Ontario severance pay guide: Eligibility, calculation and 2026 rules

Severance pay in Ontario is compensation owed under the Employment Standards Act (ESA) to qualifying employees whose employment is severed. To qualify, an employee needs at least five years of service, and the employer must either have a global payroll of $2.5 million or more or have severed 50 or more employees within six months because of a permanent business closure. The ESA caps statutory severance at 26 weeks’ pay, but common law entitlements often run much higher.

In early 2025, an Ontario court ordered a company to pay an employee 14 months’ severance. She had worked there for seven months.

That case, Miller v. Alaya Care Inc., is exactly why severance pay in Ontario trips up so many employers. The province runs on two parallel tracks. The first is the statutory minimum under the Employment Standards Act (ESA): a formula, a cap, a set of clear rules. The second is common law reasonable notice, where courts weigh a person’s age, tenure and job prospects and where the numbers can dwarf anything the ESA requires. Get the first track right, and you can still be badly exposed on the second.

This guide covers both. You’ll find out who qualifies for statutory severance, how to calculate it, how common law entitlements really work and the 2025 legislative changes and court decisions, several from late in the year, that quietly rewrote the rules on layoffs, mass terminations and termination clauses.

Key takeaways

• Severance pay and termination pay are separate ESA entitlements, and eligible employees can receive both.
• Statutory severance requires five or more years of service plus an employer with a $2.5 million global payroll (or a qualifying mass closure).
• The ESA formula is roughly one week per year of service, capped at 26 weeks.
• Common law “reasonable notice” regularly exceeds ESA minimums; awards of 24 months or more have been upheld.
• Since November 27, 2025, employers and employees can agree in writing to extend a temporary layoff beyond 35 weeks, with the Director of Employment Standards’ approval.
• A single flawed clause in an employment contract can void the entire termination provision and open the door to common law damages.

What is severance pay vs. termination pay?

They sound interchangeable. Under Ontario’s ESA, they’re two distinct entitlements ,  and a qualifying employee can be owed both at once.

Severance pay compensates a qualified employee whose employment has been severed. It recognizes years of service and helps bridge the financial gap while the person searches for new work.

Termination pay is money paid in place of the written notice of termination the ESA requires , often called pay in lieu of notice. It’s based on length of service and capped at eight weeks under the ESA, at a rate of one week per year of service.

There’s a third option worth understanding: working notice. An employer can tell an employee their job will end on a future date while the employee keeps working their actual role, with their usual duties and pay, until that date. The catch is that the notice has to be genuine. Strip away responsibilities or demote the person during the notice period and the working notice becomes invalid: leaving the employer liable for full pay in lieu.

When is employment “severed”? Not only on dismissal. Employment is also severed when an employee is laid off for 35 or more weeks, which don’t need to be consecutive, within a 52-week period.

That 35-week line moved in late 2025. As of November 27, 2025, under the Working for Workers Seven Act (Bill 30), non-unionized employers and employees can mutually agree in writing to extend a temporary layoff to 35 or more weeks within 52 consecutive weeks, provided the total stays under 52 weeks in any 78-week period. The agreement must set out the latest recall date, the employee can’t withdraw once signed, and the employer needs approval from the Director of Employment Standards. While an approved extension is in place, termination and severance pay aren’t triggered.

ESA severance pay eligibility and exemptions

Statutory severance is the exception in Ontario, not the rule. Most terminated employees never qualify for it. Eligibility under the Ontario Employment Standards Act (ESA) rests on a dual requirement, and both parts must be met.

The employee must have worked for the employer for at least five years.

The employer must meet one of two criteria:

• A global payroll of at least $2.5 million, or
• Having severed the employment of 50 or more employees within a six-month period because the business permanently closed.

Note the word global. A 30-person Ontario company owned by a large international group can easily clear the $2.5 million threshold once worldwide payroll is counted.

When eligibility is lost. An employee gives up their right to statutory severance if they refuse an offer of reasonable alternative employment with their employer, or if the business closes permanently because of the economic effects of a strike.

Resignation and constructive dismissal. Quitting normally means no severance, but not always. If an employer makes a fundamental, unilateral change to the job or makes it intolerable and the employee resigns in response within a reasonable timeframe, that’s constructive dismissal. The law treats it as a termination, and severance may be owed.

The “wilful misconduct” nuance most guides miss. Being fired for cause doesn’t automatically erase severance rights. Under Ontario law, “just cause” at common law is a lower bar than the ESA’s standard of “wilful misconduct, disobedience or wilful neglect of duty.” An employee dismissed for common law just cause, say, sustained poor performance, still qualifies for statutory severance unless their conduct also clears that higher, deliberate-wrongdoing threshold. Employers who conflate the two standards routinely underpay, and courts notice.

The small business myth. Employers under the $2.5 million payroll line sometimes assume severance simply doesn’t apply to them. Exemption from statutory severance says nothing about common law. A small employer terminating without cause is still fully liable for common law reasonable notice. Which, as you’ll see below, is usually the bigger number.

Terminations rarely go wrong because of one big mistake: they go wrong because a small step got skipped. Want every step of a compliant Ontario termination laid out in order?

How to calculate ESA severance pay in Ontario

The statutory formula is mercifully simple.

ESA severance pay = regular weekly wages × (completed years of employment + completed months ÷ 12)

The maximum severance pay required under the ESA is 26 weeks.

So an employee earning $1,200 per week with nine years and six months of service is owed $1,200 × 9.5 = $11,400. Completed months count on a prorated basis; nine years and six months is 9.5, not nine.

For a quick statutory check, the Ministry of Labour’s online Severance Pay Calculator remains the official Ontario severance pay calculator and is worth bookmarking. To model the full picture, termination pay and severance together, our termination and severance calculator does the math in one place.

