How Much Severance Pay Is an Employee Entitled to Federally?

What the severance pay formula looks like

Federally, this is a direct statutory payment from employer to employee under the Canada Labour Code (RSC 1985, c L-2, s. 235(1)). There is no government fee attached to receiving it: it is not a government benefit or a service with a price tag, it is money the employer owes.

What determines the amount

Two variables drive the number: how many completed years of continuous employment the employee has, and the employee’s regular rate of wages for their regular hours of work. The formula is a “greater of” test, not a sum of both components: the employee gets whichever is larger, either two days’ wages multiplied by completed years of service, or a flat five days’ wages. For an employee with fewer than three completed years of service, the five-day floor will typically be the larger number; once service passes roughly three completed years, the per-year calculation overtakes it.

The 12-consecutive-month threshold is a hard eligibility gate, not a phase-in. Canada.ca’s federal labour standards guidance confirms that an employer terminating an employee must provide severance pay only to an employee who has completed at least 12 consecutive months of continuous employment. Below that threshold, this severance pay obligation does not apply.

Where the amount is not owed or is separate from other claims

The Code carves out one clear exception: dismissal for just cause. Where an employer terminates an employee for just cause, the severance pay obligation under section 235(1) does not apply. The Code does not define a dollar figure or process for disputing “just cause” within this section; that determination sits with the broader unjust dismissal framework under the Code.

Separately, the severance pay obligation is designed to stand on its own. Section 235(1.1) states that the employer’s obligation to pay, and the employee’s right to receive, the severance pay amount apply whether or not the employee also has a right to use any other redress procedure under the Code, including an unjust dismissal complaint under section 240(1). In practical terms: pursuing a complaint about the termination itself does not put the statutory severance payment at risk, and receiving severance pay does not by itself use up or replace a separate complaint about the termination.

Why this differs from what founders may read elsewhere

Employer guidance and calculators aimed at Ontario or Alberta employers commonly describe provincial concepts such as termination pay, a payroll-size threshold for statutory severance, or a maximum number of weeks. None of those provincial mechanics apply to a federally regulated employer. Federally, the relevant test is the two-part formula above: completed years of continuous employment against a five-day floor, gated by the 12-month eligibility threshold, with just cause as the only stated exclusion. An employer or employee in a federally regulated industry (for example, banking, interprovincial transportation, or telecommunications) should check the Canada Labour Code and Canada.ca’s federal labour standards guidance rather than provincial employment standards material, since the two regimes are not interchangeable.