Getting laid-off from a job is a sad but common occurrence in the corporate world. People get laid-off for numerous reasons, and in a country like Canada, they could be entitled to some form of compensation based on certain conditions.
This compensation can be in the form of termination pay. The conditions that make an employee entitled to termination pay vary across the provinces. This article will be reviewing termination pay in Ontario and what it entails.
If you already have a job in Ontario or are searching for one, this will help you with the much-needed knowledge of your rights as an employee in Ontario should the worst happen.
What is Termination Pay?
Termination pay is a lump sum payment equal to the regular wage for a typical work week. An employee is entitled to termination pay if a notice of termination is not given before the employment is terminated.
A regular wage is a wage an employee receives besides other payments like overtime pay, public holiday pay and vacation pay, etc. According to the Employment Standard Act, 2000, an employee that is to be laid-off must either be given written notice of termination or be paid a termination fee in the absence of a statement or a combination of both depending on the situation on the ground.
If the notice and the number of weeks of termination pay combined are the same as the length of notice, the employee is entitled to termination pay.
A reason for termination from the employer is not required, according to the ESA. However, employers must continue to make contributions required to maintain the benefits the employee would have been entitled to if they remained employed during the notice. When calculating or filing termination pay, your employer must include vacation pay as it is part of an employee’s benefits.
In a case where an employer gives a notice of termination or is willing to pay a termination fee, he or she cannot end the employment for any of the following reasons;
- The employee is asking questions about the ESA
- The employee is exercising a right under the ESA
Termination pay in Ontario is issued to non-unionized employees that got their employment contract terminated without any cause from their job. So, when an employee is let go, they are entitled to either working notice, pay in place of notice popularly known as termination pay or a combination of both where applicable.
The sum of the termination package an employee is entitled to vary per individual. Also, it depends on the situation leading to the termination.
When Is Termination Pay Paid?
An employer must pay termination pay seven days after the termination of their employment or on the employee’s next regular pay date. The latter option is when an employee receives their termination pay.
Requirements For Termination Pay?
According to the ESA, you can only be entitled to termination pay or a notice of termination if;
- you are not guilty of wilful misconduct, disobedience or wilful neglect of duty;
- you are not a construction employee;
- you are not an employee on temporary layoff;
- you have been employed for more than three months;
- you don’t refuse an offer of a reasonable alternative employment
There are other requirements an employee must meet to be entitled to termination pay. You can find them here.
Written Notice Of Termination
Under the ESA, an employee is entitled to a proper written notice of termination from their employer. Or a termination pay in the absence of notice.
The amount of notice an employee is entitled to in Ontario varies according to their period of employment. A person is said to be ‘employed’ not only while he or she actively works but also when they don’t work, but the employment contract still holds. An example of this is sick days and leave.
Below is a chart showing the amount of notice required according to the employment period. The minimum of which is three months.
Period Of Employment
Less than a year
A year but less than three years
Three years but less than four years
Four years but less than five years
Five years but less than six years
Six years but less than seven years
Seven years but less than eight years
Eight or more years
The chart does not apply in the case of a mass termination. That is the employment of 50 or more employees in an establishment within four weeks. During the notice period, an employer must do the following:
- Continue to make contributions to maintain the employee’s benefit plans.
- Pay the employee wages they are entitled to, which shouldn’t be lower than the employee’s regular wages for a typical work week.
- Not schedule an employee’s vacation time in this period unless agreed by the employee after receiving the notice.
Calculating Termination Pay in Ontario
In calculating termination pay, there is one factor to be considered; regular workweek. A typical work week is the number of hours an employer works for every week, excluding overtime hours.
Some people don’t have regular work weeks and work for different amounts of hours each week or paid on another basis besides time. They are said not to have steady work weeks. For employees who fall in this category, their regular wages for a typical work week are the average amount of their regular wages in the weeks. This is calculated during the 12 weeks before the notice date is issued.
For each category of employees, termination pay is calculated differently. Let’s take a look at an example of each situation;
Mr. Albert has worked for a company for four years and three months, and his employment was terminated without notice. He worked for 50 hours a week and was paid $20 per hour, and he received 5% vacation pay.
Since he worked for more than four years but not up to five, he is entitled to four weeks pay. Below is how to calculate Mr Albert’s termination pay;
Regular wage = $20 (per hour) × 50 (per week)
= $1000 per week
Termination pay = $1000 × 4 (weeks)
Vacation pay = 4% of $4000
Vacation pay + Termination pay = $4000 + $160
Therefore, Mr. Albert is entitled to a termination payment of $4160.
Miss Susan worked in an establishment for two years, but her working hours vary weekly. Her rate of pay is $25 per hour, and she gets 10% vacation pay.
She was laid-off without any notice and was on leave for two weeks out of 12 weeks before her employment was terminated, and she earned $2000 in that period. Below is how to calculate Miss Susan’s termination pay;
Average earning (10 weeks because she was on leave for two weeks) = $2000/10 = $200 per week
Termination pay = $200 × 2 (she worked for 2 years)
Vacation pay= 10% of $400
Vacation pay + Termination pay = $40 + $40
Therefore, Miss Susan is entitled to a termination payment of $440.
Termination Pay vs Severance Pay
Severance pay is not the same as termination pay as people often confuse them to be the same. Termination pay is given in the absence of a notice of termination.
In contrast, according to the Ontario Ministry of Labour, severance pay is compensation of an employee for loss of seniority and the value of firm-specific skills, and it recognizes the employee’s extended services.
You can only be entitled to severance pay if you worked for a company with a total annual payroll of $2.5 million or more and a minimum period of five years. The calculation also differs from that of termination pay.
Severance pay is calculated by multiplying an employee’s regular week wages by the number of years of employment.
While most people want to keep a good job or at least one that pays the bills, sometimes life happens. We must know our rights and entitlements in the event of termination. You are entitled to termination pay if you don’t receive a notice of termination before your employment is terminated. As an employee in Ontario or anywhere else in Canada, you are entitled to termination pay once you meet the requirements.