Ontario Termination Pay vs Severance Pay: What Employers Must Pay
Ontario termination pay vs severance pay are two separate statutory entitlements under the ESA — and eligible employees can receive both. This guide breaks down the qualifying criteria, calculation methods, exemptions, and common-law considerations every Ontario employer needs to know.
Ontario Termination Pay vs Severance Pay: The Direct Answer
If you're an Ontario employer wondering about Ontario termination pay vs severance pay, the key point under the Employment Standards Act, 2000 (ESA) is that they are separate entitlements, and in some cases a qualifying employee may receive both. The Ontario government guide states: "The termination-of-employment rules are entirely separate from any entitlements an employee may have to be paid severance pay under the ESA." It also states that "Severance pay is not the same as termination pay, which is given in place of the required notice of termination of employment."
Termination pay relates to the employee's statutory notice of termination entitlement. Severance pay is a separate ESA entitlement that may apply only if the employee and employer meet the statutory severance test. In Ontario, statutory termination notice/pay can be as high as 8 weeks. Statutory severance pay may also be payable in addition, if the employee qualifies under the ESA severance provisions.
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What Is Termination Pay Under the Ontario ESA?
Termination pay under the ESA is the payment an employer must provide when the employer terminates employment without giving the full statutory written notice period. The Ontario government confirms that, in most cases, when an employer ends the employment of an employee who has been continuously employed for three months, the employer must provide either written notice of termination, termination pay, or a combination.
Who Qualifies for Termination Pay?
An employee is entitled to notice of termination or termination pay instead of notice if they have been continuously employed for at least three months, unless an ESA exemption applies. The Ontario government guide states: "An employee is entitled to notice of termination (or termination pay instead of notice) if they have been continuously employed for at least three months."
How Much Termination Notice or Pay Is Required?
Based on the employee's period of employment, the ESA requires:
- At least 3 months but less than 1 year: 1 week
- 1 year but less than 3 years: 2 weeks
- 3 years but less than 4 years: 3 weeks
- 4 years but less than 5 years: 4 weeks
- 5 years but less than 6 years: 5 weeks
- 6 years but less than 7 years: 6 weeks
- 7 years but less than 8 years: 7 weeks
- 8 years or more: 8 weeks
The maximum statutory notice/pay requirement is 8 weeks. An employer may provide working notice, termination pay instead of notice, or a combination, so long as the total ESA entitlement is met.
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What Is Severance Pay Under the Ontario ESA?
Severance pay is a separate ESA entitlement from termination notice/pay. The Ontario government material quoted in the draft describes severance pay as compensation paid to a qualified employee whose employment is severed, including compensation for losses such as loss of seniority when a long-term employee loses their job. Under ESA s.64, severance pay is owed only when the employee has 5 or more years of employment AND the employer has an annual Ontario payroll of $2.5 million or more (or 50+ employees have been severed within 6 months due to permanent discontinuance).
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Ontario Termination Pay vs Severance Pay: Side-by-Side Comparison
The following table highlights the key differences between Ontario termination pay and severance pay to help employers quickly distinguish the two entitlements:
- Statutory basis: Termination pay — ESA, ss. 54–62; Severance pay — ESA, ss. 63–66
- Purpose: Termination pay — Compensation in lieu of notice; Severance pay — Compensation for loss of seniority and long-term employment
- Minimum service required: Termination pay — 3 months continuous employment; Severance pay — 5 years (continuous or not)
- Employer size threshold: Termination pay — None; Severance pay — $2.5 million global payroll or 50+ employees severed in 6 months due to permanent closure
- Maximum entitlement: Termination pay — 8 weeks; Severance pay — 26 weeks
- Calculation method: Termination pay — Regular weekly wages × weeks of notice owed; Severance pay — Regular weekly wages × (completed years + completed months ÷ 12)
- Can employee receive both? Yes. They are entirely separate entitlements.
