Canada — Termination & Severance

Canadian employment law — including rules governing termination, notice, and severance — operates within a dual federal-provincial jurisdictional framework rooted in the Constitution Act, 1867. The structure determines which statute applies to a given employee: a minority of the Canadian workforce falls under federal jurisdiction and is governed by Part III of the Canada Labour Code (R.S.C., 1985, c. L-2), while the majority fall under provincial or territorial employment-standards statutes.

## Federal jurisdiction: industries "for the general advantage of Canada"

The Constitution Act, 1867, s. 91 reserved to the federal Parliament exclusive legislative authority over specific classes of subjects, including the regulation of trade and commerce, navigation and shipping, postal service, and enumerated federal works and undertakings. Section 2 of the Canada Labour Code defines "federal work, undertaking or business" to mean any work, undertaking, or business that is within the legislative authority of the Parliament of Canada, including those declared by Parliament to be "for the general advantage of Canada or for the advantage of two or more of the provinces."

Industries commonly within federal jurisdiction include:

• Banks and other federally incorporated financial institutions
• Airlines, railways, and trucking companies engaged in interprovincial or international transport
• Telecommunications carriers (telephone, internet, broadcasting)
• Ports, shipping, and marine services
• Federal Crown corporations and departments

For employees in these sectors, Part III of the Canada Labour Code establishes statutory termination notice periods (s. 230–234), severance-pay entitlements (s. 235), and an unjust-dismissal complaint procedure (s. 240–246), adjudicated by the Canada Industrial Relations Board.

## Provincial jurisdiction: the default regime for most workers

All other employees — those working in retail, construction, hospitality, provincial government, health care, education, manufacturing (except where an undertaking crosses provincial lines), and local services — are governed by the employment-standards statutes of the province or territory in which they work. Each of Canada's ten provinces and three territories has enacted its own employment-standards legislation (for example, Ontario's Employment Standards Act, 2000; British Columbia's Employment Standards Act; Quebec's Act respecting labour standards).

Provincial statutes set their own rules on:

• Statutory notice (or pay in lieu) based on length of service
• Severance pay (in jurisdictions where it exists; jurisdictional practice varies)
• Group termination and mass-layoff obligations
• Termination during probationary periods and fixed-term contracts

Because the majority of Canadian employees work in provincially regulated industries, a cross-border employer hiring in Canada must first identify whether the role falls under federal or provincial law, then consult the relevant statute.

## Jurisdictional line can be subtle

Determining which regime applies is not simply a question of employer size or ownership; it turns on the nature of the work and whether the undertaking is functionally integral to an interprovincial or international operation. For example, a software engineer employed by a bank (a federally regulated financial institution) falls under the Canada Labour Code; a software engineer employed by a provincial retailer is governed by provincial law — even if both work remotely from the same city.

When an employee's work crosses jurisdictional lines (for example, a trucker who makes both local and interprovincial runs), Canadian courts and administrative tribunals apply a functional analysis examining the normal and habitual activities of the undertaking to determine the core character of the business. Misclassification can expose the employer to parallel compliance obligations or retroactive liability under the correct regime.

## Common-law reasonable notice overlays both regimes

Statutory minimums — federal or provincial — represent a floor, not a ceiling. Under Canadian common law, an employee dismissed without cause is entitled to reasonable notice (or pay in lieu) determined by a multi-factor analysis that considers length of service, age, position, and availability of comparable employment (often summarized by reference to the 1960 decision Bardal v. The Globe and Mail Ltd., though that case itself is persuasive, not statutory, authority). Common-law awards often significantly exceed statutory minimums, and a poorly drafted termination clause may be struck down if it purports to limit the employee to less than the applicable statutory minimum, triggering liability at the higher common-law measure.

## Key takeaway for global-mobility teams

Before hiring an employee in Canada, confirm:

1. Is the role in a federally regulated industry (Code applies) or a provincially regulated sector (provincial employment-standards statute applies)?
2. If provincial, which province or territory? (Notice, severance, and procedural rules vary.)
3. Does the offer letter include a valid termination clause that meets or exceeds the applicable statutory floor? (If the clause is silent or unlawful, common-law reasonable notice will apply.)

This guide addresses termination under the federal Canada Labour Code. For provincial-law termination rules, consult the employment-standards authority of the province or territory in which the employee works.

