If you were laid off in Ontario and your employer told you something like , “We’ll pay you instead of giving you notice,” or if you saw the phrase“Pay in lieu of notice” in your termination letter, you’ve probably felt uncertain or uncomfortable because you didn’t know exactly what it meant or whether you’d be paid the correct amount. 

If that's the case, then it's time to find out the truth behind this phrase.

In this blog post, I’ll provide a clear explanation of what it means to be terminated under a “pay in lieu ofnotice” arrangementand what factors you should consider when receiving your payment to avoid becoming a victim of workplace abuse.

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What is a “pay in lieu of notice”?

“Pay in lieu of notice” is a financial compensation that an employer provides to a terminated employee when the employee’s contract is terminated immediately, rather than requiring the employee to work during the notice period.

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What to Do If You're Fired Without Just Cause

When an employer in Ontario terminates an employee without just cause, the law provides two options:

1. Give you a"working notice," in which you are informed that your employment will end on a certain future date, but you continue to work and receive your normal salary until that day.
2. "Pay in lieu of notice": When the employment relationship ends immediately, you no longer continue working, but you are paid an amount equivalent to what you would have earned during that notice period.

In other words, "pay in lieu of notice" refers to the payment your employer owes you for failing to give you advance notice. 

It is a one-time payment ("lump sum"), not an ongoing salary, and it compensates for the time you would have been legally entitled to have to prepare yourself before becoming unemployed

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IMPORTANT: You do not choose either option. The decision—whether to provide advance notice or make a direct payment—generally rests with the employer.

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What is the minimum amount of money you are entitled to?

Under the Employment Standards Act (ESA), Ontario’s labor law, if an employee has been working for the company for at least three months, they are entitled to:

• 1 week's notice (or pay) for each full year of service.
• Up to a maximum of 8 weeks, regardless of how many more years you have worked at that company.

For example: 

If you worked for 4 full years, you are entitled to at least 4 weeks of pay. (1 week's notice or pay for each full year of service.) 

If you worked for 10 years, the minimum under the ESA is still 8 weeks—that's the legal limit.

This payment should be calculated based on your regular weekly salary; generally, this includes commissions or bonuses that you regularly received as part of your compensation. 

In addition, their "pay in lieu of notice" also accrues paid vacation time, and your employer is required to continue making the necessary contributions to maintain your benefits during that period, just as if you were still working.

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Avoid this mistake!

The most common mistake is to think that the ESA minimum is “all they’re entitled to.” Here ’s the most important point to understand: 

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The ESA minimum is exactly that: a minimum. This means there is a potential maximum amount to which you are entitled.

Many people receive a termination letter that includes the ESA calculation (for example, that maximum of 8 weeks) and assume that is the only option available. 

However, depending on your situation—your age, length of service, position, and how easy or difficult it is to find a similar job—you may be entitled to a much longer notice period under what is known as “common law reasonable notice.”

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IMPORTANT: Unlike the ESA’s 8-week cap, common law notice has no fixed limit, and in cases involving long-tenured employees or those in specialized roles, it can amount to several additional months of compensation—sometimes far more than what the employer initially offered.

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Don't sign a release without knowing this!

If your employer offers you a severance package that includes "pay in lieu of notice," they will generally ask you to sign a release —a document in which you agree to accept the amount offered in exchange for waiving any further claims. 

But once you sign, you usually lose the right to claim the difference—even if you later find out you were entitled to more!

Therefore, before signing any termination agreement, please confirm the following:

• Whether the amount offered corresponds only to the ESA minimum, or whether you should also consider your potential rights under common law.
• Whether the vacation pay was correctly included in that amount.
• Whether your benefits were taken into account during the notice period.
• If the termination clause in your original contract was even valid (many clauses that attempt to limit it solely to the ESA minimum turn out to be invalid).

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Recommendations 

Do not accept any amount without verifying that it complies with the law.

If you were terminated and received a “pay in lieu of notice, ” remember that the payment you receive will replace the notice your employer was required to give you in advance. 

Learn more about labor rights, since the ESA guarantees you a clear minimum —but that minimum is almost never the actual upper limit of what you might be entitled to receive. 

As a worker, you should have a basic understanding of your rights.

Before signing, carefully verify that the package includes payment for your vacation; that your benefits will be maintained during the notice period; and that the clause in your original contract remains valid.

If you have any questions, seek legal assistance from reputable law firms that are members of the Ontario Bar Association.

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Were you offered a severance package and aren't sure if it's what you're legally entitled to?