Statutory & contractual notice periods - advice for small businesses

Once a contract of employment is in place, notice has to be given by either party to the contract to end it. There are two types of notice periods; statutory notice and contractual notice.

As an employer, if you fail to give the correct notice when terminating an employment contract, you are in breach of contract. This could result in an appearance before the employment tribunal and you having to pay damages.

To help small business owners understand the law regarding notice periods, we asked HR expert, Peter Done of Peninsula Business Services to explain what employers’ need to know about giving notice to end an employment contract;

Statutory notice periods

The Employment Rights Act 1996 provides a minimum amount of notice which has to be given to terminate a contract of employment. The minimum amount will depend on how long the employee has been in the business

For employers to dismiss an employee who has worked for more than one month but less than two years, they have to give one weeks’ notice. This then increases by a week for each year of service up to a maximum of 12 weeks’ notice.

For example, an employee with six years’ service is entitled to six weeks statutory notice but an employee with fourteen years’ service is entitled to twelve weeks statutory notice.

Employees who wish to resign after one month have to give minimum notice of at least one week. This notice period remains the same regardless of how long the employee works for.

There is no specific minimum for an employee who has been employed for less than a month or for specific categories of workers such as seamen. In these circumstances, a reasonable amount of notice should be given, depending on the individual circumstances of the employee, their normal pay period and what the normal notice period would be.

Contractual notice periods

As the law sets down the minimum amount of notice for each party to give, the contract of employment can provide for a longer notice period but cannot give a shorter notice period. Where the contract provides shorter notice, the statutory minimum will automatically override and the contract will be treated as if it contains the statutory period.

Generally, most contracts provide a longer notice period for employees who wish to resign than the statutory one week. This is because most companies will need more than a week to find and train a replacement and to allow the resigning employee to complete any outstanding work and carry out a full handover.

Employment rights during the notice period

Employees will continue to accrue their statutory holidays during their notice period. Any entitlement to additional contractual holidays will depend on the terms of their contract. The employee has the right to be paid for any accrued but untaken holiday at the point of their employment terminating.

Pay during notice period is a complicated matter that is determined by the contractual notice. The starting point is that employers are legally required to pay normal notice pay for the statutory notice period so long as the employee is ready and willing to work or is absent because of holiday, sickness, pregnancy, adoption, paternity or parental leave.

Any payments for these types of leave, such as Statutory Sick Pay or Statutory Maternity Pay, can be offset against notice pay.

Where the contractual notice to be given by the employer to terminate the contract is at least one week more than the statutory notice required, the right to normal notice pay will not apply. Instead, pay for the statutory notice period will either be at the statutory rate, eg. SSP, or nothing if the statutory entitlement has been used up.

Any additional contractual notice will depend on the terms of the contract. The majority of notice clauses will allow employers to class the notice period as unpaid if entitlement to statutory pay has been exhausted.

Can the notice period be reduced?

In certain circumstances, keeping the employee at work during their statutory or contractual notice period has the potential to cause damage to the business. This may be the case where relationships have seriously broken down, there is cause to believe the employee may access and use sensitive data, or where the employee is stopping a smooth transition.

Where the employment contract contains a payment in lieu of notice (PILON) clause, the employer can choose to pay the notice period and, effectively, end the employment from an agreed date. Another option is to place the employee on ‘garden leave’ if the contract allows.

Whilst this doesn’t end the notice period early, it puts the employee on paid leave during notice; they are not required to attend work but are bound by the terms of their contract of employment.

Alternatively, both parties can agree to shorten or remove notice. The employee should not be pressured in to making this agreement but employers might find this benefits both parties; the employer is not paying two salaries whilst the employee can leave to start a new job.

When is a notice period not required?

Employers can lawfully dismiss an employee without notice where the employee has committed an act of gross misconduct. By doing so, the employee commits a fundamental breach of the contract of employment so the contract is no longer in existence and, as a result, no notice is required to end it.

If the employer wrongly decides an act is gross misconduct and summarily dismisses the employee, they can make a claim for wrongful dismissal to receive any money they would have received with proper notice.

Failure to give correct notice period

Failing to give either the correct contractual notice period, or the minimum statutory notice where this is higher than the contractual, will constitute a breach of contract. An employee can make a claim at tribunal for this to receive damages.

This guide has been written exclusively for ByteStart by Peter Done, Managing Director of Peninsula Business Services – the UK’s leading specialist Employment Law, HR and Health & Safety service.