What to do if you get fired – MoneySense

Statutory versus common law dismissal

In every province and territory there are statutory minimum payments you are entitled to as an employee whose employment is terminated. This is called termination fee. This usually applies after three months of continuous employment and is intended as a safety net if you are dismissed without reason. Severance pay generally amounts to a certain number of weeks of salary per year of service with a maximum.

In addition to this minimum payment, employers can also offer offers severance pay. This compensation goes beyond the legal minimum and is based on common law entitlements – essentially what you could get if you went to court. Both employees and employers prefer non-litigious solutions to dismissal, and can therefore agree on a payment that falls somewhere between the statutory minimum severance payment and the usual severance payment.

A severance package is not a specific formula because the potential entitlement can be based on things like a person’s seniority, the type of position they hold, their age, and other factors.

When an employer offers severance pay, the employee is not obliged to take it. They can seek advice from an employment lawyer to understand the offer and whether they should ask for any variations.

Do you have to take a lump sum payment or continued salary payment?

Some employers offer a lump sum severance package that is paid in a lump sum, while other employers offer salary continuation with salary deposits continuing for the duration of the severance package.

If you have the option to receive a lump sum, you can (partially) defer the amount to a subsequent calendar year. This can be beneficial, especially if it is late in the year, to prevent a large payment from being taxed at a high tax rate. Because of Canada’s progressive tax system, you may have to pay less tax to defer and tax the payment in a future year than you would add to your current year’s income.

If you have registered a Retirement Savings Plan (RRSP) room, you can choose to send some or all of the payment to your RRSP. In this case, the amount is deposited pre-tax, so the gross amount goes directly into your RRSP. That means you won’t get a big tax refund when you file your taxes, like you would if you were employed all the time. It’s as if you received the tax refund in advance, since no taxes were withheld from the income paid into the RRSP in the first place.

New EI rules can help

When an employee is laid off, they are generally eligible for Employment Insurance (EI) benefits. The federal government implemented a temporary change to the EI for new claims in March 2025 in response to the U.S. government’s tariffs on several other countries, including Canada. The temporary measure was supposed to end on October 11, 2025, but has been extended until April 11, 2026.

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There is usually a one-week waiting period after salary continuation ends. Lump sum separation income such as severance pay, holiday pay or sick leave credits will normally be subject to a further delay in applying. But under the temporary EI measures, a dismissed employee can immediately apply for EI benefits.

Regular EI benefits are generally limited to 45 weeks, but under the temporary measures a recipient may be entitled to an additional 20 weeks if they are a long-term employee. To be considered a long-term employee, applicants must have met two conditions:

• Received fewer than 36 weeks of regular or fishing benefits in the three years prior to the start of a claim

• At least 30% of annual maximum EI premiums paid for at least seven of the 10 years before the year in which a claim begins (2025 EI maximum is $695 per week)

Are you still entitled to benefits?

If you had benefits such as life, disability, or health insurance, a termination will typically end this coverage. Life insurance is often extended based on the number of weeks of salary you receive. Disability insurance usually ends on your last working day.

Some group life insurance policies allow you to convert your coverage to a personal policy. This may be advisable if your health is poor, as you may be able to maintain it without having to provide health information to the insurer.

You can take out your own life insurance with an insurer. This may be preferable if your health is good. Disability insurance is more difficult to replace, because if you don’t work you have no replacement income.

While the loss of medical coverage can be concerning, it may not be necessary to replace it. Health insurance is not intended to create a windfall where you get more back from the insurer than you pay in premiums. On the contrary, the insurer makes a profit if the average insured person pays more in premiums than he or she receives in reimbursements. As a result, rushing to replace coverage may not be beneficial compared to just paying out-of-pocket health care costs when your coverage ends.

Dealing with pensions and group RRSPs

If you have a DB (defined benefit) pension, you may have the option to take a lump sum payout, some or all of which will be eligible for transfer on a tax-deferred basis to a locked-in retirement account (LIRA). When you forego your future monthly pension, you must invest the proceeds to generate retirement income. However, not all pensions allow you to use surrender value transfer. Some pensions limit the option based on your age (for example only under 55 years).

When the interest rate is lower, the amounts paid out are higher; if the interest rate is higher, the payouts are lower. Those best suited to consider a lump sum are investors with a high risk tolerance or a short life expectancy.