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When Employees Receive Both: Worked Examples
Example 1: Long-Service Employee at a Large Employer
Facts: Maria has worked for 12 years and 4 months at a company with a global payroll exceeding $2.5 million. She earns $1,500 per week. She is terminated without working notice.
Termination Pay Calculation (ESA, s. 57):
- Period of employment: 12+ years → entitled to 8 weeks (the maximum)
- Termination pay: $1,500 × 8 = $12,000
Severance Pay Calculation (ESA, s. 65):
- Completed years: 12
- Completed months in incomplete year: 4 ÷ 12 = 0.33
- Total: 12 + 0.33 = 12.33
- Severance pay: $1,500 × 12.33 = $18,500
Total statutory entitlement: $12,000 + $18,500 = $30,500
Example 2: Mid-Service Employee — Severance Does Not Apply
Facts: James has worked for 3 years and 6 months at a company with a $5 million payroll. He earns $900 per week and is terminated without notice.
Termination Pay:
- Period of employment: 3+ but less than 4 years → 3 weeks
- Termination pay: $900 × 3 = $2,700
Severance Pay: James does not qualify — he has fewer than 5 years of service. $0.
Total statutory entitlement: $2,700
Example 3: Commission-Based Employee (Aligned with Government Example)
Facts: Kwesi works as a commission salesperson. His employer has a payroll exceeding $2.5 million. He is given 8 weeks' written notice and works the notice period. At severance, he has been employed for 9 years, 6 months, and 3 weeks. In his last 12 weeks, he earned $7,723.00.
Termination Pay: Kwesi received 8 weeks' working notice, so no termination pay in lieu is owed — the notice obligation was satisfied.
Severance Pay (per Ontario government calculation):
- Regular wages for a regular work week: $7,723.00 ÷ 12 = $643.58
- Completed years: 9
- Completed months in incomplete year: 6 ÷ 12 = 0.5
- Total: 9 + 0.5 = 9.5
- Severance pay: $643.58 × 9.5 = $6,114.01
Total statutory entitlement: $6,114.01 in severance pay
Example 4: Pay in Lieu of Notice Plus Severance
Facts: Alex regularly works 40 hours a week at $25.00 per hour ($1,000 per week). The employer has a payroll exceeding $2.5 million. Alex is paid a lump sum equal to 8 weeks' termination pay in lieu of notice. At termination, Alex has been employed for 10 years. Per the Ontario government guide, the termination notice period weeks (whether worked or paid in lieu) are included in calculating completed years and months for severance pay.
Termination Pay: $1,000 × 8 = $8,000
Severance Pay (per Ontario government calculation):
- Completed years: 10
- The 8 weeks (2 months) of pay in lieu count toward service: 2 ÷ 12 = 0.17
- Total: 10 + 0.17 = 10.17
- Severance pay: $1,000 × 10.17 = $10,170.00
Total statutory entitlement: $8,000 + $10,170 = $18,170.00
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Decision Tree: Does Your Employee Get Termination Pay, Severance Pay, or Both?
Use this as a high-level screening tool only:
Step 1: Termination notice/pay
- Has the employee been continuously employed for at least 3 months?
- If yes, determine whether any ESA exemption applies. Examples include wilful misconduct, disobedience or wilful neglect of duty, construction employees, employees on temporary lay-off, employees who refuse reasonable alternative employment, and employees employed less than three months.
- If no exemption applies, provide ESA notice of termination, termination pay instead of notice, or a combination.
Step 2: Severance pay
- If the employee has 5 or more years of service and the employer has a global payroll of at least $2.5 million (or the termination is part of a mass termination of 50+ employees within a 6-month period), the employee qualifies for statutory severance pay under the ESA. Always confirm both conditions against the current ESA before finalizing.
Step 3: Check whether both apply
The source expressly states that termination-of-employment rules are separate from severance-pay entitlements. Where the employee qualifies for both under the ESA, both may be payable.
