Letting an Employee Go: Notice and Severance
Letting someone go is the hardest part of running a team. Done badly, it costs money, morale and reputation. Done well, it is fair, legal and quick. Here is what the rules require and how to handle the conversation.
What does it cost to let an employee go in Canada?
At minimum, the notice or pay in lieu set by employment standards. In Ontario, that is one week for less than a year of service rising to eight weeks for eight years or more, once someone has worked three months (Ontario termination rules). Employees with five or more years at an employer with a global payroll of $2.5 million or more also get severance pay of a week per year, up to 26 weeks (Ontario severance pay).
If the contract has no valid termination clause, the employee may be owed common law reasonable notice, which can be several months. That is why the contract matters; see job offers and employment contracts.
| Length of service | Notice or pay in lieu |
|---|---|
| Under 1 year | 1 week |
| 1 to 3 years | 2 weeks |
| 3 to 4 years | 3 weeks |
| 4 to 5 years | 4 weeks |
| 5 to 6 years | 5 weeks |
| 6 to 7 years | 6 weeks |
| 7 to 8 years | 7 weeks |
| 8 years or more | 8 weeks |
How is it different in the US?
Most US states follow at-will employment: either side can end it at any time without notice, unless a contract says otherwise. It must not be discriminatory or retaliatory, and final pay timing rules vary by state. Many companies still offer severance in exchange for a signed release.
How should you have the conversation?
- Decide, prepare the letter and payments before the meeting.
- Meet privately, early in the week, with a second person present if possible.
- Be direct and brief: the decision is made, here is why, here is what happens next.
- Cover pay, benefits, options, equipment and references in writing.
- Cut system access at the end of the meeting, respectfully.
- Tell the team plainly and protect the person’s dignity.
Vesting stops on termination for most plans; check the option plan and see employee stock options.
What about firing for cause?
Termination for cause, without notice, needs serious misconduct and is hard to prove in Canada. Most performance problems don’t qualify. Document performance conversations as they happen; see onboarding and performance reviews. Get legal advice before relying on cause.
Decide slowly, act quickly.
Take time to be sure and fair. Once decided, a prompt, respectful conversation is kinder than a long delay.
What should you do before any termination?
- Read the employee’s contract and termination clause.
- Calculate statutory notice, severance and any contractual amounts.
- Decide whether to offer more in exchange for a release.
- Prepare the letter, final pay and a record of employment.
- Speak to an employment lawyer for anything unusual.
Clear contracts from the start make this easier: the startup HR checklist.
Frequently asked questions
How much notice do I need to give in Ontario?
One to eight weeks under the Employment Standards Act, depending on length of service, after three months’ employment.
What is severance pay in Ontario?
A week of pay per year of service, up to 26 weeks, for employees with 5+ years at employers with a $2.5 million+ global payroll.
What is reasonable notice?
A common law notice period courts may award when a contract has no valid termination clause. It is often longer than the statutory minimum.
Is the US at-will?
Most states are at-will, but discrimination, retaliation and contract terms still apply.
Can I fire someone for cause without notice?
Only for serious misconduct, which is hard to prove in Canada. Get legal advice first.
What happens to stock options when someone leaves?
Usually vesting stops and vested options must be exercised within a set period. Check the option plan.
Sources & further reading
Employment and tax rules change. These government sources let you check the current requirements directly.