Severance Pay in Ontario Be Negotiated

There are many misconceptions surrounding employment terminations in Ontario, and that confusion is one reason why employees should seek professional legal help when being laid off. There are many legal rules and principles to understand, and an employment lawyer can help an employee leverage those rights during the severance pay negotiation process. An experienced Ontario employment lawyer can also assist an employee in understanding how their severance package will be taxed, which is important for planning their financial future.

The term severance pay is commonly misunderstood, especially in the context of job loss due to organizational change. Severance pay is a specific amount of money an employer must give to an employee who is being let go in accordance with Ontario’s Employment Standards Act (ESA). It is separate from, and in addition to, notice or pay in lieu of notice required by the ESA.

An employer in the ESA must provide at least one week of severance pay Ontario for each completed year of service, to a maximum of 26 weeks. The calculation considers several factors, including the worker’s age, the number of years worked, and their prospects for gaining new work. It does not include pay for vacation time, sick days or overtime.

Can Severance Pay in Ontario Be Negotiated?

In addition to the minimum statutory severance pay, an employee can be entitled to additional payments under common law. This is a set of judge-made laws that are based on precedent and can add up to an extra 3-6 weeks per year of employment. The courts define what constitutes “reasonable notice” as the amount of time an employer can expect it will take to find similar work in the same industry, at the same salary and in the same position. This varies widely from company to company and is often disputed in court.

Non-unionized companies in Ontario can fire employees for almost any reason, except discriminatory reasons and serious misconduct. They must provide working notice or pay in lieu of notice before firing someone, and if they don’t have a good reason (aka, cause) for firing an employee, they must provide severance pay.

Some employers may offer a severance package that is far below what they should be offering. In those cases, an employment lawyer can use various laws and factors to calculate what the company owes and fight for that amount. This can result in a severance package that is worth tens of thousands of dollars to the laid-off employee.

Severance pay is usually paid in a lump sum payment, but it can also be deposited into an employee’s bank account. When this happens, the employee is responsible for reporting and paying tax on the amount they receive. Typically, the employer will deduct income tax from the lump sum payment and then transfer it to an employee’s RRSP or taxable benefit plan. The CRA’s website provides helpful information on how to report and pay taxes on severance packages. The CRA also offers a guide for employers on how to properly report and file severance packages.