Reviewing a Severance Offer in Ontario: What to Check Before You Sign
Losing a job is stressful enough without a deadline attached. Yet most severance offers arrive with one: sign by Friday, the letter says, or the offer changes. That pressure is the point. A severance offer is the employer's opening position, not the final word on what you are owed, and signing it quickly is rarely in your interest. Before you sign anything, here is what to check.
The legal minimum is not the same as what you may be owed
This is the distinction most people miss, and it is usually worth a lot of money.
Ontario's Employment Standards Act sets the floor. After three months of employment you are entitled to termination notice or pay in lieu, rising by roughly one week per year of service to a maximum of eight weeks. A separate entitlement, statutory severance pay, applies if you have at least five years of service and your employer's payroll is $2.5 million or more, measured globally rather than just in Ontario. That can add up to 26 weeks more.
Those are minimums. For most non-unionized employees, the common law entitles you to considerably more, called reasonable notice. There is no fixed formula. Courts weigh what are known as the Bardal factors: your age, your length of service, the seniority and specialization of your role, and how easily you can find comparable work. An older employee in a senior role with long service and a thin job market may be owed many months, sometimes well beyond the statutory cap. The first offer often reflects only the statutory floor, which is why having it reviewed matters.
Why the cap in your contract may not hold
Many employment contracts contain a termination clause that tries to limit you to the statutory minimum. If that clause is valid, it can do exactly that. The catch is that Ontario courts strike these clauses down often, and on technical grounds.
In Waksdale v. Swegon North America (2020), the Court of Appeal held that if any part of the termination language violates the Employment Standards Act, the entire termination clause fails, even a "for cause" provision the employer never relied on. The contract is read as a whole, and a severability clause will not save it. One poorly drafted sentence can void the cap and send you back to common-law reasonable notice.
The courts have continued down this road. In Dufault v. Township of Ignace, the termination clause was found unenforceable because it defined "cause" more broadly than the Act allows. The Court of Appeal upheld that result in 2024, and the Supreme Court of Canada declined to hear a further appeal in June 2025, so the decision stands. The trial judge also raised a separate concern about wording that let the employer terminate "at any time" in its "sole discretion." Some judges have followed that reasoning, but the Court of Appeal did not rule on it, so it remains unsettled at the appeal level.
The practical lesson is simple. Do not assume the cap in your contract is enforceable. It often is not, and the difference can be many months of pay.
What to check in the offer itself
A severance package is more than a number. Read it line by line.
Notice or pay in lieu. Is the amount only the statutory minimum, or does it reflect common-law reasonable notice? Is it a lump sum or salary continuance? The two are taxed differently and treated differently for benefits.
Benefits continuation. How long do your health, dental, life, and disability coverages continue? Losing disability coverage during the notice period is a serious risk that is easy to overlook.
Bonus, commission, and equity. If you would have earned a bonus or had stock units vest during the notice period, you may be owed that value. The Supreme Court held in Matthews v. Ocean Nutrition (2020) that incentive pay tied to the notice period is presumptively owed unless the plan removes that right in clear and unambiguous language. Clauses that simply require you to be "actively employed" are often ineffective.
Vacation and pension. Accrued vacation pay must be paid out, and your pension contributions or accrual during the notice period may be in play.
Restrictive covenants. Since October 2021, Ontario bans most employee non-compete agreements, with narrow exceptions for senior executives and the sale of a business. Non-solicitation and confidentiality clauses are still allowed if reasonable. Check what you are being asked to agree to going forward.
Cause versus no cause. A "without cause" termination means no fault on your part and full notice or pay is owed. A "for cause" allegation means the employer is claiming serious misconduct and offering little or nothing. The bar for cause is very high. Make sure you understand which one you are facing.
The release: read before you sign
Almost every severance offer requires you to sign a full and final release. When you sign it, you generally give up the right to claim any more severance, to sue for wrongful dismissal, or to file a human rights complaint. It is binding, and you cannot go back for more once it is signed.
That is exactly why you should not sign right away. There is no fixed legal deadline, whatever the letter says. You are entitled to reasonable time to review the offer and get independent legal advice, and your statutory minimum has to be paid regardless of whether you sign. Pressure to sign quickly can even undermine the enforceability of the release later.
A few practical realities
You have to look for work. Common-law notice carries a duty to mitigate, which means taking reasonable steps to find comparable employment. Income from a new comparable job during the notice period is usually deducted. The statutory minimum, by contrast, is not subject to mitigation.
Severance affects your EI. Service Canada treats severance as earnings and spreads it over a number of weeks, so your employment insurance benefits will not start until that period ends, whether you take a lump sum or salary continuance.
Watch the tax treatment. A lump sum is subject to flat withholding at payout and can push you into a higher bracket for the year. Salary continuance is taxed as regular income. If you have service before 1996, part of your severance may qualify as an eligible retiring allowance that can roll into an RRSP without using contribution room. Otherwise, a lump sum can still be sheltered using whatever RRSP room you have.
Constructive dismissal is real but risky. If your employer fundamentally changes a core term of your job without your agreement, such as a significant pay cut, a demotion, or a forced relocation, the law may treat it as a termination that entitles you to severance. Quitting in response is risky, because the burden is on you. Get advice before you resign.
Common questions
Is my employer's first severance offer the most I can get?
Usually not. The first offer is typically a starting point. Because common-law reasonable notice often exceeds the statutory minimum, many employees are owed more than they are first offered. Have the offer reviewed before you sign.
How much severance am I entitled to in Ontario?
It depends. The statutory minimums are up to eight weeks of termination pay, plus up to 26 weeks of severance pay if you have five or more years of service and your employer's payroll is at least $2.5 million. Common-law reasonable notice, based on your age, service, type of role, and the job market, is often higher.
Do I have to sign the release right away?
No. There is no fixed legal deadline. You are entitled to reasonable time to review the offer and get independent legal advice. Once you sign a full and final release, you generally give up the right to claim anything further.
My contract caps my severance at the statutory minimum. Is that enforceable?
Maybe not. Ontario courts frequently strike down termination clauses over technical drafting errors. After Waksdale and Dufault, a single non-compliant phrase can void the whole clause, which can entitle you to much larger common-law notice.
Can my employer make me sign a non-compete when I leave?
In most cases, no. Since October 2021, Ontario bans most employee non-compete agreements, with narrow exceptions for certain senior executives and the sale of a business. Non-solicitation and confidentiality clauses are still permitted.
Will severance affect my EI benefits?
Yes. Service Canada treats severance as earnings and allocates it over a number of weeks, so your benefits will not begin until that period ends, whether you take a lump sum or salary continuance.
This article is general information about Ontario law, not legal advice, and it does not create a lawyer-client relationship. If you have been let go, book a consultation and a lawyer at Bluestone Law will review your offer before you sign.