Under the Ontario Employment Standards Act (ESA), 5 years of service might only guarantee you 5 weeks of pay. However, under common law, you could be entitled to 5 to 7 months of full severance. You enforce these rights through the Superior Court of Justice, with initial filing fees at $320 CAD.
Being let go after five years of dedicated service to an Ontario employer is difficult, both emotionally and financially. Many employees mistakenly believe that the amount of severance offered in their initial termination letter is all they are legally entitled to receive. Employers frequently base their first offer strictly on the bare minimums outlined in the Employment Standards Act (ESA), hoping the employee will simply sign the release and move on.
However, employment law in Ontario operates under two distinct systems: the ESA minimums and the much more generous common law. 📍 Whether you are working in Brampton, London, or Toronto, your true entitlements are often significantly higher than what the government minimums suggest. It is crucial to understand how common law calculates your severance before you sign away your legal rights.
Understanding the Difference: ESA Minimums vs Common Law
The ESA provides a baseline safety net for workers in the province. Under the ESA, you generally receive one week of notice (or pay in lieu) per year of service. So, for five years, you get five weeks. In contrast, common law looks at several factors-known as the Bardal factors-including your age, your role, your length of service, and the availability of similar jobs in your industry.
| Feature | Employment Standards Act (ESA) | Common Law (Court Estimates) |
|---|---|---|
| Notice Period for 5 Years | 5 weeks total | Typically 5 to 7 months |
| What is Included? | Base salary only | Salary, bonuses, benefits, car allowance |
| Can You Negotiate? | No, it is a strict minimum | Yes, highly negotiable based on your situation |
Step-by-Step Guide to Claiming Common Law Severance
Maximizing your severance package requires a strategic approach. It is not just about demanding more money; it is about building a strong legal argument based on Ontario case law. Most employees with five years of tenure choose to engage a local law firm to handle these negotiations.
Step 1: Do Not Sign the Termination Release
When you are fired, your employer will typically hand you a severance package and demand you sign a release within a few days. Do not sign it. ✋ Signing this document legally strips you of your right to sue for better common law severance. You are legally permitted to take the document home and seek professional legal counsel.
Step 2: Collect Compensation and Contract Records
To prove what you are owed, you need documentation. Gather your original employment contract, as employers often try to rely on termination clauses embedded in these agreements. You also need records of your total compensation, including pay stubs, bonus history, health benefits coverage, and any RRSP matching programs.
Step 3: Drafting a Strategic Demand Letter
Your lawyer will review your contract. If the termination clause is invalid (which is common in Ontario due to ever-changing laws), they will draft a demand letter. This letter will outline why the 5-week ESA offer is insufficient and demand a common law package of 5 to 7 months, incorporating all lost benefits and bonuses.
Step 4: Filing at the Superior Court of Justice
If the company refuses to offer a reasonable severance package, your legal representative will file a Statement of Claim at the Superior Court of Justice in your local jurisdiction. This officially starts a wrongful dismissal lawsuit, which often pressures the employer to settle out of court rather than incur their own high legal fees.
How Much Does it Cost to Challenge Severance?
The cost of pursuing a better severance package is often outweighed by the financial gains of a proper common law settlement.
- Initial Consultations: Many Ontario employment lawyers offer free or low-cost initial reviews of your termination package.
- Contingency Agreements: Often, lawyers will take your case on a contingency basis, keeping roughly 30% of the additional funds they secure for you.
- Filing Fees: If a lawsuit is necessary, the Superior Court of Justice charges $320 CAD to file the initial claim.
How Long Does the Process Take?
For a five-year employee, resolving a severance dispute can be surprisingly quick. If the employer recognizes that their termination clause is legally void, a settlement can often be negotiated within 4 to 8 weeks. If the case requires formal mediation or litigation, it may take 6 to 12 months to completely resolve.
Frequently Asked Questions (FAQ)
Is ‘one month per year of service’ an actual law?
No. The ‘one month per year’ rule is a common myth. Common law severance in Ontario is calculated holistically based on your age, position, and job market, not a strict mathematical formula.
What if my employment contract has a termination clause?
Many termination clauses written before 2020 are now considered invalid by Ontario courts because they violate the ESA. Even if you signed a contract limiting you to minimums, you may still be entitled to full common law severance.
Do I get severance if I was fired for cause?
Being fired ‘with cause’ is extremely difficult for an employer to prove in Ontario. If they cannot prove severe misconduct (like theft or fraud), you are likely still entitled to your full severance package.
Are my severance payments taxable by the CRA?
Yes, severance pay is considered a retiring allowance by the Canada Revenue Agency (CRA) and is subject to mandatory tax withholding. However, portions of it can sometimes be transferred directly into an RRSP tax-free.
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