Severance Pay in Ontario: What You're Owed and How It's Calculated

If you are dismissed without cause in Ontario, you may be owed up to three different things: ESA termination pay (up to eight weeks), ESA severance pay (up to 26 more weeks, but only if you meet specific tests), and, if your contract does not validly limit you to the ESA minimums, common-law reasonable notice, which is often much longer ^{[1] [2]}. Which of these applies depends on your length of service, your employer's size and the exact wording of your employment contract.

This guide explains each layer, shows how to estimate what you are owed, and covers termination clauses, tax, Employment Insurance (EI) and deadlines as of November 2026. It is general information, not legal advice.

What is the difference between termination pay and severance pay in Ontario?

People often use "severance" to mean any money paid on dismissal. Legally, Ontario has three distinct entitlements.

ESA termination pay is the statutory minimum notice, or pay instead of notice. It applies to employees who have been continuously employed for at least three months ^[1].

ESA severance pay is an additional statutory payment that compensates long-serving employees for losing their job. It only applies if you have at least five years of service and your employer meets a size test ^[2].

Common-law reasonable notice is a court-assessed amount that applies when your contract does not contain an enforceable clause limiting you to the ESA. It is not set by statute and is usually larger than the ESA minimums.

How much ESA termination pay am I entitled to?

The ESA sets notice by length of employment [1]:

• Less than 1 year: 1 week
• 1 year but less than 3 years: 2 weeks
• 3 years but less than 4 years: 3 weeks
• 4 to 7 years: one week per completed year (4 weeks at 4 years, rising to 7 weeks at 7 years)
• 8 years or more: 8 weeks

Your employer can give you working notice, pay instead of notice, or a combination. Termination pay is a lump sum equal to your regular wages for a regular work week for the notice period, plus vacation pay on that amount, and your employer must keep up any benefit and pension contributions during that period ^[1]. It is due by the later of seven days after termination or your next regular pay date ^[1].

Larger layoffs follow different rules. If 50 or more employees are terminated at one establishment within four weeks, the required notice is 8 weeks for 50 to 199 employees, 12 weeks for 200 to 499, and 16 weeks for 500 or more ^[1].

You are not entitled to termination pay if you were guilty of "wilful misconduct, disobedience or wilful neglect of duty" that is not trivial and was not condoned by the employer ^[1]. That is a high bar; ordinary poor performance or accidental mistakes generally do not meet it.

Who qualifies for ESA severance pay in Ontario?

You qualify for ESA severance pay if both of these are true [2]:

1. You have at least five years of service with the employer. All time counts, whether continuous or not and whether active or not.
2. Your employer has a global payroll of at least $2.5 million, or it cut 50 or more jobs within six months because all or part of the business permanently closed.

The "global" payroll test means a large multinational's worldwide payroll counts, not just its Ontario operations.

Severance pay equals your regular weekly wages multiplied by your completed years of service, plus completed months of any partial year divided by 12, to a maximum of 26 weeks ^[2]. ESA notice periods, whether worked or paid, count toward service ^[2]. For commission earners, the weekly figure is the average over the last 12 weeks worked ^[2].

There are exceptions. Severance pay is not owed if you refused reasonable alternative employment, retire on a full pension that recognizes all the years you would otherwise have worked, work in construction or certain on-site maintenance roles, or were dismissed for wilful misconduct ^[2]. It is due by the later of seven days after your employment ends or your next pay day, although it can be paid in instalments over up to three years with your written agreement or the Director's approval ^[2].

How is common-law reasonable notice calculated?

There is no formula. Courts apply the factors from Bardal v. Globe and Mail, a 1960 Ontario decision. The Court of Appeal for Ontario summarizes them as the character of the employment, the employee's length of service, the employee's age, and the availability of comparable employment ^[9]. The court has repeated Bardal's warning that "there can be no catalogue laid down as to what is reasonable notice in particular classes of cases," and the Supreme Court of Canada's guidance that no one factor should be given disproportionate weight ^[9]. Rules of thumb like "one month per year" are not the law.

