Understanding Severance Pay
Losing your job is never easy. Consistency goes out the window, money can get tight, and the job market can be a pretty unfriendly place. Luckily, knowing the law can take most of the uncertainty out of the process of termination, and with easily accessible provincial and federal regulations controlling notice, layoff practices, and most notably, severance pay, you shouldn’t be left in the dark.
Severance, or termination pay, is often something you are entitled to or can be negotiated when you start a new job. We all know it is very important to read over your contracts in detail (or get a lawyer to help you), and your employment contract is no exception. This document will contain some vital information about what will happen if your employment is terminated and what your rights are.
Basically, there are three possible outcomes to losing your job: you will get an official termination notice from the employer, you will get termination pay, or a combination of the two. This isn’t negotiable by your employer; it's the law, written by the provincial government in the Alberta Employment Standards Code (AESC). There are of course some exceptions, but below is a helpful FAQ about severance pay that may clear the fog around this sensitive subject.
Am I entitled to severance pay?
There are a few places to check to see if you are entitled to money when you are terminated: try your employment contract, your initial offer letter, or any employee handbooks your company may have provided. You won’t be entitled to pay if you have worked there for only 90 days or less, and they wouldn’t even have to give you notice to terminate you. Additionally, the nature of your dismissal can have an impact on any notice or severance you receive. Remember to keep a hold of your termination letter, it's a legal document! If you work with a union, make sure to consult your union agreement for details around termination.
How much severance pay am I entitled to?
According to the AESC, the amount of termination pay you are entitled to is tied to the duration of your employment. Depending on how long you’ve worked there, your employer must give a certain amount of notice for termination. The amount you would receive must be at least what you would have earned during that appropriate notice period. If your pay rate varies, the amount would be averaged from the past 13 weeks of your employment and then applied to the same period of time. Below is a handy chart listing the applicable notice periods:
Employment Duration Required Notice
> 90 days, < 2 yrs 1 week
≥ 2 yrs, < 4 yrs 2 weeks
≥ 4 yrs, < 6 yrs 4 weeks
≥ 6 yrs, < 8 yrs 5 weeks
≥ 8 yrs, < 10 yrs 6 weeks
10 yrs or more 8 weeks
As stated above, you are entitled to at least what you would have earned, but it's possible you could receive more. You also may be entitled to certain benefits included in your severance package, like help with the job search, so make sure to look for those.
Some industries are federally regulated and therefore have federally regulated severance under the Federal Labour Code. Check to see if this applies to you!
What will happen when I’m terminated?
You will be asked to sign a severance agreement if you are to receive termination pay. Make sure to read it over carefully before signing, or even better, get a lawyer to look at it! They are trained to see the nitty gritty details of documents like this, and may be able to catch discrepancies before you sign away your right to object to the terms of your pay.
How will I be paid?
Your severance pay will come to you either in a lump sum, a continuance of your salary, or in deferred payments. Your employer may even let you choose your method!
Will I have to pay tax on my severance pay?
As Ben Franklin once said, “nothing can be said to be certain, except death and taxes.” Your severance pay is subject to income tax, but how much tax you pay on this amount will depend on the method you are paid by. If you choose to be paid by a salary continuance, you would most likely pay less tax on your severance as opposed to a lump sum payment.
