An employee’s period of continuous employment comes to an end on what is known as the Effective Date of Termination (“EDT”), which is defined as either the date on which the employee’s notice expires, or, where an employee has been dismissed without notice, the date on which termination takes effect, for example where the employee is summarily dismissed for gross misconduct. A recent case has highlighted the importance of getting the EDT right.
Why is the EDT important?
It is important that the correct EDT is identified for the purposes of determining when an employee can bring a potential claim for unfair dismissal. There is a three month limit to bring a claim in the employment tribunal (which may be extended by the ACAS pre-claim conciliation process. The EDT can also be crucial for the calculation of certain benefits that the employee would be entitled to on termination, for example payment of pro-rated bonus pay.
Let's look at two cases covering both implications, one being a 2018 decision.
1. Where the EDT affects the termination payment
In a 2012 Supreme Court case, Geys v Société Générale, the employer tried to dismiss an employee with immediate effect but they did not do so in accordance with the terms of the employee’s contract which contained a three month notice provision and a payment in lieu of notice (PILON) clause which stated that:
"[the employer] reserves the right to terminate your employment at any time with immediate effect by making a payment to you in lieu of notice...",
Although they could terminate with immediate effect (and told him this on 29 November 2007), they could only do so by making a PILON. The employer paid the PILON into his bank account some 3 weeks after he had been told his employment would terminate with immediate effect. However, this PILON was not notified to the employee until even later on 6 January 2008.
The Court had to determine which date the employee’s contract was terminated, either:
- The date he was told he was dismissed;
- The date he was paid his notice; or
- The date he was deemed to have received notification of the PILON payment.
The Supreme Court found that the employee’s contract was not terminated until Geys had been notified that the payment was a PILON, i.e. on the deemed date of receipt of the letter informing him he had been paid his PILON.
Mr Geys was therefore employed until the date on which he was deemed to have received unequivocal communication of his employer's decision to properly exercise its contractual right to summarily dismiss him by making a PILON, i.e. 6 January. The Court clarified that if notice is given after the payment has been made, as was the case here, the contract of employment will terminate on the date of the notice.
What could the employer have done differently?
The employer in the Geys case could have avoided the later EDT by:
- Giving Geys a cheque at the meeting on 29 November at which he was notified of the termination of his employment with immediate effect and stating that the cheque was a PILON; or
- Telling Geys at the meeting that his employment was being terminated with immediate effect by making a PILON and when the employee will receive the payment.
Many employers now clarify in contractual PILON clauses that, if the clause is exercised, the employee will be notified of the immediate termination of employment and thereafter will receive the payment of a PILON within a certain period, usually to allow payment in the following payroll.
Why did the EDT matter in the Geys case?
If the EDT was before the end of the year Mr Geys' termination payment was just under €8 million. If employment terminated after the end of the year Mr Geys claimed he was entitled to more than €12.5 million.
2. Where the EDT determined whether an employee's claim was brought in time
The EAT recently had to consider the issue of the EDT in the case of Cosmeceuticals Ltd v Parkin to determine whether the Claimant’s claim for unfair dismissal was in time.
Parkin was a managing director of a manufacturer and distributor of skincare and makeup. The employer's board were becoming concerned with her performance, and on her return from a 3 month sabbatical, she was informed by the Chairman that she could not return to the job. This was on 1 September 2015. Three days later she was placed on garden leave and on 29 September 2015 the Chairman wrote to her to give notice of termination of her employment, which would end on 23 October 2015.
Parkin brought a claim in the employment tribunal (ET) who found that 1 September 2015 was the date which constituted communication of the dismissal, but that the actual EDT fell at the end of the subsequently given notice period i.e. 23 October 2015. This meant that Parkin's claim for unfair dismissal was in time. However, the ET did note that if the EDT had been concluded as 1 September 2015, her claim would have been time-barred, having been presented after the time by which the claim must be presented.
Employment Appeal Tribunal (EAT)
The EAT heard the appeal and allowed it in favour of the employer, concluding that the ET had erred. The EAT explained that the EDT was a statutory construct under which the date of communication to the employee of summary dismissal will be the EDT, even if the employer should have given notice but failed to do so. Parkins had been told that her contract was to end on 1 September 2015, which the EAT subsequently found to be effective to bring about her summary dismissal without notice. The ET had therefore erred by then concluding that the dismissal was not effective until 23 October 2015.
As this conclusion meant that Parkins' claim was time-barred, the case was remitted to the ET to determine whether it had been reasonably practicable for her to lodge her claim in time or, if not, whether she had lodged in in a reasonable period thereafter. The claim has since been withdrawn by Parkins.
In light of the above case and the apparent the uncertainty in the circumstances as to when she was dismissed and whether this was summary or by notice, employers should ensure that the termination provisions in their employees’ contract are certain and there is no ambiguity in practice as to why, when and how the employees employment is being terminated, and that the termination complies with the actual wording of the contractual provision.
There are other reasons why it is crucial to have clarity and certainty for any outgoing employees as to the EDT. an outgoing employee is not certain of their EDT, they may, while looking for a new job, innocently breach post-termination restrictive covenants believing they were outside of the time limit imposed by such provisions. Additionally, employers could find themselves facing costly litigation fees defending claims where they need not be filing a defence at all.
Finally, if employers do wish to terminate someone’s employment with immediate effect, they have to ensure they have the right to do so under the employee’s contract, particularly looking to see if there is a PILON clause. Otherwise, if the termination is disputed by the employee, the contract will be deemed to continue unless the employee accepts the breach.
This article was written with Becky Minear, Trainee Solicitor
The effective date of termination was a statutory concept. Here the ET had found that the Claimant had been told that her contract of employment was at an end on 1 September. That was effective to bring about the Claimant's summary dismissal