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What do I get on my way out? A severance primer.

Marla Calvert
March 17, 2022

One of the most frequent inquiries we receive from employees involves questions regarding severance entitlements and specifically whether the severance offer/severance package provided by their employer is appropriate and fair.  Here are some important things to know and consider if you have been terminated and are unsure what you are entitled to receive by way of severance from your employer.

What is Severance Pay and is it Mandatory?

If you are a non-unionized employee in B.C. and have been terminated without cause, you are typically entitled to notice of termination or pay in lieu of notice (also known as severance pay), or a combination of both.

Severance pay is compensation/money your employer pays you when you are terminated through no fault of your own. In addition to money, your employer may also offer you benefits when you lose your job.  This is often referred to as a severance package.  Severance pay is intended to compensate you for the time you are without employment.

Severance pay is mandatory in the following circumstances:

  1. When reasonable written notice is not provided to you by your employer and your employment is terminated unilaterally by your employer, either through a termination without cause or constructive dismissal;

  2. When you have not been provided working notice by your employer or the working notice period provided by your employer is not long enough; and

  3. When you have provided written notice to your employer of your intention to quit and your employer decides to end your employment early before your last day of work.

Severance pay is not mandatory in the following circumstances:

  1. When you quit voluntarily without providing written notice;

  2. When you resign or retire;

  3. When your limited-term contract ends (if you have one);

  4. When you are offered an alternative position with the company; and

  5. When the circumstances of your departure are out of your control.

How is Severance Pay Calculated?

The amount of notice or severance pay you are entitled to receive is determined through the B.C. Employment Standards Act (ESA) and common law which is determined through past court decisions.

The ESA establishes the minimum amount of severance pay you are entitled to receive when you are terminated without cause and is largely dependent on how long you have been working for the employer/company:

  • After serving 3 months of continuous employment, you are entitled to 1 weeks’ pay;

  • After 12 consecutive months of employment, you are entitled to 2 weeks’ pay;

  • After 3 consecutive years of employment, you are entitled to 3 weeks’ pay; and

  • For each year of employment thereafter, you are entitled to an additional 1 week of pay up to a maximum of 8 weeks.

It is important to keep in mind that the Ministry of Labour/Employment Standards Branch can only assist you in receiving the minimum severance payments you are entitled to receive under the ESA.  In most cases, you are able to receive much more through obtaining your common law severance entitlements.

Common law severance pay is determined by the courts.  The facts of each case will be assessed by the courts on a case by case basis.  That said, the courts will consider a number of factors in addition to length of service when calculating severance pay including:

a.       Age;

b.       Position and salary;

c.       Bonus;

d.       Benefits;

e.       Commission; and

f.        Availability of similar employment.

The maximum amount of severance pay you are typically entitled to receive is 24 months’ pay.  You also have 2 years from your termination to pursue your full/maximum common law severance pay from your employer.

Often times, an employer will attempt to use an employment contract to significantly reduce the amount of severance you are entitled to receive under common law.  This is typically achieved by your employer including a termination clause in your employment contract that restricts you to your minimum entitlements under the ESA.  If you have an employment contract, make sure to look over the termination clause in your contract to see if your employer has restricted your severance entitlements.  It is not uncommon for employers to create invalid or unenforceable employment contracts, so it is always best to have an employment lawyer review your particular situation to ensure you are receiving what you are legally entitled to.

How is Severance Pay Provided?  What about Income Tax?

Your employer will pay you your severance pay in one of the following ways:

  1. As a lump-sum payment;

  2. As a salary continuance (your pay and benefits continue for a limited time after your termination); or

  3. Dispersed in a series of payments that occur over a certain period of time (over several years).

You must pay income tax on severance pay; however, how much tax you pay will depend in part on how your employer pays your severance pay.  If you receive your severance pay as a lump-sum, your employer will deduct income tax but will not deduct Canada Pension Plan (CPP) contributions or Employment Insurance (EI) premiums.  If you receive your severance pay as a lump-sum payment, you may also request that your employer deposit the payment or a portion of the payment directly into your Registered Retirement Savings Plan (RRSP) or a Registered Pension Plan (RRP).  In this case, income tax will be deducted when you take the money out of your RRSP or RSP.

If you receive your salary pay as a salary continuance, you are taxed in the same manner you would be when receiving your regular employment income (tax deductions include CPP, EI, and RPP).

If your severance pay is spread over several years, you will pay income tax only on the income you make over each year.  You may effectively reduce the amount of income tax you owe each year by spreading out your severance pay over several years.


If you are unsure about what your severance entitlements are or if you have questions about a severance package you have been offered by your employer, contact us to discuss!