Source: Canada Labour Code, R.S.C., 1985, c. L-2 Source: Constitution Act, 1867, s. 91

Under the Canada Labour Code, Part III, an employer in a federally regulated industry who terminates an employee's employment (other than by dismissal for just cause) must satisfy a statutory notice obligation. Section 230 establishes a three-option framework: the employer may give (a) written notice of the termination at least the applicable number of weeks before the termination date; (b) wages in lieu of notice, calculated at the employee's regular rate of wages for regular hours of work, for at least the applicable number of weeks; or (c) any combination of notice and wages in lieu such that the total weeks of notice plus the weeks covered by pay in lieu equals at least the applicable number of weeks.

## The applicable notice periods: subsection 230(1.1)

The Code specifies the minimum number of weeks of notice (or pay in lieu) in subsection 230(1.1), which varies by the employee's length of continuous employment. Amendments to section 230 that took effect February 1, 2024 increased the statutory notice periods for employees with three or more years of service; prior to that date, the flat minimum was two weeks for any employee with at least three consecutive months of continuous employment.

As of June 2026, subsection 230(1.1) sets a service-based graduated scale. The precise notice periods for each service band are set out in the statute; a global-mobility team standing up a termination should confirm the current table at laws-lois.justice.gc.ca/eng/acts/L-2/section-230.html and calculate notice (or pay in lieu) by reference to the employee's total continuous-employment tenure with the employer.

## Continuous employment and the continuity rules

Continuous employment is the unbroken period of employment with the employer. Under section 230(3) and the Canada Labour Standards Regulations, certain absences — including statutory leaves of absence (maternity, parental, compassionate care, sick leave under Division VII or VIII), layoffs that do not constitute a termination under the Regulations, and other prescribed absences — do not interrupt continuity of employment for the purpose of calculating the employee's service length and notice entitlement.

When an employee has been on a protected leave or a non-terminating layoff, the employer must include that period in the continuous-employment calculation to determine the applicable notice quantum under subsection 230(1.1).

## Three-option flexibility: notice, pay in lieu, or a blend

Subsection 230(1) gives the employer operational flexibility. The employer may:

• Give advance written notice (for example, four weeks' notice to an employee with three years of service, with the employee continuing to work and be paid through the notice period), or
• Terminate immediately and pay wages in lieu of notice (four weeks' regular wages paid at termination), or
• Provide a combination (for example, two weeks' advance notice and two weeks' pay in lieu).

When calculating wages in lieu of notice, the employer must use the employee's "regular rate of wages for … regular hours of work" — the base hourly or salary rate multiplied by the employee's normal weekly hours, excluding overtime premium but including any regular-rate amounts. For salaried employees, this typically translates to the employee's weekly salary.

## Mandatory written statement of entitlements: subsection 230(2.2)

Effective February 1, 2024, subsection 230(2.2) requires the employer to give any employee whose employment is terminated a written statement setting out the employee's vacation benefits, wages, severance pay (if applicable under section 235), and any other benefits and pay arising from the employment, calculated as at the date of the statement.

Timing of the statement (prescribed by regulation and reflected in practice guidance):

• If the employee receives written notice of termination, the statement must be delivered as soon as possible, but not later than two weeks before the termination date (unless the notice period itself is shorter than two weeks, in which case the statement is given on the day notice is given).
• If the employee receives wages in lieu of notice, the statement must be delivered not later than the date of termination.
• If the employee receives a combination of notice and pay in lieu, the statement must be given as soon as possible, but not later than two weeks before the termination date unless the notice period is shorter, in which case the day notice is given.

The statement requirement is independent of the notice obligation; an employer who fails to provide the statement (or provides it late) may face an administrative monetary penalty even if the employer satisfied the notice or pay-in-lieu obligation under subsection 230(1).

## Relationship to severance pay and common-law reasonable notice

Section 230 notice (or pay in lieu) is a statutory floor. It is separate from and in addition to:

1. Statutory severance pay under section 235 (a lump-sum payment equal to the greater of two days' wages per completed year of employment or five days' wages, payable to employees with 12 consecutive months of continuous employment when terminated other than for just cause).
2. Common-law reasonable notice (or pay in lieu). Under Canadian common law, an employee dismissed without cause and without a valid contractual termination clause limiting notice is entitled to reasonable notice determined by the multi-factor analysis in Bardal v. The Globe and Mail Ltd. (1960) and its progeny — typically significantly longer than the statutory minimum, particularly for long-service, senior, or older employees. A termination clause in an employment contract that purports to limit the employee to less than the applicable statutory minimum under section 230 (or less than statutory severance under section 235) is void and unenforceable, triggering liability at the higher common-law measure.

