The importance of notice periods in employment contracts

The notice period is perhaps one of the most important parts of a contract of employment, yet all too often its significance is overlooked by both employers and employees alike.

In essence, the notice period is the length of time that each party must allow the other between: notifying them of the intention to terminate employment; and the employment ending. Notice periods are required to be set out in the contract of employment.

Notice periods give the employee comfort that (except in limited circumstances), if their employment is to be terminated they will at least have the opportunity to make alternative arrangements.  They also give the employer time to find a replacement or reorganise work before the employee leaves.

In the absence of an express agreement as to the length of the notice period required to terminate it, an employment contract is generally subject to an implied term that it may be terminated on ‘reasonable’ notice. What constitutes ‘reasonable’ will depend on the circumstances (for example, what the typical notice periods are in that industry for a person in that role, what the express notice periods are for any colleagues, what the employee’s length of service is and what their salary, seniority and status are).

Under statute, the absolute minimum notice periods that an employee is entitled to are:

• One week, if the employee has been employed for one month or more, but less than two years; and then
• One week for each completed year of service, up to a maximum of 12 weeks.

The parties can agree a longer notice period in the contract of employment but any shorter period stipulated in the contract will be overridden by the statutory minimum.

There are some situations where the notice periods do not apply or can be waived by mutual agreement. These include:

• When the employee is dismissed for gross misconduct (or other repudiatory breach of contract), thereby allowing the employer to terminate the contract without notice or pay in lieu of notice.
• When the employee resigns with immediate effect, due to a fundamental breach of contract by the employer.
• When the employee is on a fixed-term contract that expires on a specified date or on the completion of a specific project.
• When the employee is on a probationary period that allows either party to end the contract without notice or with a shorter notice period.
• When the employer and the employee agree to waive or reduce the notice period, either verbally or in writing.

When employing staff, it is important for employers to consider what is the most appropriate period of notice for the role they are recruiting for. Generally, more senior employees or those occupying a role that would be difficult to replace quickly should have longer notice periods to reflect their importance to the business.  Often, long notice periods and garden leave are used as a tool to prevent key employees leaving a business and entering into direct competition, giving the employer breathing space to recruit whilst locking the former employee out of the marketplace.

If you have any questions about notice periods, please call our Employment Law team today on 0113 207 0000.