Is Severance Pay Required by Law? 

Often when employees talk about severance they mean a severance package.  However, severance is a specific legal term only applicable in certain situations.

Employee Rights at Termination

Almost every employee who is terminated without cause has the right to some notice of termination or pay in lieu of notice.

The right to this termination notice or pay comes from the Employment Standards Act (ESA) for provincially regulated employees and the Canada Labour Code for federally regulated employees.

The right also arises from the common law for both types of employees. Pay in lieu of notice under the common law is longer than these statutory entitlements, but may not be available depending on an employee’s contract. If there is no termination clause in a contract, or it is not enforceable, the employee may be entitled to 3 weeks to a month (or more) per year of service of notice or pay in lieu of notice.

Severance

Severance is a payment that an employer may have to make.  The employer cannot give notice instead of severance.  It is a lump sum to reward long service.  Under the ESA, the maximum is 26 weeks.  Under the Code, it is calculated as two days per year of completed service.

If an employee receives pay in lieu of notice under the common law, this amount typically includes any severance amount.

Mitigation

Employees who sue their employers for wrongful dismissal are required to prove that they tried to find alternate employment after termination.  If they do, any income earned is deducted from the pay in lieu of notice that the employer may owe the employee.  The exception is for termination pay and severance pay under the ESA and Code.

To sum up, employees has multiple different rights at the time of termination.  It is important to understand these in order to know whether your employer is treating you fairly.

If you have been terminated, a lawyer at MacLeod Law Firm would be happy to assist you. Please contact us at [email protected] or 647-204-8107.