I was asked recently about the rules relating to paying out notice and severance pay under the Ontario Employment Standards Act. The question is whether notice and severance need to be paid out as a lump sum, or whether the employer can pay it out in installments, like a regular pay cheque.
The ESA explains the answer. With respect to ‘notice’ pay, the notice can be ‘working’ notice, so that the employee simply works out the notice period and receives their regular pay cheques. But section 61 allows the employer to chose instead to pay out the notice period in a lump sum rather than have the employee work that period.
Severance pay is different, because it is a payment intended to be paid after the employee has already stopped working. Severance pay is not payable to all employees. It only applies when one of the conditions in section 64 are satisfied, and even then, only employees with at least 5 years’ service with the employer are eligible, and there are a number of exclusions in the Regulations as well. The Act assumes that severance pay will be paid out in a single, lump sum. But Section 66 permits severance to be paid in installments in two situations:
(1) if the employee agrees in writing to this arrangement; or
(2) the Director gives the employer approval to pay in installments.
The employer must provide the Director with a reason for the need to pay in installments. Thanks to one of my MHRM alumni students for passing along the contact information to send this request. The request needs to be faxed to the Director, Tracy Mill, at 416-326-7061.
Paying Out Severance and Termination Pay
