The Fundamentals of Severance Pay In Alberta

Understanding severance pay in Alberta is crucial for both employees and employers, as it ensures fair treatment during job transitions. 

What is Severance Pay

Severance pay is a financial package provided to employees who are terminated without cause. 

Employees are entitled to notice of the termination of their employment. In most cases, employers provide the employee with pay in lieu of notice, because notifying someone of the intention to terminate their employment ahead of time can be uncomfortable for both the employer and the employee. 

Pay in lieu of notice provided to employees in connection with the termination of their employment is what we commonly call “severance pay” or a “severance package”. This payment effectively pays the employee for what they would have earned if they worked through the notice period.

Employers are legally allowed to provide either notice OR severance pay, or a combination of both. 

Being informed about severance pay helps prevent legal disputes and fosters a more transparent and respectful work environment. For employees, knowing their rights helps in negotiating fair severance terms and planning their financial future. For employers, it ensures compliance with legal requirements and helps in managing the financial implications of layoffs or terminations.

Why are employers required to provide Severance Pay

In Alberta, an employer’s obligation to provide severance pay can be based on any one of the three following sources: 

(1) the Employment Standards Code, which sets out minimum entitlements for employees in Alberta. If employment is terminated without cause, the employer MUST provide the employee with their minimum notice entitlement under the Code; 

(2) the applicable employment contract, which may contain language addressing severance pay; 

(3) the common law, which consists of certain principles established by prior court decisions about the availability and calculation of severance pay. This obligation arises from a term implied into Alberta employment contracts, but this implied term can be negated by the actual terms of an employment agreement.

Eligibility Criteria for Severance Pay

Employees who are terminated without cause (i.e., not due to their own misconduct) are generally eligible for severance pay in Alberta. This applies to both full-time and part-time employees, as well as those on fixed-term contracts if their contracts are terminated early.

Any employee who is terminated for cause is not entitled to severance pay. However, just because an employer alleges they had just cause to terminate an employee’s employment does not mean they were actually entitled to do so. Whether employment is terminated with just cause is a complicated question that requires a fact specific analysis. 

Sometimes employees will resign because their employer has terminated their employment contract, resulting in a constructive dismissal of employment. Employees who are constructively dismissed are also entitled to severance pay.

A contractor may also be entitled to severance pay. Whether a contractor is a dependent or independent contractor depends on a variety of factors, including but not limited to: whether the contractor gets all their work from one source, or from multiple sources; the degree of control exercised over the contractor; whether the relationship is exclusive, and; whether the contractor supplies their own tools and equipment. If a contractor is dependant contractor, the contractor is entitled to severance pay.

Certain employees in the construction industry are not entitled to severance pay under the Employment Standards Code.

If you have only been employed with an employer for less than 90 days you are not entitled to severance pay under the Employment Standards Code. However, you may still be entitled to severance pay under your employment agreement or under the common law.

If you have questions about severance pay eligibility, book a consultation to speak with one of our employment lawyers.

Understanding Minimum Severance Pay Obligations

If employment is terminated without cause, the employer must provide the employee with their minimum notice entitlement or minimum severance pay under Alberta’s Employment Standards Code. 

If you are wondering how to calculate severance pay in Alberta under these minimums, please reference the table below:

How much is severance in Alberta under the Code
Length of employment	Amount of Severance
More than 90 days but less than 2 years	1 week
2 years but less than 4 years	2 weeks
4 years but less than 6 years	4 weeks
6 years but less than 8 years	5 weeks
8 years but less than 10 years	6 weeks
10 years or more	8 weeks

Calculate How Much Severance Pay You’re Owed Under Minimum Severance Pay Obligations

When calculating severance pay under Alberta’s Employment Standards Code, the amount paid to the employee must be at least equal to the “wages” the employee would have earned for the applicable termination notice period that is not covered by the notice.

The term “wages” includes:

• salary, 
• pay, 
• money paid for time off instead of overtime pay, and
• commission or remuneration for work.

The term “wages” does not include:

• overtime pay, 
• vacation pay, 
• general holiday pay,
• a payment made as a gift or bonus that is dependent on the discretion of an employer and that is not related to hours of work, production or efficiency,
• expenses or an allowance provided instead of expenses, or
• tips or other gratuities.

