When an employee is dismissed or made redundant, or where they resign, there will usually be a requirement for notice to be given, either on the part of the employer or employee. In some cases, the notice period might be as long as three months. If this is an obligation which neither party necessarily wishes to honour, what are the options?
In this guide, we look at the rules relating to notice, with best practice tips on how to manage employees during any potentially unwelcome three month notice period.
When does a three month notice period apply?
In most cases, notice periods are agreed between the employer and employee under the written terms of the contract of employment, where these can last for as long or as short as both parties deem necessary, provided they do not fall below the statutory minimum. The average notice period in the UK is just one month, although agreed notice periods can typically range from anything between one week to six months.
A three month notice period is a clause now commonly found in many UK employment contracts, reflecting the average length of time required to fill a role and ensure business continuity. This can apply when it comes to both the contractual notice that an employer must give to the employee when terminating their employment, either by reason of redundancy or dismissal, and the contractual notice that an employee is required to give on resignation.
Even where the employment contract is silent on notice or there is nothing in writing, the employer may still be required to give an employee a three month notice period, but only where that individual has worked for the company for at least twelve years. In these cases, a statutory minimum 12-week notice period will be implied, as a matter of law, into the employment contract. If the employee has worked for the employer for between two to twelve years, statutory notice is calculated as a week’s notice for every year worked, and reduced to one week’s notice where the employee has worked for the employer for up to two years.
For the employee, absent any written stipulation as to notice on resignation, they must give their employer at least one week’s notice if they have been in their job for more than a month.
What does a three month notice period mean?
Where a three month notice period applies on redundancy or dismissal, either by virtue of an express contractual provision or implied by statute into the employment contract, the employee’s effective date of termination cannot be less than three months after the date on which they are notified of any decision to dismiss. Equally, if an employee resigns, and they are contractually required to give three month’s notice, their effective date of termination should be three months after the date on which they notify their employer that they will be leaving.
For the employer, when making redundant or otherwise dismissing an employee, a three month notice period means that they will need to keep the employee ‘on their books’ for an additional three months. With this comes a continuing obligation to provide the employee with work, and to pay the employee for that work, until the effective date of termination. This will include commissions, bonuses and any other contractual benefits that the employee may be entitled to, such as pension entitlement, private health care cover, any company car allowance, as well as holiday pay, sick pay and maternity pay.
For the employee, after handing in their written resignation, a three month notice period means that they will need to continue working for their employer, in the same way as they have done previously, for an extra three months. During this notice period, the employee must fulfil the terms of their employment contract and the duties of their job role.
Is the three month notice period mandatory?
If a three month notice period applies, either when the employer brings employment to an end or when the employee resigns, unless an agreement can be reached between the parties to shorten the notice period, they will be contractually bound by this.
This means that the employee must be permitted to work their three month notice period, where any failure to honour this right could amount to a breach of contract for which the employee can claim wrongful dismissal before either the employment tribunal or civil courts.
The right not to be wrongfully dismissed is a common law right that arises from day one of employment, where an employee will be entitled to recover any financial loss resulting from the failure to provide notice. The amount of damages that will be awarded for wrongful dismissal will usually represent the value of the employee’s normal pay and any benefits that the employee would have received had the contract been terminated lawfully.
A claim for wrongful dismissal can arise in a number of different ways, including dismissing an employee without the correct period of notice or any notice whatsoever. It can also arise from not allowing an employee to physically work their full contractual notice period, especially where this would result in additional commissions and bonuses. Only in circumstances where an employee is summarily dismissed for gross misconduct can the employer terminate the employment contract with immediate effect. In these circumstances, provided the reason for the dismissal is justifiable, for example, if the employee is guilty of theft or violence, and a fair disciplinary process has been undertaken, there is no legal obligation to provide any notice.
In the context of resignation, where an employee quits without working their three month notice period, this will again amount to a contractual breach for which the employer could claim for any financial loss arising as a result of the employee’s premature departure. This could include, for example, the cost of an urgent temporary replacement, although it is rarely cost effective to sue a former employee, even where additional recruitment costs have been incurred. Still, an employee quitting without notice constitutes a fundamental breach of the employment contract, entitling the employer to treat that contract as at an end, where the employer will not be required to pay the employee for any unworked days.
Pay in lieu of notice rules
Where the employment contract makes provision for a three month notice period, the employer will often want the employee to physically work this period. After all, the reason for putting in place an extended notice period is usually so that the employer will have sufficient time, where needed, to recruit the employee’s replacement and allow for any handover.
However, there may be certain circumstances in which employment is brought to an end, but the employer would prefer the employee not to work their notice. This could include, for example, where working relationships with the employee have seriously broken down, or where the employer wants to prevent the employee from having access to sensitive or confidential information that they could use in any new job. In either scenario, the employer may be permitted to instead pay the employee pay in lieu of notice, also commonly known as PILON, but only where there is express contractual provision that allows for this.
