Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Employment & Labour Law (2nd Edition)
Yes, in the case where an employer would like the employment to be terminated with immediate effect, the employer is entitled to make payment in lieu of advance notice.
Yes, provided the employer has included a right to make such a payment in the contract of employment. This is known as a “payment in lieu of notice” or “PILON”. If a PILON provision is not included in the contract of employment, the termination of employment will still be valid, but the employer will be in breach of contract. In such circumstances, the notice monies are treated as compensation for the contractual breach. Currently, there are some tax advantages to this approach, but these will no longer apply from April 2018.
Many employers prefer to rely on an express right to make a payment in lieu of notice because if the contract is terminated in breach, the employer may not be able to enforce other provisions in the employment contract that would otherwise have survived its termination. Such provisions may include post-termination covenants restricting an individual’s involvement with certain clients, suppliers and employees of the company, and obligations to keep information confidential.
Yes. Legislative and common law (and, in Québec, civil law) notice periods can be satisfied by providing the employee with wages, compensation and benefits continuation instead of the applicable advance working notice.
Some jurisdictions also require an employer to pay statutory severance pay in addition to providing notice of termination. For example:
- Ontario: Employers with an annual Ontario payroll of at least $2.5 million must provide employees who have five or more years of service with statutory severance pay equal to one week’s pay per year of service, up to a maximum of 26 weeks.
- Federal: Employers must provide employees who have at least 12 months of service with statutory severance pay equal to the greater of (a) two days’ pay for each completed year of service or (b) five days’ pay.
In terminations at the instance of the employer, whether for just or authorized causes, there can be no payment in lieu of notice. Nevertheless, failure to comply with the notice requirement does not invalidate a termination where just and/or authorized causes actually exist. In such cases, the employer may be held liable for nominal damages, as discussed in Question 8.
Generally, and unless any agreement between the parties states otherwise, an employer has two options with regard to the prior notice period:
- To end the employment relationship after the completion of the prior notice period. In the framework of this option, the employer may choose whether or not to require the employee to attend work during all or part of the notice period.
- To end the employment relationship immediately or at any time prior to the completion of the prior notice period, and grant the employee payment in lieu of all or the remainder of the notice period, as applicable. Payment in lieu of the employee's notice period under general law is calculated based only on the employee's salary (without any fringe benefits). A more beneficial calculation may stem from any other binding source applicable to the parties.
The provisions in the EPA regarding termination and notice periods are mandatory. However, the employer and the employee may agree to terminate the employment by mutual agreement where the employee normally agrees to end his employment against compensation.
Yes. When included in an employment contract, a pay in lieu of notice clause (PILON) provides an employer with the right to make a payment to an employee in lieu of the employee working for either some or all of the duration of the notice period. If not provided for as a matter of contract, a PILON provision may be agreed between the parties prior to and at the point of termination. However, if agreement is not reached, an employee is legally entitled to work out their notice period (subject to any garden leave provision) and to challenge any purported termination that does not permit them to do so.
Generally, that is not possible. A notice period needs to be considered in any case of an ordinary dismissal. However, the employment relationship can be terminated (with immediate effect) by mutual agreement. In this case, the written termination agreement mostly contains severance pay.
The employer may decide to put the dismissed employee on garden leave, with maintained pay and benefits in kind (e.g., company car), until the end of the notice period.
Yes, payment of the notice period in lieu is possible.
The employer may pay one-month’s salary in lieu of notice to the employee when it has the right to unilaterally terminate without fault (see question 1).
The employer can pay an indemnity in lieu of notice corresponding to the remuneration (and benefits) the employee would be entitled to in case of dismissal with a notice period to be served.
Yes; Austrian law allows pay in lieu of notice, but this will only be valid if agreed upon by both parties.
Due to the at-will nature of most employment relationships, either the employer or the employee may terminate the employment relationship at any time, for any reason or no reason at all, without providing notice, unless otherwise agreed. Although the WARN Act requires a 60 day notice period, nothing under the Act specifically requires employers to continue to employ affected employees during the 60 day notice period. Consequently, employers may provide “payment in lieu” of providing WARN notice provided that they properly value the 60 day period, including all compensation and benefits. Failure to properly compensate affected employees under WARN may result in litigation, attorney’s fees, and civil penalties.
Where the parties to an employment agreement have agreed to a notice period, they may also contractually agree to payment of money to a worker in lieu of a notice of termination.
In principle, it is possible to terminate an employment by mutual consent instead of an unilateral termination by the employer. One has to be aware, though, that such termination agreements must not be concluded in order to circumvent provisions which safeguard the interests of the employee (eg provisions protecting employees incapacitated for work due to illness; there is no circumvention if such employee has an own interest in concluding a termination agreement, however). Or put differently: if the termination agreement includes a waiver of claims under mandatory law, it must constitute a real settlement in which also the employer makes concessions. If there is no adequate balance of the employer’s and the employee’s (in particular financial) interests, respective termination agreements are deemed null and void.
Yes, it is generally possible although much would depend on the terms of the employment agreement. It would be advisable for the employer to clearly set out its right to pay salary in lieu of notice in the employment agreement.
An employment agreement may allow an employer to pay an amount instead of notice: this is commonly referred to as paying in lieu of notice.
In these circumstances an employer exercising that right will terminate employment prior to the expiry of the notice period by making such payment, i.e. it is in lieu or ‘instead’ of actual notice. An employer is only able to pay in lieu if the employment agreement provides for it, or if the employer and employee agree.
If there is no contractual ability to make a payment in lieu of notice, and an employer gives less than the required amount of notice, then it has not given notice at all: notice has not been legally effected and can only be remedied by giving new notice for the correct period.
Where the employer is wishing to end the employment relationship, any ability to terminate on notice or pay instead of notice does not absolve an employer of the requirement to provide reasons and justify a termination (see question 1).
Yes, the employer can pay monies out to a worker to end the employment relationship instead of giving notice. This is commonly done in some cases (e.g. the termination of the executives) as there is the risk that the employee falls sick, thus suspending the laps of the notice period.
In fact, according to Italian Labour Law, during sickness the employees are entitled to keep their job position for the maximum duration provided by the NCBA, during which their salary is paid partly by INPS (the National Social Security Body) and partly by the employer.
This means that the dismissal would be effective only when the sickness period ends.
Given that there is no need to provide prior notice, it is not common in Mexico to offer additional compensation.
Luxembourg law does not provide for payment in lieu of notice. The employer may however decide to release the dismissed employee from the obligation to work during the notice period but the employment contract will terminate at the expiry of the notice period.
Yes, it is possible. As mentioned before, the employer may choose to fully or partially replace prior notice with payment in lieu of notice.
Yes, the employer may make a payment equivalent of 30 days’ salary in lieu of notice. The employer may also shorten the notice period by making a payment equivalent to salary for the days reduced from such notice period (Article 20, paragraph 2 of the Labour Standards Act).
As discussed in Question 4 above, the employer can dispense with the notice period requirement as under the S&E Act and the ID Act by paying salary in lieu of such notice.