Our perspective on the pros and cons of payment in lieu of notice clauses
A payment in lieu of notice (PILON) clause allows employers to lawfully terminate an employee’s contract immediately provided they receive payment for their contractual notice period. This practice can be beneficial in various scenarios, but it also comes with potential drawbacks. Here, we explore the pros and cons of PILON clauses.
Pros of PILON Clauses
- Immediate Termination – PILON enables employers to end the employment relationship instantly, which can be crucial if the employee’s continued presence could be detrimental to the business.
- Protection of Sensitive Information: By terminating the contract immediately, employers can prevent the departing employee from accessing sensitive company information during their notice period.
- Reduced Workplace Tension: Immediate termination can help avoid potential conflicts and maintain a positive work environment, especially if the employee’s departure is contentious.
- Positive Employee Relations: Employees receive a lump sum payment, allowing them to move on and seek new employment opportunities without delay. Offering PILON can be seen as a gesture of goodwill, allowing the employee to leave with financial security and dignity, which can help maintain positive relations and reduce the likelihood of later disputes.
- Streamlined Transition: Employers can quickly recruit and onboard a replacement, ensuring minimal disruption to business operations.
Cons of PILON Clauses
- Higher Upfront Costs: Employers must pay the employee a lump sum equivalent to their notice period, which can be a significant financial burden depending on their salary.
- Potential Legal Risks: If the PILON clause is not clearly outlined in the employment contract, employers may face legal challenges from employees claiming wrongful dismissal.
- Rushed Handovers: Unlike garden leave, where the employee remains on the payroll to assist with handovers but does not work, PILON may mean that important details about ongoing projects, client relationships, and internal processes are not fully communicated, resulting in disrupted operations. The team may also not have sufficient time to understand the nuances of the departing employee’s role, increasing the likelihood of mistakes and inefficiencies.
- Impact on Reputation and Employee Morale: Frequent use of PILON clauses might give the impression that the employer has a high turnover rate or is quick to terminate employees. This could be perceived negatively by others, including remaining employees, potentially affecting overall morale and trust in the employer.
If you are an employer or employee affected by the above issue and want advice or support in connection with the same, or any employment law or HR issues more generally, please do not hesitate to contact us on 01206 239761.
