Difference Between Termination and Severance Pay

What is the Employment Standards Act?
 
The Employment Standards Act is the law that contains basic rules about employing people and working. Both employees and employers have rights and
responsibilities under the Act.
 
Does the Act cover all employees in Ontario?
 
Most employees are covered by the provincial legislation. However, employees working in industries that fall under Federal jurisdiction, such as, Post office, Banks, Railways, Radio stations, Airlines, Television stations etc. are not covered. 
 
If you are member of the trade union and your contract of employment is governed by the collective agreement, you may not be covered by the Act.
 
If you are currently employed with the company, you may be able to file a claim with a request that your name not be disclosed. The Act protects you when you are exercising your rights under it.
 
“Termination Pay” means the amount of pay to which an employee is entitled under ESA when the employee does not receive notice in writing before being terminated.
 
“Severance Pay” means the amount of pay to which an employee is entitled under ESA when following conditions are satisfied:
 
.           Atleast five years employment with an employer
.           Upon termination
.           From an employer
.           Having an annual payroll of $2.5 million or more in Ontario
.           Or which terminates 50 or more employees within six-month period and the
            termination are caused by the permanent discontinuance of all or part of the
            employer’s business at an establishment.
 
An “Establishment” of an employer is comprised of:
 
.           All locations of an employer within a municipality; and
.           Locations in other municipalities if one or more employees at a location of the
            employer within the municipality have bumping rights to the location in question
            outside the municipality
.           Will apply to both the unionized and non-unionized employees in the location in
            question, even though the latter may not have bumping rights.
 
Q1.      XYZ company has 4 plants in Toronto, and a plant in Hamilton to which the
            Toronto employees may bump. What then is the “establishment” as defined in the
            Act.
 
A1.      The “establishment” as defined in the Act will consist of the 4 Toronto plants and
            Hamilton plant as well.
 
Termination pay is the pay because the employee was not given a notice in writing before termination if he she had been working for more than three months with the employer, while severance pay is compensation to the employee for long term service when he or she is terminated. Severance pay is applicable even when the employee receives notice in writing or pay in lieu of notice.
 
The purpose of notice or pay in lieu of notice is to ensure employees with at least three month service receives minimum advance warning of termination, while severance pay ensures the employees receive compensation for their investment of service in the company, sometimes commonly referred to as “sweat equity”, loss of seniority, and loss of job related benefits.
 
Severance pay is one week for each year of service for a maximum of twenty six weeks.
Termination pay and severance pay are separate entitlements and must be considered both for long term employees, who have worked for the employer at least 5 years.      
 
If you or the employer disagrees with the investigating officer’s decision, both parties have a right to appeal to Ontario Labour Relations Board within 30 days of the officer’s decision. The Board appoints a referee to hear the appeal. It does not cost the employee to request an appeal but the employer may be required to deposit monies in trust with the Ministry of Labour if it is found to be owing. The monies are distributed according to the decision of the referee. The referee decision is final and binding on both parties.    
 
In the past, the Ministry was very aggressive in defending the rights of an employee and would send a legal counsel to represent the employee at the Board’s hearing to deal with the matter. It rarely does so now. Obviously, the employer has advantage over the employee in these circumstances as it has more resources than the employee. The question arises, should the employee also engage the services of a professional to deal with these matters. It is my view, employee’s may not engage such services at the officer’s level hearing but may do so at the referee level hearing, particularly, if the issues are complex.
 
It is important that if a hearing has been scheduled, the employee must attend such a hearing to present evidence to support its position or to contest the evidence of the employer, otherwise, the officer or the referee may rely on the evidence of the employer to render a decision.   
 
This information is provided for guidance only and should not be considered as a legal advice.

This article is provided by Rajinder K. Batra, who is a retired Employment Standards Officer with the Ministry of Labour with 15 years experience in these matters.

If you have any questions regarding your employment, please contact the writer by e-mail at esaconsulting@hotmail.com

If you don’t have access to e-mail; you can fax your question at (905) 331-1805.

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