Case Round Up
Payment In Lieu of Notice (“PILON“) Clauses
The Scottish Inner House of the Court of Session has held, in the case of Morris -v- NTL Group, that a PILON clause cannot be implied into a contract of employment. If an employer wants to be able to pay money in lieu of notice without being in breach of contract, there must be an express contractual term allowing it to do so.
In this case, Mr Morris, a financial director and company secretary for NTL, had an employment contract which expressly stated he was entitled to 12 months’ written notice. There was no contractual right to pay in lieu of notice. When Mr Morris’ employment was terminated without notice, NTL argued that the contract was subject to an implied term entitling them to pay in lieu, which would also allow the company to deprive Mr Morris from his bonus.
Unsurprisingly, the Court of Session disagreed stating that it had “strong reservations as to whether, in the 21st century, there is any scope for the implication of such a term” and, further, stating that implying such a term would be contrary to Mr Morris’ express right to receive 12 months’ notice.
This case breaks no new grounds, but reminds employers of the importance of the decision of whether or not to include a right to pay in lieu of notice. Regular readers of the e-alert will be aware that where there is a PILON clause, the employer is entitled, without breach of contract, to pay in lieu for the entire period of notice – in this case 12 months – or any (depending on the drafting of the clause) part of such period. The effect is that employees may be quickly removed from work without risk of destroying post-termination restrictions and without the need, depending on the terms of bonus payments, to pay any bonus that is not yet payable.
There are certain disadvantages associated with the right to pay in lieu. For instance, where there is a PILON clause, all notice pay must be paid subject to tax and national insurance contributions. For further information or advice about the right to pay in lieu, call the Wilsons team.
The Court of Appeal has handed down a useful judgement concerning the enforceability of post-termination restrictive covenants. The case, Beckett Investment Management Group -v- Hall, concerned a 12 month non-dealing covenant in the financial services sector.
Issues raised in the case include:
- Rejecting the literal interpretation that words referring to protection of “the company” do not include protecting clients of subsidiary companies in a large group. It was confirmed that the law will recognise the reality of a big business and not take a “purist approach to corporate personality” which leads to a “futile result”.
- The mere fact a period is arbitrary (such as the 12 month period of restriction) does not prevent the clause being unenforceable, since any fixed duration bears an element of arbitrariness.
- Some useful comments concerning the determination of the reasonableness of the duration of the covenant.
Restrictive covenant cases crop infrequently at the Court of Appeal, and so this is an important decision. Employers would be wise to revisit their restrictive covenants and contact the Wilsons team for further advice.
Introducing Claims outside the Limitation Period
The Employment Appeal Tribunal (“EAT“) has handed down an important judgement in the case of TGWU -v- Safeway Stores which is authority for the proposition that it will almost always be possible and permissible to amend a Claim Form to introduce a new legal cause of action which relies on pleaded facts, even if that new cause of action is out of time.