Following on from our look at the top five myths about fixed terms contracts (available here), this month we look at some of the common misconceptions about notice and notice periods.
- The employer can refuse to accept an employee’s resignation.
One of the most prevalent myths about giving/receiving notice is that an employee’s resignation will only take effect once it has been accepted by the employer.This can lead unwary employers into the trap of believing that they can prevent an employee from leaving simply by refusing to accept the employee’s resignation.
However, an employee’s notice of resignation will be effective as soon as it is given in accordance with the terms of the contract.
Employers can protect themselves against being caught out by an employee’s unexpected resignation by ensuring that employees have suitable notice periods.Ideally, the notice period will be long enough for the employer to find a replacement and for any handover to be completed. For junior employees, this may be a couple of weeks (although be aware that longer periods may apply as a matter of law where the employer is giving notice to the employee – see Myth No.5), but for senior executives and other key members of staff the appropriate period of notice might be several months.
Employers should also keep notice periods under review. As employees become more senior and/or more integral to the employer’s business or a particular project, it may be advisable for the employer to negotiate a longer notice period so it is not caught out if the employee unexpectedly resigns.
- The employer can always make a payment in lieu of notice to bring the employment to an end quickly.
Once notice of termination has been given – either by the employer or by the employee – the employer will often decide it doesn't want the employee to work out their notice period and will make a payment in lieu of notice instead.That’s OK, right
Unfortunately, it may not be that straightforward.Unless the employment contract gives the employer an express right to make a payment in lieu of notice, sending the employee home with their notice pay will be a breach of contract.
This could lead to claims for any losses the employee suffers as a result of the breach (for example, the value of any benefits they would have been entitled to during their notice period).More significantly, the employer’s breach of contract could render any post-termination restrictions (such as non-compete and non-solicitation of customer clauses) unenforceable.
Most employment contracts will contain a payment in lieu of notice clause, but the golden rule, as always, is to double-check the contract and make sure it’s there.
- Notice pay can be paid tax free if paid under a settlement agreement.
When an employer and employee are negotiating the terms of an agreed exit, it will often be suggested –by the employer or the employee – that the notice pay can be paid tax free.This can seem like an excellent idea.Not only does it maximise the value of the exit package for the employee, it also means the employer will save on National Insurance contributions.This can seem like a win/win situation.
However, if the employment contract contains a payment in lieu of notice clause (as most employment contracts do) then the payment will be taxable as earnings and the employer could find themselves in trouble with HMRC by paying it without appropriate deductions and accounting for National Insurance contributions.
Again, employers should double-check the employment contract.
There are other options for structuring settlement payments tax efficiently, so employers who are unsure of the tax position should seek advice on the available options.
- Notice is effective as soon as it is given.
Both employers and employees can get into a bit of a muddle over when notice is validly served and takes effect.We regularly come across situations where an employee is told at a meeting that their employment is being terminated, but it takes a week or two for this to be confirmed in writing.
Although there is no legal requirement for notice to be given in writing, most employment contracts will specify that notice must be written.If the contract specifies written notice, notice given orally at a meeting will not be effective.Instead, notice will (usually) run from the date of the letter, not the date of the meeting.
A further complication arises if written notice is not handed directly to the employee.Notice will not take effect until it is actually received by the employee (unless the employment contract contains specific rules on when notice is deemed to have been received).Therefore, a termination letter sent to an employee’s home address while she is away on holiday will not have effect until she returns home and reads the letter.
A delay in validly giving notice, which can also delay the termination date, will mean the employee is entitled to be paid for the extra days they are employed. It can also have more far-reaching consequences, for example allowing the employee to qualify for a bonus that would not have been payable if notice had been validly served.
- As long as notice is given in accordance with the contract, the employer can’t go wrong.
A recurring theme in this article is the importance of checking – and complying with – the employment contract to make sure notice is validly given.Whilst this is critical, the employment contract doesn't always give a complete picture and this can lead to even the most careful employers being caught out.
Although most employment contracts will specify the amount of notice to be given by either party to terminate the employment, there are minimum notice periods set out in legislation which can override the contract.
Employees are entitled to a minimum of one week’s notice per complete year of service up to a maximum of 12 weeks’ notice after 12 years’ continuous service. Therefore, whilst the contract is the starting point, employers should always consider whether a longer notice is required by law.
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