Dismissing an employee: PILON clauses

The Supreme Court has confirmed the approach that a business should take when making a payment in lieu of notice (PILON) to an employee. Employers need to ensure that when they make a PILON they notify the employee that a PILON is being made to them in exercise of the employer’s contractual right to terminate the employment with immediate effect. Simply making the PILON will not be sufficient to bring the contract to an end.

In this case, the employer paid £32,000 into the employee’s bank account but did not advise him or his advisers that the payment had been made or what it constituted. The court held that the employee needed to receive not only his PILON but also notification from his employer, in clear and unambiguous terms, that the payment had been made and that it was made in the exercise of the contractual right to terminate the employment with immediate effect. The employee should not be required to check his bank account regularly to discover whether he was still employed.

Our checklist sets out the steps a business should follow if it is considering dismissing an employee.