Notice of termination - issues for employers

December 2011

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Introduction

The notice period required to terminate an employee’s contract of employment is generally set out as an express term in the contract of employment. It can be given either orally or in writing by either party. The question of whether notice has been properly given can cause concern for an employer. This edition of Employment Highlights considers recent cases on the right of an employer to give notice and the issues that may arise.

How does an employer give notice?

Employers should ensure that the words used to give notice are clear and unambiguous. Where the meaning is not clear the tribunal will consider whether the reasonable employee upon hearing the words would have taken them to be words of dismissal. Many of the issues that arise are where the employer or employee has terminated the agreement in the heat of the moment and then seeks to withdraw or retract the dismissal. Generally a party who has properly given notice of termination has no right unilaterally to withdraw it. Having said this, the courts have adopted the approach that it is good industrial relations practice for an employer or an employee who, in the heat of the moment, speaks words of dismissal or resignation to be given the opportunity to withdraw the notice of termination or resignation once they have calmed down.

The recent case of Willoughby v CF Capital plc [2011] IRLR 985 considered the situation where an employer tried to retract notice of dismissal given by mistake. In this case, the employee who was a long-standing member of the employer’s sales team, was in discussions with the employer about a move to a self-employed position in order to avoid redundancy. The employer gave notice to the employee on the assumption that the parties were in agreement that her employment would be terminated and she would be re-engaged on a self-employed basis under a new contract. When the employee decided not to accept the new contract, she accepted the letter from the employer as notice of termination of her employment. She rejected the employer’s attempt to retract the notice and restore her employment when it learned she was unwilling to accept the new contract. She then claimed wrongful and unfair dismissal.

The Court of Appeal made the following points in relation to the claim. Firstly, that the giving of a notice of dismissal by an employer cannot be unilaterally retracted but may only be withdrawn by consent. Secondly, that in accordance with all branches of contract law, in order to determine the intentions of the parties it is necessary to consider how a reasonable man would interpret them. In this case, the reasonable recipient of the employer’s letter would have no doubt that the employer meant to terminate the employment. Finally, it considered the “special circumstances” exception which applies to terminations made in the heat of the moment. The Court considered the case of Martin v Yeoman Aggregates Limited [1983] ICR 314 in which an employer had dismissed its employee orally during an argument. Within five minutes the employer realised that the dismissal was in breach of an agreed disciplinary procedure and sought to retract the dismissal. Instead the employer told the employee that he was suspended while the disciplinary procedure continued. This was later confirmed in a letter. The Court in this case held that there was no dismissal on the grounds that the words were used in the heat of the moment and withdrawn almost immediately. However, the Court of Appeal in the Willoughby case made it clear that the special circumstances defence can only be used in limited circumstances. Its purpose is to give the recipient of the notice time to satisfy himself that the giver of the notice intended what was said by it. The employee had therefore been dismissed and the employer could not withdraw the dismissal. Employers should be very cautious of proceeding with a dismissal where there is a potential misunderstanding.

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When does the contract terminate?

It is always important to be able to determine the effective date of termination of the contract (EDT) as this will be critical when determining the time limits for bringing claims. For example, the time limit runs for three months from the EDT for unfair dismissal claims. The EDT is defined in section 97(1) of the Employment Rights Act 1996 (ERA 1996) as being:

  • In relation to an employee whose contract was terminated by notice, whether given by his employer or by the employee, the date on which the notice expires;
  • (b) In relation to an employee whose contract is terminated without notice, the date on which the termination takes effect.

The normal rule that applies when notice is given orally is that the period of notice is exclusive of the date on which it is given. Therefore, for example, if notice is given on a Wednesday, it will expire on the following Wednesday and not on the following Tuesday. There is no logical reason why case law applying this rule to oral termination does not apply to notice given in writing. In the case of Wang v University of Keele [2011] IRLR 542, the Employment Appeal Tribunal (EAT) held that the reasoning in the case law should be applied to cases of written notice also. The judge in the EAT suggested that the concept of written notice included such instant communications as text messages, internet based instant messaging and email. He could therefore not see any distinction between oral and written notice. Notice could only have immediate effect if the contract provided that it should do so.

