Contracts of employment often contain what we lawyers refer to as a PILON clause in relation to notice. A PILON clause allows the employer to terminate the employee’s contract immediately by paying them a sum of money in lieu of their contractual notice period. This can be valuable when, for example, the employer wants the employee to leave straight away and not work out their notice period. If there is no PILON clause the employer can still do this but by doing so they would be in breach of contract and all of the other terms (including any post termination restrictions they may want to rely upon) fall apart.
In a very recent case at the Court of Appeal (Cavanagh v William Evans Limited) the employer dismissed Mr Cavanagh by reason of redundancy. He was entitled to 6 months notice and the employer intended to make him a payment in lieu in accordance with the PILON in his contract. However, after they had dismissed him but before they had paid him his notice, they discovered he had committed an act of gross misconduct before his dismissal. They then sought to argue that this discovery released them of any obligation to make the payment in lieu. Unfortunately for them the Court of Appeal did not agree. They said that there was no right in the contract for the employer to withhold the payment if the company subsequently discovered that he had committed an act of gross misconduct.
It is hard to see how this argument could have succeeded as this is surely a question of contract law. If the contract does not allow it the employer had no contractual argument to rely on.
If it’s time to update your employment contracts, please give me a ring.