Global-mobility teams hiring into federally regulated industries in Canada should ensure that any termination clause in the offer letter or employment contract meets or exceeds the current statutory minimums under sections 230 and 235; a clause that was compliant before February 1, 2024 may no longer be compliant under the amended notice scale in subsection 230(1.1).

## When does section 230 not apply?

Section 230 notice (or pay in lieu) is not required in the following circumstances:

• The employee is dismissed for just cause (substantive misconduct or performance failure justifying summary dismissal without notice or pay in lieu; the burden of proving just cause rests on the employer).
• The employee's employment is terminated during a probationary period, provided the probationary period and the exemption are validly established (consult the Canada Labour Standards Regulations for the detailed rules).
• The employee is employed on a fixed-term contract that expires by its terms, and the expiry does not constitute a termination requiring notice (fact-specific; automatic renewals or successive fixed-term contracts may convert to indefinite employment).
• The employee voluntarily resigns (the Code does not require employees to give notice to the employer, though an employment contract may impose a contractual obligation).

Layoffs are deemed to be terminations under subsection 230(3) unless the layoff falls within one of the regulatory exceptions (temporary layoffs of prescribed duration and character) set out in the Canada Labour Standards Regulations. If a layoff crosses the regulatory threshold, it becomes a termination and triggers the notice (or pay-in-lieu) and severance obligations.

## Key takeaway for cross-border employers

Before terminating a federally regulated employee in Canada:

1. Confirm the employee's continuous-employment tenure (including any absences that do not break continuity under the Regulations).
2. Determine the applicable notice period under subsection 230(1.1) for that tenure.
3. Choose one of the three options: advance written notice, immediate termination with wages in lieu of notice, or a combination.
4. Prepare and deliver the written statement required by subsection 230(2.2) within the prescribed timeline.
5. Calculate and pay statutory severance under section 235 if the employee has 12+ months of continuous employment (covered in a separate section of this guide).
6. Review the employment contract's termination clause to confirm it meets or exceeds the statutory minimums; if the clause is silent or non-compliant, common-law reasonable notice will apply and will almost certainly exceed the statutory floor.

Termination obligations under the Canada Labour Code are strict liability: failure to provide the required notice, pay in lieu, written statement, or severance exposes the employer to a statutory complaint to the Labour Program, an administrative monetary penalty, and (if the termination clause is found void) potential common-law damages significantly in excess of the statutory minimum.

Source: Canada Labour Code, R.S.C., 1985, c. L-2, s. 230 Source: Canada Labour Code, R.S.C., 1985, c. L-2, s. 235

Under the Canada Labour Code, Part III, an employer in a federally regulated industry who terminates the employment of an employee who has completed twelve consecutive months of continuous employment must pay the employee statutory severance pay under section 235, except where the termination is by way of dismissal for just cause. This severance obligation is separate from and in addition to the notice (or pay in lieu of notice) required under section 230 and must be paid to the employee at or shortly after the date of termination.

## Eligibility: the 12-month continuous-employment threshold

Section 235(1) sets a single eligibility gate: the employee must have completed twelve consecutive months of continuous employment by the employer. An employee who has worked for the employer for 11 months is not entitled to statutory severance pay. An employee who reaches exactly 12 months is entitled, regardless of whether the termination occurs on the anniversary date or years later.

Continuous employment is the unbroken period of employment with the employer, calculated using the same continuity rules that apply to section 230 notice entitlements. Under section 230(3) and the Canada Labour Standards Regulations, certain absences — including statutory leaves of absence (maternity, parental, compassionate care, sick leave under Division VII or VIII), layoffs that do not constitute a termination under the Regulations, and other prescribed absences — do not interrupt continuity of employment. An employee who has been on a protected leave or a non-terminating layoff accrues continuous-employment tenure through that period for the purpose of calculating both the eligibility for severance pay (the 12-month gate) and the quantum of severance pay (the number of completed years under the formula).

## The statutory formula: greater of two days per year or five days minimum

Section 235(1) requires the employer to pay the employee the greater of two amounts:

(a) Two days' wages at the employee's regular rate of wages for his regular hours of work in respect of each completed year of employment that is within the term of the employee's continuous employment by the employer, or

(b) Five days' wages at the employee's regular rate of wages for his regular hours of work.

