Termination Pay in Canada: How Much Should You Get

Canada Employee Benefits News and Trends - ebs
Termination Pay in Canada: How Much Should You Get

Losing your job can be an incredibly stressful and challenging experience. As an employee in Canada, it’s important to understand your rights and entitlements when it comes to termination pay. This payment replaces the income you would have received if you continued working during the notice period instead of being immediately dismissed.

What is Termination Pay?

Termination pay is a lump sum payment provided to employees when their employment ends without cause or sufficient notice. It is meant to replace the regular wages the employee would have earned during the statutory notice period outlined in the employment standards legislation.

Instead of providing advance working notice that the employee will be terminated on a future date, the employer can choose to immediately terminate the employee and provide termination pay to compensate for the lack of notice.

Think of termination pay as payment “in lieu of notice”—it makes up for not giving the appropriate notice by paying out the wages the employee would have received.

Key Facts:

• Purpose: To replace income during the notice period
• Eligibility: Employees with 3+ months of continuous service
• Calculation: Based on length of service, up to 8 weeks of regular pay
• Payment Timing: Within 7 days or on the next scheduled payday
• Not considered vacation pay or severance pay

Who Qualifies for Termination Pay in Canada?

In order to qualify for termination pay under the employment standards laws in Canada, an employee must meet the following requirements:

• Continuous service: The employee must have been continuously employed with the same employer for at least three months. This excludes casual or irregular employment.
• Termination without cause: The employee’s employment must have been terminated by the employer without just cause. This means there was no serious misconduct, disobedience or neglect of duty by the employee that would warrant immediate termination.
• Not subject to exemptions: Certain categories of employees are exempt from termination pay eligibility, including construction workers, employees terminated for willful misconduct, disobedience or neglect of duty, and employees who refused reasonable alternative employment.

If the termination was with cause or the employee falls under an exempt category, they would not qualify for termination pay.

How is Termination Pay Calculated in Canada?

The specific amount of termination pay an eligible employee is entitled to receive is based primarily on two factors:

1. Their length of continuous service with the employer
2. Their regular weekly wages

Termination pay entitlements are outlined in the provincial, territorial and federal employment/labour standards legislation. While specific amounts vary slightly, some general parameters apply nationwide:

• Based on regular wages – Termination pay is calculated based on the employee’s regular wages only, excluding any overtime, bonus, commission or premium pay.
• Weeks per year of service – The common entitlement is one week’s regular wages for each complete year of continuous service. Partial years are prorated to a percentage based on the number of months worked.
• Capped at 8 weeks – Most jurisdictions cap the maximum termination pay entitlement at 8 weeks’ worth of regular wages, regardless of years of service.
• Minimums apply – Even employees with only 3 to 12 months of service must receive minimum termination pay, typically equivalent to about one week’s wages.

Overall Formula in Canada

(Regular Weekly Wages x Notice Weeks) = Termination Pay Amount

Where notice weeks depend on the employee’s years of continuous service, subject to the maximum cap.

For example, Jennifer earns $1,500 per week and worked for an employer for 11 years before being terminated without cause.

Her termination pay would be calculated as follows: $1,500 weekly wages x 8 weeks’ notice = $12,000

Although she worked for 11 years, the pay is capped at the maximum of 8 weeks based on the employment standards legislation in her province.

The exact notice or termination pay amount depends on the employment standards in the employee’s specific province or territory.

When Should Termination Pay be Issued?

Employers are required to provide termination pay to eligible employees within a set timeframe:

• Within seven calendar days after the termination, or
• On the employee’s next regularly scheduled payday

Whichever date is later applies.

For example, if the employee’s next payday is in 5 days, the termination pay is due on that payday. If the next scheduled payday is in 9 days, it must be paid within 7 days.

Termination Pay vs. Severance Pay

Although they sound similar, termination pay and severance pay are distinct forms of compensation with different purposes and eligibility criteria. Here is an overview:

Termination Pay	Severance Pay
Replaces income during notice period	Compensates for years of service
Eligibility: 3+ months of service	Eligibility: 5+ years of service
Maximum 8 weeks of pay	Maximum 26 weeks of pay
Paid for lack of notice	Paid when job is eliminated

Severance pay generally applies to long-term employees who lose their jobs through no fault of their own. The criteria depend on factors like company size and mass terminations.

What If I Feel My Termination Pay is Insufficient?

If you believe your termination pay amount falls short of your entitlements, you may have grounds for a wrongful dismissal claim. Some situations where this may apply:

• You qualify for more weeks of pay based on your years of service.
• The payment is late and outside the 7-day or next payday deadline.
• You were fired for “cause,” but there was no misconduct on your part.

6 Steps you can take:

• Review your employee contract and provincial/territorial standards.
• Seek a free consultation with an employment lawyer.
• File a claim with the Ministry of Labour in your jurisdiction.
• Notify your employer in writing that you dispute the termination package.
• Negotiate a higher severance package.
• Take legal action for wrongful dismissal.

The first step is to learn whether you were provided your full entitlement. From there, you have options to resolve any deficiencies depending on the circumstances.

Key Takeaways

If you are terminated without cause in Canada, here are some key things to remember:

• You are eligible after 3+ months of continuous service.
• Replaces income you would have earned during the notice period as outlined in the Employment Standards Act.
• The payment amount is based on your length of service and regular weekly wages.
• Most jurisdictions cap termination pay entitlement at 8 weeks.
• Distinct from severance pay for long-serving employees.
• You may have grounds for a claim if you feel the amount is insufficient.

The bottom line

Losing a job can be very difficult. Understanding your rights and entitlements as an employee can help ease the financial stress. If you have questions or concerns about termination pay, be sure to consult an employment lawyer or the labour authorities in your province.

FAQs

Article Sources

• Termination Pay – citationcanada.com
• Termination Pay Ontario: Easy-to-Follow Employer Guide – knitpeople.com

Termination Pay in Canada: How Much Should You Get
Ben Nguyen