How Much Severance Pay Is Owed: Federal vs Ontario vs Alberta?

Severance pay compared: Ontario, federal, Alberta

Which rules apply, and how much is owed, depends entirely on which law governs the employment relationship: Ontario’s Employment Standards Act, 2000 (ESA), the federal Canada Labour Code (CLC) for federally regulated employers, or Alberta’s Employment Standards Code. The three systems are not variations on one formula; they are structurally different.

Which framework applies to you

The threshold question is not “how much” but “which law.” An employer that is federally regulated is subject to the Canada Labour Code regardless of the province where the employee works. An employer that is provincially regulated is subject to the ESA if the employment is in Ontario, or the Employment Standards Code if the employment is in Alberta. The sources reviewed do not list which industries fall under federal regulation, so if there is any doubt about which statute governs a given employer, that should be confirmed before applying any of the figures below.

Within Ontario, there is a second threshold question layered on top of jurisdiction: even a long-service Ontario employee only qualifies for statutory severance pay (as opposed to termination pay alone) if the employer meets the $2.5 million payroll test, or is closing permanently and severing 50 or more employees within six months. An employee can meet the five-year service test and still not qualify for severance pay if the employer’s payroll falls below that threshold.

Ontario: severance pay is separate from termination pay

Ontario’s ESA defines “severance pay” as compensation for losses, such as loss of seniority, that occur when a long-term employee loses their job. It is distinct from termination pay, which arises from the separate termination-of-employment rules. Employment is “severed” when the employer dismisses the employee, constructively dismisses them (a unilateral, substantial change to a fundamental term of employment that the employee treats as ending the job), lays them off for 35 or more weeks in a 52-week period, permanently closes the business, or the employee resigns with notice within a set window after being given termination notice.

Where the two qualifying conditions are met (five-plus years of service and the $2.5 million payroll or mass-closure test), severance pay is calculated by multiplying the employee’s regular wages for a regular work week by the number of completed years of employment plus the number of completed months of an incomplete year divided by 12, up to a maximum of 26 weeks. For employees not paid on a time-worked basis, “regular wages for a regular work week” is averaged over the last 12 weeks worked. Termination notice period weeks, whether worked or paid in lieu, count toward the completed years and months used in this calculation.

Severance pay is due seven days after the employment is severed or on the employee’s next regular pay day, whichever is later. An employer may spread payment over an installment plan of up to three years with the employee’s written or electronic agreement, or Director approval; missing a scheduled installment makes the full remaining amount due immediately. Severance pay is not owed where the employee refused reasonable alternative employment, retired on a full pension recognizing all years that would have been worked, the closure was strike-caused, the role was in construction or on-site maintenance, there was wilful misconduct, or the contract was frustrated for reasons other than bankruptcy, insolvency, or the employee’s own illness or injury.

Federal: a service-based formula with no payroll threshold

Under the Canada Labour Code, an employer that terminates an employee who has completed 12 consecutive months of continuous employment must pay severance pay, except where the termination is a dismissal for just cause (conduct serious enough to justify ending the employment without notice). The amount is the greater of two days’ wages at the employee’s regular rate for their regular hours, per completed year of employment, or five days’ wages. Unlike Ontario, there is no separate employer payroll or mass-layoff threshold governing eligibility; the 12-month service test is the qualifying condition. The obligation to pay, and the employee’s right to receive it, apply whether or not the employee also pursues another redress procedure available under the Code, such as an unjust dismissal complaint.

Alberta: statutory notice, not statutory severance

Alberta’s Employment Standards Code does not create a “severance pay” entitlement at all; Alberta.ca states plainly that severance pay beyond the statutory minimum is determined under common law, not the Code. What the Code does require, where an employee is terminated without cause, is a minimum written termination notice (or pay instead of notice) that rises with length of service: no requirement at 90 days or less, one week between 91 days and under 2 years, two weeks between 2 and under 4 years, four weeks between 4 and under 6 years, five weeks between 6 and under 8 years, six weeks between 8 and under 10 years, and eight weeks at 10 or more years. An employer may pay the employee’s wages for the notice period instead of having them work it. No notice or pay is required where the employer establishes just cause. A temporary layoff that exceeds 90 days within a 120-day period is treated as a termination, which brings the notice/pay obligation into play.