Are retiring employees eligible for severance pay?

Does an employer have to pay severance to retiring employees with five years of service or more if it does not have an actuarial reduced pension plan?

Tim Mitchell
Question: I have a question regarding paying severance to retiring employees in Ontario, as some sources say we do have to pay severance to these employees and other sources indicate that we do not. I have been told that we must pay severance to retiring employees, with five years of service or more, if we do not have an actuarial reduced pension plan. Our company has a deferred profit sharing plan, but not a pension plan and therefore we have been advised that we do have to pay severance. Could you please clarify, if this is in fact true?

Answer: There is no general legal requirement for an employer to pay severance pay to an employee who voluntarily resigns from his employment. An employee who chooses to retire, without any element of compulsion, is considered to have resigned. Any obligation to pay that retiring employee severance pay would have to be found in applicable legislation or an individual employment contract or collective agreement.

In Alberta, for example, retiring employees whose employment is governed by provincial employment standards legislation have no right to severance pay under the statute.

Since you’re in Ontario, the information you have been given appears to originate with s. 64 of the Ontario employment standards legislation. That provision, together with s. 9 of Ontario Regulation 288/01 (termination and severance of employment), relieves an employer of an obligation to pay severance pay to an employee whose employment is severed and then retires and receives an actuarially unreduced pension benefit.

The obligation to pay severance remains dependent upon the employer having taken the initiative to sever the employment relationship.

Note that different rules may apply where an employee’s employment is severed through a process of mandatory retirement.

Tim Mitchell is an employment lawyer with Laird Armstrong in Calgary. He can be reached at [email protected] or (403) 233-0050.

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