When an employee is terminated without cause, the employee is owed notice of the upcoming termination or pay in lieu of that notice, or a combination of both. Termination pay is simply monetary compensation to the employee in lieu of notice of the termination. Sometimes the employer will provide no notice to the employee or less notice than what the employee should have received from the employer.

The amount of termination pay is dependent upon two factors: 1) Ontario’s applicable statutory legislation and 2) the common law. Firstly, Ontario’s Employment Standards Act, 2000, sets out what the employee’s minimum notice period should be statutorily upon dismissal.  Secondly, an employee may be entitled to a significantly longer notice period under the common law. For instance, depending on the individual nature of the case, a wrongfully dismissed employee who was terminated without cause may be entitled to over 24 months of common law notice. However, an employment contract or employment agreement may have clauses that limit a dismissed employee’s right to common law notice.

The purpose of this blog is to look deeper into the two main ways in which employers may provide termination pay to a terminated employee. Those two ways are via 1) a lump sum payment or 2) through salary continuance.

What is a lump sum payment upon termination?

A lump sum termination payment is a payment made by an employer to an employee that encompasses all of the employee’s income that they would have otherwise received during the notice period but for the employee’s termination. For example, the amount should include the employee’s wages but also include benefits or bonuses that they would have received. Further, unless agreed otherwise, there is usually no demand for the employee to report if they get a new job during the notional notice period equaling the lump sum payment.

Generally, the employee will receive this lump sum payment soon after their employment ends. For example, a lump sum payment could be part of a termination or severance package the dismissed employee will receive or via a settlement agreement if the employee has retained a lawyer or sued the employer for wrongful dismissal damages.

What is salary continuance upon termination?

Salary continuance is when the employer continues to pay the employee during the notice period their regular wages they would have received as if they are still employed. Typically (although not necessarily) these amounts would cease if the employee got a new job that would mitigate the employee’s damages. Another common variation is for the employee to receive half of the remainder of the salary continuance upon securing new alternative employment.

It is important to note there is some tax differences between a lump sum payment versus salary continuance. For example, because salary continuance is treated as if it was regular income, income tax should be deducted just as if the employee was employed. In cases of a lump sum payment, sometimes the concerns relating to tax are more complex. The tax deduction is usually withheld and deducted prior to payment of the lump sum to the former employee by the employer. Also, the employee may ask for the lump sum amount to be transferred to their RRSP, or the amount may qualify as retiring allowance.

Which is the better option?

This is essentially a fact-driven exercise and, as such, the bottom line is that determining which is the better option will be entirely dependent on what the situation is at hand. There may be concerns relating to how solvent the employer is, how easy it would be for the employee to mitigate their damages by finding alternative employment, whether there are any relevant clauses in the employment agreement or contract, whether there are any concerns over the value of certain key aspects of income like commission amounts or bonuses, what tax concerns either party has, whether the employee needs immediate payment due to cashflow issues, whether the employee wants to continue their benefits or make deposits into an RRSP, whether or not either party wants a “clean break,” etc.

How can Zeilikman Law help?

It is very common that an employee finds themselves in a situation where they have been fired, wrongfully dismissed or terminated from their job. Any employee who has been fired from their job should approach an employment lawyer to review their own specific case. Failing to reach out to an employment lawyer may result in the employee failing to obtain their full legal entitlements to compensation related to severance pay or termination pay. Employers who have questions about termination, severance or wrongful termination should also contact an employment lawyer.

For more information about termination pay, please see our blogs:

• Termination Pay in Ontario: 2026 Guide to Rights & Entitlements
• Our Guide to Notice of Termination under Ontario’s Employment Standards Act, 2000
• 3 Key Things to Know About Termination Without Cause in Ontario

Zeilikman Law can be contacted at (905) 417-2227 or online here to schedule your own confidential consultation with one of our employment lawyers.