One caution before you treat any severance pay calculator’s output as the final bill: these tools calculate ESA minimums. They tell you the least the law allows, and for many employees the real entitlement lives in the next section.

Common law severance and reasonable notice

The ESA sets a floor. Employers can’t contract below it, but nothing stops an employee’s true entitlement from sitting far above it, and at common law it usually does.

Unless a valid employment contract limits them to ESA minimums, employees terminated without cause are entitled to common law reasonable notice, or pay in lieu of it. Ontario courts assess reasonable notice using the factors from Bardal v. Globe & Mail Ltd. (1960):

• Age of the employee
• Length of service
• Character of the employment (seniority, specialization)
• Availability of similar employment

The logic is practical: an older employee with decades in a specialized role faces a harder job market, so the notice period stretches. Awards of up to 24 months are well established, and recent cases have pushed past even that. In Currie v. Nylene Canada Inc., a 58-year-old with 40 years of service was awarded 26 months. In Lynch v. Avaya Canada Corporation, the award reached 30 months.

Two more things make common law severance expensive:

It covers total compensation, not base salary. Benefits continuation, bonuses, car allowances, stock options and pension contributions all count. Courts regularly add 5% to 15% on top of base salary to compensate for lost benefits alone.

Recruitment history matters. In Miller v. Alaya Care Inc. (2025 ONSC 1028), the case from the top of this article, a 62-year-old executive was recruited away from 12 years of stable employment, then terminated after seven months. Because she’d been induced to leave secure work and her contract’s termination clause was void, the court awarded 14 months’ notice. Seven months of service; 14 months of pay.

Common law exposure is exactly why the termination process deserves the same rigour as the termination math. Keep the whole thing on track, from the decision through to final pay.

Severance packages, enforceability and legal considerations

Most severance disputes are decided long before anyone is terminated; they’re decided the day the employment contract is signed. A well-drafted termination clause can limit an employee to ESA minimums. A flawed one hands them common law reasonable notice.

The Waksdale effect. Since Waksdale v. Swegon North America Inc. (2020), Ontario courts read termination provisions as a whole. If any part violates the ESA, the entire clause is void, even a part the employer never relied on. A defective “for cause” clause takes the “without cause” clause down with it, and the employee gets common law notice.

Waksdale went federal in late 2025. In Ghazvini et al. v. Canadian Imperial Bank of Commerce (2025 ONSC 5218), the Ontario Superior Court applied Waksdale’s logic to a federally regulated employer under the Canada Labour Code for the first time, voiding a termination clause that defined “cause” more broadly than the statute allows. Federally regulated employers (banks, telecoms, interprovincial transport) are no longer insulated from this line of cases.

The “at any time” saga, and how it ended. Through 2025, Ontario’s lower courts split on whether a clause allowing termination “at any time” was inherently offside. Baker v. Van Dolder’s Home Team Inc. (February 2025) struck such a clause down, reasoning it implied a right to dismiss during ESA-protected leaves. Li v. Wayfair Canada ULC (2025) and Bertsch v. Datastealth Inc. (upheld on appeal in May 2025) went the other way, enforcing clauses that clearly and unambiguously tied entitlements to ESA minimums and defined cause by the ESA’s wilful misconduct standard. In August 2026, the Ontario Court of Appeal resolved the conflict, overturning the lower-court ruling in Baker: “at any time” wording doesn’t, on its own, void a termination clause. Clauses must be read in context and as the parties objectively intended. The practical lesson survives every twist of this saga: clauses that precisely track ESA language get enforced, and clauses that overreach get voided.

Short deadlines don’t shorten rights. Severance offers often arrive with a three-to-five-day deadline attached. The pressure is real; the legal effect isn’t. An employee’s entitlements under the ESA and at common law don’t expire when the employer’s deadline does.

Mass termination rules tightened in 2025. Two changes matter for larger workforce reductions:

• Since July 1, 2025, employers conducting a mass termination must provide affected employees with an “Employment Ontario Career Supports” information sheet.
• Under the Working for Workers Seven Act (in force November 27, 2025), employees in a mass termination, 50 or more employees at an establishment within four weeks, are entitled to up to three unpaid days of job-seeking leave during working notice, for job searches, interviews or training. The leave doesn’t apply where the working notice given is 25% or less of the required notice period and termination pay covers the rest.

Structuring the severance package itself is only half the exercise. The other half is running a clean, documented exit. Our employee offboarding checklist covers the operational side, from final pay and benefits to equipment and access.

Payment timelines and instalment rules

Once employment is severed, the clock starts.

The deadline. Severance pay must be paid within seven days of the employment being severed, or on the employee’s next regular pay day; whichever is later.

Instalments are allowed, with conditions. An employer can pay severance in instalments only with the employee’s written or electronic agreement, or with the approval of the Director of Employment Standards. An instalment plan can’t stretch beyond three years.

Miss a payment, owe it all. If an employer misses a scheduled instalment, the entire remaining severance balance becomes due immediately. There’s no grace period and no renegotiation baked into the ESA.

Alongside the payment itself, remember the paperwork: a Record of Employment (ROE) must be issued whenever there’s an interruption of earnings, and the employee will need it to apply for Employment Insurance.

Getting severance right

Severance in Ontario rewards employers who prepare early: contracts drafted to track the ESA precisely, service records that make the calculation trivial, and a termination process that holds up if a court ever looks at it. The employers who get burned are almost always the ones who found out about the second track, common law,  after the termination meeting, not before.

See how Employment Hero helps Canadian businesses master Ontario severance pay eligibility and calculations.