Employment Termination Payments – Description is important.
The importance of correct Employment Contract drafting cannot be overstated, with the recent case of Publicis Consultants UK Ltd v O’Farrell highlighting the problems that can be encountered in describing termination payments within employment contracts.
In the case of Publicis Consultants UK Ltd v O’Farrell the employer was required to pay notice money on top of an "ex gratia" payment as it had not made it clear to the employee that the “ex-gratia” payment was compensation for loss of notice.
Ms O'Farrell was made redundant in early 2009. Under her contract she was entitled to a three month notice period. There was no right to pay in lieu. The termination letter said she would be paid up to a certain date and would receive "an ex gratia payment equivalent to three months' salary”. She was also to receive a statutory redundancy payment and her accrued holiday pay. Ms O'Farrell brought a claim for unfair dismissal, and breach of contract on the ground that the employer had failed to pay her notice money.
The Employer argued that the ex gratia payment was clearly meant to be a payment for the notice period and so no further notice pay was due. The Tribunal rejected this. Although the employer had calculated the amount of the ex gratia payment by reference to the notice period, there was nothing in the letter which explained that the payment was actually the notice payment. It held that the employer was in breach of contract and also that the dismissal was unfair. The Employer appealed the breach of contract point, but failed to overturn the decision.
From the above it remains clear that employers should take care how they define termination payments within employee’s contracts. As such the term “ex-gratia” should not be used to describe any amount or payment that the employer is obliged to make to the employee.
Contact Legal & Contract Services Ltd for advice on drafting of employment contracts, as well as advice on other aspects of Employment Law.