If an employee’s “wages” vary from one pay period to another, the employee’s termination pay must be determined by calculating the average of the employee’s “wages” during the previous 13 weeks of active employment.

If you have questions about your minimum severance pay entitlements in Alberta, book a consultation to speak with one of our employment lawyers.

Understanding Severance Pay Obligations Under Your Employment Contract

An employment agreement contains a clause addressing entitlement to severance pay. Additionally, under company documents and policies, including compensation plan manuals, can impact an employee’s entitlement to severance pay. 

In the case of senior level and executive employees, these clauses can often guarantee severance packages that greatly exceed the statutory minimums under employment standards legislation. 

In the case of non-senior level and non-executive employees, clauses addressing severance pay in Alberta often attempt to limit the employee’s entitlement to severance pay to the statutory minimums. However, very  specific language is required to ensure that these clauses are enforceable. There are several reasons why these clauses may not be enforceable, including:

1. Contradiction with Employment Standards Legislation: If the clause contravenes Alberta’s Employment Standards Code, which sets out minimum severance and termination pay requirements, it may be unenforceable. Employers must comply with these minimum standards, and any contractual term that reduces or waives these entitlements could be invalid.
2. Unconscionability: A clause might be unenforceable if it is deemed unconscionable, meaning it is excessively unfair or oppressive. Courts may find such terms unenforceable if they result in significant disadvantage to the employee or if the employee had limited bargaining power.
3. Repudiation: The employer may have inadvertently breached the employment agreement in a manner that prohibits the employer from relying on the termination clause. 
4. Lack of Consideration: For a contract clause to be valid, there must be consideration (something of value exchanged). If the clause restricting severance pay was not accompanied by new consideration when it was added or modified, it could be challenged as invalid.
5. Inadequate Disclosure or Misrepresentation: If the clause was not clearly disclosed to the employee or if there was misrepresentation about the terms and implications, it might be unenforceable. Employees must be fully informed about their rights and obligations.
6. Violation of Public Policy: Clauses that contradict public policy objectives, such as the protection of workers’ rights, may be unenforceable. Public policy often supports fair treatment of employees, and any clause that undermines this principle could be struck down.
7. Ambiguity or Vagueness: A clause that is ambiguous or vague about severance pay entitlements might be unenforceable. Clear and precise terms are necessary to ensure that both parties understand their rights and obligations.

If any of the above scenarios apply, the employee’s entitlement to severance pay will not be limited to the Code, and the employee will be entitled to severance pay in accordance with the common law.

If you have questions about your employment contract, book a consultation to speak with one of our employment lawyers.

Understanding Severance Pay Obligations Under the Common Law

In Alberta, the obligation to provide common law severance arises when an employer terminates an employee without cause, and the employee’s entitlement to notice is not fixed by their contract or limited to the statutory minimums set by the Employment Standards Code. 

Common law severance refers to the compensation an employee may be entitled to under common law principles. Under these principles there is no fixed method for calculating common law severance.  While prior court cases can be helpful, there is always room for argument and disagreement about a particular employee’s entitlement to severance under the common law. However, common law severance pay in Alberta is typically calculated based on the following four factors: 

1. Length of Service: Longer tenure generally results in a higher severance entitlement. Some employers and lawyers believe in certain rules directly correlating the number of years of service to a particular severance period, e.g. one month per year of service. However, there is no fixed rule and every case is different.
2. Position and Responsibilities: Higher-level positions generally warrant greater severance pay under the common law.
3. Age: Older employees may receive more severance due to potentially longer job searches.
4. Employment Market Conditions: The difficulty of finding comparable employment can influence the severance amount.

There are some severance pay calculators in Alberta which claim to calculate an employee’s entitlement to common law notice. These calculators may be accurate in certain circumstances, but because there is no fixed method of calculating common law notice the answer provided by any one of these calculators is merely a “best guess”. 

If you have questions about common law severance, book a consultation to speak with one of our employment lawyers.

Calculate How Much Severance Pay You’re Owed Under the Common Law 

In Alberta, when calculating common law severance pay, several components of compensation are typically considered to ensure that the severance package reflects what the employee would have earned had they been given reasonable notice or worked through the notice period. Unlike severance pay under Alberta’s Employment Standards Code, common law severance pay is not restricted to the definition of “wages”. This means that common law severance pay may include the following forms of compensation:

• Base salary;
• Bonuses;
• Commissions;
• Benefits;
• RRSP contributions; 
• Pension contributions;
• Stock options;
• Equity based compensation, including PSUs, RSUs, and stock options; 
• Allowances;
• Vacation pay;
• Overtime pay; and
• Any other compensation the employee would have earned had the employee remained employed through the notice period.

