Five Termination Pay Mistakes Ontario Employers Keep Making

ESA termination pay is one of the most frequently misunderstood areas of Ontario employment law. Most employers know they need to pay something when they let someone go without cause. Fewer understand what that something actually includes -- and the gap between what they think they owe and what they actually owe is the source of the majority of employment standards complaints filed with the Ministry of Labour.

These are the five errors that appear most consistently in termination files.

1. Confusing ESA Minimums With the Full Amount Owed

ESA termination pay is the legal floor. It is not the complete amount owed to the employee. An employee with three years of service is entitled to three weeks of ESA notice (or pay in lieu). Under common law, that same employee -- depending on age, position, and the availability of comparable employment -- may be entitled to six to twelve months of reasonable notice. ESA minimums are what you pay to stay out of trouble with the Ministry of Labour. Common law reasonable notice is what you pay to stay out of court.

A termination package that offers only the ESA minimum for a long-service employee is almost certainly undervalued, and an employer who presents it as the full entitlement is setting up a wrongful dismissal claim. The ESA minimum and the appropriate severance package are different numbers. Both need to be calculated before a termination meeting is held.

2. Cancelling Benefits on Termination Day

ESA termination notice is not limited to base salary. During the statutory notice period, all benefits that were part of the employee’s compensation package must continue: extended health, dental, group life insurance, and any other benefit provided under the employment relationship. Employers who issue a pay-in-lieu cheque and cancel benefits coverage on the date of termination are in breach of the ESA minimum entitlement, regardless of whether the employee has signed a release.

Benefits continuation applies to the statutory notice period. If the termination package includes enhanced severance beyond the ESA minimum, the continuation obligation for that additional period is a matter of negotiation and contract -- but the ESA floor requires continuation for the entire minimum notice period.

3. Not Calculating Severance Pay Separately From Termination Pay

Termination pay and severance pay are two distinct ESA entitlements. Termination pay applies to most employees with three or more months of service. Severance pay is a separate obligation that applies only where the employer has a payroll of $2.5 million or more in Ontario, or where the employer has severed the employment of 50 or more employees within a six-month period as part of a permanent discontinuance of business.

An employee with ten or more years of service at a qualifying employer is entitled to both termination pay (one week per year, to a maximum of eight weeks) and severance pay (one week per year of service, to a maximum of 26 weeks). These are additive. Employers who calculate only one and present it as the full statutory entitlement are creating a Ministry complaint with the cheque they hand over.

4. Relying on a Termination Clause That No Longer Works

Many Ontario employers have employment contracts with termination clauses that were drafted before 2020 and have not been reviewed since. The Court of Appeal’s decision in Waksdale v. Swegon North America Inc. established that where any part of a termination clause is unenforceable -- including the just cause provision, which courts have found routinely deficient -- the entire termination clause is void. The employee is entitled to common law reasonable notice as though the limiting clause never existed.

Employers who rely on a contract clause that has not been reviewed post-Waksdale may find, when challenged, that the clause they believed limited their exposure to four weeks has no legal effect at all -- and that the real liability for a ten-year employee is in the range of ten to fourteen months.

5. Treating “Just Cause” as an Easier Bar Than It Is

Termination for just cause -- without notice or pay in lieu -- requires conduct that fundamentally breaches the employment relationship and is proportionate to summary dismissal. Ontario courts apply a contextual analysis: the nature of the misconduct, the employee’s length of service, their prior record, any mitigating circumstances, and whether the employer condoned the conduct are all factors. A single incident of poor performance, a first breach of policy, dishonesty that caused no financial harm, or conduct that was tolerated or overlooked in the past rarely meets the standard.

An employer who terminates for cause and gets it wrong does not just owe the termination package they withheld. They may owe aggravated damages for the manner of dismissal, particularly where the false just-cause allegation caused reputational or emotional harm to the employee. The cost of a failed just-cause termination consistently exceeds the cost of a well-structured without-cause package.