Each party to an employment contract is entitled by law to a minimum amount of warning if the other party wants to terminate the contract. There are legal notice requirements for both employees and employers, depending on how long the employment has gone on for. The parties can agree between them to give each other more notice, but they cannot agree to less.

Legal minimum notice

The legal minimum period an employee must work differs for employee and employer, and largely depends on years of service.

Minimum to be given by employer to employee

• during the first month of employment: no minimum
• between one month and two years of employment: one week
• between two years and 12 years employment: one week for each completed year of employment (e.g. someone who had been employed for three full years would be entitled to three weeks’ notice)
• employment for 12 years or more: 12 weeks

Minimum to be given by employee to employer

• during the first month of employment: no minimum
• after one month of employment: one week

While any provision in a contract for shorter notice is overridden by the above (so an employer cannot unilaterally give a shorter period), either party can waive their right to notice at any time. For example, an employer could agree to let an employee leave earlier than their notice period required.

Equally, an employee does not have to actually work out their notice period. Instead, they could agree to accept a payment matching what they would have been paid if they were to work the notice. This is referred to as ‘payment in lieu of notice’.

Occasionally, an employer may have the power simply to pay them in lieu without needing to get the individual’s agreement, if the employment contract provides for this. In this instance, an employee will be forced to accept a payment, rather their work their agreed notice.

Exception in notice period for gross misconduct

The only exception to the requirement for an employer to give a minimum amount of notice of dismissal is if the employee commits a very serious act of misconduct (“gross misconduct”). In these circumstances, the employer can legitimately end the employment contract immediately, without the employee having to work notice or receive a payment in lieu. This is known as “summary dismissal”.

However, an employer cannot argue that an employee has committed gross misconduct in order to avoid paying them. Where an employer dismisses summarily, but the employee has not actually committed gross misconduct the dismissal will be both wrongful (in breach of contract) and potentially also unfair. This is assuming the employee has the necessary length of service to bring a claim.

Breach of contract claims

Any failure by an employer to give proper notice of termination to an employee, other than in genuine cases of gross misconduct, will entitle them to bring a claim for breach of contract. Damages will be the salary and value of other benefits (such as pension contributions) which would have accrued during notice proper given.

Likewise, any provisions in an employment contract which purports to allow one party to give less than the statutory minimum notice period which applies are overridden.

Payment in lieu of notice ends entitlement to benefits

Where an employer has the power to make a payment in lieu, the legal effect is that the employment comes to an end immediately. This means that the termination date will usually be the date on which the payment is made.

The consequences of this are that an employee will immediately cease to be entitled to the benefits they would have had were they still employed and at work. For example, they will cease to accrue pension contributions or holiday entitlement and they will no longer enjoy contractual benefits such as private medical insurance.

In some cases, an employer may agree as part of a settlement agreement to continue providing such benefits for a period of time, but there is no legal requirement on them to do so.

Employees often mistakenly believe that when they are paid in lieu, they also be paid for any annual leave that would have accrued had opted to work their notice period. However, annual leave entitlement stops as soon as the employment has been terminated by the payment in lieu.

Ending employment this way is immediate, whereas deciding to work your notice obviously extends the time that someone is actually employed. There can be very good reasons for preferring to remain employed for a longer period. For example, if someone is about to become entitled to a bonus or share options a payment in lieu would potentially prevent them from being eligible for such benefits.

However, payment in lieu clauses are generally drafted so that the discretion on whether to activate them remains entirely with the employer. Using a solicitor to negotiate with the employer will help prevent them using this power for their own gain.

Refer to your contract for exact notice entitlement

If you think you may want to give your employer notice or vice versa, check your most recent employment contract to ensure that it complies with the legal minimum requirement and whether or not it contains a power for the employer to pay in lieu of notice.