Notice and payments in lieu of notice

Topic Index
Overview
Minimum legal requirements
Failure by employer or employee to give notice
Rights during notice
Payments in lieu of notice
Resources

Overview

 

  • Both employers and employees have a legal right to minimum notice if the contract is terminated.
  • Once notice has been by either the employer or employee it cannot unilaterally be withdrawn.
  • In certain circumstances, employees have the right to be paid a minimum wage during their statutory notice period, even where they do not actually work during that period.

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Minimum legal requirements


  • Once an employee has worked continuously for at least 1 month, he or she is then entitled to 1 week's notice for each completed year of service up to a maximum of 12 weeks' notice. Thus: from 1 month to 1 year - 1 week's notice; 2 years - 2 weeks' notice; 3 years - 3 weeks' notice etc.
  • An employee who has been continuously employed for 1 month or more must give at least 1 week's notice of termination.
  • These are the legal minimum periods. The contract of employment can provide for more notice from either party but cannot provide for less than the statutory minimum.
  • The written statement must set out the periods of notice.
  • If the contract does not mention notice, a tribunal/court will imply 'reasonable' notice - which will vary according to the seniority and length of service of the employee.
  • Once either party has given notice, the legal position is that notice cannot be withdrawn unilaterally.

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Failure by employer or employee to give notice


  • If the employer fails to give proper notice, it amounts to a breach of contract and entitles the employee to sue for damages (i.e. the pay and benefits due during the notice period). An employer will usually avoid this scenario by giving pay in lieu.
  • If the employee fails to give proper notice, it also amounts to a breach of contract.
  • An employer's options in such a case are limited. It cannot withhold pay lawfully due under the contract. The only option is to sue the employee for breach of contract for any loss suffered. In most cases retrieving such a loss through the courts would not be worthwhile unless the amount was quantifiable and substantial, e.g. where the employee's breach had led directly to the loss of a large order.
  • Should the employee leave without giving notice, the employer is not obliged to give the employee a reference. Contractual leave over and above the statutory leave entitlement can also lawfully be withheld, but only if there is provision for this in the contract.
  • The employer cannot refuse to pay accrued holiday pay as this would breach the Working Time Regulations.

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Rights during notice


  • Employees who are on sick leave, holiday or absent because of pregnancy or parental leave during any part of their notice period are entitled to their full weekly pay even if they have exhausted their contractual sick pay entitlement - unless their contractual notice is at least 1 week longer than the statutory minimum. For example, if an employee with 2 years' service is entitled to 1 month's notice, he cannot take advantage of this provision, whereas if the notice period was 2 weeks, the provision would apply.
  • An employee who is under notice of redundancy is legally entitled to take reasonable paid time off during working hours to look for a new job or make arrangements for training. The employee must have 2 years' service to take advantage of this right.

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Payments in lieu of notice


  • Where an employer dismisses an employee without proper notice, it will be in breach of contract. However, if the employer has given a payment in lieu of notice (PILON), an employee will not be able to recover damages for such a breach.
  • Any PILON must compensate the employee fully for all the pay and benefits which would have accrued during the notice period, e.g. company car or private medical insurance.
  • Employers who ask an employee to leave with pay in lieu must make it clear that the effective date of termination is the date the employee leaves and not the date on which the notice would have expired.
  • Claims for PILONS cannot generally be pursued under the protection of wages provisions as they do not fall within the definition of wages.
  • The one exception to this is so-called 'garden leave' where the employer gives proper notice of termination, tells the employee that he need not work until the termination date and gives him the pay attributable to the notice period in a lump sum. This involves no breach of contract by the employer as the employment relationship continues until the notice expires and the lump sum payment is simply of advance payment of salary. Such 'garden leave' payments are wages and protected by the law on deductions from wages.
  • If the contract of employment provides for a PILON it will be chargeable to income tax in the normal way. Where there is no contractual provision for a PILON, and importantly no custom or practice of making such payments, the first £30,000 of such a payment will generally be tax free.

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Resources


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