Working Notice vs. Pay in Lieu of Notice in Ontario: A Complete Employer Guide

Table of Contents

1. ESA Notice Periods by Service Length
2. Working Notice: How It Works
3. Pay in Lieu of Notice: How It Works
4. Working Notice vs. Pay in Lieu: Side-by-Side Comparison
5. Benefits Continuation Obligations
6. Common Law Notice: The Bigger Risk
7. The Waksdale Problem Every Employer Should Know
8. Bardal Factors: How Courts Calculate Reasonable Notice
9. ESA Notice Exemptions
10. Mass Termination Rules
11. Termination Pay vs. Severance Pay
12. Best Practices for Ontario Employers
13. Frequently Asked Questions

Letting an employee go is one of the most legally sensitive things an Ontario employer can do. Choose the wrong method, miscalculate the notice period, or have a defective termination clause in your employment agreement and you could face a wrongful dismissal claim worth months—sometimes years—of salary.

This guide covers the two lawful options for ending employment without cause in Ontario—working notice and pay in lieu of notice—along with the common law risks that sit above the ESA floor.

ESA Notice Periods by Service Length

The Employment Standards Act, 2000 (ESA) sets the minimum notice an Ontario employer must provide before terminating an employee without cause. These minimums apply regardless of whether you give working notice or pay in lieu.

Period of Employment	Minimum Notice
Less than 3 months	None required
3 months to less than 1 year	1 week
1 year to less than 3 years	2 weeks
3 years to less than 4 years	3 weeks
4 years to less than 5 years	4 weeks
5 years to less than 6 years	5 weeks
6 years to less than 7 years	6 weeks
7 years to less than 8 years	7 weeks
8 or more years	8 weeks

Important: These are ESA minimums. Unless a valid termination clause in the employment agreement limits the employee to ESA minimums, common law reasonable notice can be significantly higher.

Working Notice: How It Works

Working notice means the employer tells the employee that their employment will end on a specific future date, and the employee continues to work normally right up until that termination date.

Requirements During a Working Notice Period

• All terms of employment must stay the same. The employer cannot reduce wages, cut benefits, change duties, or reduce hours. Any material change can constitute constructive dismissal and effectively void the working notice.
• Notice must be in writing. While the ESA does not explicitly require written notice, a written notice with a clear termination date creates a clear evidentiary record and is strongly recommended.
• Benefits must continue. Group health, dental, and other benefits must remain in place for the duration of the notice period.
• Vacation pay continues to accrue. The employee continues earning vacation pay on wages earned during the notice period.

When Working Notice Is Practical

Working notice makes the most sense when:

• The employee is being laid off due to a business restructuring or role elimination and the transition will be smooth
• The employer needs the employee to complete projects or train a replacement
• The employer wants to conserve cash rather than paying a lump sum
• The relationship is not acrimonious

The Problem With Working Notice

Employment lawyers often describe working notice as “predestined to fail.” The reasons:

• Morale collapse. Colleagues know the person is leaving. Productivity often drops—for both the affected employee and the team.
• Security risk. An employee who knows they’re being let go may copy data, solicit clients, or check out mentally.
• Constructive dismissal risk. If the employer inadvertently changes any working condition during the period, the employee could claim constructive dismissal and argue the notice was void.
• Duty to mitigate complications. The employee must take reasonable steps to find new work. If they find a new job and leave early, they are generally entitled to only the wages for the time actually worked—but disputes arise.

Pay in Lieu of Notice: How It Works

Pay in lieu of notice (called “termination pay” under the ESA) is a lump-sum payment given to the employee instead of having them work through the notice period. The employment ends immediately—or on a set date shortly after the conversation.

How Termination Pay Is Calculated

The ESA formula: regular wages × weeks of notice. “Regular wages” is the employee’s regular rate, not including overtime, commissions, or bonuses (unless the employment contract specifies otherwise).

When Must Termination Pay Be Paid?

Under the ESA, termination pay must be paid:

• Within 7 days after the employee’s last day of employment, or
• On the employee’s next regular pay date—whichever is later

Delaying termination pay is an ESA violation and can trigger a complaint to the Ministry of Labour.

