Notice periods and pay is an area of Employment Law that we frequently advise our employer and employee clients on. With some recent developments in the case law, Dionne Dury, Hatch Brenner Employment Solicitor offers advice and guidance:
Working out the termination date
Many employers have heard of the postal rule and might assume that this applies to written notice of termination of employment. However, after many years of uncertainty, the Supreme Court confirmed last year that there is an implied term in all contracts of employment that the notice period does not start to run until the employee has a reasonable opportunity to read the notice.
However, as is usually the case with employment law, there is an exception, and this is where there is an express provision in the employment contract stating that the notice period starts at an earlier point – for example when the notice is delivered to the employee’s home address. So, this is something that we might see being introduced to contracts of employment in future.
Whilst you might think that the exact termination date is not that important, it can make a big difference to an employee’s contractual entitlements on termination in some cases (for example when it comes to bonuses or pension entitlement). It could also be key in determining length of service and/or a limitation date, which would be relevant to eligibility and/or ability to claim unfair dismissal. Unless there is an express provision in the contract, it remains best practice to actively communicate notice of termination to an employee.
PILON or Garden Leave
An issue that seems to cause a lot of confusion is Garden Leave and Payments in Lieu of Notice (‘PILON’). In basic terms, a payment in lieu of notice means that employment ends immediately, with a payment equivalent to the salary that would have been received during the notice period. The employee can therefore start another job immediately. Garden leave means that the employee is still employed but is not required to attend work or carry out their usual duties. The employee would therefore be unable to start another job until the notice period ends.
It is possible for an employee to be on garden leave for part of a notice period and then receive a payment in lieu of the remainder of the period.
Statutory or contractual notice
An employee always gets the benefit of whichever is longer – statutory or contractual notice. Statutory notice is one week for each full year of service, up to a maximum of 12 weeks. So if contractual notice is one month but the employee has 10 years’ service, their statutory notice will apply; whereas if the contractual notice is three months, this will apply.
Notice pay and tax
New rules on the taxation of termination payments came into effect in April 2018. This means that if an employee receives some sort of compensation for the termination of their employment (usually under a Settlement Agreement), which is usually tax-free up to £30k, but they do not work their notice or receive a table payment in lieu of notice, the amount of the compensation equivalent to the notice pay will be taxed.