Employers now have a stronger bargaining position when negotiating severance
terms with dismissed employees, thanks to a recent decision by the Court of
Until last year, payment in lieu of notice clauses (Pilon) were often used
by employers who wanted to be able to dismiss without notice – but without
breaching any restrictive covenants in the contract. The EAT decided that where
there is a Pilon clause the employer must pay for the entire notice period.
In practice this could mean that an employer was liable for many months
severance pay, even if the dismissed employee got another job well before the
end of the notice period. Overturning this decision, the Court of Appeal has
determined that a dismissed employee must give credit for any earnings he or
she receives during what would have been the notice period.
Commenting on the decision, solicitors at Beachcroft Wansbroughs said,
"In most cases Pilons are used where the circumstances of an employee’s
departure are less than clear cut. They can now be used with greater confidence
by employers unless and until the House of Lords takes a different view."