What is an employee termination package?

A termination package is the combination of compensation, benefits, and terms offered by an employer to an employee when the employment relationship ends. A termination package typically includes some combination of notice pay, severance pay, continuation of benefits, a release of claims, and other terms specific to the circumstances. Whether you are an employer preparing a termination package or an employee who has received one, understanding how a termination package is calculated and what it can include is important before signing or making an offer.

When you should consider reviewing a termination package

You are an employee who has received a termination package. When an employer presents a termination package, the employee is typically asked to sign a release of claims in exchange for the compensation offered. Before signing, the employee may want to consider whether the termination package reflects their full legal entitlement — including whether the amount offered meets the statutory minimums under the Employment Standards Code and, where applicable, whether it accounts for common law reasonable notice.

You are an employer preparing a termination package. An employer preparing a termination package may want to consider the employee’s statutory entitlements under the Employment Standards Code, any contractual termination provisions, the employee’s potential entitlement to common law reasonable notice, and the terms of the release the employer will ask the employee to sign. A termination package that does not meet statutory minimums is generally not enforceable.

The employment agreement has no enforceable termination clause. Where the employment agreement does not contain a termination clause — or where the termination clause is unenforceable because it falls below the statutory minimums — the employee may be entitled to common law reasonable notice, which is typically more generous than the statutory minimum. This can significantly affect the value of the termination package.

The termination involves additional considerations. A termination package can become more complex when the circumstances involve allegations of cause, a constructive dismissal claim, outstanding commissions or bonuses, unvested stock options, restrictive covenants that survive termination, or a human rights dimension. These factors can affect both the value and the structure of the termination package.

Relevant laws and regulations

Employment Standards Code, RSA 2000, c E-9. Alberta’s primary employment legislation. The Employment Standards Code sets the minimum notice or pay in lieu of notice that an employer is required to provide when terminating an employee without cause. The statutory minimums are based on the employee’s length of service and range from one week (for employees with more than 90 days but less than two years of service) to eight weeks (for employees with ten or more years of service). A termination package that offers less than the statutory minimum may not be enforceable.

Alberta Human Rights Act, RSA 2000, c A-25.5. Alberta’s human rights legislation. The Alberta Human Rights Act prohibits discrimination in employment on protected grounds including race, gender, disability, age, family status, and sexual orientation. A termination that is connected to a protected ground — or a termination package that requires the employee to release a human rights complaint — can raise additional legal issues for both parties.

Limitations Act, RSA 2000, c L-12. Alberta legislation establishing the basic two-year limitation period for most civil claims, including wrongful dismissal claims. The limitation period is relevant to both the employee considering a termination package and the employer evaluating its exposure.

Common legal issues

Termination packages that fall below statutory minimums. A termination package that provides less than the statutory minimum notice or pay in lieu under the Employment Standards Code is generally not enforceable — even if the employee signs it. Employers may want to confirm that the termination package meets or exceeds the applicable statutory minimums before presenting it.

Failing to account for common law reasonable notice. Where the employment agreement does not contain an enforceable termination clause, the employee may be entitled to common law reasonable notice, which is calculated based on factors including the employee’s age, length of service, position, and the availability of comparable employment. Common law reasonable notice can be significantly more generous than the statutory minimum and can dramatically affect the value of the termination package.

Overly broad or unenforceable releases. A termination package typically includes a release in which the employee agrees to waive all claims against the employer. A release that is too broad, signed under duress, or not supported by adequate consideration may be challenged. Employers may want to consider providing the employee with a reasonable period to review the release and obtain independent legal advice.

Ignoring benefits continuation and ancillary entitlements. A termination package may want to address more than notice pay. Benefits continuation, outstanding vacation pay, accrued bonuses or commissions, reimbursement of expenses, stock options, and outplacement services can all form part of a termination package. Failing to address these items can lead to disputes after the employee has signed.

Frequently asked questions

How is common law reasonable notice calculated? Common law reasonable notice is not calculated by a fixed formula. Alberta courts consider factors including the employee’s age, length of service, the character of the employment (seniority and responsibility), and the availability of comparable employment. The resulting notice period can range from weeks to months — and in some cases can exceed 24 months for long-tenured senior employees.

Can I negotiate a termination package? Yes. A termination package is an offer, and the employee is generally free to negotiate the terms before accepting. Employers may also benefit from negotiation, as a mutually agreed termination package — supported by a valid release — can reduce the risk of litigation.

What happens if I sign a release? A signed release generally prevents the employee from pursuing claims against the employer related to the termination. This is why the employee may want to understand the full scope of their legal entitlement before signing — once the release is executed, the ability to seek additional compensation may be lost.

Can my employer terminate me without cause? In Alberta, an employer can generally terminate an employee without cause, provided the employer gives the employee the notice or pay in lieu of notice they are entitled to — whether under the Employment Standards Code, the employment agreement, or at common law. Termination without cause is not the same as wrongful dismissal; wrongful dismissal occurs when the employer fails to provide adequate notice or compensation.