Termination of an employment contract: giving effective notice

Blog

10.08.2023

Whether it is due to a breakdown in relations, poor performance or simply seeking greener pastures, when the time comes to terminate an employment contract it is crucial to understand the requirements for giving notice to end the employment relationship.

How much notice either party must give and how it is dealt with will depend on:

How long the employee has worked for the employer,
What is in their employment contract, and
Whether they have been dismissed, made redundant or have resigned.

There are both statutory and contractual obligations on employers and employees when it comes to giving notice. In this blog we deal with some of the common questions which arise when the time comes to part company.

What is notice?

Notice is normally required in order to lawfully terminate a contract of employment. An obvious exemption to this rule is where the contract is for a fixed-term or expires on a set date. There are also other examples of where a failure to give notice is not unlawful, such as where an employee is in repudiatory breach of their employment contract, however we will not go into detail on these points in this article.

How much notice should be given?

The requirement to give notice is normally set out in the employee’s employment contract. A failure to give notice in accordance with that contract is likely to amount to a breach of contract.

Where there is no term dealing with notice in the employment contract (or no written employment contract at all), there will be an implied term to give reasonable notice.

Section 86 of the Employment Rights Act 1996 imposes statutory minimum period notice periods that an employer or employee must give to bring the employment to an end. The statutory minimum will differ depending on the length of time an employee has spent in continuous employment.

Employees with a period of continuous employment of at least one month but not exceeding two years are entitled to at least one week’s notice from their employer. Those with two years’ continuous employment or more are entitled to one week’s notice for each complete year and up to a maximum of 12 weeks’ notice. The courts will not enforce a period of contractual notice which is shorter that the statutory minimum (unless either party has waived their right to notice). Where the contractual notice period exceeds the statutory minimum period required, the contractual period will prevail.

An employee cannot contract out of the right to receive statutory minimum notice. However, an employer or an employee can waive their right to receive due notice of termination. Therefore either party who is entitled to receive notice by contract or by statute may waive that right completely or agree to accept a shorter period of notice.

How should notice be given?

There is no requirement under statute to give notice in any particular way. However, if the procedure for giving notice is set out in the employment contract, that procedure will be contractually binding on the parties unless they agree otherwise. It is common for an employment contract to set out that notice must be given in writing. This provides a clear safeguard to any resignations or dismissals made in the “heat of the moment.” It is also common for an employment contract to set out when such notice is effective (in respect of how it is provided to the relevant party and when it is deemed to have been received). Case law has suggested that “in writing” could include forms of communication such as texts, email and instant messaging. However, given that there are some risks involved in giving notice via email, such as the risk of interception or concerns that it is much easier to forge an email, some employment contracts may specify that notice may not be given by email.

When does notice start to run?

Unless the employment contract provides otherwise, the notice period runs from the day after that on which the notice was given.

What are the options during an employee’s notice period?

The reason behind notice being given is likely to dictate what happens during the employee’s notice period. In amicable circumstances, an employee may simply work their notice period, provide a tidy handover and leave on a positive note. In addition, in such circumstances, the parties may agree to waive notice or reduce notice where the employee has requested this, for example to start a new role. This relieves both the employer from having to pay the individual during their notice period and for the employee to have to work during their notice period.

In other circumstances, where the relationship has deteriorated or the employee is going to a competitor, it may be unattractive for the employee to work their notice period, due to their attitude within the working environment or with clients and/or the access they have to confidential information. In the absence of a repudiatory breach of contract (where the employee could be dismissed without notice), the employer may wish to pay the employee in lieu of notice or place them on garden leave instead.

Payment in lieu of notice

It is advantageous for an employer to include a payment in lieu of notice provision in an employment contract for this purpose. It allows the employer to make a payment to the employee in lieu of working their notice and allows the parties to part company at the date of termination (or part way through the notice period). In order to avoid disputes down the line as to what should be included in a payment of lieu of notice payment, employment contracts should define whether benefits other than salary should be included. In the event the employment contract doesn’t include a payment in lieu of notice provision, but the employer still wishes to go down the payment in lieu of notice route, it is important that the employer’s payment includes the benefits that would have accrued during the notice period (such as pension and any accrued holiday) to ensure that the employee doesn’t have an outstanding claim for wrongful dismissal. Since making a payment in lieu of notice in the absence of a contractual right to do so may release an employee from any restrictive covenants in the contract, it is advisable to take legal advice before pursuing this option.

Garden leave

A further alternative is to place the employee in the garden. Some contracts of employment contain an express power to place an employee on garden leave. This means the employee is given notice in accordance with their contract, but they are not required to attend or carry out any work (and will normally be cut off from accessing the employer’s systems). They will receive their salary and benefits in the normal manner and remain an employee until the end of their notice period. The key benefit here is that the employee will still be bound by all their usual contractual obligations that apply during employment, however they do not have access to any confidential information of the employer and are effectively removed from the marketplace for that period. Employers however should note that any time spent on garden leave is likely to be set off from any restrictive covenants, ie reduce the time in which the employee is restricted from working for an employer, contacting customers or former colleagues and so forth.

Conclusions

Giving notice is not necessarily as simple as it seems and once it is given, there are various options open to the employer in how to deal with the employee’s notice period. This will often be influenced by the reasons notice was given and relations between the respective parties. However it is given, notice is a fundamental aspect of the employment relationship. As set out in this article, it is incredibly important to get it right, both to ensure compliance with contractual obligations but also to ensure that employers utilise notice periods in a way which best serves their needs.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.