A company in Mississauga fired a 20-year employee last fall. They cut a cheque for 8 weeks’ pay, patted themselves on the back for exceeding the statutory minimum, and figured they were done. The employee’s lawyer figured differently. The settlement was 22 months.

Severance pay in Canada operates on two parallel tracks that most employers only half understand. Statutory termination and severance pay under provincial employment standards legislation sets the floor, but common law reasonable notice almost always exceeds it, often dramatically. An employee with 10 years of service might be owed 3-4 weeks under the ESA but 10-14 months under common law.

That gap between what employers think they owe and what they actually owe? It’s where wrongful dismissal lawsuits live.

The Two-Track System Nobody Explains Well

Here’s what trips up most Canadian employers. There are two completely separate legal frameworks that apply when you terminate someone without cause, and they stack.

Track 1: Statutory minimums. These come from your provincial or territorial employment standards legislation (the ESA in Ontario, the Employment Standards Code in Alberta, the Canada Labour Code for federally regulated employers). They set a hard floor. You cannot contract below them. They’re calculable to the dollar.

Track 2: Common law reasonable notice. This is judge-made law that applies to every employee who doesn’t have an enforceable termination clause in their employment contract. And here’s the part that costs money: most termination clauses in Canadian employment contracts are unenforceable because they fail to meet ESA minimums or contain ambiguous language.

If your termination clause is void, the employee is entitled to common law reasonable notice. Which is almost always more. Sometimes dramatically more.

Statutory Minimums by Province

Let’s start with what the legislation actually says. Every province has termination pay (also called “pay in lieu of notice”). Only Ontario has a separate category called “severance pay.” The distinction matters, because in Ontario employees can be entitled to both.

Ontario: The Most Complex

Ontario’s Employment Standards Act creates two separate entitlements:

Termination pay: 1 week per year of service, up to 8 weeks maximum. Applies to all employees with 3+ months of service.

Severance pay: 1 week per year of service, up to 26 weeks maximum. But only if the employee has 5+ years of service AND the employer has a payroll of $2.5 million or more (or is severing 50+ employees within 6 months due to a permanent closure). These two amounts stack. A 15-year employee at a qualifying firm gets 8 weeks’ termination pay plus 15 weeks’ severance pay. That’s 23 weeks under statute alone.

Most Ontario employers I talk to don’t even know these are separate things.

British Columbia

B.C. provides termination pay scaling from 1 week after 3 months of service to 8 weeks after 8 years. No separate severance pay category. Straightforward, but the common law layer on top still applies.

Alberta

Alberta’s termination notice requirements scale from 1 week (90 days to 2 years of service) to 8 weeks (10+ years). Like B.C., no separate statutory severance. Alberta also has specific group termination rules when you’re letting 50+ people go at once.

Federal Jurisdiction

Federally regulated employees (banks, telecoms, airlines, interprovincial transport) fall under the Canada Labour Code. The entitlement: 2 days’ pay per completed year of service after 12 consecutive months of employment. That’s in addition to termination notice of 2 weeks (or pay in lieu). A 10-year federal employee gets 20 days’ severance plus 2 weeks’ termination pay. Not generous by common law standards, but at least it’s guaranteed.

Quebec, the Prairies, and the Maritimes

Quebec requires “reasonable notice” under the Act respecting labour standards, scaling from 1 week to 8 weeks depending on tenure. Saskatchewan and Manitoba follow similar structures with minor variations. The Maritime provinces each have their own scales, generally topping out at 8 weeks for long-service employees. None of them have Ontario’s separate severance pay provision.

The statutory minimums across Canada were designed as a floor, not a ceiling. Treating them as the full obligation is the single most expensive mistake employers make during terminations.

Common Law: Where the Real Numbers Live

Here’s where employers get into trouble. Statutory pay is the easy part. The hard part, the expensive part, is common law reasonable notice.

Unless an employee has a valid, enforceable termination clause in their contract, they’re entitled to “reasonable notice” of termination. What’s reasonable? Courts assess it using the Bardal factors, established in Bardal v. Globe & Mail Ltd. (1960):

• Length of service (longer = more notice)
• Age of the employee (older = more notice, because re-employment is harder)
• Character of employment (senior roles = more notice)
• Availability of similar employment (niche roles or weak job markets = more notice)

The rough rule of thumb, and it’s only a rule of thumb, is 1 month of notice per year of service. But courts have gone well above that for older employees in senior positions. The informal ceiling used to be 24 months. Recent cases have pushed past it.

In Currie v. Nylene Canada Inc. (2022), the Ontario Superior Court awarded 26 months’ notice to a 58-year-old employee with 38 years of service. In Lynch v. Avaya Canada Corporation (2023), 30 months was awarded. These aren’t outliers anymore. They’re part of a trend.

Do the math on that Mississauga example. 20 years of service. Let’s say a $95,000 salary. The statutory minimum was about 8 weeks. Common law reasonable notice? Probably 18-22 months. The difference between $14,600 and $158,000. That’s not a rounding error. That’s a house-sized liability hiding behind a spreadsheet calculation.

