Legislation
Case law: employer’s defective termination notice led to substantial bonus for employee
27/08/2010 09:50
A recent case highlights the importance of clear termination notices – employers must draft termination notices carefully and, if relying on a ‘payment in lieu of notice’ (PILON) clause in an employee’s contract, make that absolutely clear. If in doubt, they should take specialist advice.
An employer whose termination notice was ineffective because it did not say it was given pursuant to a PILON clause in the employee’s contract had to pay a substantial bonus to the employee because he was still employed.
An employee’s contract provided that they could be dismissed on three months’ notice, or immediately if the employer paid them in lieu of notice.
The employer purported to dismiss them at a meeting, and gave them a letter saying the dismissal was ‘with immediate effect’. They were escorted out and did not come back to work. Two weeks later the employer made a payment in lieu of notice into the employee’s bank account, but without warning them it was going to do so. Two weeks after that it sent them another letter saying it was terminating their employment under the PILON clause in the contract.
The employee claimed they had not been dismissed by the first letter, and paying money into their bank account did not mean they accepted what was a fundamental breach of their contract of employment. The High Court agreed and said they had only been dismissed when the second, proper letter was sent.
The employment therefore continued into the employer’s next financial year, which meant the employee became entitled to a substantial bonus.
Operative date
- Immediate