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The Effect of Employee Breaches on Payment in Lieu of Notice

June 19, 2012 By Benchmark

PILON Clauses are often found in employment contracts, they allow an employer to pay notice money in respect of the period of notice provided in the contract instead of the employee working the notice period.  The effect is that the employee’s employment ends immediately instead of at the end of the worked notice period. 

It is important for an employer that the clause has been correctly drafted, otherwise potentially valuable rights may be lost. 

Normally, if an employer discovers a breach of contract by an employee that would have justified summary dismissal (even after a dismissal) they are entitled to rely upon the after-discovered fact of employee misconduct.

The recent case of Cavenagh v William Evans [2012] EWCA Civ 697 demonstrates this all too well.  In that case the company elected to use the PILON clause in the employee’s contract.  The clause was poorly drafted as it did not consider the impact of earlier breaches on the payment under a PILON clause.

The Employer relied on the PILON clause in dismissing the employee and paid money instead of allowing the Employee to work their notice. The Employer then discovered a breach of contract and refused to pay the Employee the money due under the PILON clause.

As the PILON clause is not a payment of wages in the ordinary sense and merely produces a debt, the Employer had to pay the Employee the money irrespective of what the Employer had discovered the Employee had done. 

This case demonstrates that drafting of employment contracts must be done with a view to the occurrence of every possible breach on the part of the employee in order to minimise unnecessary expenditure on the part of the employee. 

This case also demonstrates the importance of including a warranty in any compromise agreement to confirm that there have been no breaches of contract that could amount to summary dismissal.

At Benchmark Solicitors LLP we can assist you with the drafting of employment contracts and compromise agreements.   

Chris Tuckett, Solicitor – 19 June 2012 

Filed Under: Employment

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