Payment in Lieu of Notice — Ontario Employment Law
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About Payment in Lieu of Notice
When an Ontario employer terminates an employee without cause, they must provide either working notice or a payment that compensates for that notice period. This compensation is known as 'payment in lieu of notice,' often abbreviated as PILON. Essentially, it is a lump sum or salary continuance intended to bridge the financial gap while the terminated employee searches for new work. The core principle of PILON under common law is to make the employee 'whole,' meaning they should receive all the compensation and benefits they would have earned had they been allowed to work through their full notice period.
This goes far beyond just base salary. A proper common law payment in lieu of notice should include the value of lost bonuses, commissions, stock options, car allowances, pension contributions (like in the Kisil v. IBM Canada Ltd. case), and the continuation of benefits like health and dental insurance, or cash compensation for their value. This is a critical distinction from the minimum entitlements under Ontario's Employment Standards Act, 2000 (ESA), which are covered on our 'termination pay' and 'severance pay' pages. Common law notice periods, and therefore the corresponding PILON, are almost always significantly greater than ESA minimums.
The length of the notice period itself is determined by various factors (known as the Bardal factors), which are explored in detail on our 'reasonable notice' page. This page, however, focuses specifically on the composition of the payment. Employers sometimes present offers that only cover base salary, which can be a form of wrongful dismissal if it doesn't account for the employee's total compensation package. Because calculating the full value of a PILON package can involve complex variables, understanding its components is the first step in assessing the fairness of a termination offer. Each employment situation has unique details, and a professional review can be essential to ensure you are receiving your full entitlement.
Frequently Asked Questions
What's the difference between payment in lieu of notice and severance pay in Ontario?
Payment in lieu of notice is a common law concept representing your full compensation (salary, bonus, benefits, etc.) for a reasonable notice period. 'Termination pay' and 'severance pay' are separate, specific minimum entitlements under Ontario's Employment Standards Act, 2000, which are often much less than the common law amount.
Does my payment in lieu of notice have to include my bonus and commissions?
Generally, yes. Under common law, the payment should include all forms of compensation you would have reasonably earned during the notice period, including bonuses and commissions. However, the specific wording of your employment contract or bonus plan can sometimes affect this entitlement.
Can my employer force me to take my payment in lieu of notice in installments?
Unless your employment contract specifies otherwise, a payment in lieu of notice is typically due as a lump sum upon termination. An employer paying it out over time (as salary continuance) may be permissible, but it must continue all benefits and perks as if you were still employed.
How are taxes calculated on a payment in lieu of notice?
Payment in lieu of notice is considered income and is subject to income tax. However, a portion of it may qualify as a 'retiring allowance,' which allows for a tax-deferred transfer directly into an RRSP, reducing the immediate tax burden.
Is there a time limit to challenge an insufficient payment in lieu of notice?
Yes. In Ontario, you generally have two years from the date your employment was terminated to file a lawsuit for wrongful dismissal, according to the Limitations Act, 2002. It is crucial to act within this timeframe.
When should I have a lawyer review my payment in lieu of notice offer?
You should seek a legal review before signing any release documents, especially if the offer only reflects your base salary, excludes variable compensation like bonuses, or seems low for your age, role, and years of service. An initial offer from an employer often represents their minimum obligation, not your full common law entitlement.
Common Scenarios
- A marketing manager with eight years of service is terminated and offered eight weeks' pay, but the payment calculation completely ignores her significant annual performance bonus.
- A senior sales executive is let go and receives a lump sum payment, but the employer fails to include the value of the lost car allowance and employer-matched pension contributions.
- An employee is terminated without cause and the employer offers to continue their salary for several months but informs them their health and dental benefits will cease immediately.
- A long-service employee is given a payment in lieu of notice that is based on an outdated salary from before a recent promotion and raise.
What You Should Know
- Before accepting any offer, create a list of every component of your compensation, including salary, bonuses, commissions, benefits, pension, and perks, to compare against the proposed payment.
- Never sign a Full and Final Release document in exchange for a payment in lieu of notice without fully understanding what you are giving up; it permanently waives your right to sue for more.
- Review your employment agreement for any termination clauses that might try to limit your payment in lieu of notice to only your base salary or the ESA minimums.
- If your employer's offer for payment in lieu of notice seems incomplete, consulting with an employment lawyer can provide a clear assessment of your full common law entitlements before you make any decisions.
Featured Cases
G. v. Cambridge Mercantile Corp
2024 ONSC 1792 (CanLII) · 2024-04-16This is a wrongful dismissal case involving a dispute over damages and payment in lieu of notice. The court addressed the appropriate compensation for the employee's termination.
A. v. University Health Network
2023 ONSC 1756 (CanLII) · 2023-02-22Workplace Discrimination and Wrongful Dismissal Damages
This is a wrongful dismissal case involving allegations of workplace discrimination against the University Health Network. The court addressed issues regarding damages and payment in lieu of notice resulting from the termination.
C. v. Bank of Montreal
2022 ONSC 4687 (CanLII) · 2022-08-12This is a wrongful dismissal case involving the plaintiff C. against the Bank of Montreal. The legal issues include claims for payment in lieu of notice and damages, alongside a claim for unjust enrichment.
E. et al. v. Disi-Peri Mgt. Inc.
2022 ONSC 2184 (CanLII) · 2022-04-08Wrongful Dismissal: Resignation vs Dispute
This case involves a plaintiff who claims wrongful dismissal and seeks pay in lieu of notice, while the defendant argues the plaintiff resigned. The court must determine whether the termination was without cause or a resignation, and interpret the Employment Agreement regarding notice and severance. The employment dispute is part of a broader action involving oppression remedies for minority shareholders and share valuation.