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Exemptions Employers Must Know
Exemptions from Termination Notice or Termination Pay
The Ontario government confirms that certain employees are not entitled to notice of termination or termination pay under the ESA. Examples listed in the source include:
- Employees guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned by the employer
- Construction employees
- Employees on temporary lay-off
- Employees who refuse an offer of reasonable alternative employment
- Employees employed for less than three months
Note: there are a number of other exemptions and directs readers to the Ontario government's exemptions section and special rule tool. Do not present the above list as exhaustive.
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Timing of Payments: When Must Employers Pay?
Termination Pay
If the employer provides termination pay in lieu of notice, it must be paid as a lump sum. The ESA requires that termination pay be paid either on or before the date that would have been the last day of the notice period, or on the employee's regular pay day, depending on the method chosen. Employers should ensure payment is made promptly to avoid complaints.
Severance Pay
According to the Ontario government guide, an employee must receive severance pay either seven days after the employee's employment is severed or on the employee's next regular pay day, whichever is later. Alternatively, with the employee's written agreement (or approval from the Director of Employment Standards), severance pay may be paid in instalments over a period of up to three years.
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Common-Law Notice vs Statutory Entitlements: The Bigger Picture
The ESA sets minimum standards. Common-law reasonable notice — determined by courts — is almost always significantly higher. Courts consider factors such as the employee's age, length of service, character of employment, and availability of similar employment (the Bardal factors). Common-law notice can reach 24 months or more in exceptional cases.
Key points for Ontario employers:
- Statutory termination pay (max 8 weeks) and severance pay (max 26 weeks) represent the floor, not the ceiling.
- An employment contract can limit an employee's entitlement to the ESA minimums — but only if the termination clause is carefully drafted and does not violate the ESA in any way. Ontario courts have struck down termination clauses that, even inadvertently, could allow for less than the ESA minimum.
- If there is no enforceable termination clause, the employee is entitled to common-law reasonable notice, which is inclusive of (not in addition to) the statutory minimums.
- Employers should seek guidance from a qualified professional when drafting or relying on termination clauses.
For a comparison of how other provinces handle these issues, see our guides on Alberta severance comparison and BC termination rules. If you have federally regulated employees, review our guide on federal termination rules.
Sources
- https://www.ontario.ca/document/your-guide-employment-standards-act-0
- https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards
- https://www.alberta.ca/employment-standards
- https://laws-lois.justice.gc.ca/eng/acts/l-2/index.html
Employer Compliance Checklist: Ontario Termination Pay and Severance Pay
Use this checklist every time you terminate an employee in Ontario to ensure your obligations are met, aligned with monitored government sources:
- ☐ Confirm employment duration: Verify the employee's total period of employment, including inactive periods, leaves, and any non-continuous service with the same employer.
- ☐ Assess termination pay eligibility: Has the employee been continuously employed for at least 3 months? Do any exemptions apply (wilful misconduct, construction, etc.)?
- ☐ Calculate termination notice/pay: Determine the correct number of weeks (1–8) based on period of employment. Decide whether to provide working notice, pay in lieu, or a combination.
- ☐ Assess severance pay eligibility: Has the employee worked for the employer for 5 or more years? Does the employer have a global payroll of at least $2.5 million, or have 50+ employees been severed in 6 months due to permanent closure?
- ☐ Calculate severance pay: Regular weekly wages × (completed years + completed months ÷ 12). Confirm the total does not exceed the 26-week maximum.
- ☐ Confirm payment timing: Termination pay — on or before the end of the notice period. Severance pay — 7 days after severance or next regular pay day, whichever is later.
- ☐ Provide written notice (if applicable): If providing working notice, ensure it meets ESA requirements — the employee must continue to receive regular wages and benefits during the notice period.
- ☐ Document everything: Maintain records of the termination letter, calculations, payment dates, and any signed agreements (especially if severance is paid in instalments).
