Pay in lieu of notice (PILON)

Many contracts include an express term allowing the employer to make a payment in lieu of notice (PILON) instead of making the employee work the whole or any part of the notice period. It is up to the employer to decide whether to exercise this right instead of making the employee work their notice. The employee is not entitled to demand this (Cerberus Software v Rowley [2001] IRLR 160).

There is no implied duty to exercise the choice in the way most beneficial to the employee (Reda v Flag Ltd [2002] IRLR 747). In Marshall (Cambridge) Limited v Hamblin [1994] IRLR 260, the EAT decided that an employee who had resigned on notice had no general implied right to work out his notice, but only a right to be paid in lieu of that notice, even though this meant that he lost the ability to earn commission. In Locke v Candy and Candy Limited [2010] EWCA Civ 1350, an employee was entitled to a bonus as long as he was employed on the bonus payment date. The employer was able to defeat his entitlement to the bonus by exercising a contractual PILON clause. Exercising the PILON meant that the employee was no longer “employed” and as a result lost his claim to the bonus.