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Jargon Buster – Notice of termination of employment

Posted on 10th April, 2017

With the exception of contracts for a fixed term, notice is required to lawfully terminate a contract of employment other than in limited circumstances (discussed below).

The source of information on the parties respective notice requirements is the contract of employment itself. A written contract will usually specify the length of notice which the employer must provide to the employee, and which the employee must provide to the employer, in order to terminate employment – indeed, the written particulars which must be given to an employee within two months of commencing employment include the notice requirements – alternatively, notice may have been expressly agreed (for example, orally or in correspondence). In the absence of an express term, an implied term will always operate to ensure that employment may only be terminated on reasonable notice.

What amounts to reasonable notice will depend on the seniority of the employee, their length of service and what period of notice is to be expected in the sector concerned. Reasonable notice could vary from one or two weeks for a junior or unskilled worker through to six months or more for a senior manager or director. It will not always be reasonable to imply the statutory minimum notice period where there is no express contractual provision, particularly where the employee concerned is in a management role. Equally, reasonable notice for a manual worker might be one month yet an individual worker’s statutory minimum notice may exceed this if they have been continuously employed for five years or more. Notice of termination actually given must not be less than the statutory minimum and must reflect the employee’s contractual entitlement if that is longer. Section 86(1) of the Employment Rights Act 1996 provides that:

a) an employee who has been continuously employed for one month or more but less than two years is entitled to not less than one week’s notice;
b) an employee who has been continuously employed for two years or more but less than twelve years is entitled to one week’s notice for each (full) year of continuous employment;
c) and employee who has been employed for twelve years or more is entitled to not less than twelve weeks’ notice.

The statutory minimum notice to be given by an employee who has been continuously employed for one month or more is one week, although contractual notice (express or implied) will in many cases be longer.

Many employers decide to dismiss an employee with immediate effect and make a payment in lieu of notice rather than allow the employee to work their notice period. This may be done in accordance with the contract of employment, via a pay in lieu of notice (PILON) clause. However, in the absence of such a clause, the employer’s action will breach the employee’s contractual entitlement to notice of termination of employment, and the payment will reflect damages for breach of contract. Although this will not present the employee with grounds to pursue a claim for notice pay, they may be able to obtain an injunction to prevent their dismissal where they will suffer a loss which cannot be compensated in damages, alternatively the employer may find itself unable to enforce any post-termination restrictions in the contract which they chose to terminate in breach.

A contractual payment in lieu of notice will be subject to tax and national insurance contributions to be deducted under PAYE in the usual way. Such a payment in the absence of a PILON clause, where it genuinely reflects compensation for breach of contract, so not where the parties reach an agreement and there is no question of breach of contract, may escape deductions for tax and will escape deductions for national insurance contributions.

In circumstances of gross misconduct or where an employee otherwise acts in repudiatory breach of their contract of employment, they may be dismissed instantly and without notice or payment in lieu of notice. Conduct warranting summary dismissal should be so far as possible explained to employees, however, where such conduct occurs, whether to exercise summary dismissal needs to be considered separately rather than this follow automatically.

For more information on notice periods, PILON clauses and summary dismissal, please contact Paul Clark or another member of the Employment Team.

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