Impact of Retirement on Severance Packages: Navigating Retirement with Knowledge

In Ontario, there is no law that requires persons to retire at any age. Deciding to retire is a weighty life choice fraught with financial and legal considerations. One critical question many employees in Ontario ask is: “If I retire voluntarily, am I still entitled to severance?” 

The answer hinges on how “retirement” is treated under Ontario’s Employment Standards Act (ESA), applicable case law, and whether your employer has a written agreement or policy.

For personalized guidance, it is always recommended that employees who face termination or are intending to resign first consider engaging a Toronto employment lawyer or a severance package review lawyer. A lawyer to review your employment contract or one who can negotiate your severance package can help you make an informed decision.

1. An Employee’s Voluntary Retirement Is Legally Like Resignation

In Ontario, a voluntary retiring generally counts as a voluntary resignation. Under the ESA, unless you have a stipulated retirement benefit in writing, you have no legal right to severance pay – including statutory or common law – if you simply choose to retire. Rather, financial compensation upon retirement would generally come from other sources, such as CPP, or from participation in a defined contribution pension plan or defined benefit pension plan.

In practice, this generally means that an employee may not qualify for common law pay in lieu of notice of termination (severance package). 

2. Can Your Employer Ask You to Retire?

Sometimes an employer may invite retirement or frame separation as such. In these scenarios:

• If there is a written retirement package or plan, you may be entitled to the any previously agreed-upon financial compensation.

• If the employer pressures or forces you into retirement, it may qualify as a constructive dismissal, entitling you to severance as if you were wrongfully terminated, as well as a potential age discrimination claim under human rights legislation.

In these delicate situations, consulting a constructive dismissal lawyer or wrongful dismissal lawyer is critical to safeguard your rights.

3. Case Law: An Employee’s Retirement Plans Will Affect Severance Package Entitlements

Ontario courts have addressed how retirement intentions influence severance awards. The following cases illustrate that an employee’s expressed retirement intentions or plans can significantly reduce severance entitlements, which makes keeping your intentions close to your chest.

Kimball v. Windsor Raceway Inc., 2014 ONSC 3286

In this case, the court dealt with a wrongful dismissal claim by a 71-year old’s employee’s, who sought wrongful dismissal damages representing entitled to receive reasonable notice upon termination (severance package). He had spent 43 years of service with the same employer in a supervisory position.

The key issue was whether the employee was even entitled to receive common law reasonable notice, specifically given the employee’s indications he may have intended to retire. In the court’s view:

“If the dismissed employee has no intention to look for work, but has instead decided to retire, the very purpose for which reasonable notice is required to be given is absent. That is a factor that may well be relevant in assessing what constitutes reasonable notice in this case.”

This decision serves as a caution against assuming that older, long-serving employees are automatically entitled to notice at the high end of the common law spectrum. Kimball reinforces that the underlying purpose of common law notice is to support a dismissed employee during their job search – not to serve as a reward for years of service.

Where an employee opts to retire following termination, the decision suggests that entitlement beyond ESA minimums may not be warranted. While some employers may still choose to provide an enhanced severance package as a gesture of appreciation for long service, such payments may be discretionary and should not be mistaken for a legal obligation.

Gent v. Askanda Business Services Ltd. (2025 BCSC 1278)

An employee nearing 65 had intensions to retire in six months. Although the courts would normally grant a wrongfully dismissed employee longer notice based on his long service, the employee’s decision to retire in six months meant he was only entitled to wrongful dismissal damages for that same amount of time.

Specifically, the court concluded that, given the employee’s expressed intentions to retire, he would not have worked beyond his 65th birthday even if he had been recalled. In the court’s view:

4. Statutory vs. Common Law Severance Packages in Ontario

ESA Minimums

Under the ESA, to qualify for statutory severance pay, an employee must have worked at least 5+ years and the employer must meet certain payroll criteria (over $2.5M or 50+ employees). If eligible, statutory severance pay is calculated as one week’s pay per year of service, up to 26 weeks (as in addition to statutory termination pay).

Common Law Severance

In the absence of an enforceable termination clause in an employment contract, the courts dealing with wrongful dismissal or constructive dismissal cases consider an employee’s:

• age

• length of service

• nature of your role (title, duties, responsibilities, compensation, etc.)

• availability of comparable employment

In some cases, a court’s determination of an employee’s severance package entitlement may result in an employee being entitled to more than 24 months’ worth of severance pay.

5. Impact of Termination on Pension of a Termination

Pension Accrual During Severance

During the minimum statutory notice period under the ESA, employers must continue pension contributions – whether defined benefit pension plan or defined contribution pension plans. For the common law notice period, unless your employment contract states otherwise, courts often award compensation equivalent to pension accrual in that period.

Tax and RRSP Strategies

Severance payments have tax implications:

• Lump-sum severance: If applicable, employers deduct income tax from specific payments in a severance package, but not CPP or EI. An employee may also request a direct transfer into an RRSP for tax deferral purposes.

• Salary continuance: This is a common approach for employers to pay severance package compensation, where the employer continues the employee’s payments under their regular payroll structure (as well as benefits and RRSP payments). As such, normal CPP, EI, and income tax deductions apply.

This is why having an experienced employment lawyer to negotiate severance package or to structure tax-efficient arrangements can be highly beneficial. Equally important, it is always advisable for employees to seek specific financial or tax advice from a qualified professional.

Conclusion

In Ontario, voluntary retirement generally disqualifies an employee from severance unless a pre‑existing agreement or policy sets out otherwise. If employees feel pressured by an employer to consider retiring, it is important to hire a skilled employment lawyer to negotiate severance package to ensure you can still secure substantial compensation, including pension benefits and tax-efficient arrangements.

As the above cases illustrate, ambiguous statements by employees are generally not viewed as sufficient to establish a resignation, including a retirement. As such, even if an employee merely mentions that they intend to retire, this alone may not be sufficient to establish a resignation as a matter of law. When an employee mentions retirement or plans to retire, the employer would be well-advised to seek to confirm the employee’s intentions in writing to avoid uncertainty and a potentially costly dispute.

In appropriate cases, an employee’s clear intention or plans to retire will limit their entitlement to receive wrongful dismissal damages (a severance package). For employers to succeed on this basis, the courts typically require evidence of a retirement plan can to reduce the amount of damages owed by the employer.

For expert employment law help in Ontario, consult a Toronto employment lawyer, especially one skilled in severance package review and employment contract review. And if you suspect constructive or wrongful dismissal, a specialized lawyer can protect your rights and optimize your outcome.

Call Toronto Employment Lawyer Now

It is important for an employee (or an employee) to obtain a legal consultation before taking any action that could affect the situation at workplace. Sezar has experience advocating for both employers and employees, which allows him to anticipate the other side’s arguments and develop an effective strategy, including termination of employment.

If you are looking for a wrongful dismissal lawyer in Toronto, call us today at 647-822-5492 for a case evaluation with an experienced employment lawyer.

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