Reported decisions show how wide the range is:

• In Di Tomaso v. Crown Metal Packaging (2011 ONCA 469), the Court of Appeal treated a 22-month award as understandable for a 62-year-old employee with 33 years of service ^[9].
• In Dawe v. Equitable Life (2019 ONCA 512), the court said that "generally only exceptional circumstances will support a base notice period in excess of 24 months," and reduced a 30-month award to 24 months for a senior, long-serving employee ^[8].
• In Boyle v. Salesforce.com (2025 ONSC 2580), the court assessed 11 months' notice for an eight-year employee, then reduced it by three months after drawing an adverse inference because the employee would not produce a tax Notice of Assessment ^[6].

So 24 months is a soft ceiling, not a hard cap. Exceptional cases can exceed it, but they are rare.

Mitigation. You are expected to look for comparable work during the notice period. If you find a new job, your common-law damages can be reduced. The employer bears the burden of proving you failed to mitigate, but as Boyle shows, refusing to disclose relevant records can cost you ^[6]. Keep a record of every application. ESA minimums are not reduced by mitigation.

How much severance am I entitled to? Worked examples

The table below assumes regular wages of $1,500 a week (about $78,000 a year), dismissal without cause, no just cause, and an employer that meets the $2.5 million payroll test. It ignores vacation pay on termination pay and benefits continuation, which are owed on top ^[1].

Two points stand out. First, the ESA numbers are a floor and are mechanical: you can calculate them precisely. Second, the common-law column is a range set by judges, not a calculation, which is why any online "severance calculator Ontario" result is only a rough starting point. If your employer's payroll is under $2.5 million and there was no mass closure, the ESA severance column drops to zero ^[2].

If you have an enforceable termination clause, you are usually limited to the ESA total. If you do not, you are generally entitled to the greater of your ESA entitlements and common-law notice, with the ESA amounts forming part of the overall award.

Is my termination clause enforceable?

This question often decides whether you get weeks or months of pay. Ontario courts read termination clauses strictly.

In Waksdale v. Swegon North America (2020 ONCA 391), the Court of Appeal held that "an employment agreement must be interpreted as a whole and not on a piecemeal basis" ^[4]. The contract's for-cause clause breached the ESA, so the without-cause clause also failed, even though the employer dismissed without cause and never relied on the illegal part ^[4]. Enforceability is judged as of when the contract was signed, and a severability clause cannot save provisions that are void under the statute ^[4].

Later appeals have applied the same approach:

• Dufault v. Ignace (Township) (2024 ONCA 915). The for-cause clause allowed dismissal without ESA entitlements for reasons broader than wilful misconduct, so all termination provisions were void and the employee recovered the balance of her fixed-term contract ^[5]. The Court of Appeal said a three-judge panel could not revisit Waksdale ^[5].
• De Castro v. Arista Homes (2025 ONCA 260). A for-cause clause that defined cause more broadly than the ESA made the whole termination scheme unenforceable, even though the employee was dismissed without cause ^[6].
• Baker v. Van Dolder's Home Team and Li v. Wayfair Canada (2026 ONCA 568). In decisions reported in August 2026, the Court of Appeal held that phrases such as "at any time," "for any reason" and "at the employer's sole discretion" do not, on their own, breach the ESA or void a without-cause clause; courts read them in context ^[7].

Common problems to look for include a for-cause clause that goes beyond the ESA's wilful misconduct standard, a clause that pays only base salary when you also earn commissions or bonuses, and a clause that does not promise benefits continuation during the ESA notice period. Whether your clause survives is a fact-specific legal question.

What should I do before signing a severance package in Ontario?

