Calculating 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.

 

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.

 

Before calculating the amount of severance pay, it must be determined that the employee has been terminated by the employer and that he/she has worked for at least 5 years with the company. In addition, the employer must have a payroll of $2.5 million or over. The entitlement to severance pay is in addition to termination pay which has a maximum of 8 weeks. Any employee entitled to receiving severance pay would either receive notice or termination pay.  

 

The amount of severance paid to an entitled employee is equal to the employee’s regular wages for a regular non-overtime work week multiplied by the number of years of employment plus the number of completed months of employment over and above the completed years divided by 12. The maximum severance pay is 26 weeks of regular wages.

 

Example: An employee with 10 years and 6 ¾ months of employment who earns $500.00 per week would be entitled to 10.5 weeks of pay for severance pay.

 

The ESA’s clear intent is to provide additional severance pay for each completed month of employment over and above the completed years of employment.

 

Employees who are not regular employees are not entitled to severance pay. These include casual or “elect to work or not” employees.

 

“Elect to work or not” are employees who can refuse to work when offered and still are given work in future when required.

 

An employee who is terminated as a result of or during a strike is entitled to severance pay unless the company can prove the closure occurred as a direct result of the economic consequences of the strike. The onus to demonstrate that the closure was due to economic consequences of the strike is on the employer.

 

Sometime, the question arises whether or not the closure would have happened anyway, even if the strike had not occurred. If the answer is yes, then the employees would be entitled to severance pay the employee has met the conditions of entitlement.

 

In situation where, the employer has closed all or part of a business permanently at an establishment, no matter what the reasons and circumstances were, the employees are entitled to severance pay. This includes situations where, due to a fire or other unforeseen event, a permanent discontinuance is affected.

 

An employee who retires with a full pension is not entitled receive severance pay.     

 

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.