Working Notice vs. Pay in Lieu

Employers have a choice: provide working notice (the employee keeps working through the notice period) or pay in lieu (you pay them out immediately). Both are legal. Neither is simple.

Working notice can save significant money. If you owe 12 months of reasonable notice and the employee works for 8 of those months, you only pay 4 months at the end. But the notice has to be real. The employee must continue doing their actual job, with their actual responsibilities, at their actual compensation.

Reassigning someone to a closet. Stripping their duties. Having security escort them out and calling it “garden leave” without a garden leave clause in the contract. All of those can invalidate the working notice period entirely, leaving you on the hook for the full amount.

Pay in lieu is cleaner but more expensive upfront. You pay the full notice period as a lump sum (or salary continuance) and the employment relationship ends immediately. The advantage: certainty. No risk of the employee claiming the working notice was a sham.

There’s a third option that most employers forget about. A combination. Three months of working notice followed by a lump sum for the remainder. This can work, but get it in writing, and make sure the working portion is genuine.

Constructive Dismissal: The Termination You Didn’t Know You Made

You don’t have to hand someone a termination letter to trigger severance obligations.

Constructive dismissal happens when an employer makes a fundamental, unilateral change to the employment relationship. The employee doesn’t quit. They’re pushed out. And the law treats it identically to a termination without cause. Full common law reasonable notice applies.

What counts? The list is long, but the common triggers:

• Significant reduction in compensation (10-15%+ is the rough threshold)
• Demotion or removal of key responsibilities
• Forced relocation to a different city
• Changing someone from salary to commission-heavy without consent
• Creating or tolerating a toxic or hostile work environment

The Supreme Court of Canada confirmed in Potter v. New Brunswick Legal Aid Services Commission (2015) that constructive dismissal can be established either through a single fundamental breach or through a series of smaller changes that cumulatively amount to a breach. That second category is the one that catches employers off guard. No single decision felt like a big deal. But the cumulative effect was a termination.

Why Most Termination Clauses Don’t Actually Work

Every employment lawyer in Canada will tell you: get a good termination clause in the contract. That’s the advice. The reality is messier.

Canadian courts have been invalidating termination clauses at a remarkable rate. The leading Ontario case, Waksdale v. Swegon North America Inc. (2020), established that if any part of the termination provisions in a contract violates the ESA, the entire termination clause is void. Even if the specific provision that was triggered complied.

That means a perfectly drafted “without cause” clause can be killed by a flawed “with cause” clause sitting in the same contract. The court doesn’t sever them. It throws out both.

The result? A huge number of termination clauses signed before 2020, and plenty signed after by lawyers who weren’t paying attention, are unenforceable. Which means those employees are entitled to full common law reasonable notice.

If you haven’t had your employment contracts reviewed since Waksdale, you don’t actually know what your termination obligations are. You just think you do.

How to Calculate What You Actually Owe

There’s no formula that gives you the exact number. But here’s a framework that gets you in the right range before the lawyers get involved.

Step 1: Calculate the statutory minimum. Pull up your province’s employment standards legislation. Apply the formula based on years of service. In Ontario, remember to check both termination pay AND severance pay eligibility. This is your absolute floor.

Step 2: Assess common law exposure. Start with 1 month per year of service as a baseline. Adjust upward for age (over 50 adds months), seniority (managers and directors get more), specialization (niche roles with limited comparable positions), and local job market conditions. Adjust downward for junior roles, short tenure, or highly transferable skills.

Step 3: Check the contract. Is there a termination clause? Has it been reviewed post-Waksdale? Does it comply with current ESA requirements? If the answer to any of those is no or “I’m not sure,” assume common law applies.

Step 4: Factor in the full compensation package. Reasonable notice isn’t just base salary. It includes benefits continuation, bonus entitlements (if they would have been earned during the notice period), car allowances, stock options, and pension contributions. Courts regularly add 5-15% on top of salary for benefit loss alone.

A 55-year-old director of operations with 12 years of service earning $130,000 plus benefits? You’re realistically looking at 14-18 months of total compensation. That’s $150,000 to $200,000, not the $30,000 the statutory minimums might suggest.

Reducing Your Exposure Before It’s Too Late

The time to manage termination costs is not the day you decide to let someone go. It’s the day you hire them.

• Enforceable termination clauses. Drafted by an employment lawyer. Reviewed annually. Compliant with current employment standards legislation in every jurisdiction where you have employees.
• Updated contracts at every material change. Promotion? New contract. Salary increase? Updated agreement. Transfer to a new province? Fresh terms. Each change is an opportunity to implement or update a termination clause, but only with fresh consideration.
• Documentation. If you’re building a case for termination with cause, you need a paper trail. Performance reviews, written warnings, improvement plans, and clear timelines. Without documentation, “for cause” becomes “for lawsuit.”
• Progressive discipline policies. Applied consistently. Not invented retroactively when you’ve already decided to terminate.

And keep records of everything. Tenure dates, compensation changes, role changes, reporting relationships. When a termination becomes a dispute, the first thing anyone asks for is the employment history. The second thing they ask is why you can’t produce it.

That’s not a legal problem. That’s a systems problem. And systems problems are fixable.