D. v. Vantage Machine Shop Ltd.
2021 ONSC 7539 (CanLII) · 2021-10-26This is a wrongful dismissal case involving a dispute over damages and payment in lieu of notice. The court addressed the appropriate compensation for the employee's termination.
H. v. Glencore Canada
2021 ONSC 5010 (CanLII) · 2021-07-16This is a wrongful dismissal case concerning the determination of a reasonable notice period and the calculation of damages in the form of payment in lieu of notice.
K. v. Firepower Financial Corp.
2021 ONSC 4962 (CanLII) · 2021-07-15Wrongful Dismissal: 5.5-Year Employee Awarded 10 Months Notice
This wrongful dismissal case addressed the reasonable notice period for a plaintiff terminated after 5.5 years of service, applying the Bardal factors. The court awarded 10 months’ pay in lieu of notice, including base salary, benefits, and vacation pay, while also determining entitlement to commissions and bonus pool shares based on the notice period timeframe.
B. v Hudson’s Bay Company
2021 ONSC 2610 (CanLII) · 2021-05-12This is a wrongful dismissal case involving the plaintiff against Hudson’s Bay Company. The legal issues center on damages and the appropriate payment in lieu of notice for the dismissal.
D. v Mikla Foods Canada
2019 ONSC 2387 (CanLII) · 2019-04-15This is a wrongful dismissal case involving claims for pay in lieu of notice and quantum meruit.
B. v. Lower Lakes Towing Ltd.
2017 ONSC 7060 (CanLII) · 2017-11-28This is a summary judgment motion concerning an employment contract dispute involving bonuses and payment in lieu of notice.
M. v Complex Services Inc. (Niagara Casinos)
2017 ONSC 2997 (CanLII) · 2017-05-15This is a wrongful dismissal case concerning the determination of a reasonable notice period and associated damages for payment in lieu of notice.
Z. v. S.
2014 ONSC 6686 (CanLII) · 2014-11-19A wrongful dismissal case addressing issues of reasonable notice and pay in lieu of notice.
D. v. Ontario Power Generation Inc.
2007 CanLII 49486 (ON SC) · 2007-11-16Constructive Dismissal: 24-Month Notice Awarded in Ontario Case
A constructive dismissal case where the plaintiff alleged that changes to compensation, job responsibilities, and reporting structure constituted constructive dismissal. The court applied the Farber test and found the cumulative effect of the changes to be a constructive dismissal. The plaintiff was awarded 24 months’ notice, with damages reduced by income earned during the notice period, resulting in a total award of $698,287.00.
S. v. Kohler Canada Co.
2006 CanLII 42369 (ON SC) · 2006-12-20Wrongful Dismissal: 21-Year Employee Awarded 16-Month Notice
A wrongful dismissal case where a plaintiff with 21 years of service alleged termination without cause, while the defendant argued the plaintiff voluntarily resigned. The court awarded 16 months' notice, included overtime in pay in lieu of notice, and ruled that the plaintiff's efforts to mitigate damages were reasonable, including awarding tuition expenses for retraining.
T. v. B.
2004 CanLII 39004 (ON CA) · 2004-11-16Wrongful Dismissal: 18 Months Notice Upheld
This appeal addresses whether there is a functional legal difference between working notice and pay in lieu of notice, and whether an employer can unilaterally amend a notice period. The court held that no functional difference exists and that the employer was bound by the initial 18 months' working notice as no objective change justified the amendment to six months' pay in lieu. The court also determined that lack of bad faith did not warrant extending the notice period and awarded pre-judgment interest at 4.8%.
R. v. Lawrence Park Medical Centre Ltd.
2002 CanLII 28911 (ON SC) · 2002-10-11This is a wrongful dismissal case concerning the employer's compliance with notice requirements and the provision of pay in lieu of notice upon termination.
L. v. Toronto Transit Commission
1998 CanLII 6868 (ON CA) · 1998-11-16This is an appeal to the Court of Appeal from a trial judge's decision about constructive dismissal. The employee, an Assistant Chief Revenue Collector for the Toronto Transit Commission, resigned after being investigated for an alleged theft and experiencing unilateral changes to his work schedule. The trial judge found that the employer's conduct destroyed the mutual trust essential to the relationship, constituting constructive dismissal, and that the employee did not fail to mitigate his damages by refusing to stay. The Court of Appeal agreed that the imperfectly concealed investigation and scheduling changes breached the trust condition of employment. The employer's appeal was dismissed.
T. v. Ronal Canada Inc.
1997 CanLII 1730 (ON CA) · 1997-04-22An appeal to the Court of Appeal for Ontario concerning employment law issues, specifically notice requirements and the quantum of pay in lieu of notice.
L. v. F.
1996 CanLII 8120 (ON SC) · 1996-08-07This is a wrongful dismissal case involving issues of constructive dismissal and the determination of reasonable notice or pay in lieu of notice.
Re Telegram Publishing Co. Ltd. and Z. et al.
1973 CanLII 645 (ON HCJDC) · 1973-08-24Termination Case: Notice and Severance Pay Under Expired Collective Agreement
A case addressing whether employees are entitled to both notice pay under the Employment Standards Act and severance pay under an expired collective agreement. The court clarified statutory and contractual entitlements, the survival of severance provisions post-expiry, and the jurisdiction of the designee under the Employment Standards Act.