When are you entitled to severance pay?

By: Ashley Iyathurai, Law Office of Jeff J. Li

Disclaimer: The information contained in this article is general in nature and does not constitute legal advice. You should contact Jeff Li or another lawyer if you are concerned about your employment issues.

 

Being fired from a job can be an understandably stressful and frustrating experience. While you are exploring your options, one immediate concern most people face is: How do I support myself? Depending on how you lost your job, you may be entitled to Employment Insurance benefits. You should review the criteria and the procedure for how to apply for Employment Insurance in order to ensure your claim is processed promptly.

Employment Standards Act

Depending on the circumstances, you may also be entitled to severance pay as well. First, you will need to determine whether or not your employment has been severed within the meaning of the Employment Standards Act. Your employment has been severed where:

  • Your employer has dismissed you, or refuses, or is unable, to continue employing you;
  • Your employer has constructively dismissed you and you have consequently resigned within a reasonable period;
  • Your employer has laid you off for 35 weeks or more within a period of 52 consecutive weeks;
  • Your employer has laid you off because all of their business at an establishment has been permanently discontinued; or
  • Your employer has given you a notice of termination, you have given your employer written notice at least two weeks prior to resigning, and your resignation will take effect during the Employment Standards Act’s notice period.

Once you have established your employment has, in fact, been severed, the next step is to determine if you are entitled to severance pay. In order to qualify, you need to meet the following criteria:

  • You’ve been employed by the employer for 5 or more years and
    • (1) the severance occurred because the employer’s business at an establishment has been permanently discontinued and you are 1 among 50 or more other employees who have also had their employment relationship severed within a 6 month period, or
    • (2) your employer has a payroll of $2.5 million or more.

Next, you will need to calculate your severance pay. The Employment Standards Act prescribes the minimum length of notice that you are entitled to. However, employees and employers are free to agree to a longer notice period than what is required under the Act.

Under the Employment Standards Act, this amount of your severance pay is determined by using the following formula:

Severance Pay = Weekly Wage × (A+B)

wherein A = number of years you’ve been employed; and

                B =  number of months not included in (A) that you’ve completed divided by 12

However, you should also note that there are exceptions in the Employment Standards Act, exempting certain employees from severance pay. It is important to review these exemptions carefully in order to ensure you are still covered under the Act.

Common Law

At common law, the notice period is calculated differently. Often times, the notice period under the common law is longer than that provided under the Act. At common law, an employee’s notice period is guided by how long it would take the employee to find alternate employment.

In Bardal v. Globe & Mail, the Court identified some of the key factors it will look at when determining a reasonable notice period. These factors include: the character of employment, length of employment, the employee’s level of training, the employee’s education, the employee’s age, and the availability of other similar employment.

However, this determination is not a matter of simple mathematics. In Minott v. O’Shanter Development Company Ltd., the Court confirmed that the oft-cited approach of using one month for each year of employment, is not, in fact, to be used as a rule of thumb in determining the reasonable notice period. Instead, each employee’s entitlement will differ based on the context and particular facts. You should consult a lawyer in determining your rights upon termination of your job.