Can a claim for unfair dismissal be made where an employer pays wages in lieu of notice to cut the resignation notice period to avoid paying a bonus to the employee?
The above question was addressed by the Employment Appeal Tribunal (EAT) in the case of Fentem v Outform EMEA Ltd (1) where an employee had a 9-month notice period with the option for the employer to pay wages in lieu of notice (Pilon clause) to cut short the notice period. The employee had an entitlement to a financial bonus if he remained employed to a certain date.
The employee resigned and the employer did not invoke the Pilon clause until 8 months into the employee’s notice period and by cutting short the notice period the employee lost out on the bonus that would have been due if he had worked his complete 9-month notice period.
Employment Rights Act 1996
Within section 95 of the Employment Rights Act 1996, there are provisions explaining when an employee will be regarded as being dismissed. For example, where "the contract under which [the employee] is employed is terminated by the employer (whether with or without notice)"(2). The employee argued that the contractual Pilon clause relied upon by his employer had converted the resignation into a dismissal and claimed loss of the bonus as part of his claim for unfair dismissal.
Despite expressing some reservations, the Employment Appeal Tribunal (EAT) felt bound by previous case law namely Marshall (Cambridge) Ltd v Hamblin [1994] IRLR 260(3). In that case the EAT had decided that where an employee resigned on notice there was no general implied right to demand working out the notice period but only a right to be paid in lieu of that notice, even if that meant on the facts of that case that the employee lost his ability to earn commission. The Employment Tribunal decided that the employer’s reliance on the contractual Pilon clause did not amount to dismissal in circumstances where the employee had already resigned as the Pilon clause simply brought forward the resignation termination date. There was no evidence on the facts to suggest that the original resignation constituted constructive dismissal.
It is more than likely that the EAT decision will be appealed to the Court of Appeal, who are not bound by any previous EAT decisions.
Please note that this article is for general information purposes only and should not be relied upon as being authoritative on the matter and is current to 25th March 2022 however further guidance on the matter can be provided by contacting our HR/legal advice-line on 01455 852028.
