Employees are entitled to a period of notice which is either set out in law, statutory notice, or in some cases the employment contract will provide for a more generous notice period.
Statutory notice is 1 week after 1 months employment and up to 2 years employment. From 2 years it increases to 1 week for each full year of employment up to a maximum of 12 weeks.
The employment contract can set out a longer notice period, but it cannot be less than statutory notice.
It is not uncommon for employers to seek to pay an employee in lieu of notice when the decision has been made, by either party, to terminate the employee’s employment. This is often referred to as a PILON payment.
Paying an employee in lieu of notice means that the employee is paid for their contractual notice period up front, and their employment terminates with immediate effect or on a specific date.
Whilst it may be advantageous to pay an employee in lieu of notice, unless there is a clause in the employee’s employment contract which states that they can paid in lieu of notice then an employer would be in breach of contract by doing so.
It is therefore important that you check employment contracts, before offering to pay an employee in lieu of notice.
If you pay an employee in lieu, without the contractual ability (as set out above), this could give rise to a breach of contract, the remedy for which is compensation that puts the employee into the position they would have been had the employer not breached the contract. Therefore, as long as an employer pays the employee their normal salary and benefits for the full notice period, there is no real benefit of an employee pursuing a breach of contract claim.
The exception to this is where an employee is paid for the work that they do, or their pay is linked to actually doing work. For example, where an employee is paid commission and is unable to earn the same amount because they were not given the chance to work their notice. The value of the compensation would be the difference between what the employee received and what they would have earned if they were still at work.
As the PILON is a contractual payment, it will be subject to tax and national insurance deductions in the usual way.
If there is no contractual right to pay an employee in lieu of notice, and you are concerned about the risk of a breach of contract claim, you could opt to place the employee on garden leave (if the contract allows for this). In this situation, the employee remains an employee for the duration of their contractual notice period and receives their pay and benefits in the normal way, but they are not required to undertake any work or have access to any systems, unless required to do so by the employer.
The difference with garden leave is that an employee’s employment would terminate following the expiry of their contractual notice period, as opposed to their employment ending immediately.
It is important to check the employment contract to understand what contractual rights apply before informing an employee that you intend to pay them in lieu of notice.
If you are unsure of the best way to approach an employee issue, we recommend you obtain advice.
If you wish to discuss matters, please do not hesitate to contact us on 01983 897003.
Appointments are available by telephone or via video call, so no matter where you are in England or Wales we can assist you.
The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.
The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.
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