excluding overtime and most variable compensation.

B. Severance Pay — ESA Part XV, Sections 64–66

Who qualifies: Employees who have been employed for 5 or more years AND whose employer either:

Has a global payroll of at least $2.5 million, or
Has permanently discontinued all or part of operations and terminated 50 or more employees within a 6-month period

Important 2021 update: The Ontario Divisional Court confirmed that the $2.5 million payroll threshold includes the global payroll of the employer and its affiliated entities — not just Ontario payroll. If your employer is part of a larger corporation, even with a modest Ontario headcount, the $2.5 million threshold is likely met.

Entitlement formula:

Severance pay = 1 week of regular wages × each year of employment (and proportionately for partial years), up to a maximum of 26 weeks.

Key difference from termination pay: You can receive both termination pay and severance pay. They are separate entitlements that stack.

Example — 7-year employee, $70,000 salary:

Termination pay: 7 weeks × $1,346/week = $9,423
Severance pay (if $2.5M threshold met): 7 weeks × $1,346/week = $9,423
Total ESA minimum: $18,846

Part 2: Common Law Reasonable Notice

What It Is

Common law reasonable notice is the amount of notice — or pay in lieu — that a court determines a terminated employee should receive to allow them a reasonable opportunity to find comparable employment. It is derived from decades of case law, not legislation.

Unless your employment contract contains a valid and enforceable termination clause that clearly limits your entitlement to the ESA minimum, you are entitled to common law notice in addition to (and typically far exceeding) the ESA minimum.

The Bardal Factors

The foundational case is Bardal v. Globe & Mail Ltd. [1960] OJ No. 149 (Ont. H.C.), where Justice McRuer established that reasonable notice must be determined by considering:

Character of employment — seniority, management responsibility, specialisation. Senior managers and executives receive more notice than junior employees.
Length of service — the most heavily weighted factor. Each year of service adds roughly 1 month of notice (as a rough guide, not a formula).
Age of the employee — older employees, who face a more difficult job market, receive more notice.
Availability of similar employment — how difficult is it to find a comparable job? A specialist in a niche field facing a difficult market will receive more notice.

Additional factors recognised by modern courts include:

Whether the employee was induced to leave secure employment to join the employer
Whether the employee was given false assurances about job security
Character of the dismissal (was it done in a bad faith manner?)

Typical Ranges

Profile	Approximate Common Law Range
5 years, age 35, junior role	4–6 months
10 years, age 45, mid-level manager	10–15 months
15 years, age 55, senior specialist	14–20 months
20+ years, age 60, executive	18–24 months

The maximum is generally 24 months, reserved for exceptional cases involving long-tenured, senior employees who are older and face particularly difficult re-employment prospects (Wallace v. United Grain Growers Ltd., [1997] 3 SCR 701; Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512).

Is Your Termination Clause Enforceable?

Ontario courts have increasingly scrutinised employment contract termination clauses. A clause that attempts to limit you to ESA minimums must:

Be clear and unambiguous in its language
Not, on its face, violate the ESA in any way
Have been accepted by the employee with fresh consideration (signed at hire, or for consideration if signed later)

Courts have struck down clauses that:

Use ambiguous language about “termination benefits” without clearly limiting common law notice
Reference only “notice” without also addressing “severance pay”
Were presented to existing employees without any new benefit in exchange (Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158)

If your contract’s termination clause has any of these flaws, you may be entitled to full common law notice regardless of what the contract says.

2025 development: In Bertsch v. Datastealth Inc. (2025 ONCA), the Court of Appeal upheld a clause that explicitly stated the employee would receive only ESA minimums, excluding common law notice — confirming that well-drafted clauses do limit entitlements. However, the clause in that case was unusually clear and explicit.

Part 3: Constructive Dismissal

You may also have a claim for constructive dismissal if you resigned in response to a significant unilateral change by your employer to a fundamental term of employment — such as a major pay cut, demotion, geographic relocation, or hostile work environment. In those cases, your resignation can be treated as a termination in law, entitling you to the same notice/severance as if you had been let go.

What Most Employees Don’t Know

“Without cause” is the default. Most terminations in Canada are without cause. Being fired for performance or attendance does not mean “for cause” in the legal sense — cause requiring no pay at all is a very high bar (dishonesty, serious misconduct, etc.).
You do not have to sign the separation agreement immediately. Employers often pressure employees to sign on the day of termination. You have no legal obligation to sign anything at that moment. Request time to review it (typically 2–4 weeks is reasonable).
Signing releases your rights. Once you sign a separation agreement that includes a release, you generally cannot go back and claim more. Do not sign until you know what you’re entitled to.
Working notice counts. If your employer gives you working notice (i.e., you continue working through the notice period), that satisfies the obligation. But if the conditions of your work are changed during working notice, that can create additional claims.
Mitigation is required — but it does not reduce your entitlement immediately. You have a duty to take reasonable steps to find comparable employment. However, any amount you earn during the notice period will reduce what the employer owes — it is not a bonus; it offsets your damages.
Record of Employment (ROE) matters. Ensure your employer codes your ROE correctly. Code “A” (shortage of work) is the correct code for a layoff/termination without cause and allows EI access. Code “M” (dismissal) can affect your EI eligibility.

