In this article we explore issues for employers to consider when an employee resigns.
The world seems full of difficult divorces at the moment. From Brexit to Harry and Megan’s departure from the ranks of senior royalty, delicate negotiations abound. When an employee resigns, this too may require careful navigation as we discuss below.
Acceptance of resignation
Few myths are so long enduring in the employment relationship as the concept of a resignation only being binding on being accepted by the employer. There is, in fact, no need for the employer to accept the resignation. A resignation is a unilateral act and is fully binding on the parties at the point the employee serves it.
It is good practice for employers to acknowledge the resignation and to take this opportunity to set out any arrangements or expectations for the remainder of the employee’s employment.
If the employee is party to commercially sensitive information or in charge of business-critical client relationships, an employer would be well advised to remind the employee of any contractual restrictions which survive termination.
Employers should consider whether they have the ability under the contract of employment to place the employee on garden leave, or whether they may wish to exercise their rights under a pay in lieu of notice clause. It is common for garden leave to curtail the active period of restrictive covenants, so employers should carefully consider the interaction between the two and decide what arrangements best suit the interests of the business in the circumstances.
It is also worth bearing in mind that an employer’s breach of contract can invalidate such restrictions. Even in the face of a contentious parting of ways it is important to abide both by the express terms of the contract of employment and the implied term of trust and confidence.
Garden leave - the ability to require an employee not to attend work and/or to perform certain duties specified by the employer - should be expressly provided for in the employment contract. In the absence of an express garden leave clause, an attempt to restrict an employee’s activities following their resignation (but while they still remain employed) could amount to a breach of contract with implications for the validity of any restrictive covenants.
There is a common misconception that the term garden leave can be applied to any period of suspension, but this is not the case. It specifically relates to a period of leave following notice of termination.
Notice and pay in lieu of notice
When an employee serves notice of resignation, an employer may elect to make a payment in lieu of notice (PILON), thereby bringing the employee’s termination date forward. This might occur where the employee’s absence is felt to be less disruptive or awkward than keeping them at work.
While in the absence of an express PILON clause, making such a payment would be a breach of contract, in practice, such a breach is only likely to be problematic where the contract also contains restrictions.
In other circumstances the employee will be immediately compensated for the breach by receiving their full pay for their notice period.
Resignation without notice
An employee may resign without notice though this usually only occurs in circumstances where there is an existing dispute with the employer. Such resignations may be accompanied by allegations of discrimination, constructive unfair dismissal or other alleged breaches of contract, whether express or implied.
Where an employee fails to serve proper notice it is technically possible for an employer to seek to recover any losses incurred. For example, in circumstances where an employer had to draft in an urgent temp to fill the role at a higher rate of pay than the departing employee, the employer could seek to recover the difference in pay between the two employees. However, the commercial costs are rarely sufficient to justify litigation in such circumstances.
Many of the issues which arise on termination, whether termination is initiated by employee or employer, are greatly assisted by a robust employment contract. With the forthcoming changes to section 1 statements being introduced in April 2020, now is a good time for employers to take stock of their contractual arrangements and ensure they are well equipped to handle difficult exits from a contractual perspective.