SEVERANCE PAY: ESA MINIMUM STANDARDS vs COMMON LAW

During the pandemic, a large number of people have lost their jobs due to economic regression and business closure. Hitting close to home, according to the Financial Accountability Officer (FAO) of Ontario, 355,000 jobs were lost in 2020 alone due to the pandemic. With the recent trend on unemployment, it is now more essential than ever for everyone to know what their rights are and further ask these questions about employment law, such as:

1. What is the minimum severance if we were to be dismissed?

And…

2. What are we entitled to upon termination?

DEFINING SEVERANCE PAY

In Ontario, severance pay is defined as the amount of compensation that the employer provides the employee upon termination. But how is it determined, you may ask? In Ontario, severance pay is interpreted in two ways:

1. Employment Standards Act (ESA) severance
2. Common Law severance

Employment contracts usually include a clause inferring which of the two the employer will follow upon termination. However, in the event that the employment contract is silent on which severance pay to adhere to, the employee by default is entitled to the Common Law severance.

WHAT AM I ENTITLED TO UNDER THE EMPLOYMENT STANDARDS ACT?

Most termination clauses simply adhere to the Employment Standards Act (ESA) to streamline the process. Streamlined is the term used because these are the minimum standards set by the law. Any agreement that goes below or provides less than the ESA is considered null and void and will not be followed in any arbitration.

Here is what you are entitled to under the ESA:

In simplest terms this states that at minimum, all employees in Ontario with 3 months of service under their belt should be paid one (1) weeks’ severance pay per year of service up to a maximum of 8 weeks. This is the minimum standard if you are working for a small business or employer that has less than a 2.5 Million payroll. However, that changes and adds up to an extra amount if you are to work with a corporation or a multinational employer that earns more and has a deeper pocket to provide a generous amount of severance pay. 

WHAT IS COMMON LAW SEVERANCE PAY?

The common law severance pay is the event in which your employment contract does not mention the minimum standards set upon by the ESA, or no termination clause is in place. The default obligation of the employer will therefore rest upon the common law rules on severance, which is far greater than the minimum standards set in place by the ESA.

Severance pay under common law has different layers to it that is far complicated and takes into consideration different facets of employment history that far outweighs the ESA. In common law, four influences are looked upon to determine the amount of compensation the employee acquires upon termination which includes but are not limited to:

1. Character of the employment;
2. Length of service;
3. Age of the employee; and 
4. Availability of comparable employment

All these dynamics are deliberated in every case, but other factors are still considered in calculating the amount of severance pay because each person’s job history is taken into a case-to-case basis.

HOW DO I KNOW IF I’M GETTING THE BETTER END OF THE DEAL?

Now that you know the difference between the ESA severance pay versus the Common law severance pay rule, you can now better gauge which one your employment contracts abide to. 

In the event that you experience termination and have been offered a severance package by your employer, you now know the first question to ask and that is “Is it enough?” or if your employment contract clearly states that it will follow the minimum standards set by the ESA, “is the calculation correct?”

If you answered NO to any of these questions then maybe you are wrongfully dismissed and should question the compensation that you received from your employer.

HOW DO I GO UPON A WRONGFUL DISMISSAL CLAIM?

The first thing to do is, consider asking for some legal advice. Whether it is from a paralegal or a lawyer, legal guidance will help you understand your situation far greater than your contract could. Bear in mind, employment contracts are written by employers and it is assumed to be somewhat biased and employer driven. Paralegals and Lawyers can help you navigate the complicated world of contracts, and could help you comprehend your situation, and even help you be in a better position after termination.

HOW CAN A PARALEGAL HELP?

In reality, the majority of cases settle before they can go into trial. Everybody dreads litigation and petty cases, as they have a way of tarnishing reputations and eating up huge sums of money and resources over something that could have been avoided and settled out of court.

Employment complaints and wrongful dismissal cases have been in abundance over the years, and the majority of employers and employees know that is increasingly avoidable and could even yield win-win resolution on both parties if dealt with professionally.

Here are just some of the benefits when settling out of court with the help of a legal professional:

• Lower legal fees and court costs
• The length of time to resolve the issue is quicker, and outcome can be controlled by both parties
• Less stress from a lengthy and costly trial
• Advantage for an employer to have a concealed settlement and to avoid a public one that can be scrutinized by the public

If you are interested in learning more about employment law in Toronto and how our services can help, be sure to phone us at 647-872-3484 today. We look forward to speaking with you.