Understanding Termination And Severance In Canadian Employment Law: What Employers And Employees Need To Know

Ending an employment relationship is a significant legal event. Whether it is initiated by the employer or the employee, it carries real consequences that can affect finances, professional reputations, and future opportunities. For employers, improper handling of a termination can result in costly legal claims, reputational harm, and unexpected financial liability. For employees, misunderstanding your rights at the time of termination may mean walking away without the full compensation you are legally entitled to.

Understanding the legal framework surrounding termination is essential. Both employees and employers need to be aware of the rules that govern how and when a termination can occur, what types of compensation may be owed, and the difference between statutory and common law entitlements. Yet, many people remain unaware of these key principles, leading to avoidable conflicts, missed entitlements, and legal exposure.

This article outlines the core legal concepts around termination and severance in Canada, highlighting the importance of proactive planning, properly drafted employment contracts, and informed decision-making in managing the end of an employment relationship.

Termination With and Without Cause

In Canada, employers may terminate employees either with cause or without cause.

Termination with cause means that an employer alleges serious misconduct or a fundamental breach of the employment contract by the employee. Examples include theft, fraud, dishonesty, or gross insubordination. Courts impose a high threshold on just cause because losing one's job without notice is a severe consequence. If the employer cannot prove just cause, the termination will be considered wrongful and the employee may be entitled to damages.

Termination without cause is far more common. It means the employer ends the employment relationship for reasons other than employee misconduct. In these cases, the employer must provide reasonable notice or pay in lieu of notice to the employee. The amount of notice is intended to give the employee time to find new employment and is based on factors such as length of service, age, position, and availability of similar jobs.

Minimum Statutory Entitlements

Each province in Canada as well as the federal government for federally regulated industries has employment standards legislation that sets out minimum notice periods or pay in lieu that employers must provide on termination. For example, in Saskatchewan, The Saskatchewan Employment Actrequires employers to provide between zero and eight weeks of notice or pay in lieu depending on the employee's length of service.

These statutory minimums are mandatory and cannot be waived by contract. They apply regardless of the circumstances of termination except in cases where just cause is established.

Common Law Reasonable Notice and the Bardal Factors

In addition to the statutory minimum notice periods set out in provincial or federal employment standards legislation, many employees are also entitled to reasonable notice under the common law. This common law entitlement often significantly exceeds the statutory minimum, particularly for long-serving or senior employees whose contracts do not clearly and lawfully limit their termination entitlements.

The principles used to assess common law notice were established in the leading case of Bardal v. Globe and Mail Ltd., 1960 CanLII 294 (ONSC). Known as the Bardal factors, these criteria include:

• The length of the employee's service
• The nature and character of the employment, including the level of responsibility and seniority
• The employee's age at the time of termination
• The availability of similar employment, considering the employee's education, experience, and qualifications

There is no strict formula or calculator. Courts assess these factors case-by-case, often relying on precedent and the overall context of the employment relationship.

What Employees May Be Entitled To and What Employers May Be Required to Pay

For employees, termination without cause can trigger significant compensation entitlements beyond the statutory minimums. Unless an employment contract clearly and lawfully limits entitlements, the employee may be entitled to common law reasonable notice, which is often much more generous. Depending on the Bardal factors, such as length of service, the nature of the role, the employee's age, and the availability of comparable employment considering experience, education, and training, notice periods can range from several months to 24 months or more.

During the reasonable notice period, employees are typically entitled to receive more than just their base salary. Courts may also require the continuation or payment of benefits, bonuses, commissions, and other employment-related compensation, unless these are lawfully excluded in a valid contract.

For employers, this can mean that terminating a long-serving employee may carry substantial financial obligations, especially if there is no enforceable agreement in place limiting severance to statutory minimums. Severance obligations can quickly escalate into the tens or even hundreds of thousands of dollars, particularly when senior or specialized employees are involved. Employers may also face liability for wrongful dismissal if they miscalculate what is owed or fail to provide proper notice.

Careful legal planning, including well-drafted employment agreements and timely legal advice, can help employers manage these risks and avoid costly disputes.

The Importance of Employment Contracts

A carefully drafted employment contract can define the terms of termination and limit liability. However, contracts must comply with minimum employment standards legislation and clearly communicate termination entitlements. Ambiguous or unenforceable termination clauses will default to common law standards, which may be more generous to the employee.

Both employers and employees should review contracts carefully and seek legal advice to ensure their rights and obligations are clear and enforceable.

Practical Considerations for Employers and Employees

For employees, it is essential to understand that the initial severance offer from an employer may not reflect the full legal entitlement. Accepting an offer without legal advice can result in waiving additional claims for compensation or damages.

For employers, failure to comply with statutory or common law termination obligations exposes the business to wrongful dismissal claims, costly litigation, and reputational damage. Proactive risk management through sound policies, clear communication, and thorough legal review of employment contracts can significantly reduce these risks. Experienced employment lawyers can assist employers in drafting contracts that include clear termination provisions, enforceable waivers, and release agreements to protect the employer's interests and help avoid hefty severance payments. By addressing potential issues before termination, employers can navigate separations more smoothly and with greater legal certainty.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.