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Ex-gratia payments not set off against notice pay

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In a recent case the Employment Appeal Tribunal decided that an “ex-gratia payment”, equal to the employee’s notice pay, did not discharge the employer’s obligation to give notice.

On the termination of employment an employee will usually be entitled to a period of notice. The minimum length of notice is set by law. However, it is possible for an employee’s contract of employment to specify a longer (but not shorter) period of notice. It is also possible for a contract of employment to allow for the employee to be paid in lieu of this notice period rather than remaining employed throughout.

In the case of Publicis Consultants v O’Farrell the employee’s contract provided for 3 months notice of termination but did not allow for payment in lieu of notice. The employer gave the employee 4 days notice of termination and confirmed in writing that they would receive “an ex gratia payment equivalent to 3 months’ salary”.

The employee made a claim for breach of contract against the employer for their failure to pay her salary during her 3 month notice period. The employer argued that payment of the ex gratia payment should have satisfied the requirement for notice. The Employment Appeal Tribunal found that the employee had been entitled to consider the ex gratia payment to have been a gift rather than her notice pay. Had the employer intended this payment to be notice pay then they should have made this clear at the time.

The above case is a reminder to employers of the need for clarity in communications with employees. Where an employer says or writes something that is ambiguous, courts and tribunals are likely to interpret this in favour of the employee. An employer should only use the term “ex gratia” where the payment is genuinely intended to be a gift, not where it is a payment that the employee would have ordinarily been entitled to on the termination of employment.

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