A PILON clause within the employment contract effectively means that the employer is not legally obligated to allow the employee to work their three month notice period, although they must still pay the employee for the entirety of this period, despite the fact that no work will be undertaken. Any failure to pay PILON, including any contractual benefits falling within the scope of that clause, would again amount to a breach of contract and wrongful dismissal.
An employer can offer a PILON payment, even if the contract of employment does not provide for this, but the employee does not have agree. Equally, in the absence of any PILON provision permitting notice pay, the making of such a payment may not extinguish the employee’s claim for damages for breach of contract, save except where the employee is put in the same financial position as they would have been in had they been allowed to work their notice. This could include payment of any commission, bonuses or other contractual benefits.
What are the rules relating to garden leave?
Again, where the employer would prefer the employee not to work their three month notice period, typically where keeping the employee in work during this period has the potential to cause damage to the business — and they would also like to prevent an employee from immediately going to work for a competitor — the contract may make provision for garden leave. This is a clause that will allow an employer to instruct an employee not to work some or all of their notice, although they will still be employed throughout this period.
Any provision for garden leave will not end the notice period early, but rather will put the employee on paid leave during their notice. Senior employees are often put on gardening leave when they want to accept a position elsewhere. During this time the employee will not be undertaking work for their existing employer, but they will also not be able to start work for any rival employer. This ensures that a business is not left vulnerable by preventing any sensitive and confidential information from being taken to a competitor.
What if an employee refuses to work their notice period?
In many instances, it will be the employee who refuses to work a three month notice period, or is looking to shorten this period, especially if they have resigned and accepted a new position with an immediate or short start date. In these circumstances, the employer may want the employee to physically work their notice in full, in this way giving the employer ample time to secure a permanent replacement without any interruption to the business.
In theory, the employee is legally obligated to work their contractual notice period, where the terms of the employment contract are enforceable through the courts. However, in practice, the employer cannot physically force the employee to honour this requirement. Consequently, this either leaves the employer with the option of suing the employee post-termination for damages, or perhaps even seeking injunctive relief to prevent the employee from immediately working for a competitor or, alternatively, seeking to negotiate a shorter notice period.
In most cases, the latter option, to allow the employee to leave before the agreed notice period is up, is often the best way forward. This is because a notice period that is too long can have a negative impact on a business, from low performance and productivity rates from the exiting employee to the possibility of that employee damaging client and supplier relationships. By finding a middle ground, say six weeks’ notice, this will still provide the employer with time to find cover, while allowing the employee to move on to pastures new. Besides, to do otherwise, may force the employee to take the risk of quitting on the spot, even in breach of contract.
Can employees take annual leave during their notice period?
When an employee resigns, or their employment is otherwise brought to an end, that individual will often have accrued annual leave that they have not yet had the chance to take. In this way, the employee may be able to shorten a three month notice period by using up any remaining annual leave allowance, although the employer must agree to this.
However, a request for annual leave should not be refused unless there is a valid business reason to justify any refusal or there is a clause in the employment contract that prevents this from happening. In circumstances where the employer has good reason for not allowing an exiting employee to take any unused annual leave during their three month notice period, for example, because the employee is needed to hand over to their replacement, their final pay must include any outstanding holiday pay. The employee will also continue to accrue their statutory annual leave entitlement throughout their three month notice period.
Best practice advice for employers
Even though a three month notice period is relatively standard in various industry sectors, this can often be something of an unwelcome time, either for the employer or employee, or even both. However, the following three best practice tips can help to minimise any conflict, maintain a positive working relationship to the end and ensure a smooth transition:
Always calculate the correct effective date of termination: it is important for the parties to be on the same page when it comes to the date on which employment ends. If the employee is made redundant or dismissed, they must be informed in writing as to their final day of employment. Equally, where an employee resigns, it is important to ensure that the employee knows exactly when the last day of their three month notice period falls.
Be open to negotiate an earlier release: where the employee is looking to work a shorter notice period, the employer should always consider allowing the employee to leave before the end of the three months. It can often be better for a business for an exiting employee to leave on good terms, rather than forcing them to work their full notice and miss out on a valuable job opportunity, or to quit on the spot without working any notice whatsoever.
Record any agreement in writing: if agreement can be reached in circumstances where either party is looking for early termination, this should be set out in writing. This will then protect the employer against any allegations of wrongful dismissal in due course.
Need assistance?
DavidsonMorris are UK employment law specialists. We work with employers to provide guidance across aspects of workforce management and dispute resolution, including advice on notice periods, dismissals and exits. Through our fixed-fee employment law service, Triple A, you can access unlimited employment law advice from a dedicated lawyer to support legal risk management and best practice. Contact us for advice and more information.
Three month notice period FAQs
Is three month's notice period normal?
A three month notice period is a common stipulation in many UK employment contracts, reflecting the average length of time in many industry sectors required to fill a job role. Once agreed, this must then be honoured by both parties.
Do employees have to work a three month notice period?
Employees are legally obligated to work any three month notice period on either resignation or dismissal, if provided for in their employment contract. However, it is open to the employer to waive this period or agree to a shorter period.
Last updated: 8 July 2022
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Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
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