Severance Pay In Canada. How Much Employees Are Actually Owed
“Severance” is one of the most loosely used and widely misunderstood terms in Canadian employment.
People use it as a catch-all for any money paid when employment ends, but in Canada it has specific meanings that vary by provinceor territory, and confusing the different components can lead to real financial consequences.
An employer who conflates them can badly underpay an employee, inviting a claim, or badly overpay, giving away money unnecessarily.
Understanding the three distinct layers – statutory termination pay, statutory severance pay, and common law reasonable notice, is essential to getting a separation right.
The Three Layers Of Severance Pay
Layer One – Termination Pay
What it is
Termination pay is the amount owed in place of statutory notice when an employee is dismissed without cause and without being given working notice. It scales with length of service, from a short period for shorter tenured employees up to a longer period for those with many years of service. It is effectively the statutory notice period, paid out rather than worked.
Most provinces and territories provide some version of this once an employee has passed a short minimum period of employment.
Layer Two – Statutory Severance Pay
What it is
In some jurisdictions, notably Ontario and the federal sector, statutory severance pay is a separate and additional entitlement, distinct from termination pay. It applies only in specific circumstances, typically involving longer serving employees and larger employers, and it is calculated on a per-year-of-service basis up to a cap. Not every province or territory has an equivalent.
This is the layer employers most often miss entirely, because they assume termination pay is the whole statutory picture. Where statutory severance applies, it is owed on top of termination pay.
Layer Three – Common Law Reasonable Notice
Beyond the statutory layers sits common law reasonable notice, which is usually the largest component by far.
Where an employee is not limited to the statutory minimums by a valid contract, they can claim common law notice assessed on the Bardal factors – age, length of service, character of employment, and availability of similar work.
Common law notice frequently amounts to many months of compensation and can, in exceptional cases, reach up to around two years. This is why the total an employee is owed on termination is often several times the statutory figures alone.
How The Layers Differ Across Provinces And Territories
- Ontario – Both statutory termination pay and a separate statutory severance pay entitlement (for longer serving employees at larger employers), plus common law notice on top unless validly limited.
- British Columbia – Statutory notice or pay in lieu, no separate statutory severance entitlement, plus common law.
- Alberta – Statutory termination notice or pay in lieu, no separate statutory severance entitlement, plus common law.
- Québec – Notice based on service under the Civil Code, with a potential additional indemnity for longer serving employees. Québec courts tend to award generous notice.
- Federal Jurisdiction – A statutory severance entitlement plus unjust dismissal protections, which can include reinstatement.
Common Mistakes Employers Make With Severance
- Treating termination pay and severance pay as the same thing. In Ontario they are two separate entitlements, and missing the second underpays the employee.
- Stopping at the statutory minimum. Unless a contract limits the employee, common law notice usually applies and is much higher.
- Ignoring provincial or terrirorial specific rules. What is owed in Ontario differs from British Columbia, Alberta, or Quebec.
- Offering severance without a release. Payments beyond the statutory minimum are normally made in exchange for a signed release of claims. Paying without one gives away leverage.
- Getting the calculation wrong on senior staff. Exposure is highest for long serving and senior employees.
Frequently Asked Questions
Is severance pay the same as termination pay?
Not in provinces like Ontario, where they are two separate statutory entitlements. Termination pay is owed to most employees on dismissal without cause. Statutory severance is an additional entitlement in specific circumstances.
How is severance calculated?
It depends on the layer. Statutory amounts scale with service. Common law reasonable notice is assessed on age, service, seniority, re-employability, and is usually the largest component.
Do all provinces and territories have statutory severance pay?
No. A distinct statutory severance entitlement exists in Ontario and the federal sector, but not in every province. Most provinces and territories have termination pay plus common law.
Should I ask for a release when paying severance?
Amounts beyond the statutory minimum are normally paid in exchange for a signed release of claims. We help structure this correctly.
How We Handle It
When a termination is necessary, we calculate the correct entitlements for the employee’s province – statutory termination pay, statutory severance where it applies, and an assessment of common law exposure.
Bridgewater TI help you structure the separation with an appropriate release. For complex or high-value situations, we connect you with our network of Canadian employment lawyers. The goal is to avoid both underpaying, which invites a claim, and overpaying, which gives away money you did not need to spend.
Need To Calculate Severance Correctly?
Book a call before you act.
We’ll make sure your exposure is managed.