Employment Law
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In British Columbia, “severance pay” usually refers to two different things: the minimum compensation for length of service under the Employment Standards Act, and the often larger common-law “reasonable notice” a court may award. Knowing which one applies to you is the first step in judging whether an offer is fair.
Losing a job is stressful, and severance offers often arrive with short deadlines and unfamiliar language. This guide explains the statutory minimums, how common-law notice is assessed, when a termination clause in your contract may not hold up, what happens with group terminations and layoffs, and how severance affects Employment Insurance and income tax. It is written for both employees and employers in BC.
Key points
Table of contents
People use “severance pay” to describe the money an employer pays when it ends employment without cause. The BC Employment Standards Act, RSBC 1996, c 113 (the ESA) does not use that phrase for the individual entitlement. Section 63 calls it compensation for length of service, and s. 1 separately defines “termination pay”.
Separately from the ESA, most employment contracts include an implied term that the employer must give reasonable notice of termination, or pay in lieu of notice. This common-law entitlement is often larger than the ESA minimum. Which amount you are owed depends on your contract, your history with the employer and the reason your employment ended.
Under s. 63 of the ESA, an employer that ends employment without just cause must pay compensation for length of service, or give written working notice, or a combination of both:
The amount is calculated from the employee’s regular weekly wages over the last 8 weeks in which the employee worked normal or average hours (s. 63(4)). The employer’s liability is discharged if the employee quits, retires or is dismissed for just cause (s. 63(3)(c)).
Under s. 67(1), written notice has no effect if its notice period coincides with certain periods, such as a temporary layoff, vacation or leave, or if the employee keeps working after the notice period ends.
Section 65 excludes certain employees from ss. 63 and 64, including employees hired for a definite term, employees hired for specific work lasting up to 12 months, certain on-call temporary employees, and employees at construction sites where the employer’s principal business is construction. It also covers a contract that has become impossible to perform because of an unforeseeable event or circumstance, with exceptions related to insolvency. If an employee keeps working for at least 3 months after a definite term or specific work ends, s. 65(2) treats the employment as if it was not for a definite term or specific work.
Other rules matter too:
If 50 or more employees at a single location are to be terminated within any two-month period, s. 64 requires additional group notice: 8 weeks for 50 to 100 employees, 12 weeks for 101 to 300, and 16 weeks for 301 or more. Notice must be given to the affected employees, any union representing them, and the Minister. If notice is not given, the employer must pay termination pay instead, or combine notice and pay. These group obligations are in addition to each employee’s individual entitlement under s. 63.
Unless a valid contract term says otherwise, an employee dismissed without cause is generally entitled to reasonable notice. In Machtinger v. HOJ Industries Ltd., [1992] 1 SCR 986, the Supreme Court of Canada described reasonable notice as a presumption that can be rebutted only if the contract clearly specifies some other notice period.
The classic factors come from Bardal v. Globe & Mail Ltd. (1960), 24 DLR (2d) 140 (Ont HC): the character of the employment, the employee’s length of service, the employee’s age, and the availability of similar employment, having regard to the employee’s experience, training and qualifications. These factors are not a formula; there is no fixed number of weeks per year of service.
Courts often describe 18 to 24 months as the general upper range in ordinary cases, but it is not a hard cap. In Singh v. British Columbia Hydro and Power Authority, 2001 BCCA 695, the BC Court of Appeal found exceptional circumstances and awarded 27 months (para. 53).
Many employment contracts try to limit severance to the ESA minimum. An employer can contract out of common-law reasonable notice, but the clause must comply with the ESA. In Miller v. Convergys CMG Canada Limited Partnership, 2014 BCCA 311, the BC Court of Appeal said that a notice provision that does not comply with the statutory minimums is null and void, and the employee is then entitled to reasonable notice (para. 18). In that case, the clause was upheld.
In Hoem v. Macquarie Energy Canada Ltd., 2025 BCSC 446, the BC Supreme Court found a termination clause void from the beginning because it could result in less than the statutory minimum, including where commissions affected regular wages (para. 116). Results depend closely on the exact wording and the facts, which is why a contract review is worthwhile before you accept or refuse an offer.
Federally regulated employers, such as airlines, banks and telecommunications companies, are governed by the Canada Labour Code rather than the BC ESA; Egan v. Harbour Air Seaplanes LLP, 2024 BCCA 222, is an example of a case decided under the federal Code.
An employer that has just cause does not owe ESA compensation or reasonable notice. Just cause is a high bar. In McKinley v. BC Tel, 2001 SCC 38, the Supreme Court of Canada rejected an automatic rule that any dishonesty justifies dismissal; the question is whether the misconduct caused a breakdown in the employment relationship, and the sanction must be proportionate to the misconduct (paras. 48 and 53).
