Resignations and PILONS: PILON does not convert resignation into dismissal

Exercising right to make PILON does not convert resignation into dismissal, for now at least…

The Employment Appeal Tribunal has confirmed that an employer does not dismiss an employee when it relies on a contractual payment in lieu of notice (PILON) provision to bring forward the termination date of an employee who has already resigned on notice. This means that, in the absence of an argument that the original resignation constituted a constructive dismissal, the employee cannot  bring a claim for unfair dismissal. 

The Employment Appeal Tribunal felt bound by a previous EAT judgment, concluding that it was not ‘manifestly wrong’. However, it expressed reservations about whether the previous decision was correct.  There is likely to be an appeal to the Court of Appeal, which would not be bound by the previous EAT decision. 

The factual background involved a senior employee with a nine month notice period who was eligible for a sizeable bonus if he remained at the company at a certain date. The company did not invoke the PILON for eight months of the notice period but then decided to make a PILON to bring forward the termination date, rendering him ineligible for the bonus. The employee argued that the PILON mechanism converted the resignation into a dismissal, and claimed the bonus as losses in an unfair dismissal claim.

What should employers do?

In practice, employers can protect against this kind of scenario by ensuring that any bonus or share scheme entitlement (contractual or otherwise) makes it clear that eligibility is conditional, for example, on an employee not being on notice (whether given by the employer or employee) at the date of entitlement.

In more general terms, if the Court of Appeal does indeed consider and allow any appeal, it will be necessary for employers to think carefully before invoking a PILON clause for a resigning employee.

Fentem v Outform EMEA Ltd