Exercising the right to make PILON does not convert resignation into dismissal, well, we shall see…

The Employment Appeal Tribunal has confirmed that an employer does not dismiss an employee when it relies on a contractual payment in lieu of notice (PILON) provision to bring forward the termination date of an employee who has already resigned on notice.

Thus, in the absence of an argument that the original resignation constituted a constructive dismissal, the employee cannot bring a claim for unfair dismissal. The EAT, bound by its previous EAT judgment, concluded that it was not ‘manifestly wrong’. However, it expressed reservations about whether the previous decision was correct. An appeal before the Court of Appeal may follow, which would not be bound by the previous EAT decision.

The Facts:

The case involved a senior employee with a nine-month notice period was eligible for a sizeable bonus if he remained at the company at a certain date. The company did not invoke the PILON for eight months of the notice period but then decided to make a PILON to bring forward the termination date, rendering him ineligible for the bonus. The employee argued that the PILON mechanism converted the resignation into a dismissal, and claimed the bonus as losses in an unfair dismissal claim.

NOTE:

Employers should protect against this kind of scenario by ensuring that any bonus or share scheme entitlement (contractual or otherwise) makes it clear that eligibility is conditional, (i.e.) an employee should not be on any notice (whether given by the employer or employee).