Severance pay is strictly regulated by rules and guidelines

Severance pay is a term used to describe money paid to employees whose employment is terminated by the employer. However, not everybody in such situations is entitled to severance pay, and the amount payable will depend on a number of considerations. Further, the government has established some statutory requirements for payment, and the applicable rules might vary from one province to the next.

What is the difference between severance and termination pay?

An employee whose employment is terminated without cause is entitled to their final wages up to the termination date, including outstanding vacation pay and other bonuses still due to the employee.

In addition, under the British Columbia Employment Standards Act, an employee is entitled to statutory termination pay. Where an employee is terminated without just cause and not given the required written notice, the amount of termination pay due is based on the period of service. After serving three months in the company, an employee is entitled to receive one week’s pay in lieu of notice, and after that, months and years of employment serve as the basis for calculating statutory termination pay.

Employees may also have an additional claim to reasonable notice at common law outside of the statutory requirements. Sometimes, an employee and employer reach an agreement on the terms of the termination of employment, which may involve a financial package, frequently called a severance package.

What makes employees ineligible for termination pay?

Based on the Employment Standards Act, the following circumstances will disqualify employees from receiving statutory termination pay:

• Less than three consecutive months of service for the company
• When employment is terminated for “just cause”
• An employee who retires, quits or leaves for other reasons on his or her own terms
• The employee is a contractor with the terms of employment specified in a contract
• An employee whose personal circumstances make it impossible to continue working
• If written notice equal to or more than the regulated period is given

It is always a good idea for British Columbia employees to stay informed about severance pay matters. Although being terminated is not something most employees anticipate, knowing their rights and eligibility for severance pay might provide peace of mind.