Employment Contracts

Chart – Details on Termination and Severance Pay in Ontario

This issue is reviewed above.

Definitions for Termination & Severance Pay
“regular wages” means wages other than overtime pay, public holiday pay, premium pay, vacation pay, domestic or sexual violence leave pay, infectious disease emergency leave pay, termination pay, severance pay and termination of assignment pay and entitlements under a provision of an employee’s contract of employment that under subsection 5 (2) prevail over Part VIII, Part X, Part XI, section 49.7, subsection 50.1 (1.2), Part XV or section 74.10.1; ESA definition section
“regular work week”, with respect to an employee who usually works the same number of hours each week, means a week of that many hours but not including overtime hours;


ESA definition section
“wages” means,

(a) monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied,

(b) any payment required to be made by an employer to an employee under this Act




ESA definition section
“regular wages” for a “regular work week” are basis for notice obligation in S. 57  by s. 60(1) b of ESA

And also severance pay section 65(1) defines sum due as using “regular wages for a regular work week”


Defining regular wages should be harmonious for termination and severance pay “regular wages” for a “regular work week” are basis for notice obligation in S. 57  by s. 60(1) b of ESA

And also severance pay section 65(1) defines sum due as using “regular wages for a regular work week”

These two terms should be read consistently;


Magellan Aerospace, Haley v United Steelworkers Local 4820

Labour Arbitration Award

Jan 2018


Regular work week generally Close attention should be paid to contractual arrangement. This should not be easily disturbed by temporary work arrangements which differ from the contract. This is relevant to application of averaging rules, discussed below.

Reduced hours in this instance were not seen to displace the regular work week. ESO decision was set aside.

Rainbow Concrete v Gallagher

OLRB Sept 2020


Notice period adds to employment history Length of service for severance pay includes period of statutory working notice, which should have been given. s. 65(4) ESA
Inactive employment
Section 59 (1) ESA: “inactive employment is included” for the purposes of determining the employee’s “period of employment”.

Similarly, with respect to the calculation of the “years of employment” for severance pay purposes, Section 65 (2) expressly provides “all time spent by the employee in the employer’s employ, whether or not continuous and whether or not active”, shall be considered for the purposes of Section 64 (1) and 65 (1)




S. 59(1) ESA;

S. 65(2) ESA

Entitlement to termination pay while on WC benefits Issue of entitlement to termination pay wrt mass termination; Termination pay was not based on active attendance at work;

ESA referee ordered termination pay to employees who were absent from work and in receipt of WC benefits;

Generally, entitlement was not based on active employment;

Standard of review was reasonableness

Maple Leaf Foods v Alejandro par 31

OCA 1999

Lay-off excluded to determine payment due Period of lay-off must be excluded from the calculation of termination and severance pay, that is quantum of the sum due. Rainbow Concrete v Gallagher par 57

OLRB Sept 2020


Lay-off included for service record Periods of inactive employment are included to determine period of employment to determine termination and severance pay. Rainbow Concrete v Gallagher par 57

OLRB Sept 2020

ESA s. 59(1)


Entitlement to termination pay when on disability Claimant was entitled to termination pay of 8 weeks, even though she was absent from work due to a disability;

Issue of severance was left to determine based on future submissions, if required.


Magellan Aerospace, Haley v United Steelworkers Local 4820

Labour Arbitration Award

Jan 2018


Claimant was off work for 5 years due to a disability, yet was still entitled to termination pay. Loeb Packaging v LaCroix

Par 32

OLRB May 2016

12 week averaging
Averaging sections of ESA s. 61(2) and s. 66(2) deal with the calculation of termination and severance pay respectively using a 12 week average. This applies only where the employee does not have a regular work week or is paid on a basis other than time.

The fact that the claimant was absent from work due to discipline or with the consent of the employer should not allow for the application of the averaging concept as she still had a regular work week

TRG Customer Solutions Inc. v Kabongo

OLRB Jan 2010

Persons excluded from termination pay (notice) and severance Wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and not condoned;

Frustration; but not due to medical disability.

Employee has refused offer of reasonable alternate employment;

Employee has refused reasonable alternate work made available through seniority system;

Employee on temporary lay-off and fails to return to work within reasonable time;

Employee terminated due to strike or lock-out;

Construction employee;

Employee has reached retirement age established by employer only of termination does not offend Human Rights Code;

Termination and Severance of Employment, O Reg 288/01


Construction worker S. 2(1) states that a “construction employee”, for the purposes of section 55 of the Act is not entitled to notice of termination or termination pay under Part XV of the Act”. 1


O. Reg. 288/01

section 55 of the Act

Tips & Gratuities These sums are not included in calculation of termination and severance pay. A 12% service charge added to banquets was considered a gratuity and not included in the determination. Westin Hotel Ottawa v United Food and Commercial Workers, Local 175

Labour Arbitration Jan 2022


Benefits Employee is deemed to be in active employment for statutory notice period, should inadequate notice or no notice be given. This is said to be for the purposes of the benefit plan where coverage requires active employment. ESA s. 62(1)
Vacation and Notice Working notice cannot include vacation days accrued to date, unless employee consents Termination and Severance of Employment, O Reg 288/01

s. 7

Set-off from severance pay       1.   Supplementary unemployment benefits the employee receives after his or her employment is severed and before the severance pay becomes payable to the employee.

2.   An amount paid to an employee for loss of employment under a provision of the employment contract if it is based upon length of employment, length of service or seniority.

3.   Severance pay that was previously paid to the employee under this Act, a predecessor of this Act or a contractual provision described in paragraph 2.


ESA s. 65(8)
Hence an employment contract which sets out a formula for compensation on termination will be set-off from the severance pay obligation;

Sub 3 above presumably refers to a prior termination, when severance pay was paid, that is ESA severance pay, after which the employee was rehired. The formula of years of service will still be applied to determine severance pay due. The Act allows only a credit for the sum paid and does not exclude prior years to determine years of accumulated service. There may be due an adjustment for the prior years where the compensation paid on the final termination exceeds compensation at the time of the earlier termination.

The Installment Plan The ESA allows severance pay to be made in periodic payments, not to exceed 3 years. This requires the consent of the employee. A failure to make one payment calls due the remaining balance. s. 66 ESA