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Is there such a thing as a “good” goodbye?

Employment law solicitor Natalie Ruane discusses notice periods when an employee hands in their notice.

Some employers want an employee “out of the door” as soon as he or she has handed in his or her notice but we are often asked about whether an employee can be asked to work his or her notice and what to do if the employee refuses?

How much notice is required? 

If notice isn’t mentioned in the contract of employment (“the Contract”) then the default position is statutory notice; an employee must give and is entitled to receive notice of the termination of his or her employment if they have been continuously employed for one month or more. The employer must give one week’s notice (after one month’s service) and then, after two years’ service, one week’s notice for each complete year worked up to a maximum of twelve weeks’ notice.  However, the statutory position for the employee is that, after one month’s service, he or she only has to give one week’s notice. 

As most employers want more than a week’s notice when someone leaves, the Contract generally states what notice the employee is required to give. A failure to give the amount of notice which has been specified in the Contract is then a breach of contract.

Are there any exceptions?

Although it is not possible to contract out of statutory notice, both the employer and the employee can agree to waive their right to notice or agree to a shorter notice period. 

Other circumstances in which notice is not required include when either party breaches the Contract entitling the other party to treat it as terminated with immediate effect.  

What if you don’t want the employee to work during his or her notice period?

In this case, there are two options: Garden Leave or paying in lieu of notice (“PILON”). In each case, an express clause in the Contract is technically required.

Garden Leave

When an employee is given Garden Leave he or she remains employed and should continue to receive pay and benefits but can be kept away from the business. Some employers don’t like this option because the employee is effectively paid to sit at home doing nothing. However, if there is no PILON clause in the Contract, Garden Leave can be an effective alternative.

Garden Leave is most commonly used in circumstances where the Contract contains restrictive covenants designed to prevent the employee from competing against the employer for a period of time after the Contract has come to an end. As such restrictions generally apply from the date of termination, Garden Leave can be used to keep the employee out of the business and to ensure that the restrictions continue for a longer period of time. This does, however, depend upon how the restrictions are drafted and employers who would like to have the ability to use Garden Leave in this way should take legal advice on the terms of the Contracts that they have in place.

Payment in lieu of notice

Provided there is provision in the Contract for a PILON to be made then, unlike Garden Leave, the employee’s Contract can be terminated as soon as notice of termination has been given but with the PILON being paid instead of the employee working out the notice period. 

If there is no provision for PILON in the Contract and the employer makes a PILON, technically there has been a breach of the Contract. This means any PILON can be seen as damages for the breach of the Contract and can, therefore, be paid tax free. However, because of the breach of the Contract there is a risk that the employee may be released from restrictive covenants which may be more damaging to a business than allowing the employee to work his or her notice period. 

PILON clauses also need to be carefully drafted to ensure that the employer has a choice whether to use the provision.  Otherwise the employer might be forced to make a PILON every time.

What if notice is not provided?

If the employer doesn’t give notice (or sufficient notice) and refuses to offer a PILON then the employee can bring a claim for breach of contract and wrongful dismissal.

If the employee doesn’t give notice, the employer can challenge that as a civil action (because the employee is in breach of contract) but it is difficult to do so in an employment tribunal unless the employee has sued first and the employer’s claim can be brought in as a counter claim.

Rather than looking for damages or compensation, most employers just want the employee to be forced to stay and complete whatever task it is that they were working on. However, the courts have frequently ruled that specific performance (i.e. ordering an employee to complete work under a Contract, including, for example, serving out the length of his or her notice period) is something that should only happen in exceptional circumstance. 

With that in mind, the better course of action for aggrieved employers is a breach of contract claim in the county or high court. Such claims by employers are rare though because it is often difficult to prove the loss suffered from an early exit and the cost of bringing such a claim will often outweigh the cost of replacing the employee.   

Alternative Approach?

As a result of those difficulties, the employer in the recent case of Li v First Marine Solutions (EAT), tried something different. The employer used a clause in Ms Li’s contract to argue that it could withhold pay for any period within the notice period that Ms Li didn’t work and that it could claim back/deduct from any outstanding salary the costs incurred in having to appoint a replacement to cover the work that she should have completed during the notice period.

When Ms Li resigned she refused to work during her notice period because she believed that she had outstanding holiday still to take. A week after her resignation, when it became apparent that the employer did not agree with how Ms Li had calculated her unused holiday, Ms Li changed her mind and said that she was prepared to work during her notice after all. By this point the employer had already engaged a consultant to replace Ms Li.  The employer refused to allow her to return and refused to pay Ms Li her final month’s salary arguing that it was entitled to deduct one month’s salary from her outstanding salary under the terms of her contract to recover the costs of the replacement. 

The employment tribunal held that the clause was enforceable. The Employment Appeal Tribunal (“the EAT”) agreed. 

The EAT considered cases relating to penalty clauses. For a long time, the law has provided that the employer can include and enforce clauses within the Contract which seek to recover damages/compensation from employees who breach their Contracts provided the clause (and the amount sought) represents a genuine pre-estimate of the loss that the employer is likely to suffer if the employee breaches the clause/contract rather than being merely a punitive measure.

 In this case, the EAT held that one month’s salary was a genuine pre estimate of loss and not an “extravagant and unconscionable” sum. The Claimant had not worked her notice period (she did not have holiday remaining) so the clause in her employment contract applied. 

So are similarly worded deduction clauses the solution to full notice not being worked by employees?

Not necessarily. The EAT stressed that the case might not create a precedent – the EAT felt that it was quite fact sensitive. The case was also distinguished on its facts from an earlier case (Giraud UK Ltd v Smith) where a similar clause was held to be a penalty clause. In the Giraud case, the employee was a driver and more easily replaceable. In the Li case, the EAT accepted that the employee was difficult and expensive to replace at short notice. 

The EAT recommended that, in future cases, employment tribunals should consider the 'reality of employment circumstances', and whether a clause at the time it was entered into is really intended to operate as a genuine pre estimate of loss, a penalty or simply to entitle the employer to withhold pay for the period of time not worked during notice thereby upholding the normal principle of “no work, no pay”.

About the author

Natalie Ruane profile photo

Natalie Ruane

Natalie is a Partner and leads the Employment Law & HR team and specialises in education.

Published: Monday 21st July 2014
Categorised: Employment

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