When an employee is leaving employment, it can be a time of high emotion and stress for both employee and employer. Ensuring you attend to all the legalities and logistics will make the exit smoother and less likely to end up in a series of protracted conversations, or worse, arguments. This article covers off a few of the FAQs around ending employment.
What’s the difference between payment in lieu of notice and garden leave?
Payment in lieu of notice is when the employee is paid their usual salary or wages (generally with their final pay) instead of working out the notice period. Employment comes to an end when the employee is paid in lieu, but it is important to be really explicit about the end date and the payment arrangements.
‘Garden leave’ is when the employee remains an employee for the notice period, and is paid as usual, but is not required to work or is required to fulfil alternative or reduced duties if that is provided for in the employment agreement. Other obligations (good faith, fidelity, confidentiality and acting in the best interests of the employer etc.) will still apply. This means that the employee will (usually) not be able to work for someone else during this period.
Garden leave or payment in lieu of notice may be something that the parties agree on at the time, or the employment agreement might allow the employer to elect one of these options.
If an employee is supposed to be working out their notice, but doesn’t turn up, what rules apply?
Generally, an employee is only entitled to be paid if they work, including during the notice period. The employee may have sick leave or annual leave entitlements available, but these can only be used if the employee is eligible to use them (i.e. they are sick or injured, in the case of sick leave) and follow the normal application and notification processes.
Technically, an employee who doesn’t turn up for work during the notice period could be the subject of disciplinary proceedings for unauthorised absence. There is also, at least technically, the ability for an employer to bring a claim against the employee for breach of contract, if the employer has suffered losses as a result of the employee not giving/working out their notice.
Employers should be very careful about making deductions from an employee’s final pay (including holiday pay) as a ‘punishment’ for not working out their notice – this will only be lawful in limited circumstances, and advice should be taken first. Two wrongs don’t make a right!
What’s the story with restraints of trade? They’re not really enforceable, are they?
They certainly can be enforceable! While restraints and other post-employment obligations, (including non-solicitation and no-deal clauses) need to be reasonable, they can definitely be enforceable. It is important to read these clauses carefully and take advice if you are uncertain about their application or enforceability. It may be worth having a discussion about the scope of the clauses to try to reach some degree of consensus around what is expected. For more information about post-employment obligations, see our article here.
How about confidential information? How long does that obligation last?
Employees are required to keep the employer’s confidential information confidential both during employment, and after employment ends. It is very likely that the employment agreement will have a specific clause about what constitutes confidential information, and restrictions around use, transmission, possession etc of that information. Even if there is no clause in the employment agreement, there is a common law duty implied into every employment agreement that employees must keep an employer’s confidential information confidential.
This obligation definitely extends beyond the employment relationship, and generally will last for as long as the confidential information remains confidential – i.e. for as long as it is not in the public domain or so old as to be irrelevant or useless. Employers can absolutely bring claims against employees for taking or using confidential information, so employees should play it safe and make sure to leave or return any information (in hard copy or electronic form) that belongs to the employer.
What should be in the final pay?
Final pay should include all salary/wages for time worked up to the termination date, payment for any part of the notice period that is to be paid in lieu, and any holiday pay owing. There are two calculations for holiday pay: one where the employee has become entitled to annual holidays (i.e. after working 12 months) but has not taken them, and one where the employee has not yet become entitled to annual holidays. The Holidays Act 2003 provides two separate formulae for these two situations – section 23, and section 24.
Final pay will also include any unused alternative holidays an employee has become entitled to for working on a public holiday – the calculation is provided for in the Holidays Act at section 60. Unused sick leave is not paid out (unless the employment agreement provides for this).
An employee’s final pay should also include any lump sum payments or other payments which are owed to the employee. These payments may have been agreed between the employer and employee in the employment agreement or negotiated as part of an exit package. Once again, employers should be careful about making deductions from an employee’s final pay (for example, for unreturned property); we recommend taking advice before doing this. Also, remember that the final pay should be paid “forthwith” upon termination – i.e. as soon as possible after the end of employment.
What about a reference? Is there any requirement to provide a reference?
There is no obligation to provide a reference (unless this is in the employment agreement or an employer policy). If the employer chooses to provide a reference, this should be truthful – a dishonest or inaccurate reference could have reputational consequences for everyone involved. Employers should also remember their Privacy Act 2020 obligations: you cannot disclose personal information about an ex-employee to a third party unless you have the ex- employee’s permission. If you are unsure, the Office of the Privacy Commission has some useful information or you can take advice.
We are available to assist with any questions about termination arrangements – we often find that a quick phone call can sort out the issue before it becomes an argument! Please contact the Employment Law Team or your usual contact at Hesketh Henry for advice.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
