Notice Requirements under an Employment Contract
Statutory or Contractual Notice Period
There are two types of notice period: statutory and contractual.
Statutory notice is the minimum legal notice that can be given. Employers should give the employee:
- one week's notice if the employee has been continuously employed by the employer for one month or more, but for less than two years;
- two weeks' notice if the employee has been continuously employed by the employer for two years, and one additional week's notice for each further complete year of continuous employment, up to a maximum of 12 weeks. This means, for example, that an employee who has worked for 7 complete years is entitled to 7 weeks' notice.
Employees must give their employer a minimum of one week's notice once they have worked for one month.
Contractual notice is the amount of notice that the employer sets out in the terms and conditions of employment and which can be longer than the statutory notice. For example, the statutory notice an employee must give to an employer is one week, however, an employer can state within the terms of employment that an employee must give one month's notice.
Dismissal without Notice (Summary Dismissal)
Summary dismissal is when an employer dismisses an employee without notice or pay in lieu of notice, usually because of gross misconduct (e.g. theft, fraud, violence).
Notice and Payment in Lieu
A payment in lieu of notice (PILON) clause in an employment contract gives an employer the contractual right to pay employees a lump sum rather than require them to work out their statutory or contractual notice period. If there is no PILON clause in a contract of employment, then an employer who pays an employee a lump sum payment instead of requiring them to work their notice period will be in breach of contract and any restrictive covenants will be unenforceable.
In the absence of a PILON clause, it used to be possible to make payments in lieu of notice tax-free. However, since 6 April 2018, all payments made in lieu of notice, whether contractual or not, have been subject to tax and Class 1 national insurance contributions.