Payment in lieu of notice (PILON)

The following Employment practice note provides comprehensive and up to date legal information covering:

  • Payment in lieu of notice (PILON)
  • Contractual PILONs
  • A foolproof means of terminating immediately
  • Protection of post-termination restrictions
  • Employer flexibility
  • Drafting PILON clauses
  • Calculating PILON payments: certainty
  • Mitigation
  • Notification of PILON payment
  • PILON payments at employee's choice
  • More...

Payment in lieu of notice (PILON)

The right to notice means a right for the employee to remain in employment for the period of notice, not simply to be paid for it. An employer will therefore often include in the contract an express right to make a payment in lieu of notice ('PILON') as an alternative to giving notice, to ensure they have the option of terminating the employee's employment and removing the employee from the workplace at any time. Employers are particularly likely to favour inclusion of such an option in circumstances where there are concerns about competition by former employees.

Providing a lawful means of immediate termination, such as a PILON clause, has taken on an added importance now that it is clear that attempted summary dismissal in breach of contract by the employer will not be effective in terminating the contract unless and until the employee chooses to accept that repudiation.

However, even in the absence of such an express right, an employee may be willing to come to an agreement to bring their employment to an early end and accept a 'non-contractual' payment in lieu of the notice to which they are properly entitled.

Contractual PILONs

A foolproof means of terminating immediately

Where the contract contains no express term allowing immediate termination, there will be no foolproof way of the employer achieving that result. Attempted summary

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