Entitlement to Pay During the Notice Period When an Employee is Not Actively at Work

This scenario may arise if either party gives notice to terminate employment whilst an employee is on sick leave, maternity leave, paternity leave, adoption leave, shared parental leave or parental leave, or when the employee is willing and able to work but no work is provided by the employer (e.g. during a period of lay off, unpaid annual leave or a sabbatical at the request of the employer).

Assuming there are no contractual terms specifying that an employee would always receive full pay during any notice period in these circumstances, the answer is set out in sections 87 to 89 of the Employment Rights Act 1996 (ERA 1996) and is strangely quite complex. It depends on whether the contractual notice period that the employer would have to give if they were to dismiss the employee is more than, equal to or less than the employee’s statutory minimum entitlement:

• If the notice period that the employer would have to give according to the employment contract is at least one week more generous in length than the employee’s relevant statutory minimum notice entitlement, the employee is only entitled to receive what they would usually receive during their relevant type of leave (e.g. statutory pay or nil pay).
• If the contractual notice period that the employer would have to give is less generous than the employee’s statutory notice entitlement, is the same as the statutory minimum, or is more than the statutory minimum but by no more than 6 days, the employee is entitled to full pay throughout the length of the statutory notice period.

For the purposes of determining the entitlement to pay it is irrelevant whether it was actually the employer or the employee who gave notice to terminate. It is also irrelevant what length the contractual notice period would be if the employee wanted to terminate the contract.

It is important to note that if, following the rules above, the employee is entitled to full pay, this applies only for the duration of the statutory minimum notice period.  If the employee’s contractual notice period is longer than this they would be entitled to receive full pay for the statutory minimum notice period and then revert to the lower rate of statutory pay or nil pay for any remaining days/weeks.

Statutory notice period

The statutory notice period for the employer to dismiss an employee depends on their length of service:

When an employee resigns the statutory minimum notice they have to give is always 1 week regardless of their length of service.

Employee Resignation Examples

1. An employee is off sick on statutory sick pay. He resigns and his contract requires him to give 4 weeks’ notice.  If the employer had terminated they would have to give him 3 months’ notice under his contract, he has 6 years’ continuous service (so his statutory notice period if the employer had terminated is 6 weeks).  His contractual notice period is at least 1 week more generous that his statutory minimum entitlement so he is only entitled to receive statutory six pay during his 4 week notice period.
2. An employee is on maternity leave and has exhausted her statutory maternity pay so is currently on nil pay. She resigns and her contract requires her to give 4 weeks’ notice.  If the employer had terminated they would have to give her 8 weeks’ notice under her contract, she has 8 years’ continuous service (so her contractual notice period is the same as the statutory minimum). She is therefore entitled to receive full pay during her statutory notice period (which is only 1 week as she resigned) and nil pay during the remaining 3 weeks’ notice.

Employer Dismissal Examples

1. An employee agreed to take an unpaid sabbatical for 6 months at the request of the employer. The financial circumstances have not improved and the employer has to dismiss during this period.  The employee has 4 years’ continuous service, her contractual notice period is 3 months (so significantly exceeds her statutory minimum entitlement of 4 weeks).  She is therefore not entitled to be paid during her 3 month notice period.
2. An employee with 8 years’ service is on shared parental leave receiving statutory pay. He is dismissed by his employer.  His contractual notice period is 1 month (which is less than his statutory minimum entitlement of 8 weeks’ notice).  He is therefore entitled to receive 8 weeks’ notice and is entitled to receive full pay throughout these 8 weeks.

Conclusion

This legislation puts employees who have a more generous notice period in their employment contracts at a disadvantage.  The Government has never given an open explanation for the reasoning behind this.  In practice, particularly when someone is away from work on a type of family leave or sick leave, employers tend to take a more generous approach anyway to avoid or mitigate the risk of a discrimination claim.  However it is important employers understand the minimum pay entitlements so they can make an informed decision and particularly if financial circumstances require employers to keep costs as low as possible.