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Terminations and Calculating Severance Pay in Canada: A Guide for Overseas Employers

In most countries, how employment ends can carry compliance hazards for international employers who are not familiar with the rules.  Terminating an employee for any reason is disruptive, and many countries have guidelines for notice periods, justifiable causes and severance pay to ease the transition.

This is the case in Canada, where there are statutory rules for termination and severance, and this quick guide will give you the basics if you are new to hiring in Canada.

Terminations in Canada

Does the employee need to provide notice?

No, not by statute, but the employment contract might have a required notice period for both the employee and employer.

Does the employer have to provide notice?

Yes, the employer has to give written notice of termination.  But there are exceptions to the rule such as less than three months of service, dismissal for just cause, end of a fixed contract, or lay-offs.

What are the required notice periods?

The employer must give a two-week notice of termination, or payment of salary in lieu of the notice period.

What is the difference between a lay-off and a termination in Canada?

A lay-off is considered temporary, but it will be deemed a termination if the employer does not plan to recall the employee.  Examples of ‘non-terminating’ lay-offs are strikes and lockouts, lay-offs of less than three months, and in some cases where there are recall rights with a collective bargaining agreement.

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Severance Pay in Canada

Does an employer have to pay severance in Canada?

Yes, if the employee has worked for 12 consecutive months preceding the termination or layoff.  Sometimes the employment contract will have different severance terms, but the statutory minimum must still be met.

How is the employee’s severance pay calculated?

Severance pay is equal to 2 days wages for every year of service, with a minimum severance payment of 5 days wages.

Are there exceptions to severance pay requirements?

If an employee does not return to work after a lay-off or simply quits, no severance payment is required.  Also, terminations for just cause and reaching the end of an employment contract do not require severance payment (unless the contract provides for it).

Client Case: Termination in Canada with Unused Vacation Payout

We had a client with an employee in Canada who was concerned about compliant termination and any severance payment due.  We checked with our local Canada partner and confirmed that the employee did not qualify for severance (less than 12 months service), but the employee was entitled to a payout for 11 days of unused vacation pay at their daily salary rate.

Do you need more information about Canada?

Employers who are new to hiring in Canada may have more questions such as:

What are the justifiable reasons for termination without notice?

Can an employee ask for partial payment in lieu of the two- week notice period, and work the remaining time? 

Are severance payments run through payroll or paid separately?

Our clients rely on the expertise and experience of Shield GEO and our local partners when employing in Canada to avoid any problems with meeting rules on payroll, employee benefits and labor laws.  We make international employment simple.

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Looking to hire an employee in Canada? Get in touch.

The information in this article is subject to changes in local legislation.

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