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Wrongful Dismissal – Employment Terminates On Payment In Lieu Of Notice

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An employee brought breach of contract and wrongful dismissal claims in the High Court against his former employer. The employer wrote to the employee terminating the employment with immediate effect under the payment in lieu of notice (PILON) provision in the employment contract and paid the employee in lieu of his notice period eight days later. The High Court held that the PILON clause provided an alternative method of termination to the three month notice period. However, the termination did not take effect until the employee had been advised that the amount he had been paid was actually his PILON.

Payment in lieu of notice can automatically terminate the employment contract if the provisions of the contract stipulate as much, even if the employee is unaware of the payment at the time.

The Court of Appeal held that, on a proper construction of the contract, the termination was effective when the employer transferred the money to the employee’s account, even though they had not informed him of it at the time. The PILON expressly stated that payment terminated the contract and there was no need to imply a term that it was only effective if the employee was informed of it.

Employers should bear in mind that there is a difference between dismissal under common law, as in this case, and the statutory ‘effective date of termination’, which applies in unfair dismissal claims, where the employee must have knowledge of his dismissal. Under contract law, the parties are free to agree a method of termination without notice (Societe Generale v Geys, Court of Appeal).