Being laid off or offered early retirement is a major financial and emotional transition. Whether it arrives suddenly or is part of a company-wide restructuring, the decisions you make in the following weeks will have long-lasting implications. Employment laws, pension rules, government benefits and your personal need or desire to re-enter the job market add layers of complexity 

You don't have to navigate these decisions alone. We've compiled a list of considerations for those who have been laid off or offered early retirement, so you can focus on the next steps without added stress. 

Before accepting the terms of your termination, it is essential to consult with a qualified legal professional, or in the case of unionized employees, your union representative. They can review your specific situation, assess the fairness of the general termination conditions, and examine the details of your severance package.

Termination notice, or pay in lieu of notice, provides employees with paid time to secure new employment. In Canada, two frameworks determine the required notice: employment standards legislation (at the provincial, territorial, or federal level) and the common-law obligation for reasonable termination notice.

Statutory termination pay: When employment ends without just cause, and after the probationary period has passed, employees are legally entitled to a minimum level of notice, or pay in lieu of notice, as set by their jurisdiction's statutory requirements. While these rules define the minimum, your specific employment history may grant you entitlement to a greater amount under common law. In Alberta, for example, the Employment Standards Code governs statutory termination requirements, with a maximum payment of eight weeks for those with 10 years or more of service. 

Common-law reasonable notice of termination: Canadian courts often award much more generous severance, sometimes months per year of service, based on factors such as:

• Age
• Length of service
• Position and responsibilities
• Availability of similar employment

In many situations, statutory termination requirements are modest compared to the common-law obligation to provide reasonable notice of termination. As an example, under Alberta’s Employment Standards Code a middle manager with 20 years of service would only be entitled to receive eight weeks pay in lieu of notice. This is far less than the 12 to 18 months’ notice that the common-law would probably consider reasonable.¹ That being said, you should review your employment contract for any conditions limiting your termination payment. 

Your severance package may also contain additional specific conditions that should be reviewed, for instance:

• Is there a non-compete agreement that would prohibit you from finding similar employment?
• Can the employer discontinue your severance payment(s) if you find employment?
• Is there a confidentiality clause or non-disclosure clause that prohibits the employee from disclosing the terms of the agreement?
• Is there a non-disparagement clause that prohibits the employee from speaking negatively about the employer?
• Are there other restrictions?

Having your termination agreement reviewed by a qualified legal professional can ensure you are being treated fairly. For more resources on severance pay and to  support you following a job loss, explore the Government of Canada’s Understanding severance pay web page and the Alberta government’s Employment standards termination and lay off page.

There are also some important decisions you’ll need to make about your severance payout. You may have been offered a choice between a lump-sum payment, salary continuance, or payment split over several years. Here’s a list of a few things to consider when reviewing your severance payout options: 

• Ability to obtain other employment: If you obtain other employment and chose a salary continuance, or to receive the payment over several years, can your former employer stop the remaining payments?
  
  
• Health benefits and insurance coverage: Your severance package should outline what benefits your employer will continue to offer you (extended health and dental coverage, life, disability and critical insurance coverage), how long benefits will last and if you need to pay any premiums to maintain your benefits. Whether you chose salary continuance versus lump sums could cause your benefits to end at different points after termination. 
  
  Your group benefit provider may offer you the ability to convert some or all of your previous group benefits to individually owned policies. In some cases, the conversion requires no medical underwriting. While this may seem like a convenient route, the cost of converting existing group benefits to individual benefits may be higher than applying for new policies. Depending on your current health, getting new coverage may make more sense for you.
  
  
• Employment Insurance (EI) eligibility: If you’re eligible for EI benefits, and receiving a severance payment (whether, it’s a lump sum, a deferred payment or salary continuation) this will delay when you can start collecting benefits. A lump sum is treated as if it were salary paid over a certain number of weeks, and your EI eligibility is postponed until that notional period has ended. Regardless of your payment choice, it is recommended that you file your benefit claim immediately upon becoming unemployed to expedite the processing of your claim.
  
  
• Generating Registered Retirement Savings Plan (RRSP) contribution room: Salary continuance is usually treated as employment income, which means it will create additional RRSP room in the following year. The payment of a lump sum severance is generally treated as a retiring allowance and doesn’t create future RRSP room.

If you were employed long-term with your previous workplace, starting before 1996, some of your severance may be considered “eligible retiring allowance.” The eligible portion of a retiring allowance can be contributed to an RRSP without the use of RRSP room. The contribution will decrease your taxable income like any RRSP contribution. The amount that qualifies as eligible can be reported as a transfer so it doesn’t require room.

