Severance Package Ontario | Know Your Rights Before You Sign

Ontario severance law is simple in theory and messy in practice.

When an employee is terminated without cause in Ontario, an employer may owe three separate and distinct obligations:

1. Termination pay or working notice under the Employment Standards Act, 2000 (ESA)
2. ESA severance pay (only if the employee qualifies)
3. Common law reasonable notice, unless a valid employment contract limits entitlement

Most “Ontario severance packages” offered by employers address only the first, sometimes the second, and quietly ignore the third or attempt to roll it all together under the label of an “enhanced offer.”

That distinction matters. A lot.

If you are terminated without cause, the ESA generally entitles you to notice of termination or pay in lieu, based on your length of service, up to the ESA maximum.

That entitlement is the minimum legal floor, not the ceiling.

Many employees assume that if their employer has offered ESA minimums or ESA minimums plus a modest enhancement in exchange for a release that the offer must be fair. In reality, most employers do not provide employees with their full legal entitlements unless pushed to do so.

ESA termination pay is the baseline. It is not the full answer.

Ontario also has a separate concept called “severance pay.” This is frequently misunderstood.

Severance pay is not automatic. Eligibility depends on factors such as:

• Length of service (generally five years or more), and
• The employer’s payroll size, or specific triggering events such as mass terminations

This leads to a common point of confusion: termination pay and severance pay are different entitlements, governed by different rules, and one does not replace the other.

Even where both apply, they still may not reflect what the employee is actually owed.

Unless your employment contract contains a valid and enforceable termination clause that properly limits you to ESA minimums, you are likely entitled to common law reasonable notice.

Common law notice is measured in months, not weeks.

Courts assess reasonable notice by considering factors such as:

• Age
• Length of service
• Nature and seniority of the role
• Availability of comparable employment

In real-world cases, common law notice is often what turns an “okay” severance offer into a fair and lawful one.

Most severance packages are drafted from templates designed to:

• Cap payouts at or near ESA minimums, and
• Secure a broad release of liability

This isn’t malicious. It’s risk management.

But it does mean employees should treat severance as a negotiation, not a gift.

People are used to fixed prices. You can’t negotiate the price of groceries. Severance is different. It’s far closer to buying a house: the first offer is rarely the best offer.

From an employer’s perspective, it makes no business sense to start with their maximum exposure especially when many employees sign early offers for less than they are legally entitled to. This is particularly common with small and mid-sized businesses.

A properly structured severance package should address all components of compensation, not just base salary:

• Salary or wages through the notice period
• Continuation of benefits (or compensation for lost benefits)
• Bonus and commission entitlements, unless properly excluded by enforceable contract language
• Pension or retirement contributions, where applicable
• Vacation pay and outstanding expenses
• A positive reference, letter of employment, or agreed-upon wording

A severance offer that ignores these elements or attempts to extinguish them with vague language should be reviewed carefully.

Severance deadlines vary, and they are often negotiable, particularly where:

• The employee requests time to obtain legal advice, or
• There may be claims beyond severance (such as human rights or reprisal issues)

That said, employees are well-served by having their severance reviewed sooner rather than later.

Too often, people wait until the final day or the day before to seek legal advice, only to discover their lawyer is unavailable. Faced with that pressure, many sign out of fear that the offer will be withdrawn.

In most cases, if a severance package is ultimately found to be fair, employers are willing to re-offer it even after an arbitrary deadline has passed.

When reviewing an Ontario severance package, the key question is not:

“Is this more than ESA?”

The real question is:

“Does this reflect what I’m legally entitled to once my contract, common law rights, and full compensation structure are properly considered?”

McMackin Law reviews Ontario severance packages with a simple goal:
to secure the best possible outcome with the least disruption whether that means a quick improvement through negotiation or litigation when an employer refuses to be reasonable.