Payments in Notice Period when negotiating a Settlement Agreement

While many people have an employee-employer relationship without problem, thousands of people every year leave the workplace because of disagreements with their employer. When this happens, the employer may seek to put in place a settlement agreement with the employee.

A settlement agreement decides a number of things but at its heart is a financial payment to the employee. This may be to encourage them to leave or to ensure that they do not reveal any confidential information about the firm or its practices. It could also be in recognition of the fact that they have been badly treated by the employer. Settlement agreements are complex to negotiate because of how the financial sum is calculated and the agreement over the other conditions to be included. One condition that is often negotiated is around pay and the notice period of the employee.

When an employee normally leaves employment, they will work their period of notice and be paid as normal. For example, if an employee accepts a job with a new company, their old contract may state that they have to give their employer two weeks’ notice. In other words, they must continue to work for the employer for two weeks before they can leave, if they wish to receive the pay set out in their contract.

However, this situation is somewhat different when there is a settlement agreement, as often the employer wishes to end the relationship quickly and does not wish the employee to still be coming onto company premises. This situation is dealt with by a clause in the settlement agreement called pay in lieu of notice or PILON.

PILON is a payment for your notice period without you having to do any actual work for the employer. The employment relationship ends on your last working day and not when the employer has finished paying you in lieu of notice. This is advantageous for an employee when negotiating a settlement agreement as it leaves them free to find and start a new job before the notice period has ended.

Your PILON entitlement varies depending on the length of your employment, but it can be as much as 12 weeks’ worth of pay. In some circumstances it can be difficult to determine your length of service if there have been breaks in employment. A specialist employment solicitor can assist you in determining your entitlement and ensure you receive what you are entitled to.

Moreover, in some circumstances there can be tax implications for PILON. This will depend on exactly what is being included as payment. We can advise you as an employee to ensure that while you receive what you are entitled to, you are not being disadvantaged through tax.


Contact our specialist Employment Lawyers

If you are in the process of negotiating a settlement agreement or have questions about your entitlement, it is important that you seek independent legal advice. Our team at Cavendish law have many years’ experience of negotiating settlement agreements and advising on employment law matters. To discuss your circumstances and the best course of action, contact our team by filling in our contact form here, or calling us on 020 7167 4800

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