In the case of summary dismissal, the dismissal takes immediate effect unless there is an express clause in the contract to the contrary. The difficulty that often arises is determining the date on which the summary dismissal takes effect. In Gisda Cyf v Barratt 2010 UKSC 41, the Court of Appeal confirmed that the EDT was the date on which the employee read the letter informing her of her summary dismissal. It was not the date on which the letter was written, posted or delivered. The employee had attended a disciplinary hearing and was sent home and told to expect a letter concerning her possible dismissal. The dismissal letter was sent by recorded delivery and was signed for by someone other than the employee at her house. Although she phoned home she did not enquire about the arrival of the letter. She returned home and opened the letter the following day. In considering whether her claim for unfair dismissal was out of time, the court held that the EDT was the date on which the dismissal was communicated, namely the day on which the employee opened the letter.

Employers will therefore need to be aware that an employee has to have actual knowledge of their dismissal for the notice to be effective and it is recommended that in cases of summary dismissal an employee is informed both orally on the date on which dismissal becomes effective as well by confirmation in writing.

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Notice or summary dismissal

In circumstances where an employer has summarily dismissed an employee but the employee is appealing against the dismissal, there can be uncertainty as to the date of termination of the employment.

In the case of Governing Body of Wishmorescross School v Balado (UK EAT/0199/11), the EAT held that an employee, who was told that her summary dismissal would not be put into effect unless either she decided not to appeal or the appeal was unsuccessful, was dismissed with notice. In most formal disciplinary procedures, the lodging of an appeal does not prevent the original dismissal from taking effect. So, for example, if an employee’s employment has been terminated summarily, the fact that no appeal has been filed will not change the EDT. However, the employers in this case had adopted a different approach and therefore argued that notice had not actually been given. The individual presented a complaint to the employment tribunal before the EDT, believing that she was under notice. A tribunal does not have jurisdiction to entertain a claim where the claim has been presented prior to the EDT. However, an exception exists where an employee is on notice and the complaint is presented after notice was given but before the EDT. It was held that in cases such as this, where the employee was put on notice of summary dismissal conditional on the appeal being unsuccessful, the employee would be considered as being dismissed with notice for the purposes of submitting an employment tribunal claim before the EDT.

In another recent case of M-Choice UK Limited v Allders [UKEAT/0227/11] the EAT held that where an employer dismisses an employee with notice and then summarily dismisses the employee during the notice period, the EDT was the date of summary dismissal. The effect in this case was that the employee was deprived of the right to bring an ordinary unfair dismissal claim as she did not have the required one year’s service at the date of summary dismissal. Although it was permissible for the employer to do this, the EAT has remitted the case to another tribunal to decide the reason for the employee’s dismissal. If the reason for the dismissal was that the employee had asserted her statutory right to bring an unfair dismissal claim, the employee would then have a claim for automatic unfair dismissal which is not subject to a qualifying period.

Employers also need to be careful to ensure that the contract is terminated in accordance with its terms. In the case of Société Générale, London Branch v Geys [2011] IRLR 482, the individual was informed that his employment was being terminated summarily by payment in lieu of notice. After being told that his employment would be terminated with immediate effect, the employee sought further information regarding the amount of the termination payment and there was some negotiation on this. Money was subsequently paid into the individual’s bank account but he was not advised that the payment had been made or what it constituted. The employee then sought to affirm his contract of employment and stated that he had not accepted the repudiation of his contract. The High Court had originally held that the contract terminated when the employee had received unequivocal confirmation from his employer that the payment in lieu of notice monies had been paid into his bank and that it was exercising the payment in lieu of notice clause. The Court of Appeal overturned this decision, holding that the payment of notice monies was effective to bring the contract to an end since the express term of the payment in lieu of notice clause in the contract was clear. However, this does mean that an employee need not necessarily know that the contract has been terminated in order for the termination to be effective. It should therefore be made clear in the PILON clause that the payment of the PILON has the effect of terminating the contract.

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What should employers do?

From the recent cases it is apparent that employers should ensure that any notice given is clear and unambiguous. In addition employers should consider the following:

  • Consider the provisions of a PILON clause, and the details of what should be paid during the notice.
  • Ensure that any payments under a PILON are made as soon as possible after exercise of the PILON.
  • Clarify the date that notice of termination expires.
  • Ensure that any dismissal is clearly discussed with the employee and that any notice of summary dismissal given orally is followed up with written confirmation.

If you have any questions on any of the points raised or want further advice please contact us.

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