Losing your job can feel like the ground has been pulled out from under you. Whether it was expected or came as a complete shock, the uncertainty, stress, and financial worries can be overwhelming. Severance pay in Canada is meant to ease this transition, but many non-unionized employees don’t fully understand their rights—or how much they’re actually entitled to.
If you’re a non-unionized employee in Canada and have been terminated, you may be entitled to severance pay. However, employers don’t always offer fair compensation, and severance laws can be complicated. This guide will break it all down for you—what severance pay is, how it works, what should be included in a severance package, and common myths that could cost you money. We’ll also cover your legal options if you think you’ve been wrongfully dismissed.
Severance laws vary by province, so while this guide covers general Canadian severance rules, we’ll be rolling out province-specific guides soon. In the meantime, if you’ve been let go, don’t sign anything too quickly—take the time to understand your severance rights and get the compensation you deserve.
What is severance pay in Canada?
Severance pay varies by province, but generally, it’s compensation employers provide when terminating an employee without cause, such as during downsizing or bankruptcy. It’s meant to ease the financial burden of job loss by providing temporary support while the employee searches for new work, helping them stay financially stable.
How does severance pay work in Canada?
Severance pay rules vary across Canada, depending on the province or territory. In British Columbia, for example, employees who have worked continuously for at least three months are entitled to severance—typically one week’s pay under the Employment Standards Act (ESA).
Ontario’s rules are different. To qualify, you must have worked for the company for at least five years, and your employer must either have a global payroll of at least $2.5 million or have laid off 50 or more employees within six months due to a permanent business closure.
Check your employment contract, employee handbook, or offer letter to confirm your eligibility and specific entitlements.
If you qualify for severance pay, you may have options for how you receive it—such as a lump sum, salary continuance, or deferred payments. Before receiving your severance package, you’ll typically need to sign an agreement outlining your termination terms and payment details.
What is in a severance package?
A severance package isn’t just a payout—it’s a mix of financial compensation and benefits meant to help you transition after losing your job. In Canada, what you receive depends on factors like your length of service, job position, and the circumstances of your termination. If you’ve been let go unfairly, you may have a wrongful dismissal claim and be entitled to more than your employer initially offers.
A typical severance package may include:
- Severance Pay – This can be a lump sum or salary continuance (regular pay for a set period). The amount varies based on factors like tenure, job role, and whether termination was with or without cause.
- Benefits Continuation – Some employers extend health, dental, or insurance benefits for a few months.
- Unused Vacation Pay – If you have accrued but unused vacation, you should receive a payout for it.
- Bonuses & Commissions – If your contract includes bonuses or commissions, you may still be owed these, even after termination.
- Pension & RRSP Contributions – Some packages allow you to transfer your pension or RRSP funds without penalties.
- Outplacement Support – Some employers offer career coaching, resume help, or job search assistance to help you land a new role.
- Non-Compete & Confidentiality Clauses – Some agreements restrict where and when you can work next—make sure you understand these terms before signing.
- A Release Agreement – Most severance packages include a release, which means that by accepting severance, you give up your right to pursue legal action against your employer. This is why it’s crucial to review your package carefully before signing anything.
Many employees settle for less than they deserve because they don’t realize their rights. If you’ve been terminated, especially if you think it was a wrongful dismissal, speak with an employment lawyer to ensure your severance package is fair and reasonable.
Severance pay Canada myths
Severance pay is one of the most misunderstood aspects of job termination. Many employees believe myths that can lead them to accept less than they’re entitled to or make decisions that hurt them financially. Let’s clear up some common misconceptions.
Myth #1: “If I was fired, I don’t get severance.”
Not necessarily! Even if you were fired, you could still be entitled to severance—especially if you were let go without cause. Unless you were terminated for serious misconduct, you may have the right to compensation.
Myth #2: “My employer’s offer is final—I have to take it.”
Employers often offer the bare minimum in severance, hoping you’ll accept without question. In reality, many employees are entitled to more than what’s initially offered. You have the right to review, negotiate, and seek legal advice before signing anything.
Myth #3: “Severance only applies to full-time employees.”
Wrong! Part-time, contract, and long-term temporary workers may also be entitled to severance pay, depending on their length of service and employment terms. Don’t assume you’re ineligible just because you weren’t full-time.
