Payments in lieu of notice (“PILON") can solve some problems but in this note I look at some of the pickles that can arise in respect of PILONs especially where the clause has not been amended properly since judgment was given by the Supreme Court in the Geys case in December 2012.

In that particular case the pickle which the employer got into was a very expensive one indeed because the PILON was not properly exercised, the contract of employment continued through the year end and a termination payment of many millions fell due for payment.  In Geys there was an old fashioned PILON clause which said that the employer could 

“terminate your employment at any time with immediate effect by making a payment to you in lieu of notice......” 

Sometimes the contract will refer to the right to give written notice to terminate and to pay in lieu of notice.  

The solutions when exercising an old fashioned PILON is that the employer must:

  1. Identify that the employer is exercising the right to make the PILON
  2. Actually make a payment on the date of termination

This gives rise to practical problems of making what may be a substantial payment and ensuring that it is made on the date on which the employer wishes the employment contract to come to an end.

The other problem with commonly arises with PILON is exactly what has to be paid under them. Ideally, one would specify that only basic salary at the date on which notice is given would be payable.

Where an employer refers to paying in lieu of benefits that gives rise to considerable uncertainty because unless the basis on which the payment in lieu is calculated is specified there are various possible ways of calculating the PILON including: 

  • The cost to the employer of providing the benefit
  • The amount which it will cost the employee to continue the benefit

In order to circumvent the Geys’ issues there should be clear provision in the contract which specifies what needs to be done to exercise the PILON, what needs to be paid and when it needs to be paid.  It is common now in new contracts of employment for it to be provided that payment would be made within 28 days. 

If you would like to purchase a termination letter for your current PILON, an up-to-date PILON clause and a termination letter for that clause then we can supply the letters and clause for a sum of £200 plus VAT.