What is Severance Pay?

Severance pay is a general term used for a payment that flows from the employer to the employee when the employment relationship is terminated without cause. Severance pay may equate to statutory notice or reasonable notice, but they are not the same thing. The range in severance pay goes from none at all, for probationary employees under the Employment Standards Act, to the 24 months’ maximum reasonable notice award in BC, or even more if provided for in an employment contract.

Statutory Notice

Statutory notice may be a form of severance pay, but severance pay is not necessarily statutory notice. Statutory notice is intended to compensate the employee for his or her length of service with the employer. In BC statutory notice for most non-unionized employees is defined in the Employment Standards Act, and gives dismissed employees up to eight weeks of notice. In the case of an employee whose notice on termination was expressly agreed to be statutory notice, severance pay for that employee would be equal to whatever was owed under the Act.

There is sometimes confusion between severance pay and final pay under the Employment Standards Act. Final pay includes pay for the time worked up to the last day of employment, plus accrued vacation pay and statutory notice. An employee should never have to sign a release in order to receive these payments, which the employer is required by law to pay within 48 hours of dismissal.

Reasonable Notice

Where the terms of a contract do not specify that statutory notice will apply, or give some other legally acceptable formula for calculating severance pay, then reasonable notice is what is owed on termination. Like statutory notice, reasonable notice compensates the employee for length of service. Courts determine reasonable notice by considering a number of factors relating to the specific employee in question. These factors include the employee’s age, position, length of service, and chances of finding similar work. An employment lawyer can help estimate how much reasonable notice an employee is owed.

Contractual Notice

A well-drafted employment contract will provide for notice of termination. This may be limited expressly to statutory notice, in which case the employee would be entitled to the minimum legal amount of notice. It may give notice according to some formula, for example, one month per year of service, or something more complicated than that. As long as the contractual notice does not expressly or effectively provide less notice than the applicable statute, on dismissal without cause the employee will be entitled to contractual severance pay as of right.

Additional Elements of Severance Pay

All kinds of severance pay may include elements that are not strictly ‘base wage’, for example commissions, bonuses, stock options, or medical benefits for the duration of the notice period. Entitlement to these will depend on the wording of the contract, if there is a written contract, and the facts of the individual employment situation. Severance pay differs between sectors, job descriptions, individual businesses and individual employees.

To get some idea of what severance pay may apply in your situation, please contact us or fill out our questionnaire.