Where an employee resigns, can the employer pay the employee in lieu of his or her notice period?

If an employer makes a payment in lieu of notice in response to an employee's resignation, even where there is a contract clause allowing this, there is a risk that bringing forward the termination date by making such a payment would constitute a dismissal (rather than a resignation), which could be held to be unfair. Compensation for unfair dismissal in these circumstances would be limited to the basic award, as the employer would already have compensated the employee for all lost earnings up to the date on which the employment would otherwise have terminated.

There will also be a risk of breach of contract, unless there is a pay in lieu of notice clause in the contract that specifically applies where it is the employee who has given notice. In these circumstances, the employee would not be bound by any post-employment restrictions contained in the contract, for example preventing him or her immediately going to work for a competitor.

A period of garden leave is likely to be more appropriate than a payment in lieu of notice in circumstances where the employer does not wish a resigning employee to work the notice period.

Alternatively, the employer could seek the employee's agreement to bringing forward the termination date and the employer making a payment in lieu of notice. This would not amount to a dismissal or breach of contract.