If you are let go from your job in Ontario, you must apply for Employment Insurance (EI) immediately, but receiving severance pay will delay when your benefits begin. Service Canada allocates your severance forward, meaning you cannot receive both EI benefits and a severance package for the exact same period.
Losing your job is an incredibly stressful experience, especially when you are trying to figure out how to cover your daily living expenses. Many residents in Ontario wonder if they are permitted to collect Employment Insurance (EI) through Service Canada while also receiving a severance package from their former employer.
Generally, employment law in Canada does not allow you to “double-dip” by keeping both income sources at the same time. Severance pay is designed to bridge the gap between jobs, and Service Canada treats it as earnings. This means your EI payments will usually be delayed until your severance period runs out.
Understanding how the system works can save you from unexpected financial surprises, such as being asked to repay benefits later. Below, we break down exactly how severance pay impacts your EI eligibility in Ontario and what steps you need to take to protect your rights.
Step-by-Step Process for Managing EI and Severance in Ontario
Whether you live in Toronto, Mississauga, or Ottawa, the rules for Employment Insurance are governed federally by Service Canada. However, your right to severance pay is determined by Ontario’s Employment Standards Act (ESA) and provincial common law. Here is how you should handle the process.
Step 1: Submitting Your EI Application to Service Canada
You should never wait for your severance package to be finalized before applying for EI. Service Canada requires you to submit your application within four weeks of your last day of work. 📅
If you delay your application because you are negotiating a severance package with an employment lawyer, you risk losing your EI benefits entirely. Apply online as soon as possible, and simply declare that you are expecting severance pay.
Step 2: Ensuring Your Employer Issues the Record of Employment (ROE)
Your employer is legally required to issue a Record of Employment (ROE) directly to Service Canada shortly after your last day of work. This document details your earnings, your reason for leaving, and any severance amounts paid or payable.
If your employer is withholding your ROE to pressure you into signing a poor severance offer, you can ask Service Canada to intervene. A law firm can also send a demand letter to ensure the company complies with their obligations under Ontario law.
Step 3: Service Canada Allocates Your Severance
Once Service Canada sees your severance pay on the ROE, they will perform an “allocation.” This means they will divide your total severance by your average weekly salary to determine how many weeks of income replacement you received.
During these allocated weeks, your EI benefits will be paused. Once the severance period completely ends, your EI payments will automatically begin, provided you are still unemployed and actively looking for work.
Step 4: Repaying EI if Severance is Awarded Later
Sometimes, workers are forced to sue their former employers at the Superior Court of Justice to get a fair severance package. In these cases, you might collect EI benefits for several months before a judge or mediator awards you a settlement.
If you receive a retroactive severance settlement, you are legally obligated to inform Service Canada. They will issue a Notice of Debt, requiring you to repay the EI benefits you collected during the weeks that the new severance package was meant to cover.
Lump Sum vs. Salary Continuance in Ontario
Employers in Ontario typically offer severance in one of two ways. The method chosen can impact your EI claim differently.
| Payment Method | Impact on Employment Insurance (EI) |
|---|---|
| Lump Sum Payment | The total amount is divided by your weekly salary. EI is delayed for the resulting number of weeks. This is the most common resolution in wrongful dismissal lawsuits. |
| Salary Continuance | You remain on the payroll and receive your regular cheque. You cannot apply for EI until the salary continuance period officially ends and your final ROE is issued. |
How Much Does it Cost to Resolve Severance Disputes?
If your employer has offered an unfair severance package, consulting a local Ontario lawyer is highly recommended. Legal fees can vary, but here are the typical costs as of May 2026:
- Initial Consultations: Many employment lawyers charge between $300 and $500 CAD for an hour-long review of your severance offer.
- Contingency Fees: If you must file a lawsuit at the Superior Court of Justice, many law firms will work on a contingency basis, taking 25% to 35% of the final settlement.
- Court Filing Fees: Filing a Statement of Claim in Ontario generally costs around $242 CAD, though your law firm usually covers this upfront.
How Long Does the Process Take?
Timelines in employment disputes depend entirely on how aggressively the employer defends the case.
- EI Processing: Standard EI claims take about 28 days to be approved by Service Canada.
- Severance Negotiations: A simple negotiation through demand letters might take 4 to 8 weeks.
- Formal Litigation: If your wrongful dismissal case goes to the Superior Court of Justice, it can take anywhere from 12 to 24 months to reach a trial or settlement.
Frequently Asked Questions (FAQ)
Do I pay taxes on my severance pay in Ontario?
Yes, severance pay is considered taxable income by the Canada Revenue Agency (CRA). If it is paid as a lump sum, your employer will withhold a percentage for taxes before giving you the cheque.
Can I put my severance directly into an RRSP?
Yes, transferring your severance directly into a Registered Retirement Savings Plan (RRSP) is a common strategy to avoid immediate taxation, provided you have enough contribution room available.
What happens if my severance is less than what EI pays?
Service Canada allocates your severance based on your normal weekly earnings at the company, not the EI maximum. You simply will not receive EI for the exact weeks your severance is meant to cover.
Can my employer legally refuse to issue an ROE?
No. Under federal law, your employer must issue the Record of Employment within 5 days of the end of the pay period in which your earnings were interrupted. Refusing to do so is a violation.
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