Severance Pay vs. Termination Pay in Ontario: What's the Real Difference?

Saad Mirza
June 18, 2025

Losing your job is overwhelming. When your employer hands you a termination letter, your mind is likely racing. Amidst the shock and uncertainty, you’re presented with terms like “termination pay” and “severance pay.” They might sound similar, but in Ontario, they are two distinct entitlements with different rules, purposes, and eligibility criteria.

Understanding this difference is not just an academic exercise—it’s crucial to ensuring you receive the full compensation you are legally owed.

This guide will break down the key differences between termination pay and severance pay in Ontario, so you can understand your rights and make informed decisions during a difficult time.

What Is Termination Pay in Ontario?

Think of termination pay as the absolute minimum payment your employer owes you if they terminate your employment without providing you with enough advance written notice. It’s defined and mandated by Ontario’s Employment Standards Act, 2000 (ESA).

Essentially, your employer has a choice: either let you work through a required “notice period” or pay you a lump sum in lieu of that notice. This payment is what we call termination pay.

When is Termination Pay Required?

Termination pay is required for almost any employee who has worked continuously for at least three months and is fired "without cause" (meaning, not for serious misconduct like theft or fraud).

How is Termination Pay Calculated Under the ESA?

The formula is straightforward and based on your length of service:

You receive one week of pay for every completed year of service.
The maximum amount of termination pay under the ESA is eight weeks.

For example, if you worked for the company for 6.5 years, you are entitled to six weeks of termination pay under the ESA.

What Is Severance Pay?

Severance pay is a separate and additional form of compensation designed to recognize an employee’s long service and help them with the financial transition after losing their job. It acknowledges the investment you’ve made in the company and the loss of seniority.

Unlike termination pay, not everyone who is let go is entitled to severance pay under the ESA. The eligibility requirements are much stricter.

Who is Eligible for Severance Pay Under the ESA?

To qualify for statutory severance pay, an employee must meet two key conditions:

You have worked for the employer for five or more years.
Your employer has a global payroll of at least $2.5 million OR they have terminated the employment of 50 or more employees within a six-month period because the business is permanently closing.

How is Severance Pay Calculated Under the ESA?

Severance pay is calculated as:

One week of regular pay for every completed year of service, plus a pro-rated amount for partial years.
The maximum amount of severance pay under the ESA is 26 weeks.

For example, an employee with 10 years of service at a large company would be entitled to 10 weeks of severance pay under the ESA, in addition to their 8 weeks of termination pay.

The Key Differences: Termination Pay vs. Severance Pay at a Glance

Feature	Termination Pay (under the ESA)	Severance Pay (under the ESA)
Purpose	Compensation for not giving advance notice of termination.	Compensation for loss of seniority and long service.
Eligibility	Employed for 3+ months.	Employed for 5+ years AND employer has a $2.5M+ payroll or is conducting a mass termination.
Calculation	1 week per year of service.	1 week per year of service.
Maximum	Capped at 8 weeks.	Capped at 26 weeks.
Is it always required?	Yes, for most employees fired without cause	No, only for those who meet the strict criteria.

Can You Receive Both Termination Pay and Severance Pay?

Yes, absolutely. This is a critical point that many people miss. If you meet the eligibility criteria for both, you are entitled to both. They are separate, stackable entitlements.

For example, a 15-year employee at a company with a $5 million payroll would be entitled to:

8 weeks of termination pay (the maximum under the ESA)
15 weeks of severance pay
Total entitlement under the ESA = 23 weeks of pay.

This Is Critical: ESA Minimums vs. Your Common Law Rights

So far, we’ve only talked about the bare minimums required by the Employment Standards Act. But this is where most employees unknowingly leave money on the table.

The ESA is the floor, not the ceiling.

In Canada, courts have established that employees are entitled to “reasonable notice” of termination under common law. This common law notice period is almost always significantly longer than the ESA minimums. It’s calculated based on several factors:

Your age
Your length of service
The character of your employment (e.g., seniority, specialty)
The availability of similar employment in the job market

A 55-year-old manager with 20 years of service might only be entitled to 8 weeks of termination pay and 20 weeks of severance pay under the ESA (28 weeks total), but their common law entitlement could be as high as 18-24 months of pay.

Your employer’s initial offer will often only reflect the ESA minimums. By signing it, you could be waiving your right to a much larger, fairer package.

You’ve Been Offered a Package. What Now?

If you’ve been terminated and offered a package, take a deep breath and follow these steps:

Do Not Sign Immediately. You are not obligated to sign anything on the spot. Any pressure from your employer to sign quickly is a major red flag.

Acknowledge Receipt, Don’t Accept. It is perfectly acceptable to say, “Thank you for providing this. I need time to review it and seek advice before signing.”

Gather Your Documents. Collect your employment contract, termination letter, pay stubs, and any other relevant documents.

Speak with an Employment Lawyer. Before you sign away your rights, have your termination package reviewed by a professional. A lawyer can quickly assess whether the offer is fair and tell you what you are truly owed under common law.

You Don’t Have to Figure This Out Alone

Navigating the aftermath of a job loss is challenging enough without having to decipher complex legal terms. The difference between termination pay, severance pay, and your full common law entitlements can mean tens of thousands of dollars.

Your employer has legal counsel protecting their interests; you deserve the same. Don’t settle for the bare minimum.

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Saad Mirza

Hi! beautiful people. I’m an employment lawyer. I help workers across Ontario stand up for their rights. Hope this blog helped—stick around for more.

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