Two different notice numbers attach to almost every Ontario employee, and only one of them is written down in a statute. A diligence process that reads the ESA and stops there has priced the small, calculable liability and missed the large, unbounded one sitting behind it.
Key takeaways
Ask what an Ontario employer owes on termination and the honest answer is: it depends which system is asking. The Employment Standards Act sets a floor, calculable to the week. Common law sets a separate, unwritten ceiling that applies whenever nothing has validly displaced it. For an acquirer pricing employment liability, confusing the two is the single most common diligence error in this category.
Ontario's ESA notice table runs 1 week for under one year of service, rising in yearly steps to 8 weeks at 8 or more years — a hard statutory cap, quotable directly from the province's own termination guide. Severance pay is a separate, additional entitlement layered on top for qualifying employees — those with five or more years of service at an employer with a global payroll of at least $2.5 million, or where 50 or more employees were severed in a six-month period from a permanent closure — calculated as regular weekly wages multiplied by completed years plus completed months divided by 12, capped at 26 weeks. Both numbers are arithmetic. Both are bounded. Neither is what a court actually orders once common law applies.
Treadstone Law states the relationship directly: the ESA “sets only a statutory floor, while common law notice is a separate, judge-made entitlement” that is “often significantly higher than the ESA minimum.” Courts weigh “age, length of service, seniority, and the availability of comparable work” — four factors, no formula, no statutory cap on the result. Without a valid, enforceable employment contract limiting notice to the ESA minimums, employees are “generally entitled to the higher common law amount instead.” ESA severance, meanwhile, “is a separate and additional entitlement from ESA notice” and does not fold into or replace the common law analysis at all.
A single fact decides which system governs a given employee: whether a valid, enforceable employment contract exists that clearly limits notice to the ESA minimum. If it does, and it holds up, exposure is the calculable ESA number above. If it does not exist at all, or exists but fails on enforceability grounds, the default is the uncapped common law number instead. That single binary — contract or no contract, enforceable or not — is worth more to a diligence process than any amount of time spent modelling the ESA table itself.
The same continuity-of-employment mechanic that governs accrued vacation and banked overtime feeds directly into this exposure: a purchaser who continues an employee's service inherits the full length-of-service clock the seller started, which is exactly the input both the ESA table and the common law factors run on. A long-tenured employee is not just an ESA-notice line item — without an enforceable contract, that same tenure is one of the four factors driving an unbounded common law number upward.
The exposure above is contingent — it exists only if and when someone is actually terminated. A deal structure can turn that contingency into an immediate liability. An asset deal that terminates the seller's employees, even where the buyer intends to rehire most of them immediately afterward, crystallizes both the ESA notice/severance numbers and the common law exposure for anyone without an enforceable contract, on the spot, at closing. A share deal, or an asset deal structured so employment continues uninterrupted with the same legal employer of record, avoids triggering that crystallization at all — the exposure remains contingent, carried forward rather than realized. Which structure the deal actually uses is therefore not only a tax or corporate-law question; it is also a direct decision about whether this liability gets priced in now or stays a future contingency.
The diligence ask is specific: pull every employment contract in the target, flag anyone with no written contract at all, and flag anyone whose contract's termination clause looks stale or was never updated as employment standards changed around it. Long-tenured, senior employees without an enforceable contract are the highest-exposure names on that list precisely because the factors that expand common law notice — age, length of service, seniority — are the same qualities that make a senior employee valuable in the first place. It belongs on the same payroll review that sizes accrued vacation and banked overtime, not a separate exercise run by a different team.
One employee, two very different numbers
A target's controller has 12 years of service and no written employment contract at all.
The ESA numbers above are precise because they are formulas. The controller's actual exposure is not a formula, which is the entire point: a diligence process that reports only the ESA figures has reported the wrong number for exactly the employees who carry the most risk.
No. Without a valid, enforceable employment contract limiting notice to the ESA minimum, an employee is generally entitled to common law reasonable notice instead, which has no statutory cap and is typically higher than the ESA table -- especially for a long-tenured, senior employee.
No. ESA severance pay is a separate and additional entitlement from ESA notice, not a substitute for it, and neither one displaces a common law notice analysis where no enforceable contract caps the employee at the statutory minimums.
Only if the clause is valid and enforceable. A termination clause that exists on paper but fails on enforceability grounds does not limit the employee to the ESA minimum -- the diligence question is not whether a contract exists, but whether it actually holds up.
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