You receive notice of someone’s resignation from your employment. But what do you do next?
It is likely that you will be surprised or even unprepared for this so there is a danger that you do not think beyond the obvious issues of leaving dates and P45s. Stepping back from the immediate emotional reactions this news might evoke, there are many things to think about. Should you make the employee work their notice, or might you prefer to put them on Garden Leave? Can you pay them in lieu of notice? Can you amend their duties or restrict them from competing against you in their new job? What else should you bear in mind?
The TSP Employment team have set out below some of the things that you should consider on receipt of someone’s notice of resignation but will be happy to discuss further with you any specific issues that you might have.
Do you want them to stay?
- Can you get them to change their mind?
- Notice can be withdrawn;
- If the employer has not accepted the notice, the employee has the right to stay
- If the employer has accepted the notice, the employee can only stay if the employer allows it
- Notice may not be valid if not served correctly (although, usually easily corrected)
Look at the Contract of Employment
- Notice provisions
- Form of notice (in writing etc.)?
- Length of notice
- Are the following applicable?
- Garden leave
- Pay in lieu of notice (PILON)
- Restrictive covenants
- Do you have the power to amend the employee’s duties or place of work?
- Do you have the power to deduct money owed to the company from the final pay cheque?
- If not, and you make deductions, these are likely to be unlawful
Do you want the employee to leave at once?
Consider the following:
- Do you need a handover?
- Has the employee completed all outstanding tasks, e.g. billing
- Does the employee have company property?
- Does the employee have relationships with key clients?
- Has the employee accrued but not taken holidays?
If yes, asking them to leave will reduce the control you have over them. Perhaps you should sort these issues out to your satisfaction before letting them go early?
Consider making a PILON
- Beware, if there is no PILON clause in the contract of employment, this is a technical breach of contract and you will not be able to enforce any of the other terms of the agreement, e.g. restrictive covenants!
- The date of termination is usually the date the PILON is made. Holidays will stop accruing so PILON does not need to include holidays that would have accrued during a notice period (unless the contract so provides)
Consider putting on Garden Leave
- Beware, if there is no power to put on Garden Leave, the same issue applies
Do you need the employee to work their notice?
- Do they need to keep their departure confidential from clients, staff, suppliers etc.?
- Consider removing or changing the employee’s duties
- to protect the company’s client connections/ intellectual property/ trade secrets etc.
- If reliance will be placed on Restrictive Covenants, ensure you have the contractual power to make these changes
- If there are no Restrictive Covenants or other terms you might enforce post-termination, making changes is less risky
- Consider offering an early release from the notice period if handover is completed, bills completed (etc.) by a particular date, as an incentive
Any outstanding complaints or grievances?
- Is there a chance that the employee will commence legal proceedings against the company?
- Is there an outstanding grievance or complaint
- Has there been a disagreement about pay or conditions etc.?
- Consider commencing a grievance investigation or holding without prejudice settlement discussions leading to a settlement agreement
- Has the employee taken too many days off as at the termination date?
- If so, can you make a lawful deduction of what was overpaid?
- Do you owe the employee holidays that have accrued but not been taken?
- Consider requiring the employee to take them during the notice period
- Calculate what payment in lieu of unpaid holidays is otherwise due
Enforcing Restrictive Covenants
- If there is a chance that Restrictions will be enforced, remind the employee of their obligations
- If you seek to enforce them, check;
- Are they enforceable?
- Is there evidence that the employee is in breach of the restrictions?
- What financial or other damage will you/have you suffered as a result of the breach(es)?
- Do not breach the contract of employment yourself
- Consider if there were breaches before the employment terminated (e.g. taking company data during employment) and seek advice about “springboard relief” as an alternative to enforcing post termination restrictions
- Act quickly and take professional advice
- Are there express confidentiality terms in the contract of employment?
- Remember, all employees owe their employers a duty of confidence not to disclose trade secrets
- Consider the need to enforce these provisions
Bonuses / Commissions
- Some contracts make it expressly clear that bonuses and/or commissions will not be due to be paid during any period of notice
- If the employer makes awards of discretionary bonuses, the discretion must be applied reasonably.
Other things to consider
- What are the employee’s roles & responsibilities?
- Registered as a statutory director?
- Pension trustee?
- Registered with any regulatory body?
- Principal trainer (etc.) for other members of staff?
- Are they a “good leaver” or a “bad leaver” for the purposes of share incentive or other remuneration plans?
- Do you want to know why they’re leaving?
- Act on information received to improve internal procedures etc.
- Consider whether information gathered creates obligations
- To investigate a grievance
- To investigate allegations of misconduct etc.
- Share the information to relevant, authorised individuals
Prepare a P45
- Payments made before P45:
- PAYE as normal
- Payments made after P45:
- OT tax code – no personal allowance applied, entire payment is taxable
NB: If the payment is less than £30,000 (not taxable) it makes little practical difference tax purposes whether it is pre or post P45 (Income Tax (Earnings and Pensions) Act 2003).
By the time they’ve gone…
- Update websites and contact information
- Change security passwords/ door codes etc.
- Tell your key clients, suppliers etc. (manage the information)!
- Notify payroll and pension providers
- Make internal/external announcements
- Keep an eye on them (if possible) if there’s a risk they might harm your business (look at LinkedIn, speak to suppliers or colleagues who are in touch etc.)