Is My Employer Too Small to Owe Me Severance in Ontario?
A common myth is that small employers do not owe termination or severance. In Ontario, the ESA and common law protect employees regardless of how small the company is.
Key takeaways
- The ESA's termination notice/pay rules apply regardless of employer size.
- Common-law reasonable notice has no size threshold whatsoever.
- Only ESA statutory severance pay (a separate entitlement) has a size test.
- That test: employer payroll of $2.5 million or more, or 50+ employees severed in a closure.
- So a 'we're too small to owe you anything' line is almost always wrong.
In this article
One of the most common things employees hear when a small business lets them go is some version of we are too small to owe you severance. It sounds plausible, and it is almost always wrong. In Ontario, the size of the company does not decide whether you are owed notice or pay when you are let go. Here is what actually applies.
✅Quick answer. Company size does not exempt an employer from termination obligations. The ESA's termination notice and pay rules apply to nearly all Ontario employees no matter how small the employer is. Common-law reasonable notice, which is usually far more than the ESA minimum, has no size threshold at all. The only piece with a size test is ESA statutory severance pay, a separate top-up that applies where the employer's payroll is $2.5 million or more (or it severed 50+ employees in a closure). So being small does not get an employer off the hook.
Three different entitlements, only one has a size test
The confusion comes from mixing up three separate things:
- ESA termination notice or pay in lieu: owed to almost every employee with at least three months of service, from one to eight weeks depending on tenure. No employer-size threshold.
- Common-law reasonable notice: the much larger entitlement most non-unionized employees can pursue, often several months' pay. No employer-size threshold.
- ESA statutory severance pay: a separate, additional entitlement that only kicks in for larger employers. This is the only one with a size test.
When does the size test actually apply?
Statutory severance pay under the ESA is owed only when an employee has at least five years of service and the employer either has an Ontario payroll of $2.5 million or more, or severed the employment of 50 or more employees in a six-month period because of a business closure. If that describes your employer, statutory severance pay is added on top of termination pay. If it does not, you have lost only that one add-on, not your termination notice and not your common-law rights.
Why common law is the real answer for small-employer workers
Because common-law reasonable notice has no size threshold, it is usually the most important entitlement for someone let go by a small business. A long-serving employee at a ten-person company can be owed many months of pay in lieu of notice, far more than the ESA minimum, provided there is no enforceable termination clause limiting them. The size of the employer does not shrink that entitlement.
What should you do if you hear you are too small to owe severance?
- 1.Do not accept the size argument at face value; it usually confuses statutory severance with your full entitlement.
- 2.Check your employment contract for a termination clause, since that, not company size, is what usually caps common-law notice.
- 3.Add up your ESA termination pay first as a floor, then consider common-law notice on top.
- 4.Get the offer reviewed before signing, because the first number is often the ESA minimum, not what you are owed.
The bottom line is that small employers owe termination pay and reasonable notice just like large ones. If you have been told the company is too small to owe you anything, that is a good reason to get a severance review. See also severance pay in Ontario and how much notice you are really owed.
Frequently asked questions
Are small businesses exempt from severance in Ontario?
No. The ESA's termination notice and pay rules apply regardless of employer size, and common-law reasonable notice has no size threshold at all. Only ESA statutory severance pay, a separate add-on, has a size test.
What is the size test for ESA severance pay?
Statutory severance pay under the ESA applies where the employee has five or more years of service and the employer has an Ontario payroll of $2.5 million or more, or severed 50 or more employees in a six-month period due to a closure.
Can a 10-person company owe me months of severance?
Yes. Common-law reasonable notice has no employer-size threshold, so a long-serving employee at a very small company can be owed many months of pay in lieu of notice, unless an enforceable termination clause limits them.
My employer says they are too small to pay severance. Is that true?
Almost always no. That argument usually confuses statutory severance pay with your total entitlement. Your termination pay and your common-law notice do not depend on company size, so it is worth getting the offer reviewed.
Marcus Bello
Legal Writer, Mirza Law
Marcus Bello is a legal writer at Mirza Law in Toronto.
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