By a Toronto Employment Lawyer (With Example)
Many employees in Ontario are told that severance pay is “one week per year of service.” As an employment lawyer in Toronto, we regularly see this phrase misunderstood or misused by employers.
Under the Employment Standards Act, 2000 (ESA), “one week per year” usually refers to statutory severance pay, which is different from statutory termination pay (notice or pay in lieu of notice). In many cases, employees may be entitled to more than ESA minimums under common law.
This guide explains:
- what the ESA “one week per year” severance pay rule actually means,
- who qualifies for ESA severance pay in Ontario,
- the specific ESA provisions that govern the calculation, and
- a practical severance pay example, plus a leading Ontario case showing why ESA minimums matter.
What Is the ESA “One Week Per Year” Severance Pay Rule?
The statutory severance pay calculation is set out in section 65(1) of the Employment Standards Act.
Under ESA s. 65(1), severance pay is calculated by multiplying the employee’s regular wages for a regular work week by the sum of:
(a) completed years of employment, plus
(b) completed months not included in (a), divided by 12.
This is why ESA severance pay is commonly summarized as:
one week of regular wages per year of service, plus a pro-rated amount for partial years.
There is also a statutory maximum. ESA severance pay is capped at 26 weeks (ESA s. 65(5)), regardless of how long the employee worked.
Who Qualifies for ESA Severance Pay in Ontario?
Not every terminated employee is entitled to ESA severance pay.
Under ESA s. 64(1), an employee generally qualifies only if both of the following apply:
- The employee has five or more years of employment, and
- One of the following conditions is met:
- the employer permanently discontinues all or part of its business at an establishment and 50 or more employees have their employment severed within a six-month period; or
- the employer has a payroll of $2.5 million or more.
The ESA also sets out how the $2.5 million payroll threshold is calculated (ESA s. 64(2)).
For a basic eligibility check and estimate, Ontario provides an official severance pay calculator. However, as any Toronto employment lawyer will note, this calculator applies ESA minimums only and does not assess common-law entitlements.
Example: How ESA Severance Pay Is Calculated
Scenario
- Regular wages for a regular work week: $1,200 per week
- Length of employment: 7 years and 6 months
- Employee meets ESA eligibility requirements (5+ years and ESA s. 64(1) conditions)
Step 1 — Convert Service to the ESA Multiplier (ESA s. 65(1))
- Completed years: 7
- Completed months: 6 ÷ 12 = 0.5
- Total multiplier: 7 + 0.5 = 7.5
Step 2 — Multiply by Weekly Wages
- ESA severance pay = $1,200 × 7.5 = $9,000
Result:
Minimum ESA severance pay owed = $9,000, subject to the 26-week cap (which does not apply on these facts).
Important: ESA Severance Pay Is Not the Same as Termination Pay (Notice)
Employees often use the word “severance” to describe all money paid on termination. Under the ESA, however:
- Termination pay (or notice) and
- Severance pay
are separate legal entitlements.
An eligible employee may be owed both, depending on the circumstances. This distinction is critical, and it is one of the most common issues reviewed by an employment lawyer in Toronto when assessing termination packages.
Ontario Case Law: Why ESA Severance Pay Wording Matters in Employment Contracts
A leading authority from the Court of Appeal for Ontario is Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158.
In that case, the Court held that a termination clause was unenforceable because it created scenarios where the employee might receive less than ESA minimum entitlements. Specifically, the clause improperly “bundled” ESA termination pay and ESA severance pay into an all-inclusive amount, creating ambiguity as to whether statutory severance would always be paid.
Why This Matters for Employees
If a termination clause can operate in a way that violates the ESA—even hypothetically—it may be void. When that happens, the employee may be entitled to common-law reasonable notice, which often far exceeds ESA minimums.
This is a frequent issue reviewed by Toronto employment lawyers when advising employees whether to accept a severance offer.
Practical Takeaway
- The ESA “one week per year” rule applies only to statutory severance pay.
- Many employees do not qualify for ESA severance at all.
- Even where ESA severance applies, it may represent only the legal minimum.
- Invalid termination clauses can expose employers to significantly greater liability under common law.