ESA Minimums vs Common Law Maximums — Why Your Severance Package Is Probably Illegal

The Two-Track System Most Employees Don't Know About

Here's a fact that should make every recently terminated employee sit up straight: Ontario has two completely separate systems for calculating severance, and your employer is almost certainly relying on the one that costs them less.

The first track is the Employment Standards Act, 2000 (ESA). It's statutory. It's clear. And it's a floor — not a ceiling. Under the ESA, an employee with less than one year of service gets one week of notice or pay in lieu. The scale tops out at eight weeks for employees with eight or more years of service. If the employer has a global payroll of at least $2.5 million and the employee has five or more years of service, there's an additional "severance pay" entitlement capped at 26 weeks.

The second track is the common law. This is judge-made law developed over decades, and it's where real severance entitlements live. Under the common law, courts regularly award 12 to 26 months of reasonable notice — sometimes more. The factors driving these awards were set out in Bardal v. Globe & Mail Ltd., [1960] OJ No 149 (ONSC), and they include the employee's age, length of service, character of employment, and the availability of similar work.

The gap between these two tracks is staggering. A 55-year-old senior manager with 15 years of service might get 15 weeks of ESA termination pay plus 15 weeks of ESA severance pay — roughly 30 weeks total. Under common law? That same employee could reasonably expect 18 to 24 months of compensation. That's the difference between $60,000 and $200,000.

Machtinger v. HOJ Industries: The Case That Changed Everything

The Supreme Court of Canada addressed this gap head-on in Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986. The case involved two mechanics, Mordecai Machtinger and Guildford Lefebvre, who were terminated without cause. Their employment contracts contained termination clauses that provided for less notice than the ESA minimums.

The employer argued the contracts should be enforced as written. The Supreme Court disagreed — emphatically. Justice Iacobucci, writing for the majority, established a principle that still anchors Canadian employment law today: any employment contract that provides for less than ESA minimums is void, and when a termination clause is void, the employee is entitled to reasonable notice at common law.

This is not a minor technical point. It means that a badly drafted termination clause doesn't just get bumped up to the ESA floor — it gets blown through entirely, entitling the employee to potentially months more notice than the employer bargained for.

Justice Iacobucci explained the reasoning: "An interpretation of the ESA that encourages employers to comply with the minimum requirements of the Act, and so extends its protection to as many employees as possible, is to be favoured over one that does not."

How Employers Use ESA Language to Lowball

Despite Machtinger, the same pattern repeats constantly. Here's how it typically works:

1. **The offer letter contains a termination clause** that limits the employee's notice to "the minimums required by the Employment Standards Act" or "two weeks per year of service, to a maximum of eight weeks."

2. **The employee signs it** at the start of employment — often without legal advice and frequently under time pressure.

3. **Years later, when termination happens**, the employer hands over a severance package calculated according to that clause and tells the employee they have a few days to sign a release.

4. **The employee, often in shock**, signs the release and walks away with a fraction of their legal entitlement.

The Ontario Court of Appeal has repeatedly struck down these clauses. In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the Court held that if any part of a termination provision violates the ESA — even a "just cause" termination clause that the employer never relied on — the entire termination provision is void. This decision sent shockwaves through the employment bar because it meant that employers couldn't just fix one problematic clause; their entire contractual framework had to comply with every ESA requirement.

The Supreme Court of Canada denied leave to appeal in Waksdale, cementing it as the law. And yet many employers continue to use contracts with termination clauses that don't survive scrutiny.

The Waksdale Effect: A New Era of Vulnerability

Post-Waksdale, the flood of cases has been relentless. In Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451, the Court of Appeal voided a termination clause because the contract's "just cause" provision purported to deny the employee their ESA entitlements upon a for-cause termination — even though the employee was actually terminated without cause. Same logic as Waksdale: read the termination provisions as a whole; if any piece fails, the whole thing fails.

In Henderson v. Slavkin et al., 2022 ONSC 2822, the court voided a termination clause because it failed to account for the employer's obligation to continue benefit contributions during the statutory notice period — a requirement many employers overlook entirely.

The pattern is clear: courts will scrutinize termination clauses with a fine-toothed comb, and the overwhelming majority of "standard" clauses in circulation today have at least one deficiency.

What Common Law Reasonable Notice Actually Looks Like

When a termination clause fails, the employee's entitlement isn't capped at ESA minimums. It reverts to common law reasonable notice, assessed under the Bardal factors:

- **Age of the employee:** Older employees generally receive longer notice periods because they face greater difficulty finding comparable work.

- **Length of service:** More years typically means more notice, though the relationship is not strictly linear.

- **Character of employment:** Senior or specialized roles attract longer notice periods than entry-level positions.

- **Availability of similar employment:** A tight job market or specialized industry can push the notice period upward.

In Hussain v. Suzuki Canada Ltd., 2024 ONSC 1681, a 65-year-old employee with approximately 18 years of service was awarded 24 months of reasonable notice. In Lynch v. Avaya Canada Corporation, 2023 ONCA 557, the Ontario Court of Appeal upheld a 24-month notice period for a long-tenured employee. The 24-month figure has been described as a "soft cap" — rarely exceeded, but consistently reached for older, senior, long-service employees.

The Math That Should Keep Employers Up at Night

Consider a concrete example. An employee earning $120,000 annually with 10 years of service, aged 50, in a mid-level management role. Under the ESA:

- Termination pay: 8 weeks = **$18,461**

- Severance pay (if eligible): 10 weeks = **$23,077**

- Total ESA entitlement: approximately **$41,538**

Under common law, that same employee could reasonably expect 12 to 16 months of notice, totalling $120,000 to $160,000 — plus benefits continuation, bonus and incentive entitlements during the notice period, and potentially damages for the manner of dismissal.

That's a gap of $80,000 to $120,000. For a single employee. Multiply that across a workforce and you begin to understand why employers fight so hard to enforce ESA-limiting clauses — and why courts keep striking them down.

What You Should Do When You Get a Severance Offer

If you've been terminated without cause and your employer hands you a severance package, here's the practical guidance:

1. **Don't sign anything immediately.** You are under no legal obligation to accept on the spot. Any pressure to "sign by Friday" is a tactic, not a requirement.

2. **Read your original employment contract.** Look for the termination clause. If it references "ESA minimums" or limits your notice to a formula, it may be unenforceable after *Waksdale*.

3. **Calculate the gap.** Compare the ESA minimums to what a court might award under the *Bardal* factors. The larger the gap, the stronger your negotiating position.

4. **Get legal advice.** An employment lawyer can assess whether your termination clause is enforceable in about 30 minutes. The cost of that consultation is a rounding error compared to the money at stake.

5. **Negotiate.** Most severance disputes settle without litigation. But you can't negotiate from a position of strength if you don't know what you're entitled to.

The Bottom Line

The ESA is a minimum standard — nothing more. The Supreme Court said so in Machtinger in 1992. The Ontario Court of Appeal reinforced it in Waksdale in 2020. And courts continue to drive the point home in case after case. If your severance offer is calculated solely on ESA minimums and you don't have an airtight, enforceable termination clause, you're almost certainly leaving money on the table. Often a lot of money.