What is in a severance agreement?
A severance package is usually set out in a termination letter, often with a separate release. The letter describes what the employer is offering; the release is the document the employee signs to accept it. Common parts include:
- The last day of work and the amount of notice, or pay instead of notice, being offered.
- Whether the money is paid as a lump sum or by continuing salary over a period.
- Whether health, dental and other benefits continue, and for how long.
- Treatment of bonus, commission, vacation pay and any pension or share plans.
- Terms such as confidentiality, non-disparagement, a reference letter or how the departure will be described.
- A full and final release, and the date by which the offer must be accepted.
What does signing a release mean?
A release is a promise not to bring claims against the employer relating to the employment and how it ended, in exchange for the package. It usually covers claims for more notice, and is often drafted to cover other claims as well, such as human rights claims. Once a release is signed and the payment made, it is generally very difficult to undo.
That is why the main question is not only whether the amount seems fair, but whether the package reflects what the law may already require, and what is being given up in return.
The legal minimums under the Employment Standards Act
The Employment Standards Act, 2000 sets minimum standards that apply whether or not a release is signed. They include:
- Notice of termination, or termination pay instead of notice, generally one week for each completed year of service, up to eight weeks, once an employee has three months of service.
- Severance pay under the Act, a separate amount for employees with five or more years of service whose employer has a payroll of $2.5 million or more, or is ending 50 or more employees in a six-month period because all or part of the business closes. It is one week for each year of service, up to 26 weeks.
- Continued contributions to benefit plans for the statutory notice period.
- Payment of termination pay within seven days of the end of employment or on the next regular pay day, whichever is later.
Common-law reasonable notice
Many employees are entitled to more than the Act's minimums. Unless an employment contract validly limits notice, Ontario courts assess reasonable notice using factors such as age, length of service, the kind of position and the availability of similar work. Termination clauses in contracts are often reviewed closely, because a clause that does not comply with the Act may not be enforceable.
Related: Severance in Ontario: what the law requires.
A severance offer may be at the Act's minimum, at a common-law level, or somewhere in between. The offer letter does not usually say which.
Questions to ask before signing
Before accepting, many people find it useful to work through a short list:
- Does the offer at least meet the Act's minimums for notice, severance pay and benefits?
- Does the employment contract have a termination clause, and does it comply with the Act?
- How are bonus, commission, stock options and pension treated during the notice period?
- What claims does the release cover, and are there any concerns, such as discrimination or a workplace injury, that it would also end?
- Is the deadline to sign realistic? Employers will often agree to a short extension when asked in writing.
- If continuing salary is offered, what happens to it once new work is found?
Negotiating a package
A first offer is not always the final offer. Requests can include more notice, longer benefit coverage, a different payment structure, a reference letter or agreed wording for how the departure is described. Any changes should be in writing before the release is signed.
Employees are generally expected to look for comparable work during the notice period, which courts call the duty to mitigate. Income from new work can affect what is owed, depending on the agreement and the contract.
Time limits
For many employment claims in Ontario, the general limitation period for a court claim is two years. A claim under the Employment Standards Act to the Ministry of Labour generally also has a two-year limit, and the same issue generally cannot be pursued both through a Ministry claim and in court. Where the termination is linked to a protected ground under the Human Rights Code, an application to the Human Rights Tribunal of Ontario generally has to be filed within one year.
Lutfi Law reviews severance offers and releases for employees across Ontario, online by video or phone. Initial consultation free for employment and human rights matters.
Last reviewed: October 2026 · Lutfi Law
Sources: ontario.ca · ontario.ca · ontario.ca · ontario.ca