- ☐ Consider common-law exposure: Review the employment contract for an enforceable termination clause. If none exists, assess potential common-law reasonable notice liability and consult a qualified professional.
- ☐ Check for mass termination rules: If terminating 50 or more employees in a 4-week period at an establishment, additional notice requirements apply under ESA, s. 58.
- ☐ Issue Record of Employment (ROE): File the ROE with Service Canada within 5 calendar days of the interruption of earnings.
- ☐ Continue benefits during the statutory notice period: The employer must maintain benefit plan contributions during the ESA notice period, whether the employee works the notice or receives pay in lieu.
Sources
- https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4001.html
- https://www.ontario.ca/document/your-guide-employment-standards-act-0
Calculation Worksheet: Ontario Termination Pay and Severance Pay
Use this worksheet to calculate your total statutory obligation for any terminated employee:
Part A: Termination Pay
- A1. Employee's regular wages for a regular work week: $________
- A2. Employee's period of continuous employment: ________ years, ________ months
- A3. Weeks of notice required (from the ESA scale, 1–8 weeks): ________
- A4. Weeks of working notice already provided: ________
- A5. Termination pay owed: A1 × (A3 − A4) = $________
Part B: Severance Pay
- B1. Does the employee have 5+ years of service? ☐ Yes ☐ No (If No, severance = $0)
- B2. Does the employer have a global payroll of $2.5 million or more? ☐ Yes ☐ No
- B3. If B2 is No: Were 50+ employees severed in 6 months due to permanent closure? ☐ Yes ☐ No (If both B2 and B3 are No, severance = $0)
- B4. Employee's regular wages for a regular work week: $________
- B5. Completed years of employment: ________
- B6. Completed months in the incomplete year: ________ ÷ 12 = ________
- B7. Total service factor: B5 + B6 = ________ (cap at 26)
- B8. Severance pay owed: B4 × B7 = $________
Part C: Total Statutory Entitlement
- C1. Total = A5 + B8 = $________
Note: This worksheet covers ESA statutory minimums only. Common-law entitlements may be significantly higher. Consult a qualified professional for complex situations.
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Constructive Dismissal and Temporary Lay-Off Considerations
Employers should be aware that both termination pay and severance pay obligations can be triggered by events other than a direct dismissal:
Constructive Dismissal
A constructive dismissal may occur when an employer makes a significant change to a fundamental term or condition of employment without the employee's consent — such as a significant reduction in salary, a major change in work location, hours, authority, or position. If the employee resigns in response within a reasonable time, the employer is considered to have terminated the employment, triggering both termination pay and (if eligible) severance pay obligations.
Temporary Lay-Off Becoming a Termination
Under the ESA, a temporary lay-off that exceeds the permitted duration is deemed a termination. The standard limit is not more than 13 weeks of lay-off in any period of 20 consecutive weeks. Extended lay-offs of up to 35 weeks in 52 consecutive weeks are permitted where certain conditions are met (e.g., continued benefit payments, supplementary unemployment benefits). As of November 27, 2025, new rules may allow further extensions beyond these standard limits with a written employer-employee agreement and Director of Employment Standards approval. Employers should confirm the specific extended thresholds in the current ESA text or O. Reg. Before relying on them.
If a lay-off exceeds these limits, the employee is deemed terminated and entitled to termination pay and potentially severance pay.
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Employee Resignation After Notice: Preserving Severance Rights
An important nuance in the Ontario termination pay vs severance pay framework: an employee who has been given written notice of termination can resign and still keep their right to severance pay. To preserve this right, the employee must:
- Give the employer at least two weeks' written notice of their resignation
- Ensure the resignation takes effect during the statutory notice period
The Ontario government provides this example: "Heather has worked for seven years and is entitled to seven weeks' notice of termination under the ESA. Heather's employer gives her 10 weeks' notice. Heather must give her employer at least two weeks' written notice of her resignation. As long as Heather's resignation takes effect during the statutory notice period, in this case the last seven weeks of the 10-week notice period, she continues to be entitled to severance pay."
