Garden leave and payment in lieu of notice

Sep 7, 2020 | Termination

Whilst with most resignations, the person works out their notice period, hopefully tying off essential work, doing a useful handover and leaving with a cheery smile and a good relationship, this isn’t always possible.

Sometimes, whether you’ve terminated the individual’s employment or they’ve opted to resign themselves, you need them to not be around during their notice period.

If this is the case, you have two options – you can either place the employee on garden leave or pay them in lieu of their notice period and terminate their employment with immediate effect. But which is the best option and what do you need to bear in mind?

Garden leave

Garden leave is where someone is still employed for the duration of their notice as normal, but are required to stay at home (hence garden leave, the idea being that they can do some gardening!) and not attend work. They are usually required to be available if necessary and remain under contract with you, i.e. not able to take up new employment during that time.

Bear in mind that during garden leave someone will continue to accrue holiday and be entitled to normal salary and benefits. Garden leave can be useful if you may still need someone to answer various queries, or perhaps complete pieces of work at home, or wish to delay the length of time before someone can take up new employment.

However be careful to set out the conditions of garden leave, which may include a requirement to hand over company property such as laptops or mobile phones, a requirement to stay away from the office and to not contact colleagues or similar, depending on the circumstances.

Payment in lieu of notice

Payment in lieu of notice, or PILON, is where you opt to terminate someone’s employment with immediate effect and pay them out the equivalent of their notice pay. This is somewhat “cleaner” than garden leave, and (subject of course to any post-termination restrictions) allows the employee to start a new role elsewhere immediately rather than kicking their heels at home.

Contractual issues

With both these options, it is far easier if you have the relevant provision written into the person’s contract of employment already. This is particularly significant with payment in lieu of notice. With garden leave, even if you don’t have the right set out in the contract of employment, it is highly unlikely your employee will suffer any financial loss by being placed on garden leave, meaning the risk of the decision being challenged is small.

However with PILON, if there is no specific right to terminate immediately in this way, you are breaching the contract by not allowing someone to continue in employment for the duration of their set notice period. This may have an impact on the amount of holiday they accrue, for example, or on contractual benefits they may have been entitled to.

That doesn’t necessarily mean you cannot terminate immediately if you need to, but bear in mind that if you’re not allowed to contractually, you may need to enhance the amount of pay involved to reflect the fact that the person may lose out on contractual benefits. Ensuring they are adequately compensated will mean there will not be a financial loss resulting from the breach of contract, dramatically reducing the likelihood of any challenge.

Things to remember

If you think there is a possibility you may need to remove someone straightaway in the event of their employment ending, here are the main things to remember:

  • Get the relevant clauses into your employment contract in advance, setting out the terms of any possible garden leave/PILON arrangement so that everyone is clear
  • When it becomes clear someone is leaving, assess the risks and benefits of them working their notice and make a decision quickly about what to do. If you need to place someone on garden leave or terminate them immediately because there is the risk of damage to your organisation, you need to do so quickly, otherwise the decision may become irrelevant.
  • Assess the financial impact of your decision, bearing in mind the contractual issues outlined above, and ensure the employee receives whatever pay and benefits he/she is entitled to
  • Set out the details of the arrangement (including any conditions of garden leave) in a letter to your employee
  • Communicate the decision to relevant staff, including details of whether the employee will be contactable if they are on garden leave


If you need advice on garden leave or PILON, do get in touch.