‘N’ is for Notice Periods

Rights to Notice

The Employment Rights Act 1996 gives both employers and employees the statutory right to a minimum period of notice of termination of employment, as long as the employee has been employed for one month or more. 

A notice period may also be written into an employment contract, but it cannot be for a shorter period than the minimum statutory entitlement.  However, if the contract gives the employer or employee a longer notice period than the legislation, the longer period applies.

How long is a statutory notice period?

If an employee wants to give notice to their employer then the requirement is simply that they give 1 week’s notice, if they have been employed by that employer continually for 1 month or more.  This is unaffected by longer service.

If an employer wants to give notice to an employee then there are certain legal requirements they have to bear in mind, linked to the number of continuous years that the employee has been in their employment. 

• At least 1 weeks’ notice must be given to the employee if they have been in continuous employment for 1 month.
• At least 2 weeks’ notice must be given to the employee if they have been in continuous employment for 2 years.
• At least 3 weeks’ notice must be given after 3 years employment, and so on up to 12 weeks after 12 years or more.

These rights cannot be contracted out of, but the employee does have the right to waive their entitlement to a notice period or to accept a payment in lieu of notice (see below).  There is nothing to stop the employer or employee from terminating employment without notice if they feel that the behaviour of the other party justifies it, but the final decision on whether it was the right thing to do will rest with the courts or employment tribunals, if it is taken to that stage.

When is notice given?

Unless the contract of employment gives a particular time or date for notice to be given, then the notice period will run from the day after the notice is officially given.  This means that if an employee gives their week’s notice on a Wednesday, the notice period will start on the Thursday morning and finish at the end of the following Wednesday.

What is a PILON?

A PILON, or ‘payment in lieu of notice’, is usually made when an employee is dismissed under a clause in their contract without notice or with short notice, as the employer would prefer them to stop work immediately and not work out the notice period. 

How is a PILON taxed?

If the employee has a PILON clause in their employment contract then the payment will always be taxable in the normal way (deductions for PAYE and employee National Insurance).  If the employee does not have a PILON clause in their contract then the payment will be seen as a form of compensation due to the employer’s breach of contract, and is tax free up to £30,000. 

What is Garden Leave?

Garden leave is essentially a paid leave of absence and usually occurs when an employee has given notice of leaving employment, perhaps to join a competitor (although it can also be used where the employer has given notice). The effect of a garden leave clause in an employment contract depends on the wording of the clause.  It can be beneficial to an employer as the employee will be asked to stop working immediately – and so not be able to acquire any further confidential information, clients etc – and also be prevented from joining a competitor until the end of the leave.  Although the employee is not at work, they are still bound by the terms of the employment contract and still owe all the same duties to their employer, including those of confidentiality, not soliciting customers etc.  In return, the employee will still receive their normal salary and contractual benefits.

In order to enforce garden leave there must be an express term in the contract or company handbook.  If an employee refuses to take garden leave and starts work with the competitor then an employer could apply for an injunction to stop the employee from working for the competitor and breaching his employment contract.  If the employer has suffered financial loss as a result, then they may have a claim for damages.