Severance Basics in Canada
| Term |
Definition |
| Termination pay |
Immediate pay in lieu of notice |
| Severance pay |
Additional compensation beyond notice |
| Common law |
Reasonable notice based on case law |
| Statutory minimum |
Minimum required by law |
Statutory Minimums by Province
Notice Period (or Pay in Lieu)
| Province |
Minimum Notice |
| Ontario |
1 week/year (max 8 weeks) |
| BC |
1 week (3 mo) to 8 weeks (8+ years) |
| Alberta |
1-8 weeks based on tenure |
| Quebec |
1-8 weeks based on tenure |
| Federal |
2 weeks (min) |
| Manitoba |
1-8 weeks based on tenure |
| Saskatchewan |
1-8 weeks based on tenure |
Ontario Statutory Severance
| Service |
Notice Required |
Severance (if eligible) |
| 3 months - 1 year |
1 week |
None |
| 1-3 years |
2 weeks |
None |
| 3-4 years |
3 weeks |
None |
| 4-5 years |
4 weeks |
None |
| 5-6 years |
5 weeks |
5 weeks |
| 6-7 years |
6 weeks |
6 weeks |
| 7-8 years |
7 weeks |
7 weeks |
| 8+ years |
8 weeks |
8+ weeks (max 26) |
Note: Ontario statutory severance only if employer payroll > $2.5M or 5+ year employee.
Common Law Severance
What Courts Award
| Factor |
Impact |
| Age |
Older = more notice |
| Service length |
Longer = more notice |
| Position |
Senior = more notice |
| Job market |
Harder to replace = more |
| Character of employment |
Executive = more |
Typical Common Law Range
| Tenure |
Typical Award |
| 1-3 years |
3-6 months |
| 3-5 years |
4-8 months |
| 5-10 years |
6-12 months |
| 10-15 years |
10-16 months |
| 15-20 years |
12-20 months |
| 20+ years |
18-24 months |
24 months is generally the maximum, though exceptions exist.
Common Law Examples
| Employee |
Tenure |
Age |
Award |
| Junior (office) |
2 years |
28 |
3-4 months |
| Mid-level manager |
8 years |
42 |
10-12 months |
| Senior executive |
15 years |
55 |
18-22 months |
| Long-term employee |
25 years |
58 |
22-24 months |
What’s Included in Severance
Common Components
| Component |
Description |
| Base salary continuation |
Weeks/months of salary |
| Benefits continuation |
Health, dental, life |
| Bonus (pro-rated) |
If normally received |
| Vacation pay |
Accrued vacation |
| Pension contributions |
May continue |
| Stock options |
Vesting/exercise period |
| Outplacement services |
Job search assistance |
Sample Severance Package
| Component |
Value |
| 12 months salary ($100,000) |
$100,000 |
| Benefits (12 mo @ $500/mo) |
$6,000 |
| Pro-rated bonus (50%) |
$5,000 |
| Accrued vacation (2 weeks) |
$3,846 |
| Total |
$114,846 |
Taxes on Severance
How It’s Taxed
| Component |
Tax Treatment |
| Salary continuation |
Fully taxable |
| Retiring allowance |
May be RRSP-eligible |
| Vacation pay |
Fully taxable |
| Benefits |
Employer-paid not taxable |
Reducing Tax on Severance
| Strategy |
How It Works |
| RRSP transfer |
Transfer eligible retiring allowance |
| Timing |
Receive in lower-income year |
| Lump sum vs salary continuation |
Salary may spread tax |
| Negotiate payment timing |
Push to new tax year |
RRSP Retiring Allowance Transfer
| Condition |
Amount Transferable |
| Pre-1996 service |
$2,000/year |
| Pre-1989 service (no pension) |
Additional $1,500/year |
| Post-1995 service |
Generally not eligible |
Tax Withholding
| Lump Sum Amount |
Federal Tax Withheld |
| $0-$5,000 |
10% |
| $5,001-$15,000 |
20% |
| $15,001+ |
30% |
Note: These are withholding rates — actual tax depends on total income.
How to Negotiate Severance
Steps
| Step |
Action |
| 1 |
Don’t sign immediately |
| 2 |
Request written package |
| 3 |
Review all components |
| 4 |
Consult employment lawyer |
| 5 |
Make counter-proposal |
| 6 |
Get final agreement in writing |
What to Negotiate
| Item |
Goal |
| Notice period |
Push for common law standard |
| Benefits |
Extend coverage |
| Bonus |
Pro-rated or full |
| Reference |
Positive agreed reference |
| Job search |
Ask for outplacement |
| Non-compete |
Narrow or remove |
| Stock options |
Extended vesting |
Negotiation Leverage
| Factor |
Your Leverage |
| Long tenure |
Stronger |
| Senior position |
Stronger |
| Older age |
Stronger |
| Specialized skills |
Stronger |
| Potential legal claims |
Much stronger |
| Job market strong |
Weaker (quick replacement) |
When to Hire a Lawyer
Signs You Need Legal Help
| Situation |
Why |
| Offer seems low |
Likely entitled to more |
| Pressured to sign quickly |
Red flag |
| Complex compensation |
Stock, pension, bonuses |
| Potential claims |
Harassment, discrimination |
| Long service |
More at stake |
| Senior position |
Higher amounts involved |
Lawyer Costs
| Fee Structure |
Typical Range |
| Hourly |
$300-$700/hour |
| Flat fee (review) |
$500-$2,000 |
| Contingency |
15-30% of improvement |
Often worth it — negotiated increases typically exceed legal fees.
Your Rights When Terminated
Employer Must Provide
| Right |
Details |
| Notice or pay in lieu |
Statutory minimum |
| Written termination |
Reason (if requested) |
| Record of Employment |
For EI application |
| Final pay |
Including vacation |
| Benefits info |
COBRA-equivalent options |
You Should
| Action |
Timing |
| Request package in writing |
Immediately |
| Review thoroughly |
Before signing |
| Ask questions |
List everything unclear |
| Consult lawyer |
Within days |
| Apply for EI |
Immediately if eligible |
| Don’t sign release |
Until satisfied |
Resignation vs Termination
Key Differences
| Factor |
Resignation |
Termination |
| Severance entitlement |
Usually none |
Yes |
| EI eligibility |
No |
Yes (usually) |
| Notice required |
By you |
By employer |
| Reference impact |
Generally positive |
Varies |
Constructive Dismissal
| Change |
May Constitute |
| Major pay cut |
Yes |
| Demotion |
Yes |
| Relocation (major) |
Yes |
| Hostile environment |
Yes |
| Significant role change |
Possibly |
If constructively dismissed, you may resign and still claim severance.
EI While Receiving Severance
How It Works
| Scenario |
EI Impact |
| Lump sum severance |
May delay EI start |
| Salary continuation |
Generally delays EI |
| No severance |
EI available immediately |
Calculation
Severance often “maps” to weeks of service, delaying EI.
| Severance |
EI Delay |
| 8 weeks pay |
EI delayed 8 weeks |
| 16 weeks pay |
EI delayed 16 weeks |
Apply for EI immediately regardless — let Service Canada calculate.
Common Mistakes
| Mistake |
Solution |
| Signing too quickly |
Take time, consult lawyer |
| Not negotiating |
Almost always room |
| Ignoring benefits |
Include in negotiation |
| Missing EI deadline |
Apply immediately |
| Verbal agreements |
Get everything in writing |
| Bad-mouthing employer |
Stay professional |