- An employee can be owed termination pay without being owed severance pay.
- Under the ESA, severance pay is generally owed only where the employee has at least five years of service, and at least one of the following is also true: 1.
- Severance pay eligibility also requires a meaningful number of years of service — the ESA sets this at five or more completed years.
Many employers assume "severance" and "termination pay" mean the same thing, and price a termination accordingly — then discover too late that a second, separate obligation can apply. Understanding when statutory severance pay is owed under Ontario’s Employment Standards Act, 2000 matters before you calculate what a termination will actually cost.
These are two distinct obligations that can stack on top of each other, and only one of them applies to most employees. This article walks through how severance pay gets triggered, who qualifies, and how it differs from ordinary termination pay.
Termination Pay and Severance Pay Are Not the Same Thing
| Termination Pay | Severance Pay | |
|---|---|---|
| What it compensates | Notice of termination, or pay instead of working notice | Long service, on top of termination notice |
| Who it applies to | Most employees dismissed without cause after a qualifying period | Only employees who meet specific eligibility conditions |
| Based on | A banded scale tied to length of service | A separate service test plus an employer-size or closure test |
An employee can be owed termination pay without being owed severance pay. An employee who is owed severance pay is, however, almost always also owed termination pay.
The Two Ways Severance Pay Gets Triggered
Under the ESA, severance pay is generally owed only where the employee has at least five years of service, and at least one of the following is also true:
- The employer’s global payroll is at or above a set threshold — currently $2.5 million, as of mid-2026; verify the current figure before relying on it — regardless of how many employees actually work in Ontario.
- The severance is part of a mass, permanent closure, where 50 or more employees are let go within a defined window because all or part of the business has permanently shut down.
An employer with a modest Ontario headcount but a large enough overall payroll can still owe severance pay under the first test. Payroll size, not local headcount alone, is often what decides the question.
The Length-of-Service Requirement
Severance pay eligibility also requires a meaningful number of years of service — the ESA sets this at five or more completed years. Short-service employees who are otherwise owed termination pay are not owed statutory severance pay, no matter how large the employer’s payroll is.
How Much Severance Pay Is Owed
Severance pay is generally calculated with reference to the employee’s length of service and regular wages, up to a maximum. As of mid-2026, the ESA caps statutory severance pay at 26 weeks of regular wages — confirm the current cap before finalizing any termination cost estimate, since a figure like this can be updated.
Unionized Workplaces May Have Additional Provisions
Where a workplace is unionized, a collective agreement can provide severance or notice provisions that differ from, or sit on top of, the ESA’s statutory scheme. The ESA generally sets a floor rather than a ceiling, so a collective agreement can be more generous than the statutory minimum, but it cannot validly provide less. Employers with a unionized workforce should read the collective agreement’s termination language alongside the ESA test described above, rather than relying on one or the other in isolation.
Common Employer Mistakes
- [ ] Assuming severance pay only applies to businesses with a large local workforce, ignoring the global-payroll test
- [ ] Calculating only termination pay and overlooking a separate severance obligation entirely
- [ ] Treating severance pay as the same thing as a common-law reasonable notice claim
- [ ] Checking payroll size for Ontario operations only, instead of across all provinces
Frequently asked questions
Does severance pay apply to every employee we let go?
No. It only applies to employees who meet the length-of-service requirement, and only where one of the two triggering conditions is also met. Many small employers with modest total payroll and no mass closure will not owe statutory severance pay, though they may still owe termination pay.
Is severance pay the same as a severance package we negotiate?
No. A negotiated severance package — often larger, and typically tied to a signed release — is different from the specific statutory severance pay entitlement under the ESA. Employers often structure a negotiated package to include the statutory amount as a floor, then build up from there.
How does severance pay interact with common-law reasonable notice?
They are separate legal concepts. An employee without an enforceable termination clause may be entitled to common-law reasonable notice, which a court assesses on the specific facts of their situation — a different calculation entirely from the ESA’s statutory severance pay.
What if we’re not sure whether our payroll meets the threshold?
Payroll size for this purpose is calculated on a specific basis set out in the ESA and its regulations and can include payroll outside Ontario. Get a proper calculation done before finalizing a termination rather than guessing.
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