Ending a job can be challenging for both the employee and the employer. The Ontario Employment Standards Act, 2000 (ESA) provides guidelines to ensure fair treatment during employment termination. In this blog, we will explain what termination pay is, who qualifies for it, and how to calculate it using a termination pay calculator.

What is Termination Pay?

If employees do not receive the written notice mandated by the ESA, they must be given termination pay instead. This termination pay is a one-time payment equal to the regular wages the employee would have earned during the notice period. Additionally, the employee accrues vacation pay on their termination pay. Employers are also required to continue their contributions to any benefits the employee would have received if they had remained employed throughout the notice period.

What Does Termination of Employment Mean?

Termination of employment happens when the employer:

• Terminates or ceases to employ an individual, including situations where the employee loses their job due to the employer's bankruptcy or insolvency.
• "Constructively" dismisses an employee, leading the employee to resign within a reasonable timeframe in response.
• Lays off an employee for a duration that exceeds a "temporary layoff."

What is the Difference Between Termination Pay and Severance Pay?

Termination pay and severance pay are often confused but are different:

• Termination Pay: Termination pay is given to the employee instead of the required notice period when their employment ends. Employees receive a specific amount of termination pay when dismissed without cause.
• Severance Pay: Severance pay compensates an employee for losses incurred (like loss of seniority) upon termination. Unlike termination pay, severance pay is not automatically granted to all employees; they must meet additional criteria to be eligible.

Written Notice of Termination and Termination Pay

According to the ESA, an employer can terminate an employee who has been continuously employed for at least three months if:

• The employer provides the employee with written notice of termination, and the notice period has ended.
• The employer gives the employee termination pay if no written or insufficient notice is provided.

When Do You Get Termination Pay?

You get termination pay if your employer:

• Does not give you written notice.
• Gives you less notice than required.
• Lets you go after you have worked for them continuously for at least three months.

Calculating Termination Pay

To calculate termination pay, you need to know:

• Your regular wages.
• Your notice period is based on your length of service.

Example Calculations

Example 1: Regular Work Week

• Service Duration: 3.5 years
• Hourly Rate: $18
• Weekly Hours: 35
• Entitlement: 3 weeks of termination pay
• Calculation:some text
  • Weekly Wages: $18 x 35 = $630
  • Termination Pay: $630 x 3 = $1,890
  • Vacation Pay: 4% of $1,890 = $75.60
  • Total: $1,890 + $75.60 = $1,965.60

Example 2: No Regular Work Week

• Service Duration: 4 years
• Hourly Rate: $17
• Earnings in Last 12 Weeks: $1,700 (excluding 2 weeks of sick leave)
• Entitlement: 4 weeks of termination pay
• Calculation:some text
  • Average Weekly Wages: $1,700 / 10 = $170some text
    • The employee was off sick for two weeks, therefore these weeks are not included in the calculation of average earnings
  • Termination Pay: $170 x 4 = $680
  • Vacation Pay: 6% of $680 = $40.80
  • Total: $680 + $40.80 = $720.80

Special Rules and Exemptions

The termination pay requirements of the ESA do not apply to an employee who:

• Is guilty of serious misconduct, disobedience, or intentional neglect of duty that is significant and not overlooked by the employer. Note: "Intentional" includes actions where the employee intended the outcome or acted recklessly, knowing the potential consequences. Poor performance that is accidental or unintentional is generally not considered intentional.
• Was hired for a specific period or to complete a particular task. However, such an employee is entitled to notice of termination or termination pay if:some text
  • The employment ends before the term expires when the task is completed
  • The term expires, or the task remains incomplete more than 12 months after employment started
  • The employment continues for three months or more after the term expires or the task is completed.
• Works in construction, including off-site work related to construction or those involved in collective bargaining with construction site employees.
• Builds, modifies, or repairs certain types of ships.
• Terminated upon reaching the retirement age set by the employer, provided this does not violate the Human Rights Code.
• Has refused a reasonable offer of alternative employment with the employer.
• Has declined to take another available position under a seniority system.
• On a temporary layoff.
• Does not return to work within a reasonable time after being recalled from a temporary layoff.
• Is terminated during or due to a strike or lockout at the workplace.
• Lose their job because the employment contract becomes impossible to fulfill or are frustrated by an unexpected event or circumstance, such as a fire or flood, making it impossible for the employer to continue the employment. (This does not include situations of bankruptcy or insolvency or when the contract is frustrated or impossible to perform due to an employee's injury or illness. It also does not cover cases where employment is terminated because the Director of Employment Standards refused to issue or renew a license to operate a temporary help agency or to act as a recruiter or has revoked or suspended such a license.)

Conclusion

Understanding termination pay under the Employment Standards Act is crucial for employees and employers. By knowing your rights and how to calculate your entitlements, you can navigate the end of employment more confidently. Use this guide and a termination pay calculator to ensure you receive what you are entitled to. Consider contacting the Employment Standards Information Centre for more complex situations or additional questions.