Termination Pay vs. Severance Pay in Ontario: What's the Difference?
Termination pay, severance pay, and pay in lieu of notice are not the same thing, and you can be owed more than one. Here is what each means and how they stack.
Key takeaways
- Termination pay is pay in lieu of the notice your employer must give, up to 8 weeks under the ESA.
- ESA severance pay is a separate amount, up to 26 weeks, only for longer-serving employees at larger employers.
- Pay in lieu of notice is just another name for termination pay, not for severance pay.
- Common law severance is the bigger umbrella entitlement, usually far more than the ESA minimums.
- You can be owed more than one of these at the same time. If an offer only mentions "termination pay," it is probably the floor.
In this article
People use "termination pay," "severance pay," and "pay in lieu of notice" as if they all mean the same thing. They do not, and the difference can be worth a lot of money. Here is what each one actually is, and how they fit together.
✅Quick answer. Under Ontario's ESA, termination pay (also called pay in lieu of notice) is compensation for the notice period your employer did not give, capped at 8 weeks. ESA severance pay is a separate, additional amount of up to 26 weeks for employees with 5+ years at a larger employer. And common law severance is the umbrella entitlement most people actually mean, usually much larger. These are three different things, and you can be entitled to more than one.
What is termination pay (pay in lieu of notice)?
Termination pay is what your employer owes when it ends your job without giving you advance notice. The ESA requires a minimum amount of notice based on your length of service (roughly one week per year, up to eight weeks). If the employer wants you gone immediately instead of working out the notice, it pays you that amount: that is termination pay, also called pay in lieu of notice. The two phrases mean the same thing.
What is ESA severance pay?
ESA severance pay is a separate statutory entitlement, on top of termination pay. It is one week per year of service, up to a maximum of 26 weeks, but only for employees who have at least five years of service and whose employer has an Ontario payroll of at least $2.5 million (or that severed 50 or more employees in a six-month period). Many people who qualify never realize this is a second, distinct amount.
Where does common law severance fit in?
Common law severance, or reasonable notice, is the big one and the thing most people mean when they say "severance." It is based on your age, length of service, type of role, and the job market, and can reach up to 24 months of full pay and benefits. It generally absorbs and exceeds the ESA minimums. Our guide to severance pay in Ontario explains how it is calculated.
| Type | What it is | Typical cap |
|---|---|---|
| Termination pay (pay in lieu) | Pay for the notice not given | 8 weeks |
| ESA severance pay | Separate statutory amount for longer service | 26 weeks |
| Common law severance | Court-based reasonable notice | Up to 24 months |
Can you get more than one?
Yes. A longer-serving employee at a large employer can be entitled to termination pay and ESA severance pay and, instead of just the statutory minimums, their full common law entitlement, which is usually the largest figure. If your offer letter only talks about "termination pay," that is a strong sign you are being shown the floor, not the ceiling.
Before you accept anything, it is worth knowing which of these you are owed. See whether you should sign that offer, or get a free review of your situation.
Frequently asked questions
Is pay in lieu of notice the same as severance pay?
No. Pay in lieu of notice is termination pay, compensation for the notice the employer did not give (up to 8 weeks under the ESA). ESA severance pay is a separate, additional amount, and common law severance is the larger umbrella entitlement.
Can I get both termination pay and severance pay in Ontario?
Yes. They are different entitlements. A qualifying longer-serving employee can receive termination pay and ESA severance pay, and usually their full common law severance instead of just the statutory minimums.
What is the difference between termination pay and severance pay?
Termination pay is pay in lieu of notice, capped at 8 weeks. ESA severance pay is a separate amount of up to 26 weeks for employees with 5+ years at a larger employer. They are not the same thing.
My offer only mentions termination pay. Is that all I get?
Probably not. An offer limited to termination pay is usually the statutory floor. You may also be owed ESA severance pay and, more importantly, your full common law severance. Get it reviewed before signing.
Daniel Carter
Legal Writer, Mirza Law
Daniel Carter is a legal writer at Mirza Law in Toronto. He writes about layoffs, employment contracts, and the steps to take before you sign anything from your employer.
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