Myth #4: “Severance pay is tax-free.”
Nope. Severance pay is considered employment income, which means it’s taxable. However, you may be able to reduce taxes by transferring severance into an RRSP or other tax-sheltered account if eligible.
Myth #5: “I have to accept severance right away.”
Employers may pressure you to sign quickly, but you do not have to accept severance on the spot. In most cases, you have time to review, get advice, and negotiate a fair deal. Rushing into a decision could cost you thousands.
Severance is more complex than many people realize, and what you don’t know could cost you. If you’ve been let go, don’t rely on assumptions—speak with an employment lawyer to ensure you’re getting what you deserve.
What to do if terminated
Losing your job can be an overwhelming and emotional experience. Whether you saw it coming or it was completely unexpected, it’s natural to feel a mix of shock, frustration, and uncertainty about what to do next. The most important thing right now is to stay calm, protect your rights, and take the right steps to move forward.
Here’s what you need to do if you’ve been terminated.
1. Listen carefully during the meeting
We know this is easier said than done, but try your best to stay composed and absorb as much information as possible. Your employer may explain the reason for your termination and clarify whether you are being let go with or without cause. You might be asked to leave immediately, and in some cases, you could be escorted from the building. While this can feel humiliating, remember: you have rights, and this moment does not define your future.
2. Do NOT sign anything
Your employer may present you with a severance package—which will likely include a release agreement—during the meeting. Do not sign anything on the spot. It’s completely understandable if you feel pressured, but you are not in the right state of mind to make such an important decision. Take the documents home, review them carefully, and seek legal advice before making any commitments. Employers often want you to sign quickly to minimize their obligations—don’t let them rush you.
3. Contact a lawyer at Resolute Legal
If you’ve been terminated without cause, you could be entitled to more severance than your employer is offering. Before accepting any package, consult an employment lawyer at Resolute Legal to ensure the severance is fair and reasonable based on your specific situation. We help people in these situations every day, and our team is kind, non-judgmental, and committed to providing you with the support you need.
Schedule a FREE consultation with us today. We’ll review your case, explain your options, and make sure you’re not settling for less than you deserve.
4. Apply for Employment Insurance (EI)
If your termination was without cause, you will likely qualify for Employment Insurance (EI). However, if you accept a severance package, your EI benefits may be delayed until after the severance period ends. Applying for EI as soon as you are eligible can help ensure financial stability while you transition to your next opportunity.
5. Start looking for other opportunities
We know how hard this moment can be, and it’s okay to take some time to process everything. But don’t give up. Start networking, updating your resume, and looking for new opportunities. Many people land even better jobs after being let go—it might not feel like it now, but this could be a turning point for something greater.
Final thoughts
Getting terminated is never easy, but you don’t have to go through it alone. Stay calm, protect your rights, and take the time to make informed decisions. If you need help reviewing your severance package or understanding your legal options, Resolute Legal’s employment lawyers are here to help.
Schedule your FREE consultation now, and let us support you through this challenging time.
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FAQs: Canada severance pay
Is severance pay taxable in Canada?
Yes, severance pay is taxable in Canada since it’s considered employment income. Your employer will deduct income tax, but CPP and EI contributions may not apply. To reduce taxes, you may be able to transfer severance into an RRSP or another tax-sheltered account—consult a financial expert to explore your options.
How does severance pay affect unemployment benefits in Canada?
Severance pay can delay your ability to collect Employment Insurance (EI) benefits in Canada. Since severance is considered compensation for lost wages, it’s treated as if you’re still earning a salary. Under the Employment Insurance Act, receiving both severance and EI at the same time is not allowed, as it would be considered “double-dipping.”
If your severance is paid as salary continuance (where you continue receiving regular pay and benefits for a set period), you can apply for EI once that period ends. If you receive a lump-sum payment, you must wait until the time your severance covers has passed before applying for EI. If you’re unsure how your severance impacts your EI eligibility, speaking with an employment lawyer can help you make the best financial decision.
Do you get severance pay when laid off in Canada?
If you’re laid off in Canada, you may be entitled to severance pay, which can be paid as a lump sum or through salary continuance. The amount you receive depends on your employment contract and circumstances. Consult a lawyer to understand your rights and ensure you get what you deserve.