Notice

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This practical guide outlines what ‘notice’ means in an employment law context (whether it’s you giving notice of termination to your employer or your employer giving it to you)

What is Notice?

Notice to terminate is usually required to lawfully end a contract of employment and can be given by an employer or employee.  Notice can be either statutory (governed by statute) or contractual (either stated expressly in a contract of employment or implied into it.)

How much notice should you receive from your employer?

Contractual notice

Contained within your contract of employment should be a clause which states the amount of notice which your employer needs to give before dismissing you and how much notice you are obliged to give prior to leaving your employer.  In the absence of such a clause, there will be an implied term to give reasonable notice.  The parties can mutually agree to shorten the length of notice that needs to be given, or waive their right to receive notice completely.

Any contractual notice must be equal to or greater than the statutory notice periods (see below) otherwise is it unenforceable.

Where an employee had committed a repudiatory breach of the terms of the employment contract, the employer can terminate without giving notice. The most common example of this is where the employee has committed an act of gross misconduct.

Statutory notice

In the absence of a contractual term on notice, the statutory notice provisions will apply.  These state that the following periods of notice need to be given by an employer to an employee:

  • at least one week’s notice if employed between one month and 2 years
  • one week’s notice for each year if employed between 2 and 12 years
  • 12 weeks’ notice if employed for 12 years or more

The statutory notice provisions will also apply where an employee’s contact of employment provides for less notice than the statutory minimum, but not where an employee’s conduct allows the employer to terminate the contract with immediate effect.

Failure to give statutory notice will extend with Effective Date of Termination for the purposes of determining the qualifying period for an unfair dismissal claim so employees dismissed less than a week prior to having two years continuous service may still be able to make a claim for unfair dismissal.

How much notice must you give to your employer?

Check your contract of employment.  This will usually state how much notice you need to give your employer once you have resigned prior to your employment ending. If your contract doesn’t state how much notice you need to give to your employer, you will need to give at least one week if you have been employed more than a month.

When does your notice period start?

Notice is not effective until it is given and effectively communicated to an employee with either (i) an ascertainable date on which the contract is due to come to an end or (ii) facts from which the date can be inferred.

Case law tells us that notices sent by post are effective when it comes to the employee’s attention and they have read the communication containing notice or have had a reasonable opportunity to do so.

How should you give notice?

Check your contract of employment to see whether it specifically states how notice should be served and to whom.  Even if your contract does not say so, we would always recommend that you give notice in writing (making it clear notice is being served) and state when your last day of employment will be to avoid any arguments later that you did not serve notice correctly.

What if you don’t get proper notice from your employer or any notice at all?

If your employer does not give you the correct amount of notice as provided for in your contract of employment, they will be in breach of contract and you may have a claim for wrongful dismissal which entitles you to make a claim for damages for the amount you would have received if notice had been given correctly or an unlawful deduction from wages claim.  If your contract of employment provides for less notice than the statutory minimum, they need to provide the statutory minimum and a failure to do so could also constitute a breach of contract/wrongful dismissal.

The only way an employer can lawfully give you no notice is if you have committed a fundamental breach of your contract of employment entitling them to dismiss you summarily (e.g. with no notice). The most obvious example of a fundamental breach of contract would be gross misconduct on your part, but it might be worth seeking legal advice in this situation to ascertain whether your employer can infact dismiss you with no notice.

What is Pay in Lieu of Notice (or “PILON”)?

PILON means ‘pay in lieu of notice’. This is where an employer elects to make a payment in lieu of the salary (and possibly benefits) you would have received if they allowed you to remain an employee and work your notice period (once it has been served by either party).  Many employment contracts contain a clause which allows employers to elect to make a PILON payment and terminate an employment contract early rather than allow the employee to work their notice period.  This could be, for example, because the employee has access to confidential information and they are concerned that the employee would misuse the information once they know their employment is coming to an end.  Many employees also prefer to receive a PILON payment which is usually a lump sum payment, without having to work their notice period.

If your contract allows your employer to make a PILON payment, check the wording carefully to see whether you will receive just basic salary or salary and benefits for the notice period.  If the contract is silent on exactly what will be paid you can try to argue that you should receive salary and benefits.

What if your employer wants to make a PILON payment, but there is no PILON clause in your contract of employment?

Where there is no clause in the contract of employment allowing the employer to make a PILON payment, they are technically in breach of contract and as a result, the employee is entitled to claim damages for the breach of contract and the employee can argue for those damages to cover all of the financial losses arising from the breach so could include things like commission payments that would have been earnt if the employee had been allowed to work, pension contributions, health insurance cover etc.  In addition, you are usually released from any restrictive covenants contained in the contract. However, in this situation an employee is under an obligation to mitigate any losses during the proper notice period.

What is Garden Leave?

Garden Leave is used when an employer wants to stop an employee from performing their duties during the notice period, but doesn’t want to make a PILON payment.  It is usually used for senior employees and the purpose can be to stop the employee from going to work for a competitor straight away and/or to keep them out of the marketplace long enough that any sensitive or confidential information goes out of date prior to them leaving their employment.