Want to know your eligible amount? Find out using the following formula:

The sum of:

• $2,000 times the number of years before 1996 during which you were employed by the employer, and
  
  
• $1,500 times the number of years before 1989 during which you were employed by the employer and didn’t have vested contributions to a registered pension plan (RPP) or deferred profit sharing plan (DPSP).

If you have an employer-sponsored savings plan—like an employee profit share plan (EPSP), group RRSP, a DPSP, or a defined contribution pension plan (DCPP)—you may be able to transfer the value of both employer and employee portions of these accounts to appropriate personal accounts, depending on the rules of your employer plan. If you have a defined benefit pension plan (DBPP) you will have additional choices to make.

Employee profit sharing plan (EPSP)

These are non-registered accounts and can be transferred to your own non-registered account. Keep in mind, if you choose to transfer out of the group plan “in-cash” (liquidating the investments) capital gains may be triggered and taxes payable. Another option could be to transfer out “in-kind” (your investments stay intact) as they transfer to your own non-registered account.

Defined benefit pension plan (DBPP)

If you’re a member of a DBPP, you have a traditional pension designed to pay you a guaranteed, specific income when you retire, giving you (and your spouse/common law partner) income for life. The amount of that income is calculated based on your earnings and years of service.

After being laid off, or being offered early retirement, you may have the choice to take either guaranteed income payments from the pension plan or take a lump sum of those income payments, referred to as the “commuted value.” When your employment ends you’ll be given a package that summarizes your DB pension options.

If you go with the pension income option, you’ll have a few choices to make:

• When to start your pension payments: Depending on your current age, length of employment and the specifics of the plan, you may be able to choose an early retirement benefit. Or you may have to choose a deferred pension, which starts the income payments closer to the “normal retirement date” of the pension plan, this is usually when you turn 65.
  
  If you have a deferred pension but you initiate your pension to start earlier, the pension payments may be reduced by an early retirement adjustment (a percentage for each month or year of early retirement) or actuarially adjusted to take into account that you’ll be receiving more payments over your lifetime.
  
  
• Single versus joint pension options: If you’re married or have a common-law partner, you’ll have to choose a pension payout that guarantees lifetime income for both of you (unless your spouse or common-law partner signs a waiver form). You can choose to have the income level remain the same throughout both of your lifetimes, or choose to have income that starts higher while you are both living and decreases to a lower amount after one of you passes away. Depending on the pension plan, this decrease may happen only when you pass away or on the first death. It’s important to understand the specifics of your particular pension options. We know this topic can be confusing and overwhelming. An ATB Wealth advisor can review your benefit options in detail and equip you to make the best decisions for today and the future.

Registered Retirement Savings Plan (RRSP) & deferred profit sharing plan (DPSP)

Tax-deferred savings in employer sponsored RRSPs and DPSPs can be transferred on a tax-deferred basis to your personal RRSP.

Defined contribution pension plan (DCPP)

The value of your DCPP is also tax-deferred, but is “locked-in” since it’s subject to either provincial or federal pension legislation. As a result, there are restrictions on withdrawals and to protect spousal rights for retirement and death benefits.

The value of the DCPP will generally be transferred to what is essentially a locked-in RRSP, most commonly a Locked-in Retirement Account (LIRA) or a Locked-in Retirement Savings Plan (LRSP). Generally, these accounts wouldn’t be accessible until a lifetime income is initiated with a transfer to a Life Income Fund (LIF) or a life annuity.

Deferred compensation arrangements

If you have restricted stock units (RSUs), deferred stock units (DSUs), stock options or a similar incentive plan, the specifics will vary from employer to employer and the details will be outlined in your severance package.

The taxation and timing of these transactions need to be considered and included as part of your overall strategy for maximizing all of your termination options.

Your taxable income in the year of the layoff or early retirement could be substantial. Remember, your annual income taxes are based on your total income for the calendar year, this will include earned income and taxable benefits up to the date of termination, plus severance payments.

Your total taxable income in the year of the layoff or early retirement may also increase if you take the commuted value of your DBPP. The payment of the commuted value into a LIRA account is subject to the calculation of the maximum transfer value (MTV). Any amount in excess of the MTV is paid out as a taxable lump sum amount. Although withholding tax will be applied, the maximum withholding tax is 30%. Set aside additional cash to pay your tax bill, if you are in a higher tax bracket.

It’s important to take advantage of any tax savings opportunities you can.

Ways to save on taxes

• Maximizing RRSP contributions up to your available RRSP contribution room is a simple and effective way to reduce your current tax bill. Amounts contributed to an RRSP are deducted from your taxable income and will reduce your tax payable. And, as previously mentioned, if some of your severance qualifies as eligible retiring allowance, that amount can be contributed directly to your RRSP without the use of RRSP room.
  
