Severance Pay in Canada: How Much Are You Entitled To?

"Severance" in everyday speech means the money an employee receives when they are let go without cause. Legally, it can be made up of three different things: the minimum notice or termination pay required by employment standards law, statutory severance pay in Ontario and federally regulated workplaces, and common-law reasonable notice, which is often much larger. An employee's real entitlement depends on which of these applies, and whether their employment contract validly limits them to the minimums.

This article is part of the guide to employment law in Canada.

The short version

• Statutory minimums are fixed and usually one to eight weeks of pay.
• Ontario adds statutory severance pay of one week per year of service, up to 26 weeks, for eligible employees.
• Federally regulated employees get severance pay of the greater of five days' wages or two days' wages per year of service, after 12 months.
• Common-law reasonable notice is often several months of pay, depending on age, service, role and the job market.
• A clear, legally compliant termination clause can limit an employee to the statutory minimums.
• There is no rule that severance is "two weeks per year." That is a myth.

The Three Layers of Severance

Statutory amounts are the floor. If an employee is entitled to common-law reasonable notice, the statutory amounts are generally included within that larger amount, not added on top.

Ontario Statutory Severance Pay

Under Ontario's Employment Standards Act, an employee qualifies for severance pay if:

• they have worked for the employer for at least five years, counting all time with the employer, whether continuous or not, and
• the employer has a global payroll of at least $2.5 million, or severed 50 or more employees within six months because all or part of the business permanently closed.

How it is calculated: regular weekly wages multiplied by completed years of service, plus completed months of an incomplete year divided by 12, up to a maximum of 26 weeks.

Example from the Ontario government: an employee earning $1,000 a week with 7 years and 9 months of service receives $7,750 in severance pay.

This is in addition to Ontario termination pay of up to 8 weeks. So an eligible long-service Ontario employee can be owed up to 34 weeks under the statute alone.

Exceptions include employees who refused reasonable alternative work, retired on a full pension, worked in construction, or were guilty of wilful misconduct.

Federal Severance Pay

Employees of federally regulated employers who have completed at least 12 consecutive months of service are entitled to severance pay equal to the greater of:

• five days' regular wages, or
• two days' regular wages for each completed year of service.

This is in addition to notice or pay in lieu under the Canada Labour Code, which since February 1, 2024 ranges from 2 weeks after 3 months of service up to 8 weeks after 8 years.

Common-Law Reasonable Notice

Unless a valid termination clause applies, non-unionized employees outside Quebec are entitled to reasonable notice under the common law. Quebec has a similar rule in its Civil Code. Courts consider the factors from Bardal v. Globe & Mail:

• Character of employment: senior, specialized or management roles often attract longer notice.
• Length of service: longer service generally means longer notice.
• Age: older employees often receive more, because finding new work can take longer.
• Availability of similar employment: a weak job market for that role can increase notice.

Courts also consider whether the employee was recruited away from secure employment. Awards for long-service employees can approach 24 months, and Ontario's Court of Appeal has said that exceeding 24 months requires exceptional circumstances.

The "rule of thumb" myth

There is no legal rule that severance equals two weeks, or one month, per year of service. Courts reject fixed formulas. Short-service employees, especially older or senior ones, can receive much more than a per-year formula suggests.

Mitigation

To claim common-law notice, an employee must make reasonable efforts to find comparable work. New income during the notice period usually reduces the award. Statutory minimums are generally not reduced by mitigation.

What Should Be Included

A severance entitlement covers more than base salary. Depending on the contract and the case, it may include:

• benefits such as health, dental and life insurance, or compensation for them
• pension or RRSP matching contributions
• bonuses and commissions that would have been earned during the notice period. In Matthews v. Ocean Nutrition Canada (2020), the Supreme Court held that bonus plans must clearly and unambiguously remove this right
• car allowances and other regular perks
• vacation pay on statutory termination pay

When a Contract Limits Severance

Many employment contracts say the employee will receive only the employment standards minimums. These clauses are enforceable only if they are clear and comply with the law in every possible scenario.

• In Ontario, the Court of Appeal held in Waksdale v. Swegon North America (2020) that an illegal "for cause" provision can void the entire termination scheme.
• In August 2026, in Baker v. Van Dolder's Home Team Inc. and Li v. Wayfair Canada ULC, the Court of Appeal held that wording allowing termination "at any time" or "for any reason" does not, on its own, make a clause invalid, and that contracts must be read as a whole.

Whether a clause holds up often makes the difference between a few weeks and many months of pay. An employment lawyer can usually assess this quickly.

Taxes on Severance

Severance and wrongful dismissal settlements are generally taxed as a retiring allowance, and employers withhold tax at source. Some of a retiring allowance can be transferred to an RRSP without immediate tax, but only for years of service before 1996. Legal fees paid to collect a retiring allowance may be deductible. See how much an employment lawyer costs.

EI and Severance

Normally, severance delays when EI benefits start. Temporary federal measures introduced in 2025 allowed eligible claimants to receive EI without first using up separation payments. In August 2026, the federal government announced a one-year extension. Check current rules with Service Canada. See EI after being fired or laid off.

Frequently Asked Questions

Is severance pay mandatory in Canada?

Minimum notice or termination pay is mandatory for most employees let go without cause. Separate statutory severance pay applies only in Ontario and federally regulated workplaces, and only to eligible employees. Common-law reasonable notice applies unless a valid contract clause limits it.

Do I get severance if I quit?

Generally no, unless the resignation was really a constructive dismissal caused by a major change the employer imposed. See constructive dismissal in Canada.

Do I get severance if I'm fired for cause?

Not if just cause is proven. In Ontario, statutory minimums are lost only for wilful misconduct, which is a higher standard. See fired for cause in Canada.

Can I negotiate my severance?

Yes. Initial offers are often negotiable, especially when they only cover the statutory minimums. See should I sign a severance agreement?

Is severance paid as a lump sum or salary continuance?

Either. Lump sums provide certainty. Salary continuance keeps benefits running but can end early if the employee finds new work, depending on the agreement.

Questions about your severance? Search LawyerDirectoryCanada.ca for employment lawyers by province and city.

Sources

• Your guide to the Employment Standards Act: severance pay, Government of Ontario
• Your guide to the Employment Standards Act: termination of employment, Government of Ontario
• Wrongful dismissal for federal employees under the Canada Labour Code, Goldblatt Partners
• Giving notice: individual terminations subject to new rules in Canada Labour Code, Blakes
• Ontario Court of Appeal rules on ESA termination clauses: the Baker and Li decisions, BLG
• Support for Canadian workers and businesses affected by U.S. tariffs, Department of Finance Canada