Severance Pay Under the Canada Labour Code: Eligibility and Calculation

Under the Canada Labour Code (the Code), Part III, Division IX, Canada Labour Code severance pay is a mandatory entitlement for employees in federally regulated workplaces who have completed 12 consecutive months of continuous employment and whose employment is terminated by the employer. The calculation formula is straightforward: an eligible employee receives 2 days' regular wages for each completed year of service , subject to a minimum of 5 days' wages regardless of tenure. This entitlement is separate from—and in addition to—termination notice or pay in lieu of notice. If you operate in a federally regulated industry such as banking, telecommunications, interprovincial transportation, airlines, postal services, or broadcasting, these rules apply to your workforce. Understanding the distinction between severance pay and termination pay, knowing when exceptions apply, and calculating the correct amount are essential to staying aligned with monitored government sources and avoiding costly complaints to the Labour Program. One of the most common errors federally regulated employers make is conflating severance pay with termination notice pay (pay in lieu of notice) . These are two distinct obligations under the Canada Labour Code , and both may be owed simultaneously upon termination. Termination Notice or Pay in Lieu Under the Code's individual termination provisions, an employer who chooses to terminate an employee must provide: A minimum of 2 weeks' written notice of termination, or Regular wages in lieu of notice for the applicable notice period For employees who have completed at least 3 years of service , the minimum notice requirement increases to 1 week per completed year of employment , up to a maximum of 8 weeks of notice A combination of notice and wages in lieu of notice is permitted For a detailed breakdown of these notice requirements, see our guide on federal termination notice . Severance Pay Severance pay is an additional payment owed to employees who have completed 12 consecutive months of continuous employment at the time of termination. It is calculated using a different formula (discussed in detail below) and serves a different purpose—compensating longer-serving employees for the loss of their position. Key takeaway: An employee with 5 years of service who is terminated without cause is entitled to both termination notice (or pay in lieu) and severance pay. These are not interchangeable, and one does not satisfy the other. Eligibility for severance pay under the Canada Labour Code is confirmed by the Government of Canada’s federal labour standards guidance. An employee is entitled to severance pay if they have completed 12 consecutive months of continuous employment and their employment is terminated by the employer. The same federal guidance notes that, for the purpose of that page, 'employee' includes persons often referred to as interns, but excludes student interns undertaking internships to fulfill the requirements of their educational program. These severance rules apply in the federal jurisdiction under Part III of the Canada Labour Code. If an employer is not federally regulated, provincial or territorial employment standards apply instead. Under the federal labour standards guidance, an eligible employee is entitled to severance pay of 2 days’ regular wages for each completed year of employment, with a minimum of 5 days’ wages. This severance entitlement is separate from termination notice or pay in lieu of notice. Any discussion of overtime, bonuses, premiums, vacation pay, or gratuities should therefore be omitted unless supported by an official federal source. Based on federal government sources, severance pay under the Canada Labour Code is not owed in the following circumstances: The employee has not completed 12 consecutive months of continuous employment The employee voluntarily resigns The employee is on a temporary lay-off that does not constitute a termination of employment The employee is dismissed for just cause (source: canada.ca/termination ) Note: The standard for establishing just cause in the federal jurisdiction is rigorous. Employers relying on just cause should ensure thorough documentation of progressive discipline and the specific conduct warranting dismissal. A group termination occurs when 50 or more employees working at a single industrial establishment are terminated on the same date or within any 4-week period. In that situation, the employer must comply with the group termination rules, including giving written notice to the Labour Program’s Head of Compliance and Enforcement at least 16 weeks before the termination takes effect, subject to possible waiver rules described by the Government of Canada. The Government of Canada also confirms that affected employees must receive severance pay if they had more than 12 months of continuous service. Employers must also provide a statement of benefits not later than 2 weeks before the date of termination,