Calculation mechanics

For an employee who has completed 12 months but fewer than 2.5 years of continuous employment, the two-days-per-year formula will yield an amount less than five days' wages; in those cases, the five-day minimum applies. For example:

• An employee with exactly 12 months (one completed year) of continuous employment is entitled to the greater of (a) two days' wages (2 × 1 year = 2 days), or (b) five days' wages. The employee receives five days' wages (the minimum).
• An employee with two completed years is entitled to the greater of (a) four days' wages (2 × 2 years = 4 days), or (b) five days' wages. The employee receives five days' wages.
• An employee with three completed years is entitled to the greater of (a) six days' wages (2 × 3 years = 6 days), or (b) five days' wages. The employee receives six days' wages.
• An employee with ten completed years is entitled to the greater of (a) twenty days' wages (2 × 10 years = 20 days), or (b) five days' wages. The employee receives twenty days' wages.

The formula counts only completed years. An employee with two years and eleven months of continuous employment has two completed years for the purpose of the severance calculation, yielding four days under prong (a) and therefore the five-day minimum under prong (b). Partial years are disregarded in the two-days-per-year calculation.

"Regular rate of wages for regular hours of work"

The severance pay must be calculated at the employee's "regular rate of wages for … regular hours of work" — the base hourly or salary rate multiplied by the employee's normal hours of work per day, excluding overtime premium but including any regular-rate amounts. For a full-time salaried employee working eight-hour days, "two days' wages" typically means two days' worth of the employee's regular daily salary. For an hourly employee, it means the regular hourly rate multiplied by the employee's standard daily hours, multiplied by the number of days of severance owed.

This is the same wage-calculation methodology used for the "wages in lieu of notice" calculation under section 230. If an employee's hours or wage rate fluctuate, the employer may need to determine a representative regular-hours-of-work figure; the Canada Labour Standards Regulations provide detailed rules for calculating "regular rate of wages" for employees paid on a non-standard basis (for example, commission-based employees or employees with varying schedules).

## When section 235 does not apply

Statutory severance pay is not required in the following circumstances:

1. Dismissal for just cause. Section 235(1) expressly exempts terminations that are "by way of dismissal for just cause." An employer who terminates an employee for substantive misconduct or performance failure that meets the common-law just-cause standard is not required to pay statutory severance pay (nor statutory notice or pay in lieu under section 230). The burden of proving just cause rests on the employer; a unilateral assertion of just cause will not relieve the employer of the severance obligation if the dismissal is later found to have been unjust or wrongful.

1. Employees with fewer than 12 consecutive months of continuous employment. An employee terminated before completing 12 months is not entitled to statutory severance pay under section 235, though the employee may be entitled to notice (or pay in lieu) under section 230 if the employee has completed at least three consecutive months of continuous employment (under the pre-February 1, 2024 rule) or the applicable service threshold under the amended subsection 230(1.1).

1. Voluntary resignation. An employee who resigns is not terminated by the employer and therefore has no entitlement to severance pay. (An employee who is constructively dismissed — forced to resign by a unilateral and fundamental change in the terms of employment — is treated as having been terminated by the employer and may be entitled to statutory severance if the 12-month threshold is met.)

1. Expiry of a genuine fixed-term contract. If an employee is employed on a bona fide fixed-term contract that expires by its terms without renewal, and the expiry does not constitute a termination under the Code (a fact-specific determination), section 235 does not apply. However, automatic renewals or successive fixed-term contracts may convert the relationship to indefinite employment, making the eventual non-renewal a termination that triggers the severance obligation.

## Severance applies whether or not the employee files an unjust-dismissal complaint

Subsection 235(1.1), added by the 2018 amendments that took effect in stages (the most recent phase in February 2024), clarifies that the employer's obligation to pay and the employee's right to receive the severance amount under subsection 235(1) apply whether or not the employee has a right to avail themselves of any procedure for redress under this Part, including under subsection 240(1), with respect to the termination of their employment.

This means that statutory severance pay is not conditional on the employee filing an unjust-dismissal complaint under section 240 of the Code (the Code's administrative remedy for federally regulated employees with 12+ months of continuous employment who allege they were dismissed without just cause). The employee is entitled to the severance payment immediately upon termination, regardless of whether the employee pursues an unjust-dismissal complaint, a civil wrongful-dismissal claim, or no remedy at all. The employer cannot withhold severance pay pending the outcome of an unjust-dismissal adjudication.

## Severance pay is in addition to notice, vacation pay, and other termination entitlements

Section 235 severance pay is a stand-alone monetary obligation that must be paid in addition to:

1. Statutory notice (or pay in lieu) under section 230. An employee with 12+ months of continuous employment is entitled to both the applicable weeks of notice (or wages in lieu) under section 230 and the severance payment under section 235. For example, an employee with five completed years of continuous employment terminated without cause on or after February 1, 2024 is entitled to the applicable weeks of notice under subsection 230(1.1) for five years of service (consult the current table in the statute) plus ten days' wages in severance pay (2 days × 5 completed years, which exceeds the five-day minimum).