Keep in mind that entitlement to any of the above items is still expressly limited to the terms of the employment agreement, which may impact the employee’s entitlement to one or more of these forms of compensation during the notice period. 

Once the employee’s reasonable notice period is determined, severance pay can be calculated by determined by determining the total amount of compensation the employee can expect to receive over the notice period. 

There are some severance pay calculators in Alberta which claim to calculate the amount of an employee’s severance package. However, these calculators often do not capture all of the nuances associated with the above analysis, so we always encourage seeking legal advice when calculating severance pay. 

If you have questions about common law severance, book a consultation to speak with one of our employment lawyers.

How can mitigation impact entitlement to common law severance?

When assessing the fairness of any particular severance package, the impact of mitigation must be considered. 

An employee who has lost their job must take all reasonable steps to secure comparable alternative employment to minimize the financial impact of their dismissal for themselves. This is referred to as mitigating damages.

While there’s no perfect standard for assessing mitigation, there are things employees are expected to do to demonstrate that they have made reasonable efforts to secure comparable alternative employment:

• Begin the job search right away. This is because damages are awarded based on how long the court believes it could take to find comparable employment, known as the notice period, not based on how long it actually takes. That means if an employee takes longer to find a job, they won’t necessarily be entitled to more in damages.
• Search for similar employment. This means searching for something that aligns with their current level of experience, expertise and standing within the same or similar industry. They are not expected to take a position outside their industry or well below their qualifications. 
• Document all job search efforts. This may be used to prove mitigation in the legal process.

If an employee advancing a claim for wrongful dismissal finds alternate employment within the period of reasonable notice, earnings from this new employment will be deducted from the award of pay in lieu of notice. Conversely, if an employee does not take any steps to mitigate their damages, the Court may arbitrarily reduce the entire amount of their entitlement to pay in lieu of notice. 

The employer is responsible for proving a failure to mitigate by showing that the employee would have secured alternate employment had they taken reasonable steps in their job search.

If you have questions about mitigation, book a consultation to speak with one of our employment lawyers.

If you have questions about a severance package

Seeking legal advice regarding severance packages in Alberta is crucial for several reasons. 

In our view, the number main benefit of a severance package review if peace of mind. Our lawyers have ample experience with severance package review, and we can reduce the stress and confusion associated with a challenging situation. Moreover, legal advice provides clarity and confidence, helping employees make informed decisions.Having a legal expert on your side can alleviate concerns about whether you are receiving a fair deal and help you address any disputes that arise effectively.

A severance package review also helps ensure that employees receive fair and adequate compensation, and that employers comply with legal obligations. A lawyer can help with the following:

1. Understanding Rights and Entitlements: Lawyers can thoroughly review employment contracts, company policies, and relevant laws to clarify the employee’s entitlements. They can determine if the severance package meets or exceeds statutory and common law requirements.
2. Common Law vs. Statutory Requirements: Lawyers can help differentiate between minimum statutory severance entitlements under employment standards legislation and additional common law severance rights, which can often be more favorable.
3. Optimizing Severance Packages: Legal experts can negotiate on behalf of employees to secure a more favorable severance package. They can leverage their knowledge of employment law and previous case precedents to advocate for fair compensation.
4. Identifying Unfair Terms: They can identify and challenge any terms in the severance agreement that might be unfair or disadvantageous, ensuring that the employee’s best interests are protected.
5. Complex Compensation Packages: Severance packages can include various components such as bonuses, stock options, or pension benefits. Legal professionals are adept at evaluating and negotiating these complex elements to ensure fair treatment.
6. Unique Circumstances: Each employee’s situation is unique. Legal advice ensures that specific factors, such as long-term employment, high-level positions, or special contractual provisions, are properly considered.
7. Legal Documentation: Lawyers ensure that all legal documentation is accurate and comprehensive, reducing the risk of future conflicts and misunderstandings.

If you have questions about your severance package, book a consultation to speak with one of our employment lawyers.

FAQs on Severance Pay