Severance Pay in Ontario: How It Works and What You're Owed

If you have just been let go in Ontario, the offer in front of you is almost certainly the statutory minimum, and the statutory minimum is the floor, not the ceiling. Most non-unionized employees in this province are owed common law severance, which is usually far larger than the figure an employer quotes. This guide explains how severance pay is actually built, how the number is calculated, and what your full package should include before you sign anything.

What is severance pay in Ontario?

Severance pay is the compensation you are owed when your employer ends your job without cause. In Ontario there are two separate systems that run at the same time. The first is the statutory minimum under the Employment Standards Act, 2000 (ESA). The second is common law reasonable notice, a body of entitlement built from decades of court decisions. The two are not the same thing, and the gap between them is where most of the money sits. Your employer is only required to tell you about the first one.

ESA termination pay, ESA severance pay, and common law: the three layers

People use "severance" as a catch-all word, but Ontario law actually has three distinct entitlements, and you can be owed more than one of them at once.

• ESA termination pay (notice). Roughly one week of pay per year of service, to a maximum of eight weeks. Every non-unionized employee with at least three months of service is entitled to this.
• ESA severance pay. A separate statutory amount of one week per year, up to 26 weeks, but only for employees with five or more years of service whose employer has an Ontario payroll of at least $2.5 million (or that severed 50 or more employees in a six-month period).
• Common law reasonable notice. The big one. This is your real entitlement for being dismissed without cause, and it absorbs and exceeds the ESA minimums in almost every case. It is measured in months of full compensation, not weeks.

How is common law severance calculated?

There is no fixed formula, and anyone who tells you it is simply "one month per year" is wrong. That rule of thumb has been rejected by Ontario courts repeatedly. Instead, courts weigh a set of factors first set out in Bardal v. Globe & Mail Ltd. (1960), now known as the Bardal factors. The core question is how long it will reasonably take you to find comparable work, and the factors are the things that affect that answer:

• Length of service. How long you actually worked there.
• Age. Older employees generally receive more, because re-employment tends to take longer.
• Character of employment. Senior, specialized, or hard-to-replace roles usually attract longer notice.
• Availability of similar employment. A thin job market in your field, region, or industry pushes the figure up.

Courts also look beyond the four core factors. Being recruited away from secure employment, a written promise about job security, a short tenure in a senior role, and bad-faith conduct in how you were dismissed can all increase the award. The Supreme Court of Canada in Honda Canada Inc. v. Keays (2008) confirmed that an employer who acts in bad faith in the manner of dismissal can be ordered to pay additional moral damages on top of notice.

How much notice could you actually get?

The honest answer is that it is case-specific, but comparator cases give a realistic picture. The table below shows the kind of range Ontario courts have commonly landed on for broadly similar profiles. Treat it as illustrative, not a promise: two people with the same tenure can receive very different awards depending on age, role, and the job market.

Is there a cap on severance in Ontario?

As a practical matter, yes. Ontario courts treat 24 months as the usual upper limit on common law reasonable notice, and the Court of Appeal reaffirmed that ceiling in Dawe v. Equitable Life Insurance Company (2019). Awards above 24 months happen only in genuinely exceptional circumstances, such as a very long-serving, senior employee with almost no prospect of comparable re-employment. For most people the real question is not whether they will exceed 24 months, but how much of the gap between the ESA minimum and that ceiling they are actually owed.

What should be included in your severance package?

A severance package is meant to put you in the position you would have been in had you kept working through the notice period. That is far more than base salary. A properly valued package accounts for everything you would have earned:

• Base salary over the full notice period.
• Bonus and commissions. In Matthews v. Ocean Nutrition Canada Ltd. (2020), the Supreme Court held that an employee is generally entitled to the bonus or incentive pay they would have earned during the notice period, unless the plan language clearly and unambiguously takes it away.
• Benefits. Health, dental, and life or disability coverage, or their value, over the notice period.
• Pension contributions that would have accrued.
• Stock options, RSUs, and other equity that would have vested.
• Car allowance and other regular perks that formed part of your real compensation.

Can your employment contract limit your severance?

Sometimes, but far less often than employers assume. A termination clause can cap your entitlement at the ESA minimum, but only if it is drafted flawlessly. Ontario courts strike these clauses down regularly. In Waksdale v. Swegon North America Inc. (2020), the Court of Appeal held that if any part of the termination provisions violates the ESA, the entire termination clause is void, even the part the employer is trying to rely on, and even if the offending words appear in a section that does not apply to your situation. One defective sentence can hand you back your full common law entitlement. This is the single most valuable thing a lawyer checks, and it is why so many "minimum" offers collapse under review.

Severance pay vs. termination pay: what is the difference?

These terms get used interchangeably, but under the ESA they are two different things. Termination pay is pay in lieu of the notice of termination the employer was required to give, up to eight weeks. ESA severance pay is a separate, additional amount, up to 26 weeks, that only applies to longer-serving employees at larger employers. And both of those are different again from common law severance, the umbrella entitlement most people actually mean when they say "severance." If your employer's offer only mentions "termination pay," that is a strong sign you are looking at the floor.

Is severance pay taxable in Ontario?

Yes. Severance is taxable income. But how it is paid out can change how much tax you actually pay. A lump sum, salary continuance, and a transfer of eligible amounts into an RRSP are taxed differently, and the structure is often negotiable. It is worth planning the tax treatment before you accept, not after.

How long do you have to make a claim?

In Ontario you generally have two years from the date of termination to start a wrongful dismissal claim, under the Limitations Act, 2002. Two years sounds like plenty of time, but evidence and leverage are strongest early, and most severance offers come with short acceptance deadlines. The sooner you get advice, the more room you have to negotiate before anything expires.

What should you do when you get a severance offer?

1. 1.Do not sign anything on the spot, even if the letter sets a deadline. The deadline is rarely as firm as it looks.
2. 2.Keep copies of your employment contract, offer letter, pay records, and any bonus or commission plans.
3. 3.Do not say or write anything that sounds like you accept the offer or are resigning.
4. 4.Get the offer reviewed before the deadline. A severance review is free and tells you your real number.
5. 5.Let your lawyer respond. The large majority of cases settle through negotiation, without going to court.

If you want to know what you are actually owed, a free severance review measures your situation against comparable Ontario cases before you sign. If you suspect you were pushed out rather than fired outright, read our guide to constructive dismissal, and if your employer is alleging misconduct, see fired with cause vs. without cause.

About the Author

Amir Mirza

Founder & Employment Lawyer, Mirza Law

Amir Mirza is the founder of Mirza Law and an Ontario employment lawyer acting for employees. He is licensed by the Law Society of Ontario and is a member of the Ontario Trial Lawyers Association. He writes about severance, wrongful dismissal, and the rights Ontario employees have when their job ends.

See all articles