Giving notice to end the employment contract

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 a need for “reasonable” notice, taking account of factors such as length of service and seniority (Clarke v Fahrenheit 451 (Communications) Limited [2000] All ER (D) 849).

It is a breach of contract not to give the full contractual notice. The employee can bring a claim in an employment tribunal or the civil court to recover unpaid notice pay and the value of any other contractual benefits, such as employer pension contributions, that would have been paid if the notice had been worked. No service is needed for this type of claim.

An employer can opt to make a payment in lieu of notice (PILON) instead of requiring the employee to work their whole notice, as long as the employment contract allows this. Where a contract contains this kind of term, it is generally up to the employer to decide whether to pay wages in lieu of notice instead of making the employee work their notice. The employee is not entitled to demand this (Cerberus Software v Rowley [2001] IRLR 160).

Notice must be given using clear language. An employer who has the contractual right to make a payment in lieu of notice also has the implied contractual duty to tell the employee clearly 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. Not giving enough notice is a breach of contract. However, the employer is not allowed to deduct outstanding wages to punish the employee for not giving enough notice, unless a contract term expressly allows this. That contract term must be clear, and must have been agreed to in advance by the employee. This will usually be done by signing the contract (see Chapter 4: Unlawful deduction from wages).