Pay in Lieu of Notice

General Principles

Providing pay in lieu of notice is a method of dismissal whereby an employer immediately terminates the employment relationship and compensates the employee for the period of reasonable notice that should have been provided in the form of a monetary payment. Unlike working notice, the employee will not continue working after the termination date.

Defining Pay in Lieu

Pay in lieu of notice represents damages for breach of the employment contract, not an attempt to comply with any implied term of the employment contract.¹ That is because the implied term of the employment contract is only to provide reasonable notice of termination — there is no implied term that the employer may provide reasonable notice or pay in lieu of notice.²

1. Dunlop v BC Hydro & Power Authority, 1988 CanLII 3217 (BC CA), at para. 15. ↩
2. Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26, at para. 74. ↩

Purpose of Pay in Lieu

The purpose of pay in lieu of notice is compensatory, not punitive.³ When an employer provides pay in lieu of notice, they are compensating for the breach of the implied term to provide reasonable notice.⁴

Pay in lieu of notice must compensate the employee for all losses arising from the employer’s breach of contract in failing to provide proper notice of termination.⁵

3. Farber v Royal Trust Co, [1997] 1 SCR 846, at para. 48. ↩
4. Dunlop v BC Hydro & Power Authority, 1988 CanLII 3217 (BC CA), at para. 15. ↩
5. Paquette v TeraGo Networks Inc, 2016 ONCA 618, at para. 16. ↩