Managing Terminations, Layoffs and Severance – Understanding Statutory and Common Law Obligations in Alberta

When ending an employment relationship, many Alberta employers believe that compliance with the Alberta Employment Standards Code (ESC) is sufficient. However, this assumption can lead to significant legal exposure. Courts apply statutory and common law principles when assessing employer obligations, and the common law often requires much more than minimum standards.

Additionally, employers frequently overlook key obligations relating to employee pay at termination, such as final wages, vacation pay, bonuses, and commissions, believing they have more flexibility than they do. These misconceptions can result in serious financial and legal consequences, even if the termination is justified.
This article explains the differences between terminations and layoffs, the key distinctions between statutory and common law notice, how to manage severance obligations, and how to avoid constructive dismissal and wrongful termination claims while correcting common employer misconceptions around termination pay.

Understanding the Legal Framework: Statutory vs. Common Law in Alberta

Under the ESC, employees are entitled to a minimum notice period based on their length of service. This ranges from one week after 90 days of service to a maximum of eight weeks for ten or more years of employment. These are minimum standards, not ceilings.

Under common law, courts determine what constitutes “reasonable notice” by examining various factors, including length of service, age, position, compensation, and the availability of similar employment. Common law awards frequently range from two to four weeks per year of service and can extend up to 24 months in some cases.
For example, a 50-year-old supervisor with 15 years of service may only receive eight weeks’ notice under the ESC but could be awarded 12 to 18 months’ notice under common law.

Termination vs. Layoff: Why the Distinction Matters in Alberta

Termination refers to the permanent end of an employment relationship. It can be for cause (no notice required) or without cause, where the employer must provide either notice or pay in lieu of notice under statutory and Common law.
A layoff, on the other hand, is temporary. Under Alberta law, temporary layoffs must not exceed 90 days within a 120-day period unless an extension is agreed upon or a collective agreement applies. Exceeding this limit without recall can convert the layoff into a de facto termination, triggering severance and notice obligations.

Common Misconception by Employers: Some Employers often believe they can delay final pay during a layoff or termination. In reality, final pay (including wages, vacation pay, and possibly commissions or bonuses) is due promptly upon termination. Failure to comply can result in penalties or wage recovery claims.

Contractual Termination Clauses and Why Courts Strike Them Down
Employers can limit severance obligations through termination clauses in contracts, but these must be clear, enforceable, and compliant with the ESC. Vague or non-compliant clauses will not be upheld.

In Machtinger v. HOJ Industries, 1992 1 SCR 986, the Supreme Court struck down a clause that didn’t meet ESC minimums. In Baker v. Van Dolder’s Home Team Inc., 2025 ONSC 952certain provisions within a termination clause were deemed vague andunclear, leading to those provisions being voided.

Employers also mistakenly believe that if an employee is fired “for cause,” no pay whatsoever is owed. But unless misconduct meets the legal threshold for just cause (which is very high), employees are still entitled to all earned wages and entitlements, including accrued vacation.

Constructive Dismissal: When Changes Amount to Termination
Constructive dismissal occurs when an employer unilaterally changes essential terms of employment without the employee’s consent. These changes can include significant reductions in pay, demotion, relocation, or creating a hostile work environment. Even if the employee resigns, courts may consider the resignation forced and award full common law damages.

In the founding case on constructive dismissal, Potter v. New Brunswick Legal Aid Services, 2015 SCC 10, an employee was suspended without pay immediately upon returning from approved medical leave. The court found that his suspension without pay reflected the employer’s intention to alter the existing relationship and to no longer be bound by the terms of the employment contract. Subsequently, the court found the dismissal to be a constructive one and, therefore, wrongful. Closer to home, the test in Potter has been used in the Alberta context to shield employees from unilateral changes to the employment contract.

Common Misconceptions About Pay on Termination in Alberta

Employers frequently make these costly mistakes when terminating employees:

1. Final pay can be delayed – In Alberta, final wages (including accrued vacation and statutory holiday pay) are due within 3 or 10 days.
2. Accrued vacation doesn’t have to be paid out—Legally, all earned vacation must be paid upon termination, regardless of company policy.
3. Commissions and bonuses are lost on termination – Employees who earned a commission before termination are still entitled to it, unless the contract clearly says otherwise and is legally enforceable.
4. You can deduct losses or property damage from the final paycheck. Unauthorized deductions are prohibited unless explicitly agreed to in writing and compliant with the ESC.
5. Final pay can be withheld until the company property is returned. While the return of property is essential, final pay cannot legally be withheld as leverage.

There are others.

Best Practices for Managing Terminations or Layoffs
To reduce legal exposure and avoid disputes:

• Review and update employment contracts regularly to ensure that termination clauses are enforceable and reflect statutory and common law obligations.
• Clearly document reasons for termination and maintain performance records.
• Consider providing working notice where appropriate to reduce severance costs.
• Provide timely final pay, including all accrued wages, vacation, and eligible bonuses or commissions.
• Avoid unauthorized deductions and never withhold pay for unreturned property.
• Provide written notice of layoffs and strictly monitor layoff duration.
• Avoid making unilateral changes to pay or employment terms without employee consent.
• Seek legal guidance before initiating layoffs, restructures, or terminations.

How Our Calgary Employment Law Firm Can Help

Terminations are among the most legally sensitive actions an employer can take. Mistakes, particularly around pay, can lead to wrongful dismissal claims, financial penalties, and reputational harm.
Our firm assists Alberta employers by:

• Drafting and reviewing employment agreements that align with current legislation
• Advising on proper layoff procedures, recall timelines, and severance
• Helping employers avoid constructive dismissal claims by managing changes properly
• Providing strategic guidance and HR training to prevent common pay-related pitfalls
• Representing employers in litigation, mediation, or settlement negotiations

Meeting the Employment Standards Code minimums is not enough. Courts in Alberta frequently award higher notice periods and damages under common law. Pay-related oversights, such as delaying final pay, failing to pay earned vacation or commissions, or making illegal deductions, are often overlooked but can be costly.
Employers should seek legal advice and implement best practices to ensure all aspects of termination, especially pay obligations, are handled legally, fairly, and professionally.

Author: Juliette Omonigho