A severance offer usually comes with a release that ends any further claim. Before you sign:

• Do not sign on the spot. Ask for time to review it. Your employer must pay your ESA minimums by the statutory deadline whether or not you sign ^{[1] [2]}.
• Find your employment contract and any later agreements, offer letters or policy acknowledgements. The termination clause matters more than anything else.
• Separate the ESA amounts from the extra. Check that the offer covers termination pay, severance pay if you qualify, vacation pay and benefits continuation. Only the money above the ESA minimum is really being offered in exchange for the release.
• Look at the whole package: bonuses, commissions, stock or option vesting, pension, health and dental coverage, outplacement services, a reference letter and how the departure will be described.
• Start your job search and keep records. This supports your mitigation and protects a later claim ^[6].
• Get legal advice if the offer is close to the ESA minimum and you have several years of service or a senior role.

How is severance taxed in Canada?

How the money is characterized changes the deductions.

Pay in lieu of notice is employment income. Your employer deducts CPP contributions, EI premiums and income tax ^[10].

A retiring allowance includes amounts paid for loss of employment, including many wrongful dismissal settlements. Employers do not deduct CPP or EI from it, and withhold income tax at lump-sum rates: 10% on amounts up to $5,000, 20% on amounts over $5,000 up to $15,000, and 30% on amounts over $15,000 ^[10]. Withholding is not your final tax; the full amount is added to your income for the year.

If you worked for the employer before 1996, part of a retiring allowance may be an eligible amount you can transfer directly to an RRSP without tax being withheld: up to $2,000 for each year or part-year of service before 1996, plus $1,500 for each year before 1989 in which you had no vested pension or DPSP benefits ^[10].

Legal fees you pay to collect or establish a right to a retiring allowance can be deducted, up to the amount of the retiring allowance you received in the year minus any amount transferred to an RRSP, and unused fees can be carried forward for up to seven years ^[11].

How does severance affect Employment Insurance?

Normally, severance pay, wages in lieu of notice and vacation pay paid on separation are treated as earnings and allocated from the week of separation, which delays when EI benefits start ^[12].

A temporary measure currently changes this. Under federal regulations registered on September 25, 2026, money paid on separation is not treated as earnings for benefit periods beginning between October 11, 2026 and October 9, 2027, and the measure applies to all claimants, not only those affected by tariffs ^[13]. Rules can change, so confirm with Service Canada when you apply.

Apply right away. Service Canada warns that if you apply more than four weeks after your last day of work, you may lose benefits ^[14].

What are the deadlines for a severance claim in Ontario?

• ESA claim: generally within two years of the alleged violation ^[3].
• Wrongful dismissal lawsuit: generally two years under the Limitations Act, 2002. Courts have held the clock usually starts when the employer dismisses you without reasonable notice. In Pascuet v. Sky Service F.B.O. (2025 ONSC 6143), a claim filed about two years and seven months after dismissal was statute-barred ^[15].
• You usually must choose a forum. You generally cannot file an ESA claim if you have already sued for the same issue, and if you file a claim and then want to go to court, you must withdraw the claim within two weeks of filing it ^[3].

An ESA claim is free and suits straightforward minimum-entitlement disputes. A lawsuit, or a negotiated settlement backed by the possibility of one, is how common-law notice is usually recovered.

Should I hire an employment lawyer, and how do they charge?

A lawyer is most useful when the gap between the ESA minimum and possible common-law notice is large: longer service, a senior or specialized role, significant bonus or equity compensation, or a termination clause that may not hold up. Many employment lawyers will review a package and contract for a fixed fee or a short hourly engagement before you decide.

Common billing models are:

• Hourly or flat fee for a package review, a demand letter or negotiation.
• Contingency fee, where the lawyer takes a percentage of what you recover. In Ontario there is no fixed maximum percentage, but the fee cannot exceed your recovery, lawyers must generally use the Law Society of Ontario's standard form agreement, and firms that advertise contingency fees must disclose their maximum percentage ^[16].
• A hybrid, such as a reduced hourly rate plus a percentage.

Ask how disbursements are handled, what happens to any costs award, and whether HST applies. Our guide to how much a lawyer costs in Canada explains fee structures in more detail, and our guide to finding a lawyer in Canada covers what to ask in a first consultation.

You can browse employment lawyers in Ontario, or search by city, such as employment lawyers in Toronto or employment lawyers in Mississauga.