Constructive dismissal happens when an employer, without actually firing the employee, breaches the contract in a serious way or shows it no longer intends to be bound by it. Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, describes both branches (paras. 32 and 33). Examples can include a major cut in pay or duties, but every case depends on its facts.
A dismissed employee is expected to make reasonable efforts to find comparable work, and money earned may reduce damages. In Evans v. Teamsters Local Union No. 31, 2008 SCC 20, the Supreme Court of Canada held that mitigation can sometimes include accepting temporary work with the same employer, but an employee is not required to work in an atmosphere of hostility, embarrassment or humiliation (para. 30). The employer bears the burden of proving a failure to mitigate.
Additional damages are possible but limited. Under Honda Canada Inc. v. Keays, 2008 SCC 39, damages for mental distress require proof that the manner of dismissal caused actual distress beyond the normal hurt of losing a job (para. 59), and punitive damages are reserved for exceptional, harsh and malicious conduct (para. 68). In Lau v. Royal Bank of Canada, 2017 BCCA 253, the BC Court of Appeal set aside an aggravated damages award for lack of evidence (paras. 68 and 69).
EI: under s. 36(9) of the Employment Insurance Regulations, SOR/96-332, earnings paid because of a layoff or separation are allocated to the weeks starting with the week of separation, which can affect when EI benefits begin. Whether a particular payment counts as earnings depends on its character, so check with Service Canada about your own situation.
Tax: under the Income Tax Act, an amount received in respect of the loss of an office or employment is generally a “retiring allowance” (s. 248(1)) and is included in income (s. 56(1)(a)(ii)). Severance is not automatically tax-free. A limited deduction under s. 60(j.1) may apply in specific circumstances. Consider speaking with a tax professional about the structure of any payment.
For employers, a clear and compliant termination clause, accurate calculation of the ESA minimum and a fair, well-documented process can reduce the risk of disputes.
Pax Law Corporation’s employment lawyers review termination letters, severance offers and employment contracts, and advise employers on termination clauses and group terminations. Learn more about our employment law services, our severance package review, wrongful dismissal and employment contracts services. Related reading: wrongful dismissal in British Columbia.
If you are dismissed without just cause and are not excluded, the Employment Standards Act requires compensation for length of service or written notice once you have worked 3 consecutive months. You may also be entitled to common-law reasonable notice.
One week’s wages after 3 consecutive months, 2 weeks after 12 months, and 3 weeks after 3 years plus 1 week for each additional year, to a maximum of 8 weeks (s. 63).
Not necessarily. Unless your contract clearly and lawfully limits your entitlement, you may be entitled to common-law reasonable notice, which is based on factors such as your age, length of service, type of job and the availability of similar work.
There is no fixed cap. Courts often treat 18 to 24 months as the general upper range, but in Singh v. British Columbia Hydro and Power Authority, 2001 BCCA 695, the Court of Appeal awarded 27 months in exceptional circumstances.
It can be, if the clause is clear and complies with the ESA. A clause that could provide less than the statutory minimum is void, and reasonable notice then applies (Miller v. Convergys CMG Canada Limited Partnership, 2014 BCCA 311).
No. Section 4 of the ESA says its requirements are minimums and an agreement to waive them has no effect, subject to a narrow exception.
No ESA compensation is owed if you are dismissed for just cause, but just cause is a high standard and the employer must prove it. Courts look at whether the misconduct broke down the employment relationship and whether dismissal was proportionate.
A serious unilateral change may amount to constructive dismissal under the test in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10. Under the ESA, the Director may decide that a substantial alteration terminated the employment.
If you claim common-law damages, you are expected to make reasonable efforts to find comparable work. Money you earn may reduce the damages. The employer must prove that you failed to mitigate.
It can. Under s. 36(9) of the Employment Insurance Regulations, earnings paid because of a separation are allocated to the weeks starting with the week of separation, which can delay benefits. Check with Service Canada about your situation.
Generally yes. A payment for loss of employment is usually a retiring allowance under the Income Tax Act and is included in income. A limited deduction may apply in some cases.
Generally 6 months after your last day of employment (s. 74), although the Director may extend the time in special circumstances. A court claim for reasonable notice follows a separate limitation period.
If you have received a termination letter or severance offer, or you are an employer planning a termination, Pax Law Corporation can review your documents and explain your options. Pax Law Corporation is a general practice with offices in North Vancouver and Toronto, and you can book a consultation with either office.
This article discusses BC law. Employees in Ontario and federally regulated workplaces are governed by different legislation.
This article is for general information only and is not legal advice. The law can change and every case is different. Reading it does not create a lawyer–client relationship. For advice about your own situation, please book a consultation with a lawyer.
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