The EAT recently handed down its decision in the case of Publicis Consultants v O’Farrell, in which the employer (“Publicis”) was found to be in breach of contract in respect of a failure to pay notice pay to a departing employee, even though it had in fact made payment of an equivalent sum of money to the employee. Publicis dismissed Ms O’Farrell with four days’ notice, whereas she was entitled under her contract to three months’ notice.

Publicis did not have the right under the contract to make payments in lieu of notice. When Publicis dismissed Ms O’Farrell, it agreed to pay her three months’ salary, the amount of notice to which she was entitled, and stated that it would do so in the letter of dismissal, whereby the payment was stated to be an “ex-gratia” payment.

Ms Farrell subsequently brought proceedings against Publicis for wrongful dismissal and sought damages for her dismissal without notice. Before the Tribunal, Publicis argued that the ex-gratia payment was actually made in respect of her notice pay, and that it did not therefore owe her any additional sum.

The Tribunal accepted that the Respondent had calculated the ex-gratia payment by reference to the notice period, but even so it found in favour of Ms O’Farrell. It found that the payment was truly ex-gratia (defined in the judgment as “a gift or payment made by favour and […] not a payment made on account of any legal obligation”) and that Publicis therefore had to pay to Ms O’Farrell three months’ salary in respect of notice on top of the “ex-gratia” payment it had already made to her.

Publicis appealed against that finding to the EAT. The EAT’s task was to consider and decide upon the correct construction of the dismissal letter. It found that the payment had clearly been stated to be an ex-gratia payment and there was no ambiguity in the language used in the letter. Even if there had been ambiguity, the wording would have to be construed against Publicis, as the party who had drafted the letter, so the EAT would have found for Ms O’Farrell in any event.

The EAT concluded that it was plain what the dismissal letter said and what, in context, the words used would be taken to mean by a reasonable and objective reader: the payment made to Ms O’Farrell was made free of any legal obligation to pay it, rather than as a payment the company was contractually obliged to make. Publicis was therefore in breach of contract in respect of the unpaid notice pay element.

This judgment serves as a reminder to employers to take care in respect of the labels it gives to payments to departing employees. Any ambiguity in the documentation is likely to be resolved in favour of the employee, and employers should assume that a payment labelled as “ex-gratia” cannot be set off against contractual payments due to the employee. The wording “ex-gratia” should only be used where it does not relate to sums to which employees are actually entitled, and employers should consider protecting themselves when making such payments to departing employees by entering into a compromise agreement with departing employees, requiring them to waive their rights to bring claims.