Can you bring forward a resignation date and pay the employee in lieu of their notice instead?

Posted on: March 3rd, 2022

This is a question we are often asked. And the answer may surprise you.

If an employee gives notice of their resignation, as an employer you may wish to bring forward the termination date and pay the employee in lieu of their notice. 

This sounds simple and fair, doesn’t it?  Well unfortunately it is a position that often gets challenged by employees who sometimes seek to argue that the employer’s actions have converted their resignation into a dismissal, meaning they may have additional rights such as unfair dismissal, wrongful and/or redundancy pay claims. 

A recent decision (see below) has confirmed the position.  In this case it was held that where an employer has relied on a payment in lieu of notice clause in the employee’s contract of employment to bring forward a date of resignation, the reason for the termination of employment will continue to be resignation and not a dismissal by the employer.

This case serves as a timely reminder that if you have employees within your organisation that resign on notice and you are considering paying them in lieu of some or all of their notice period, in accordance with their employment contracts, that you take advice before proceeding.

We also recommend that you review your payment in lieu of notice clauses to cover such situations as best you can.

Ending Employment

There are several ways an employee’s employment can terminate and not all of these ways will amount to a ‘dismissal’ in law. For example, termination can occur by resignation  (provided this has not occurred in circumstances that amount to constructive dismissal), by mutual consent or by operation of law.

It is important to understand whether, legally, an employee has been dismissed because if the termination of their employment was as a result of a dismissal, they may be entitled to bring claims such as unfair or wrongful dismissal or a claim for redundancy pay. Conversely, if an employee has resigned, and the resignation was not in response to the employer’s fundamental breach of their contract and they were not forced into it, they have not been dismissed and would not be entitled to bring these sorts of claims.

However, as ever with employment law it is not black and white. 

The situation becomes more tricky to navigate in circumstances where an employee resigns on notice and an employer responds by seeking to rely on a payment in lieu of notice clause in the employee’s contract of employment to bring the termination date forwards. This type of situation muddies the waters in terms of whether, legally, an employee has left employment by reason of resignation or whether, technically, they have been dismissed by the employer who has unilaterally sought to bring the termination date forwards.

The case of Fentem v Outform EMEA Ltd has sought to clarify this rather technical point of law.

The facts of Fentem v Outform EMEA Ltd

The facts of the case are:

  • F resigned from his employment with O Ltd on 16 April 2019.
  • He had a long notice period that was due to end on 16 January 2020 and he continued to work throughout the majority of his notice.
  • However, on 19 December 2019, he was told by his employer that they were exercising their discretion to pay him in lieu of the remainder of his notice period to bring his employment to an immediate end. They relied on the clause in F’s employment contract which stated that where an employee resigns on notice, the company would be entitled to terminate the employee’s employment forthwith by paying him in lieu of the remainder of his notice period.
  • F then sought to bring a claim for unfair and wrongful dismissal and the question for the Tribunal to decide was whether he had been dismissed as a matter of law and was therefore eligible to bring these claims.

Case decision

The decision of the Tribunal was that F had not been dismissed and that his employment terminated by reason of resignation, despite the employer bringing the termination date forwards.

The outcome of this case was then appealed to the Employment Appeal Tribunal (‘EAT’) who dismissed the appeal and came to the same conclusion as the original employment Judge. In coming to his decision, the Judge held that they were bound by the EAT’s decision in Marshall (Cambridge) Ltd v Hamblin in which the Judge held that an employer’s decision to waive or shorten the period of notice the employee had given did not amount to a dismissal and that the termination remained one that had occurred by reason of resignation.

It is worth noting that the EAT Judge in the present case did not see anything in the Hamblin case reasonings to support this ‘no dismissal’ conclusion and was therefore strongly inclined to hold that this decision was wrong. Nevertheless, even though the Judge had these views, he did not feel able to depart from this previous decision on the basis the EAT could only depart from its previous decisions where the decision was manifestly wrong, which he did not think it was here. He was therefore bound to follow this previous outcome. However, the decision could have potentially been different and the employer on the hook for dismissal related claims. 

We are waiting to see whether permission will be granted by the EAT to appeal the case up to the Court of Appeal and if so, how the Court of Appeal will decide on this point – so watch this space!

What should employers do in these types of situations?

Often if employees resign on notice, the parties are happy for the employee to serve out the notice period, either working or on garden leave. 

However, sometimes an employer may wish to bring forward the leave date of the employee, for example because the relationship has soured or because the employer wants to recruit a replacement quickly.  This doesn’t always go down well with the employee, particularly where an earlier leave date might financially impact them, e.g. result in the loss of commission and/or bonus which they could have earned if they had carried on working.  Therefore, in such circumstances an employee might try to allege that paying in lieu of notice constitutes a dismissal by the employer and seek to claim unfair dismissal, wrongful dismissal and/or make a claim for redundancy pay. 

Technically speaking, even if a payment in lieu of notice resulted in a dismissal by the employer, the employee’s losses will be capped to their notice periods which are being paid anyway and so the risks may be lower.  However, where the employee is a high earner and/or has a long notice period and/or would have received commission or bonus payments during their notice period, the risk and cost could be much higher. 

We recommend that if you have employees within your organisation that resign on notice and you are considering paying them in lieu of some or all of their notice period in accordance with their employment contracts that you take advice before proceeding.

We also recommend that you review your payment in lieu of notice clauses to cover such situations as best you can.

The Employment Team at Coffin Mew would be delighted to assist with advising on your particular situation and the risks involved with this approach by reviewing your employment contracts and ensuring we understand more about the specific reasons for the resignation as well as the reasons for wanting to make a payment in lieu of notice.