When does notice of termination take effect?

Posted by Vicky Schollar on
When does giving notice to an employee to terminate their employment take effect? Although giving notice may seem a simple task, the timing of it is sometimes crucial, and the answer to this question will depend on the circumstances, the terms of the contract, and basis of the entitlement in question. A recent case concerned whether an NHS employee was entitled to a significantly higher pension, depending on whether her employment was found to have ended before or after her 50th birthday.

For both employers and employees the termination date can be crucial because a later termination date might, for example,:

  • entitle the employee to receive a bonus or additional contractual payments;
  • affect the application of insurance or employee benefits;
  • give the employee the statutory right to claim unfair dismissal and/or a redundancy payment; or
  • give an entitlement to increased pension rights.

In the example of a bonus or contractual payment, when notice takes effect depends mostly on what the contract says and the interpretation of contract law. The result could be different in the example of the right to claim unfair dismissal or a redundancy payment, since these are rights given by legislation, not by the terms of the employment contract. In such cases, when notice takes effect depends on interpretation of the legislation, not the contract.

Dispute over when contractual notice took effect

In Newcastle Upon Tyne NHS Foundation Trust v Haywood, Ms Haywood had been employed as an Associate Director of Business Development by an NHS Primary Care Trust, and following a merger, her employment was transferred to the Newcastle Upon Tyne NHS Foundation Trust (the Trust). Almost immediately she was informed in a meeting on 13 April 2011 that she was at risk of redundancy. Whilst there was some discussion about alternative roles that might be available to Ms Haywood, she accepted in principle that her post was redundant. She told the Trust that she would be entitled to a higher NHS pension of about £200,000 if she was made redundant on or after 20 July 2011, the date of her 50th birthday. In the meeting she mentioned that she would be on annual leave from 19 April until 3 May and that she had booked a holiday in Egypt. Following the meeting, she went absent on sick leave and a few days later began her planned annual leave. On 19 April she flew to Egypt and returned home on 27 April. 

The Trust decided to make Ms Haywood redundant. Ms Haywood was entitled under her contract to 12 weeks' notice, but there were no provisions specifying when that notice would be deemed to have been received. On 20 April, the Trust sent her three letters: one by ordinary post, one by recorded delivery, and one by email to her husband's email address. The letters said they were giving her 12 weeks' notice of termination and that her employment would end on 15 July 2011. This would be 5 days before her 50th birthday.

As well as appealing against her dismissal and claiming unfair dismissal and age discrimination, Ms Haywood lodged a claim in the High Court that notice had not validly been given until she received and read the letters on her return from holiday on 27 April, and that the 12 weeks' notice therefore ended on or after her 50th birthday. On this basis, she was entitled to the higher pension. The High Court agreed with her, and the Trust appealed to the Court of Appeal.

Rules on notice depend on type of claim

The Court of Appeal began by analysing the differences between notice affecting contractual rights, which is determined by the terms of the contract, and notice affecting statutory rights (such as unfair dismissal), which is determined on statutory principles. A Supreme Court ruling in 2010 (Gisda Cyf v Barratt) concerned the statutory right to bring an unfair dismissal claim. In that case a dismissal letter was not deemed to have taken effect until the employee returned home and read the letter a few days after it arrived. She had not deliberately avoided opening or reading the letter and therefore her unfair dismissal claim was correctly presented within 3 months of her termination date.

Ms Haywood's pension entitlement depended on when her employment terminated under the terms of her contract of employment. Therefore the position here was different from Gisda Cyf v Barratt and depended on contractual rather than statutory principles. There is an implied term that an employer and employee may give written notice to each other which may be sent by post. However, there was nothing in Ms Haywood's contract to deem when notice was effectively given, and the courts could not imply such a term because there are numerous possibilities as to what that term could be. In the absence of any express provisions, the Court had to rule when notice was effectively given to Ms Haywood.

If the Trust were correct, and Ms Haywood were only entitled to the lower pension, notice would have to have been effectively given to her on 26 April. While Ms Haywood was on holiday in Egypt, the recorded delivery letter had been picked up from the Post Office by her father-in-law and left in her home on 26 April. Due to flight delays, Ms Haywood arrived at around 1.30am the next day, and so read it around 8.30am on 27 April. The email to her husband's account was also read on the morning of 27 April, but the Court ruled that this was irrelevant, because she had provided a postal address and there was no agreement that notice could be delivered by email to her husband's email address. The High Court had not made any finding about the letter sent by ordinary post, which left the Court of Appeal only considering the letter sent by recorded delivery. The Court noted that the Trust had been aware that Ms Haywood was likely to be abroad, even if it did not know the exact dates of her holiday in Egypt, and it had been previously accepted that she had not unreasonably avoided receiving the letter.

In the absence of any contractual provisions, two of the three Court of Appeal judges ruled that the contents of the letter had to be communicated to the employee before it could take effect. In employment law (unlike perhaps other areas of commercial law) it is essential for the employee to know where he or she stands. Therefore, as Ms Haywood had only read the contents of the letter on 27 April, that was when the notice validly took effect. Therefore the 12 weeks expired on or after her 50th birthday and she was entitled to the higher pension rate. One of the Court of Appeal judges disagreed, but the decision of the majority is binding.

Lessons for employers

Giving notice of termination is not an unusual task for HR staff and employers. So what can be learned from this case? Employers should:

  • remember that the surest method of giving notice is to hand the employee a letter personally and confirm in person or on the telephone that notice is being given;
  • avoid any unnecessary delay in giving notice (provided the proper procedures have been concluded). Any delay could have a significant impact and employers should not leave it to chance or technical legal arguments which could ultimately prove expensive to pursue;
  • be familiar with their own contract terms on termination of employment. Are there provisions setting out when notice will be deemed to have been received? If not, should there be? This is particularly relevant for senior employees on generous pay and benefits;
  • be wary of relying on email when giving notice – the contract might not allow it and the employee might not have agreed to accept notice in this way.
  • consider when paying in lieu of notice might avoid complications, but remember this could be inappropriate in some cases if there is no contractual right to make a PILON and restrictive covenants are to be relied on;
  • be aware in cases such as this that there may be a potential age discrimination claim. Is the timing of notice designed to avoid rights which the employee may gain on reaching a certain age? In one case this was held to be objectively justified, but was based on particular facts, and another employer may not be able to defend such a claim of age discrimination.
  • be aware of the difference for statutory claims such as unfair dismissal. These rights which depend on length of service have particular rules about when employment is deemed to end, even if an employee is paid in lieu of notice. In certain cases the minimum statutory notice will be added to the length of service, which could give the employee the right to claim unfair dismissal or have a further week's redundancy pay. 

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Vicky advises on a wide range of contentious and non-contentious employment issues, acting for both businesses and individuals.

Vicky Schollar
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