Employers should factor this into their planning — providing longer-than-required notice does not eliminate the severance pay obligation if the employee resigns within the statutory window.
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Frequently Asked Questions: Ontario Termination Pay vs Severance Pay
Can an employee receive both termination pay and severance pay?
Yes. They are entirely separate entitlements under the ESA. An eligible employee can receive up to 8 weeks of termination pay plus up to 26 weeks of severance pay.
Does the $2.5 million payroll threshold include all global operations?
Yes. The ESA specifies a global payroll of at least $2.5 million. This includes payroll across all locations and jurisdictions, not just Ontario operations.
What if I provide working notice — do I still owe severance pay?
Yes. Working notice satisfies the termination pay obligation, but severance pay is a separate entitlement. If the employee meets the qualifying criteria, severance pay is still owed regardless of whether working notice was provided.
Can severance pay be paid in instalments?
Yes, but only with the employee's written agreement or approval from the Director of Employment Standards. Instalments can be spread over a period of up to three years.
Do the weeks of pay in lieu of notice count toward the employee's service for severance calculation?
Yes. The Ontario government guide confirms: "Termination notice period weeks, whether worked or paid in lieu of working notice, are included in calculating an employee's completed years and months of employment, for their severance pay."
What about federally regulated employees in Ontario?
The ESA applies only to provincially regulated employers. Federally regulated employers (banks, telecommunications, interprovincial transportation, etc.) are governed by the Canada Labour Code. See our guide on federal termination rules for details.
Sources
- https://www.ontario.ca/document/your-guide-employment-standards-act-0
- https://laws-lois.justice.gc.ca/eng/acts/l-2/index.html
Protect Your Business with Proper Termination Policies
Understanding the distinction between Ontario termination pay vs severance pay is essential for every provincially regulated employer in the province. Getting it wrong can lead to ESA complaints, costly litigation, and reputational damage. Getting it right starts with having clear, up-to-date employment policies and termination procedures that reflect current statutory requirements.
Key steps to protect your organization:
- Maintain employment contracts with carefully drafted termination clauses reviewed by a qualified professional
- Track employee service dates and your organization's global payroll annually
- Use the decision tree and calculation worksheet in this guide for every termination
- Document all termination decisions, calculations, and payments
- Stay current with ESA amendments — including the new extended temporary lay-off rules effective November 27, 2025
Canada Policy Manual provides ready-to-use, regularly updated policy templates aligned with monitored government sources across all Canadian jurisdictions. Whether you need termination policies, severance calculation tools, or comprehensive employment standards documentation, we make compliance straightforward.
👉 Take a free preview of Canada Policy Manual to see how our platform helps Ontario employers stay aligned with current ESA requirements.
📄 Download free policy templates to get started today.
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Key Takeaways
- Ontario termination pay and severance pay are two separate entitlements under the ESA — eligible employees can receive both, for a combined maximum of 34 weeks of statutory pay.
- Termination pay applies to employees with at least 3 months of continuous employment, with entitlements ranging from 1 to 8 weeks based on period of employment (ESA, s. 57).
- Severance pay requires both 5+ years of service AND an employer with a global payroll of at least $2.5 million (or 50+ employees severed in 6 months due to permanent closure) (ESA, s. 64).
- Severance pay is calculated as regular weekly wages multiplied by completed years plus completed months divided by 12, capped at 26 weeks (ESA, s. 65).
- Providing working notice satisfies the termination pay obligation but does NOT eliminate the severance pay obligation — they are independent entitlements.
- New extended temporary lay-off rules (effective November 27, 2025) may allow lay-offs of up to 52 weeks in 78 consecutive weeks with written employee agreement. Employers should confirm the current ESA thresholds and document the agreement.