The EAT has cast serious doubt on an earlier EAT judgment which decided that the use of a PILON following resignation only alters the date of resignation taking effect.
A dismissal is defined as including circumstances where the contract under which an employee is employed "is terminated by the employer (whether with or without notice)". That means that in the normal course where an employee gives notice under his contract, if the employer gives counter notice, the termination of employment will no longer be considered to be a resignation, but instead will legally be seen as a dismissal. However, in the case of Marshall (Cambridge) Limited v Hamblin, which was decided in 1994, the Employment Appeal Tribunal (EAT) held that where an employer has properly relied on a contractual payment in lieu of notice (PILON) clause the effect is simply to bring forward the date of termination, it does not change the resignation to a dismissal.
In Fentem v Outform EMEA Ltd the employee resigned, giving a lengthy period of notice as required by his contract of employment. The contract provided for the employer to make a PILON at any time during the notice period, which they chose to do bringing the employment to an end approximately 4 weeks early. The employee subsequently sought to bring an unfair dismissal claim. As a preliminary issue an employment judge had to decide whether the termination of employment amounted to a dismissal in these circumstances. The Employment Judge considered himself to be bound by the judgment of the EAT in the Hamblin case. Before the EAT, it was argued for the claimant that Marshall v Hamblin was wrongly decided. There are though only limited circumstances where the EAT can depart from its own previous judgments, one of those being where the previous decision was "manifestly wrong".
Although the EAT in Fentem thought that the judgment in the Hamblin case was wrong, it was not so "manifestly wrong" as to enable them to depart from it. For that reason, despite having misgivings about it, the EAT dismissed the appeal of the employer. The EAT indicated that a resolution of the point must be left to the Court of Appeal, who would be free to depart from the precedent set by Marshall v Hamblin. An application for permission to appeal to the Court of Appeal has been made.
In the meantime, employers intending to rely on PILON clauses to bring forward the date of termination of employment when an employee has resigned should be aware that this may well be treated as a dismissal in the future. As such, care will need to be taken, depending on the circumstances.
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