  
• You should also maximize contributions to your Tax-Free Savings Account (TFSA) and your spouse or common-law partner’s TFSA. Although this won’t reduce your current tax, it will provide tax-free growth and withdrawals going forward.
  
  
• It may be worthwhile confirming if there’s an option to have any of your severance paid as deferred payments, allowing the amount to be paid to you over two years or more, and reducing your tax burden.
  
  • The primary benefit of deferral is likely subjecting the income to a lower level of income tax, however if you are immediately seeking re-employment this may not hold true.
  • Any potential tax savings should be considered alongside the time value of money. For example, if the payment is deferred until a future year, the opportunity to invest or utilize these funds for the remaining months in the year would be lost.

To make sure you’re making the most of your termination payouts, we recommend that you talk with a qualified tax professional to go over other tax savings strategies that suit your needs.

It’s important that you have enough cash and liquid assets to maintain essential household expenses and prevent illiquidity during this transition. The ATB Wealth Financial Management Fundamentals Guide outlines financial management strategies that can help you make the most of your current financial situation, including:

• Controlling your expenses
• Using credit wisely
• Debt restructuring
• Distinguishing between needs versus wants
• Budgeting and a budgeting worksheet

It is essential to prioritize and maintain financial stability, as you contemplate your future career progression. Consider working with a designated financial planner that can review your current situation, future options and create a comprehensive financial plan with your best interests in mind.

Whether you’re a few years from traditional retirement or decades away, receiving a layoff notice or an early retirement package can feel like an abrupt stop, forcing a pause in your professional life. This moment is also a critical decision point for returning to the workforce. To determine the best strategy for your next move, we suggest meeting with a financial planner to assess whether seeking new employment is a financial necessity or a lifestyle preference. Understanding which of these two distinct paths you are on is essential for determining your job search strategy.

Financially driven return to work

For some, the early retirement funds, combined with unforeseen circumstances or economic shifts, may prove insufficient for long-term security. If your financial "runway" is shorter than anticipated, your return to work must prioritize stability and income.

Prioritize earnings and benefits: Unlike the purpose-driven path, focus on roles that offer reliable compensation and benefits. Your job search urgency will be dictated by how quickly your savings are depleting.

Upskill strategically: Address any skill gaps by seeking certifications or micro-credentials that quickly update your technical skills and show initiative and adaptability.

Avoid the identical role: Though urgency is important, don’t seek an identical job simply because it's familiar. Instead, identify transferable skills (e.g., project management, leadership) valued across different sectors.

Finding new employment after a disruption takes resilience. Recognize that this is a transitional period, not a permanent definition of your career. By taking control of your financial health, engaging in honest self-reflection, and strategically updating your skills and network, you can transform a moment of uncertainty into a fresh and exciting new chapter.

Purpose driven return to work

If you’re financially secure, your return to the workforce is guided by non-monetary desires, often centred on an "encore career." Financial freedom cannot fill the void left by the absence of a professional life. Primary motivations are human-centric:

Identity and purpose: Re-engaging (part-time, consulting, or volunteering) restores the sense of contribution and purpose lost in retirement. It leverages your expertise, ensuring your accumulated knowledge is valued and making a meaningful impact.

For decades, your work defined a significant part of who you were. Your title, your department, and your daily tasks were integral to your identity. Retirement, while liberating, strips that away. Returning to the workforce restores that sense of contribution. It’s about leveraging the expertise you spent 20, 30, or 40 years acquiring. You may not need the income, but maintaining a sense of purpose is vital. You need to feel that your accumulated knowledge is still valued and making a meaningful impact. Work provides a clear, measurable outlet for your competence.

Social connections and structure: Work is a major contributor to adult social interaction and provides structure to your daily life. These aspects are vital for your emotional and mental well-being.

Retirement often means losing the daily professional connections—the coffee room chats, the teamwork on a project, and the shared sense of purpose. You can rebuild these essential professional and social ties by engaging in a new role, such as part-time work, mentoring, consulting, or volunteering.

In addition to social ties, work provides a healthy daily structure. Deadlines and schedules offer a necessary weekly framework that supports mental health and cognitive sharpness. Maintaining a routine is key to preventing the monotony that can arise from a lack of scheduled activities.

Keep the brain sharp: A professional environment demands problem-solving and continuous learning, keeping your mind engaged and adaptable. Taking on a new role, especially one that allows you to pivot and learn a different skill, keeps your mind engaged and adaptable, which supports long-term health and well-being.

The power of choice: Since you are not constrained by salary, you have the freedom to choose a role based solely on alignment with personal values and desired impact. This allows you to work for purpose, blending financial independence with continued professional engagement.