1. Accrued vacation pay. Section 188 of the Code requires the employer to pay the employee, within 30 days after the day on which the employee ceases to be employed, any vacation pay owing under Division IV (Vacations and Vacation Pay). This is separate from both notice and severance.

1. Other statutory or contractual entitlements. If the employee is owed unpaid wages, general-holiday pay, or other amounts arising from the employment, those must also be paid.

1. Common-law reasonable notice (or pay in lieu). The statutory minimums under sections 230 and 235 represent a floor. Under Canadian common law, an employee dismissed without cause and without a valid contractual termination clause limiting notice is entitled to reasonable notice (or pay in lieu) determined by the multi-factor analysis in Bardal v. The Globe and Mail Ltd. (1960) and its progeny — typically significantly longer than the statutory minimum, particularly for long-service, senior, or older employees. A termination clause in an employment contract that purports to limit the employee to less than the applicable statutory minimum under section 230 or section 235 is void and unenforceable, triggering liability at the higher common-law measure. The employer who wishes to limit its exposure to common-law reasonable notice must draft a termination clause that meets or exceeds the combined total of statutory notice and statutory severance for the employee's likely tenure at the time of termination.

## Timing and inclusion in the written statement of benefits

The employer must pay severance pay to the employee shortly after the date of termination. While the Code does not specify an exact payment deadline for severance pay (unlike vacation pay, which must be paid within 30 days under section 188), the Labour Program's practice guidance and the mandatory written-statement requirement under subsection 230(2.2) (effective February 1, 2024) both presume that severance pay will be calculated, disclosed, and paid contemporaneously with the termination.

Subsection 230(2.2) requires the employer to give the terminated employee a written statement setting out the employee's vacation benefits, wages, severance pay (if applicable under section 235), and any other benefits and pay arising from the employment, calculated as at the date of the statement. The statement must be delivered within the prescribed timeline (as soon as possible, but not later than two weeks before the termination date if the employee receives written notice; not later than the termination date if the employee receives wages in lieu of notice; see the detailed timing rules in subsection 230(2.2) and the discussion in the "Federal statutory termination notice" section of this guide).

The requirement to include severance pay in the written statement reinforces that the employer must calculate and disclose the severance amount at the time of termination. Failure to pay severance pay when due exposes the employer to a statutory complaint to the Labour Program, an administrative monetary penalty, and potential liability for interest or additional damages.

## Layoffs that become terminations trigger severance pay

Under subsection 230(3) and the Canada Labour Standards Regulations, certain layoffs are deemed to be terminations for the purpose of Part III of the Code. When a layoff crosses the regulatory threshold (for example, the layoff exceeds the prescribed duration or the employee does not return when recalled), it becomes a termination, triggering both the notice (or pay-in-lieu) obligation under section 230 and the severance obligation under section 235 if the employee has 12+ months of continuous employment.

This means that an employer who lays off a long-service employee and the layoff later converts to a termination must, at the point of conversion, satisfy the notice and severance obligations as if the employee had been terminated on the date the layoff became a termination. Employers should consult the Canada Labour Standards Regulations (available at laws-lois.justice.gc.ca) to confirm which layoffs are exempt from the termination definition and which layoffs trigger the statutory obligations.

## Key takeaway for global-mobility teams

Before terminating a federally regulated employee in Canada who has 12 or more months of continuous employment:

1. Calculate the severance pay using the section 235 formula: the greater of (a) two days' wages per completed year of continuous employment, or (b) five days' wages.
2. Prepare to pay severance in addition to notice (or pay in lieu). Do not treat severance as a substitute for notice; both are required.
3. Include the severance amount in the written statement required by subsection 230(2.2) and deliver the statement within the prescribed timeline.
4. Pay the severance at or shortly after the termination date.
5. If the employee has fewer than 12 months of continuous employment, statutory severance is not required (though notice or pay in lieu under section 230 may still apply, depending on tenure).
6. If the termination is for just cause, neither notice nor severance is required — but the employer bears the burden of proving just cause if the dismissal is challenged.

Failure to pay statutory severance exposes the employer to a Labour Program complaint, an administrative monetary penalty, and (if the employment contract's termination clause is found void for failing to meet the statutory floor) potential common-law damages at the significantly higher reasonable-notice measure.

Source: Canada Labour Code, R.S.C., 1985, c. L-2, s. 235