Pay in Lieu of Notice
Also called: PILON · Notice Buyout Clause
A pay-in-lieu-of-notice clause allows an employer to end employment immediately by paying the employee's salary for the notice period instead of requiring them to work through it. It gives the employer flexibility to end the relationship quickly while still honouring the notice-period obligation financially.
In more detail
Without a PILON clause, ending employment without requiring the employee to work the notice period can itself be treated as a breach of contract in some legal systems — the clause is what makes the buyout option contractually available rather than assumed.
The amount paid is normally calculated as base salary for the notice period, though whether it includes benefits, bonuses, or other compensation elements depends on how the clause is drafted — silence tends to be interpreted narrowly, in the employer's favour.
A PILON clause cuts both ways in negotiation — it protects the employer's ability to remove someone quickly (useful when trust has broken down), but employees should understand what exactly they're giving up if the clause is silent on non-salary compensation.
An employee with a 60-day notice period is terminated with immediate effect and paid 60 days of base salary as PILON, rather than working through the notice period. Without the clause explicitly permitting this, the immediate termination could itself be a breach.
What our lawyers check
- Whether a PILON clause exists, and whether it's available to both employer and employee
- What exactly is paid — base salary only, or also benefits and bonus
- How the payment amount is calculated
- Whether exercising PILON triggers any other contractual consequences (e.g., restrictive covenant timing)
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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