Understanding Severance & Termination Pay

Losing a job is a stressful experience, and navigating the financial implications can be overwhelming. Two terms that often arise in these situations are severance pay and termination pay. While they may sound similar, they have distinct meanings. Let’s break down the differences and understand what you might be entitled to.

What is Severance Pay?

Severance pay is a statutory compensation available to both Provincial and Federally regulated employees. Severance is provided by an employer to an employee upon termination of employment. It’s typically offered as compensation for years of service and serves as a financial cushion during your quest for re-employment. 

Key points about severance pay:

• Paid at the time termination: Employers are obligated in most circumstances to offer severance pay to terminated employees.
• Based on length of service, age, position, salary: The amount and eligibility for severance pay are usually calculated based on the employee’s years of service, age, salary, and position held (the Bardal Factors). Severance entitlements may also be outlined in an employee handbook or employment contract,  the greater entitlements generally applies.
• Negotiable: In some cases, employees may negotiate the terms of their severance package, this can be done at the time of hire or at the time of termination.
• Often includes additional benefits: Beyond monetary compensation, severance packages might include health insurance continuation, outplacement services, and other contractual obligations.
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What is Termination Pay?

Similar to severance pay, termination pay is a legal obligation of the employer in most cases. Termination pay, also known as notice pay, refers to compensation owed to an employee at the time of termination. It is legally designed to provide financial shelter to terminated employees during their transition period to suitable alternative employment. It is important to note that accrued vacation time, sick leave, or commissions, while owed at termination,  are separate from termination pay.

Key points about termination pay:

• Mandatory: Employers are legally required to pay termination pay except in very rare circumstances.
• Based on accrued time: The amount is calculated based on the employee’s earned but unused time off.
• Not negotiable: Termination pay is a legal obligation and cannot be negotiated, unless greater entitlements are available.

Differences Between Severance and Termination Pay

Factors Affecting Severance Pay

The amount of severance pay, if offered, can vary depending on several factors:

• Years of Service, age, position, compensation: Many companies have standardized severance packages based on employment length, however unless greater than the court prescribed method, said packages are not enforceable.
• Employment contract: If you have an employment contract, it might specify severance terms, which is only enforceable if the employment contract is found to be enforceable.
• Reason for termination: Severance may be due once there is a severing of the employment relationship.
• Negotiation skills: Your ability to negotiate can impact the final severance package.
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Protecting Your Rights

When facing job termination, it’s essential to understand your rights. Here are some tips:

• Review your employment contract: Understand the terms related to termination and severance.
• Seek legal advice: If you believe your rights have been violated or if the severance package is unclear, seek legal advice.
• Document everything: Keep copies of all relevant documents, including termination notices, severance agreements, and communication with your employer.
• Understand the severance agreement: Carefully review any severance agreement and seek legal advice before signing.
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Remember: This information is a general overview and may not apply to specific situations. Laws vary by provinces, and employment contracts can include unique provisions. It’s always advisable to seek professional guidance if you have questions or concerns about severance pay or termination pay.