How does severance pay work and when is it required?

Severance pay is a form of compensation provided to an employee by their employer when the employee’s employment is terminated without cause (i.e., no fault of their own) and adequate notice of termination is not provided to the employee. The employee must have completed a minimum of three months of continuous employment with the employer to qualify for severance pay. British Columbia employers and employees should familiarize themselves with the details of severance pay as required under section 63 of the British Columbia Employment Standards Act. 

What is the aim of severance pay and how is it paid?

The aim of severance pay is to soften the blow of a termination and provide transitional support for the financial challenges an employee might expect while looking for another job. Severance is paid in either a lump sum or through a “salary continuation.” Some employees may prefer a salary continuation because it can include the elongation of benefits like pension contributions. In other cases, a lump sum is preferable because it can provide more financial planning options.  

How much severance pay is an employee entitled to in BC?

The amount of severance pay an employee will receive depends on their length of service. The British Columbia Employment Standards Act lays out the minimum amount of severance pay that an employee is owed as follows:

• After serving three consecutive months of employment, an employee is entitled to one full week’s pay as severance
• After twelve consecutive months of employment, an employee is entitled to two full week’s pay
• After three consecutive years of employment, an employee is entitled to three full week’s pay
• After each additional year of employment, an employee is entitled to an additional week’s full pay

Note that the maximum amount of severance available in British Columbia is 8 weeks of pay.

Employers often restrict employees’ severance amounts to the minimums set under the Employment Standard Act through a properly worded termination clause in their employment contract. Although severance amounts are often prearranged in employment contracts, employees might find themselves in a position to negotiate the particulars of their severance pay or seek severance under the “common law” in certain circumstances. 

Before receiving severance, employers will often ask the employee to sign a legal document known as a severance agreement. An experienced British Columbia employment lawyer can play an essential role in ensuring this is a fair process. Whether you want to determine if the severance package you have been offered by your employer is fair, or you are an employer who is offering a severance package to an employee, an experienced employment lawyer can help you navigate severance packages.