Advantages of Pay in Lieu

• Clean break: the employment relationship ends immediately
• Eliminates the morale and security risks of a working notice period
• No risk of the employer inadvertently voiding the notice by changing working conditions
• Easier to administer

Working Notice vs. Pay in Lieu: Side-by-Side Comparison

Factor	Working Notice	Pay in Lieu
Employment end date	Future date	Immediate (or very soon)
Cash outlay timing	Regular pay over notice period	Lump sum at termination
Work performed	Employee works normally	No work after termination
Benefits obligation	Must continue through notice period	Must continue or pay cash equivalent for the notice period
Morale impact	High — team knows; lame-duck period	Lower — clean exit
Security risk	Higher	Lower
Constructive dismissal risk	Yes — if employer changes conditions	No
Employee duty to mitigate	Yes (finding new job)	Disputed at common law; not under ESA
Typical employer preference	Restructurings with long lead times	Most terminations without cause

Benefits Continuation Obligations

One of the most frequently overlooked obligations: benefits must continue throughout the notice period, whether you give working notice or pay in lieu.

Under the ESA, if an employer provides pay in lieu, the employee’s entitlement to benefits (group health, dental, life insurance, etc.) continues for the duration of the notice period that was paid out. Employers have two compliant options:

1. Continue group benefit coverage for the length of the notice period (often possible with insurer cooperation)
2. Pay the cash equivalent of the benefit premiums alongside the termination pay

Simply cutting off benefits on the termination date and paying only wages is an ESA violation—even if the total pay is otherwise correct.

Common Law Notice: The Bigger Risk

The ESA minimums are a floor, not a ceiling. At common law, employees in Ontario are entitled to reasonable notice of termination—a period determined by courts based on specific factors about the employee’s situation.

Common law notice is typically far longer than ESA minimums:

• ESA: 1–8 weeks maximum
• Common law: 1 month to 24+ months depending on circumstances

Employers can limit their exposure to the ESA minimum (or a higher contractual amount) through a valid termination clause in the employment agreement. If no such clause exists—or the clause is void—the employee gets common law reasonable notice.

The Waksdale Problem Every Employer Should Know

In 2020, the Ontario Court of Appeal decided Waksdale v. Swegon North America Inc., a ruling that continues to reshape termination law in Ontario.

“An employment agreement must be read as a whole and not piecemeal… [I]f the for cause termination provision is unenforceable, the without cause provision cannot be saved.”
— Waksdale v. Swegon North America Inc., 2020 ONCA 391

What this means practically:

• If your employment agreement has a “for cause” termination clause that allows termination without notice for cause (without specifically saying “serious misconduct” in the ESA sense), that clause likely violates the ESA
• Because the entire termination section must be read together, the defective for-cause clause voids your without-cause clause too
• Result: even if your without-cause clause correctly limits notice to ESA minimums, the void for-cause clause means the employee can claim common law reasonable notice

Thousands of Ontario employment agreements drafted before Waksdale are affected. If your agreements haven’t been reviewed since 2020, this is a material legal risk you should address.

Bardal Factors: How Courts Calculate Reasonable Notice

When common law reasonable notice applies, courts use the factors from Bardal v. Globe & Mail Ltd. (1960) to calculate the appropriate notice period:

Bardal Factor	How It Affects Notice
Age	Older employees get more notice — it’s harder to find comparable employment
Length of service	More years = more notice; strongest single factor in most cases
Character of employment	Senior/specialized roles command more notice than entry-level positions
Availability of similar employment	Niche skills or weak job market = more notice; transferable skills = less
Economic climate	Courts may consider how hard the job market is at the time
Inducement to leave previous job	If the employer recruited the employee from secure employment, they may owe more notice

ESA Notice Exemptions

Not every employee in Ontario is entitled to ESA notice. The following categories are exempt under O. Reg. 288/01:

• Employees employed for a definite term or task (where employment ends at the end of the term)
• Employees on a probationary period (generally the first 3 months) being let go during that period
• Employees guilty of wilful misconduct, disobedience, or wilful neglect of duty that is not trivial and has not been condoned
• Construction industry employees working on-site
• Employees hired through a temporary help agency and assigned to a client (in specific circumstances)
• Certain managers (where the employment contract provides a greater entitlement)

Even exempt employees may have common law rights to reasonable notice—the ESA exemptions only remove the statutory floor.

