Termination with/without notice

Under section 86 of the ERA 96, both employee and employer have a statutory right to minimum notice if the contract is terminated.

An employee is entitled to notice of at least:

• one week, if their length of service is between one month and two years; or

• one week for each year, if they have between two and 12 years’ service; up to a maximum of:

• 12 weeks, if they have at least 12 years’ service.

This is the statutory minimum entitlement to notice. The employment contract often provides for more notice than this. If the contract says nothing about notice, the courts can imply “reasonable” notice, taking account of factors such as the employee’s length of service and seniority (Clarke v Fahrenheit 451 (Communications) Limited [EAT 591/99]).

If the employer has not given proper notice, the employee can bring a claim for breach of contract (known as a wrongful dismissal claim) in an employment tribunal or civil court to recover the unpaid notice pay and the value of any other benefits, such as pension contributions or any car allowance, that would have been earned had the notice been worked (see Wrongful dismissal). No service is needed for this type of claim.

When an employer ends a contract wrongfully — failing to give full contractual notice in circumstances that do not justify a summary dismissal — the contract will not come to an end until the employee has accepted the employer’s repudiatory breach and brought the contract to an end, or until the employer has given proper notice, whichever happens first (Societe Generale v Geys [2012] UKSC 63). The Supreme Court in Geys said that any other conclusion would allow the employer to profit from its own wrongdoing.

An employer can choose to make a payment in lieu of notice (PILON) instead of making the employee work the whole or any part of the notice period, as long as the employment contract allows this. It is generally up to the employer to decide whether to pay wages in lieu of notice instead of making the employee work through (all or any part of) the notice period. The employee is not entitled to demand this (Cerberus Software v Rowley [2001] IRLR 160).

Notice must be clear and unambiguous. In particular, the fact that a payment in lieu of notice has been made into an employee’s bank account is not enough notice to end the contract. An employee ”should not be required to check his bank account regularly in order to discover whether he is still employed”. An employer who has the contractual right to end the contract by making a payment in lieu of notice, also has an implied duty to tell the employee clearly and unambiguously that the right is being exercised and when the contract will end (Societe Generale v Geys [2012] UKSC 63).

Notice payments made under a PILON clause are paid net of tax and national insurance, because they are taxable earnings.

The minimum statutory notice an employee must give the employer is one week, although the employment contract can provide for longer notice. If the employee gives insufficient notice, this will be a breach of contract. However, the employer is not entitled to withhold outstanding wages unless the contract allows this. Any such contract term must be clear and ambiguous and must have been agreed to in advance by the employee — usually by signing the contract (see Chapter 4: Unlawful deduction from wages).