From time to time we meet with employees who have been given notice of termination by their employer and want to know what happens to their severance pay if they decide to resign during the working notice period. Are they still entitled to it? Must they work the entire notice period or risk losing their severance pay? In Ontario, the Employment Standards Act, 2000, (“ESA”) sets out the answers to this question.
Notice of Termination and Severance Pay under the ESA
Under the ESA, an employee is entitled to notice of termination or termination pay in lieu of notice. Section 57 of the Act prescribes the minimum required notice period or pay that an employer must give: essentially one week per year of service up to eight weeks. It is the employer’s option to give an employee notice, pay in lieu of notice, or a combination of both. An employer may also provide a dismissed employee more notice than is required under the ESA. (Please note: an employee may be entitled to more than the minimum requirements in light of an employment contract and the common law. Consult an employment lawyer to obtain legal advice regarding your specific entitlements.)
In some circumstances, an employee is also entitled to a severance payment if he or she has worked at least five years for the employer and either (a) the employer permanently discontinues all or part of its business and fires 50 employees or more within a six month period, or (b) the employer has a payroll of $2.5 million or more. Where these factors are present, the employee is entitled to one week of pay per year of service up to a maximum of 26 weeks. Severance pay under the ESA is different than notice of termination or termination pay in that it compensates the dismissed employee for loss of employment.
Resignation during the Working Notice Period
More often than not, when an employer terminates an employee it opts to provide termination pay in lieu of notice for a variety of business reasons. However, in some cases the employer will opt to provide an employee with working notice of termination. This means that the employee is required to continue working for the duration of the notice period, unless the employee opts to resign at some point during the notice period.
Further still, in some cases the employer will give more notice of termination than is required by the ESA. In this case, the statutory notice period prescribed by the ESA is the last part of the notice period ending on the date of termination. For example, if an employer is required to provide four weeks of termination notice, but opts to provide six weeks, then the statutory part – the four weeks – takes effect the last four weeks of the working notice period.
Employees often wonder what happens to their severance pay entitlement if they resign during the notice period provided by their employer. The answer is the employee is still entitled to their severance pay so long as their resignation meets the following conditions: they give two weeks’ notice of resignation, and the resignation takes place during the statutory part of the notice period.