Mass Termination Rules

If an employer terminates 50 or more employees within a 4-week period (at an establishment), Ontario’s mass termination provisions apply. These provisions:

• Require the employer to give notice to the Director of Employment Standards (Ministry of Labour)
• Set higher minimum notice periods based on the number of employees terminated:

Number of Employees Terminated	Minimum Notice
50–199	8 weeks
200–499	12 weeks
500 or more	16 weeks

Mass termination notice can be given as working notice, pay in lieu, or a combination. The higher notice period overrides individual ESA entitlements.

Termination Pay vs. Severance Pay

These are two distinct ESA obligations that are frequently confused.

	Termination Pay	Severance Pay
Who gets it	All employees with 3+ months service (unless exempt)	Employees with 5+ years service AND employer has $2.5M+ payroll OR terminated 50+ employees in 6 months due to permanent closure
Amount	1–8 weeks regular wages	1 week per year of service (max 26 weeks)
Based on	Length of notice entitlement	Years of service
Taxed?	Yes, as employment income	Yes (may qualify for RRSP transfer in some cases)
Can be paid in installments?	No — must be lump sum	Yes — with employee agreement

A long-tenured employee at a larger Ontario employer may be entitled to both termination pay and severance pay—these are separate, cumulative obligations.

Best Practices for Ontario Employers

1. Review all employment agreements after Waksdale. Any agreement drafted before 2020—or not reviewed by employment counsel since then—likely has a void termination clause. Update them for current hires and consider re-signing with current employees (with appropriate consideration).
2. Use pay in lieu for most terminations. The clean break eliminates constructive dismissal risk during the notice period and reduces operational disruption.
3. Don’t forget benefits. Calculate and document the cash value of benefits for the notice period and include it in the termination pay package.
4. Pay on time. Termination pay must be paid within 7 days of the last day of work or the next regular pay date, whichever is later. Late payment is an ESA violation.
5. Document the calculation. Give the employee a written breakdown showing the service length, notice weeks, regular wage calculation, vacation pay, and benefits component.
6. Get a release for amounts above ESA. If you’re paying common law amounts or a negotiated package above the ESA minimum, a signed full and final release protects you from subsequent claims. Do not make release signing a condition of receiving ESA minimums—that itself violates the ESA.
7. Get legal advice before large terminations. Common law exposure, Waksdale risk, and severance calculations can be complex and fact-specific. The cost of one hour of employment counsel is trivial compared to the exposure of a wrongful dismissal claim.

Frequently Asked Questions

What is working notice in Ontario?

Working notice is when an employer tells an employee in advance that their job will end on a specific future date. The employee continues working normally throughout the notice period and receives their regular pay and benefits.

What is pay in lieu of notice in Ontario?

Pay in lieu of notice (also called termination pay) is a lump-sum payment equal to the wages the employee would have earned during the notice period. The employer ends employment immediately rather than having the employee continue working.

How much notice is required under the ESA in Ontario?

Under the Employment Standards Act, 2000, notice ranges from 1 week (for employees with 3 months to 1 year of service) up to 8 weeks (for employees with 8 or more years of service). Employees with less than 3 months of service are not entitled to ESA notice.

Can an employer reduce pay or change duties during a working notice period?

No. During a working notice period, the employer must maintain all terms and conditions of employment including wages, hours, and benefits. Any reduction in pay or material change in duties can constitute constructive dismissal and void the working notice.

What is the Waksdale risk for employers?

The Ontario Court of Appeal’s Waksdale v. Swegon decision (2020) held that if any termination clause in an employment agreement violates the ESA—even a rarely used clause—the entire termination provision is void. The employee is then entitled to common law reasonable notice, which is often many months longer than the ESA minimum.

Does an employee get vacation pay on termination pay?

Yes. Vacation pay (4% for most employees) accrues on termination pay under the ESA. Employees are entitled to 4% of their termination pay amount as vacation pay in addition to any accrued unused vacation.

Can an employee refuse to work during a working notice period?

An employee generally cannot simply refuse to work during a valid working notice period without risking a finding of resignation or abandonment. However, if the employer materially changes working conditions during the notice period, the employee may have grounds for constructive dismissal.

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This article covers Ontario employment law as it stands in 2025–2026. Employment law is fact-specific—consult an Ontario employment lawyer before making termination decisions. HRX Connect provides HR consulting services and can help you structure compliant termination processes. Contact us to speak with an HR expert.