ESA Notice and Severance in Ontario: Working Out What Is Owed
Owners use “severance” to mean the whole cheque. Ontario’s Employment Standards Act uses it to mean one specific entitlement that most small employers never owe at all. The two things are calculated differently, they are triggered by different facts, and an employer who budgets for one number when two are payable ends up short on the day the employee’s lawyer writes.
This is the entitlement side. How the resulting payment is taxed, and whether any of it can be transferred to an RRSP, is a separate question covered in severance and retiring allowances.
Termination pay: the notice schedule
An employee continuously employed for three months or more is entitled to written notice of termination, termination pay in place of notice, or a combination adding up to the required weeks. The ministry’s termination guidance sets the schedule by period of employment.
| Period of employment | Notice required |
|---|---|
| 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 years but less than 5 years | 4 weeks |
| 5 years but less than 6 years | 5 weeks |
| 6 years but less than 7 years | 6 weeks |
| 7 years but less than 8 years | 7 weeks |
| 8 years or more | 8 weeks |
Two details cost employers money. Period of employment includes time when the employment relationship existed but the person was not actively working, such as sick leave or a lay-off. And where two periods of employment are separated by more than 13 weeks, only the most recent one counts.
If you give working notice rather than pay, the ESA constrains what you can do during the notice period. You cannot reduce the wage rate or alter any other term of employment, you must keep making benefit plan contributions, and you must pay at least the employee’s regular wages for a regular work week each week. You also cannot schedule the employee’s vacation into the notice period unless they agree in writing after receiving the notice. Employers who plan to “use up” the notice period this way are quietly creating a claim.
Severance pay: a different test entirely
Severance pay is compensation for the loss a long-service employee suffers when the job ends. Per the ministry’s severance pay guidance, an employee qualifies only if their employment is severed and they have worked for the employer for five or more years, and the employer either has a global payroll of at least $2.5 million, or severed 50 or more employees in a six-month period because all or part of the business permanently closed.
Global payroll means global. An Ontario employer that is part of a larger group can clear the threshold on the strength of operations that have nothing to do with the employee being let go.
The calculation is mechanical. Multiply the employee’s regular wages for a regular work week by the number of completed years of employment, plus the number of completed months in the incomplete year divided by twelve. The maximum payable under the ESA is 26 weeks.
As an arithmetic illustration, take an employee whose regular wages for a regular work week are $1,000 and who has seven years and nine months of service. Completed years is 7. Nine completed months divided by twelve is 0.75. Seven plus 0.75 is 7.75, and 7.75 multiplied by $1,000 is $7,750. That is severance pay alone, sitting on top of the seven weeks of termination pay or notice the same person is owed.
| Termination pay | Severance pay | |
|---|---|---|
| Minimum service | 3 months | 5 years |
| Employer size test | None | $2.5M global payroll, or a 50-employee closure |
| Measured by | A fixed schedule of weeks | Completed years and months of service |
| Maximum | 8 weeks | 26 weeks |
| Can be given as working notice | Yes | No, it is a payment |
| Interacts with recall rights | Yes | Yes, and the same election applies to both |
Mass termination changes the schedule
If you terminate 50 or more employees at one establishment within a four-week period, the individual notice schedule is replaced by one based on the number of employees affected: 8 weeks for 50 to 199, 12 weeks for 200 to 499, and 16 weeks for 500 or more. You must also file Form 1 with the Director of Employment Standards, and notice to the affected employees is not effective until the Director receives it. Since 26 October 2023, an employee who works exclusively from home counts toward the threshold, with their home treated as part of the establishment.
There is a narrow exception where the terminations represent no more than 10 per cent of employees with at least three months of service at the establishment and none of them are caused by a permanent discontinuance of the business.
Lay-offs are where employers create liabilities by accident
A temporary lay-off under the ESA can last no more than 13 weeks in any period of 20 consecutive weeks. It can run longer, to less than 35 weeks in any 52, where conditions are met such as continued benefit contributions or substantial payments to the employee. Since 27 November 2025 an employer and employee can agree in writing to an extended temporary lay-off, which requires an approval from the Director of Employment Standards applied for at least 30 days in advance.
Exceed the limit and the employment is deemed terminated on the first day of the lay-off, with termination pay owing, and at 35 or more weeks in 52 the severance test is engaged as well. A lay-off intended as a kindness during a slow season becomes a termination on a date that has already passed.
Is a payment owed, and which one?
│
├── Employed less than 3 months
│ → No ESA notice or termination pay.
│
├── 3 months to under 5 years
│ → Termination pay per the weeks schedule.
│ No ESA severance pay.
│
└── 5 years or more
├── Global payroll under $2.5M and no
│ 50-employee closure
│ → Termination pay only.
│
└── Payroll $2.5M or more, or a closure
severing 50+ in six months
→ Termination pay AND severance pay,
calculated separately, both owing.
Where the ESA stops and a lawyer starts
The ESA is a floor. A contract can promise more, and where no enforceable contract limits the entitlement the common law generally does promise more, which is the subject of the termination clause. Constructive dismissal, whether conduct meets the wilful misconduct standard, and any human rights dimension are legal questions. The misconduct standard in particular is won or lost on the file rather than in the meeting, which is why documenting performance as it happens is the cheapest thing an employer can do years before any of this. The ministry itself describes constructive dismissal as complex. Do not decide those in a payroll meeting.
What you can do in the payroll meeting is get the mechanics right: the final pay run and record of employment, the vacation pay owing, and the ESA record keeping obligations that survive the employment. Federally regulated employers follow federal labour standards instead of the ESA, and the numbers above do not apply to them.
If you are planning a departure, send me the hire date, the current pay structure, your global payroll figure and whether the role is being eliminated. I will work out the statutory entitlement and the cash timing, and tell you where the file needs a lawyer before you act. It belongs in the same forecast as your year-end payroll obligations and your first-hire setup. Get in touch.
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