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How Does Severance Pay Affect Employment Insurance In Ontario?

The term severance pay is often used to point to the complete entitlements of an employee, those include both termination pay (s. 54 of the Employment Standards Act, 2000 (the “ESA”)), as well as severance pay (S. 63 of the ESA).

When a non-unionized employee is unable to work in Ontario, either due to a need to take leave or due to a without cause dismissal, Employment Insurance acts as an income replacement for a certain period of time.

The idea is that Employment Insurance will tie the employee over until they are able to return to work or until they find new employment, although it can run out before either of those take place. As an income replacement, a question employees may have is whether they qualify for Employment Insurance if they receive severance pay, upon the dismissal of their employment – so, how does severance pay affect employment insurance?

How Does Employment Insurance Work?

When an employee is no longer working, normally due to the loss of employment due to no fault of their own, they can apply for Employment Insurance. The now former employee will begin receiving periodic payments for a specified period of time. These payments are not unconditional, however, as they are considered income and can then be deducted from any payments received for pay in lieu of notice for a dismissal. The payments will also have to be paid back once the employee begins earning new income.

What Is Severance Pay?

Termination pay is also known as pay in lieu of notice. Employees are entitled to termination pay under the ESA if they are terminated without cause for three or more months.

Employees are entitled to severance pay when they have worked for an employer for five (5) or more years and the employer either has a payroll of $2.5 million or has “severed” the employment of fifty (50) or more employees within a six (6) month period.

Severance pay is meant to compensate an employee for the loss of seniority and is provided in addition to any termination pay they are entitled to under the ESA. The maximum amount of severance pay an employee can receive is twenty-six (26) weeks, unlike the eight (8) week maximum amount for termination pay provided by the ESA.

When Should You Apply For Employment Insurance?

Ideally, an employee should apply for Employment Insurance as soon as possible following the dismissal of their employment. If the now dismissed employee does not apply within four (4) weeks, they may lose their entitlement to Employment Insurance benefits. An employee can still apply even if they have not yet received their Record of Employment, although the Record of Employment will have to indicate a without cause reason for the loss of employment.

How Does Severance Pay Affect Employment Insurance (EI) Benefits In Ontario?

Even if you are receiving termination and severance pay, you should still apply for Employment Insurance. It is important that you do not miss the deadline to apply, as you can then lose your entitlement to Employment Insurance benefits altogether.

Termination and Severance pay does not disentitle you from eligibility for Employment Insurance either. However, when you receive severance pay, your Employment Insurance payments may be delayed until after the period of time your severance period covers. For that reason, it is best you reach out for qualified help as soon as there is a change in your employment status.

Contact Us

If you are an employee who wants to know more about your entitlements to Employment Insurance, Severance, or both, or an employer who needs assistance drafting a severance package, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at +1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support with same-day response, visit our CLO Program page for our strategic solutions.