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Difference between termination and severance pay in Ontario 

When an individual loses their job for them, the distinction between termination or severance could not matter less. Since a good majority of the population depends on their paycheck to live their lives, an individual would be more worried about their next job and their next paycheck rather than worry about the details or the particulars of their dismissal and what category it falls in. However, there is a distinction between termination and severance, and the distinction is important since it makes a person eligible for either termination or severance pay according to Ontario law.

In this blog post, we will look at the difference between termination and severance pay in Ontario, understanding the many aspects of both, and the conditions which make an individual or an ex-employee eligible for either one. This is all you need to know about the differences between termination and severance pay in Ontario. 

Let’s start by first individually looking at both termination and severance pay, and then we’ll move on to the differences between the two. 

Termination pay

Termination pay is described as a ‘lump-sum payment given to an employee upon their termination to compensate them for the absence of reasonable notice of their termination’. What it means, essentially, is that termination pay is supposed to be paid all at once, and it is supposed to cover the period that would have otherwise been the employee’s notice period, with a reasonable intimation of their termination being communicated to them beforehand. 

According to the terms issued by the Ontario Employment Standards Act (ESA), there are several particulars of termination pay that differ from severance pay. For instance, the termination pay should always be equal to the amount the employee was supposed to receive during the time of their notice period. For example, if their notice period was supposed to last four weeks, their termination pay, according to the ESA, should equal four weeks’ wages. 

The eligibility conditions for termination pay are similarly laid out in the particulars of the ESA. For beginners, an employee becomes eligible for termination pay only when they are not served their notice and are instead terminated by their employer without any reason. However, this termination is also supposed to be very specific in its nature, particularly where the service of said employee is concerned. For an employee to become eligible for termination pay, according to the ESA, they should have been continuously employed with said employer for three months or more, including any or all time off, as specified by the employment agreement or terms. 

Now, let’s discuss what is severance pay. 

Severance pay

Following the guidelines laid down by the ESA, severance pay is described as ‘compensation paid to an employee whose employment has been severed by their employer’. The term ‘severance’, as per the ESA, is the imperative part of the equation, and the conditions associated with severance need to be present in an employee’s case for them to be eligible to claim severance pay. Once again, severance pay is aimed at a very specific purpose: it is aimed at the compensation for the long-term employees of their losses upon termination from the organisation. 

However, unlike termination pay, severance pay only has a few very basic requirements set forth by the ESA. According to the laws, the minimum severance pay set out in the ESA applies to employees who have worked with their employer for five years or more in Ontario. As for the employer, there are two very specific clauses that define the law. 

The employee is part of an organisation or company with a payroll of CAD2.5 million or more. 

50 or more employees of the same organisation had their employment severed within a six-month period. 

If the above-specified criteria are met, then the employee will be eligible for severance pay, with them being owed both a singular week of notice and a severance pay for every year of service, with the ceiling set for a maximum total of 26 weeks. 

Difference between termination, severance pay

The main difference between termination and severance pay is that severance pay is compensation that an employer must pay to a qualifying employee who has been terminated, in addition to what is required under the ESA for notice of termination or termination pay.

Like termination pay, the term severance pay can also refer to common law notice of termination. Accordingly, you may be entitled to a larger severance payment than your employer offers you upon termination. Determining whether you have received a fair severance payment is a complex matter that requires the assistance of an employment lawyer. Here is a quick guide to help you differentiate between the two. 

Payment: Termination pay arises due to the absence of reasonable termination notice, whereas severance pay is more associated with the long-term service of an employee or the large-scale job losses faced by an organisation. 

Eligibility: In terms of eligibility, termination pay is much more universally applicable for employees and their cases, whereas severance pay has a set of very specific qualifying conditions. 

Conclusion

Both severance and termination pay play crucial roles in employee compensation and rights.  They provide financial support and recognition under different circumstances of employment termination. All parties in the employment relationship must understand these concepts to ensure fair and legal compliance in employment practices. Termination pay is provided to qualified employees and is paid in lieu of notice of termination of their employment. In contrast, severance pay is owed to severed employees who meet the criteria set out in the ESA and is paid in addition to termination pay or required notice of termination.

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