How to Negotiate Without a Lawyer

Step 1 — Calculate Your Entitlements

Use Ontario’s employment standards online tool (ontario.ca/page/employment-standards-act) or a free severance calculator (e.g., monkhouselaw.com/severance-calculator) to estimate both your ESA minimum and your common law range. Having a realistic number in hand is essential before you respond.

Step 2 — Request Time to Respond

Reply promptly but professionally: “Thank you for this. I would like to take [2 weeks] to review the offer carefully before responding.” Most employers will accommodate this.

Step 3 — Identify the Gaps

Compare the offer to your estimates. Typical areas to negotiate:

Base notice/severance amount (number of weeks or months)
Continuation of benefits during the notice period
Treatment of bonuses, commissions, and vacation accrual
Stock options or equity vesting
Reference letter language
Non-disparagement clause terms

Step 4 — Make a Written Counter-Offer

Write a professional, unemotional email acknowledging the offer and stating a counter. Cite specific facts: your years of service, your age, your seniority, and market comparables. You do not need to cite case law — but you can refer to “common law reasonable notice” to signal you know your rights.

Step 5 — Know When to Get Help

If the disputed amount exceeds $10,000–$15,000, a consultation with an employment lawyer is almost always worth it. Many offer free initial consultations; others work on contingency (a percentage of any recovery above the original offer). The Ontario Human Rights Legal Support Centre provides free help for human rights–related dismissals.

Legal Basis

Provision	What It Does
Employment Standards Act, 2000, SO 2000, c. 41, Part XV (ss. 54–65)	Statutory termination pay and severance pay entitlements in Ontario
Employment Standards Act, 2000, s. 64	Severance pay eligibility — 5 years service and $2.5M payroll
Employment Standards Act, 2000, s. 65	Severance pay calculation — 1 week per year, max 26 weeks
Bardal v. Globe & Mail Ltd. [1960] OJ No. 149	Leading authority on the Bardal factors for common law notice
Wallace v. United Grain Growers Ltd., [1997] 3 SCR 701	Supreme Court on bad faith dismissal and notice
Honda Canada Inc. v. Keays, [2008] 2 SCR 362	Defines the limits of bad faith dismissal damages
Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158	Termination clause struck down for ESA non-compliance
Bertsch v. Datastealth Inc., 2025 ONCA	Upholds clear, explicit ESA-limiting termination clause

Frequently Asked Questions

What is the difference between termination pay and severance pay under the Ontario ESA — are they the same thing?

No, they are two separate entitlements that stack. Termination pay (up to 8 weeks) is owed to any employee terminated without cause after 3 months of service. Severance pay (up to 26 weeks, at 1 week per year of service) is an additional payment owed only if you have 5+ years of service AND your employer has a global payroll of at least $2.5 million. A 7-year employee at a large company can receive both simultaneously.

My employer’s offer is only the ESA statutory minimum — can I really negotiate for more?

In most cases, yes. Unless your employment contract contains a clearly worded and legally valid termination clause limiting your entitlement, you are entitled to common law “reasonable notice” — which is typically far more than the ESA minimum. A 10-year mid-level employee might be entitled to 10–15 months of pay at common law versus only 8 weeks under statute. Use a free severance calculator or employment lawyer consultation to understand your range before responding to any offer.

My termination clause says I only get the ESA minimum — is that enforceable?

Not always. Ontario courts have struck down many termination clauses for technical defects — including ambiguous language, failure to mention severance pay separately from notice pay, omission of benefit continuation, or the clause having other provisions that violate the ESA (under the Waksdale rule, an illegal “just cause” clause can void the entire termination section). Have a lawyer review your contract before assuming the clause is enforceable.

Do I have to sign the separation agreement right away?

No. You have no legal obligation to sign anything on the day of termination. It is reasonable and legally accepted to request 2–4 weeks to review the offer. Do not sign a release until you understand your full entitlements — once signed, a properly worded release generally waives all future claims.

My ROE was coded “M” for dismissal — does that affect my EI?

It can. Code “M” (dismissal) on your Record of Employment may trigger an EI investigation into whether you were dismissed for misconduct, which can delay or reduce your EI access. The correct code for a termination without cause (layoff) is Code “A” (shortage of work). If your employer coded your ROE incorrectly, contact Service Canada and request a correction.