If an employer in Ontario wrongfully withholds your severance pay, courts generally award you “pre-judgment interest.” This means the company is legally required to pay you extra interest on the severance amount, calculated from the date you were fired until the day your settlement or court order is finalized.
When you are fired without adequate compensation, your employer is effectively holding onto money that rightfully belongs to you. In Ontario, companies often drag out severance negotiations for months or even years, hoping you will run out of money and accept a lowball offer.
To prevent employers from unfairly benefiting from this delay, the justice system includes a powerful tool: Pre-Judgment Interest. Because you were deprived of your common law severance pay, the law dictates that the employer must compensate you for the “lost use” of that money over time.
Understanding how pre-judgment interest works can add thousands of dollars to your final wrongful dismissal settlement. Below, we provide a clear, step-by-step guide on how interest is calculated on severance awards in cities like Toronto, London, and Hamilton. 📈
Step-by-Step Process for Claiming Pre-Judgment Interest
The rules governing interest on legal awards are found in the Ontario Courts of Justice Act. Here is how your law firm will pursue this extra compensation during a wrongful dismissal lawsuit.
Step 1: Establishing the Date the Cause of Action Arose
Interest does not just appear randomly; it must have a specific start date. In wrongful dismissal cases, the “cause of action” generally arises on the exact day your employment was terminated without reasonable notice.
Your lawyer will clearly state in the Statement of Claim that you are demanding your full common law severance, plus pre-judgment interest calculated from the very day you were let go. This puts the employer on notice that every day they delay will cost them more money.
Step 2: Determining the Applicable Interest Rate
The rate of interest is not chosen by your lawyer. It is strictly determined by the Courts of Justice Act, which publishes quarterly interest rates. The rate applied to your case is usually the specific rate that was in effect during the financial quarter in which your termination occurred. 💸
While this rate fluctuates based on the economy, it adds up significantly. If you are owed $100,000 CAD in severance and the lawsuit takes two years to resolve, pre-judgment interest could easily add several thousand dollars to your final award.
Step 3: Demanding Interest in Settlement Negotiations
Most employment disputes in Ontario do not go to a full trial; they settle at mediation. During these negotiations, defense lawyers often try to ignore pre-judgment interest.
A skilled employment lawyer will use the accrued interest as leverage. They will show the employer exactly how much the interest bill has grown over the past year, proving that settling today is cheaper than dragging the case out for another twelve months.
Step 4: Securing the Final Court Order or Judgment
If the company refuses to settle and the case goes before a judge at the Superior Court of Justice, the judge will officially award the severance pay. At the same time, the judge will issue an order for the pre-judgment interest to be paid in full.
Once the judgment is issued, a new clock starts. If the employer delays paying the court order, they will be hit with “post-judgment interest,” which is often calculated at an even higher rate until the cheque clears.
Understanding Legal Interest in Wrongful Dismissal
| Type of Interest | When Does it Apply? |
|---|---|
| Pre-Judgment Interest | Calculated from the date of your wrongful termination until the day the judge issues their final decision or a settlement is signed. |
| Post-Judgment Interest | Calculated from the exact date of the judge’s final order until the day the employer actually deposits the money into your account. |
| Interest on General Damages | If you are awarded human rights or bad faith damages, a different (often slightly lower) interest rate calculation may apply under Ontario law. |
How Much Does it Cost to Sue in Ontario?
Pursuing your rightful severance and interest requires a formal legal process. As of May 2026, the costs are generally structured as follows:
- Initial Consultation: An employment lawyer will usually charge between $300 and $500 CAD to assess the value of your case, including potential interest.
- Court Filing Fees: To formally start the clock and file your lawsuit at the Superior Court of Justice, the filing fee is approximately $242 CAD.
- Contingency Fees: Law firms often work on a contingency basis, taking around 30% of the total amount recovered, meaning they only get paid if they successfully secure your severance.
How Long Does the Process Take?
The longer the process takes, the more pre-judgment interest accrues.
- Demand Letters: Early resolution through a lawyer’s demand letter can take 4 to 8 weeks, yielding minimal interest.
- Mediation: Reaching a settlement through formal mediation often takes 6 to 9 months.
- Civil Litigation: If the employer forces a trial at the Superior Court of Justice, it can take 1.5 to 2 years, resulting in maximum pre-judgment interest.
Frequently Asked Questions (FAQ)
Do I have to pay taxes on pre-judgment interest?
Yes. The Canada Revenue Agency (CRA) treats interest earned on a legal settlement as taxable income. You will need to declare this interest on your annual tax return, separate from the standard severance pay deductions.
Does interest apply to Employment Standards Act (ESA) minimums?
If you file a civil lawsuit for your common law severance, the pre-judgment interest generally applies to the entire amount awarded by the court. However, basic complaints made directly to the Ministry of Labour are handled differently.
Can an employment contract waive my right to interest?
It is incredibly rare for an employment contract to legally waive your right to pre-judgment interest on a wrongful dismissal claim. The Courts of Justice Act generally overrides such restrictive employer policies.
What happens if the company goes bankrupt during the lawsuit?
If the employer officially declares bankruptcy, you become an unsecured creditor. Unfortunately, collecting your principal severance pay becomes very difficult, let alone the accrued pre-judgment interest.
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