When an employee is placed on garden leave they are usually asked to remain at home and not do any work during the garden leave period, unless expressly instructed to, but they should still be paid as normal.  This does not mean however that they can get another job as they remain an employee during the garden leave period and should continue to get paid as normal.  Many employees are pleased to be placed on garden leave for this very reason.

During garden leave an employer may insist an employee uses any outstanding annual leave entitlement, not contact customers or suppliers and prohibit an employee from working elsewhere, amongst other things.

If an employee has restrictive covenants contained in their contact of employment an employer may offset any time spent on garden leave against the length of the restrictive covenant.

What happens if you breach your garden leave clause?

An employee who breaches their garden leave clause could be liable for any losses an employer incurred as a result of the breach.  So, for example, if an employee misused company information whilst on garden leave and/or contacted clients and enticed them away, they could be liable for damages for the financial losses that resulted from the breach. 

In addition, an employer could apply for an injunction to prevent the employee on garden leave working for a competitor during the garden leave period.  However, it is rare for a court to grant such and injunction and they are more likely to award damages to compensate the employer for any losses caused by the breach.

Can notice been withdrawn or varied once it’s been given?

Once it has been validly given, notice cannot be withdrawn or varied, other than by mutual consent.  Where notice is given in breach of contract (e.g. short notice or no notice at all), it will not be effective to terminate the contact, unless it is accepted by the other party.

What should you be paid during your notice period?

If you work during your notice period, the general rule is that you should be paid exactly the same as you ordinarily are and receive the same salary and benefits (so, for example, holiday pay or sick pay). 

What are you rights to receive your salary and benefits during the notice period?

Some contracts of employment state that employees will not receive benefits such as commission for work done during the notice period and/or bonuses that fall due when an employee is serving notice so always check your contract of employment to understand what should be paid during the notice period.

Will you receive your bonus if you have given or received notice?

That depends. 

If you are still employed on the usual bonus payment date (including on garden leave), you should still receive your bonus.

If your employment is terminating prior to the usual date that bonuses are paid because you have served notice, you might be expecting to receive a pro-rata payment for the period you were employed.  However, most bonus clauses will specifically state that in order to receive a bonus an employee needs to be employed on the payment date and not been serving notice at that time.

Where your employer has served notice on you and has elected to make a PILON payment and you are not going to be employed on the date bonuses are paid out, you will not be entitled to receive your bonus unless your contact specifically states that a pro-rata bonus will be paid when you leave part way through the bonus year, although such a provision is rare.

Where there is no PILON clause, an employer making a payment in lieu of notice is in breach of contact and you could attempt to seek damages arising out of that breach which would include payment of the bonus.

Can you leave without giving full notice or any notice at all?

If your employer has breached a fundamental term of your contract of employment, you could be entitled to resign from your employment immediately without the need to serve your notice period.

If there is no fundamental breach on the part of your employer, failure on your part to provide your employer with the notice they are entitled to receive under your contract of employment could mean that you are in breach of contract and your employer could be entitled to claim damages in respect of that breach (unless of course, they agree to you not providing the correct notice and are happy for you to leave your employment early).  So, for example, if a chef gave no notice to their employer and they then had to hire a replacement chef to cover the notice period and the cost of the replacement chef was higher than the original employee’s salary, the employer could claim damages for the increased costs.  However, an employer cannot force an employee to work their notice period if they don’t want to.

Senior employees should consider the risk of an injunction to stop them working for a competitor during the period they should have been serving notice, however this is rare as the employer would have to show a ‘legitimate business interest’ that can only be protected by stopping the employee working for the competitor.

What about holiday and notice periods?

Holidays still accrue during the notice period and your employer should allow you to use your holiday during the notice period (unless there is a contractual term banning this or they have a good business reason to refuse the request) or make a payment in lieu of any accrued, but untaken holidays on the termination of your employment.

Can your employer force you to take outstanding holiday during any notice period?

Some contracts specifically state that employees need to use all of their holiday prior to their employment terminating so you could find that your employer insists that you take all of your holiday during the notice period.

In addition, provided an employer gives you adequate notice (at least double the number of days leave which you wish to take) an employer can specify that an employee uses their holiday during the notice period.

What about share options, restricted share units, and deferred compensation?

Whether or not share options, restricted share units, and deferred compensation are payable when an employee is serving notice very much depends on the rules of the particular scheme in place governing the payment which may or may not be contained in an employee’s contract of employment.

Share options that have already been exercised cannot usually been taken away from an employee and if they have not been exercised an employee can try and negotiate realising the value of the share options.

Restricted Stock Units that are due to vest or be fully distributed after employment has ended often have to be forfeited, but always check the scheme rules.  Where an employer has terminated the employment contact in breach (e.g. by making a PILON payment when there is no provision for one in the contract), an employee may be able to make a claim for them.

It is also important to check what the position is with regards to any deferred compensation, such as bonuses.  The bonus scheme rules might state that an employee serving notice will forfeit the right to receive their bonus.  If an employer elects to make a PILON payment, the PILON clause needs to be checked to see whether the bonus will be paid as well as the salary that would have accrued during the notice period. Where there is no PILON clause, the PILON payment would amount to a breach of contract and in these circumstances the employee can try to claim damages for any bonus they would have received during the notice period.

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