Notice periods, pay in lieu and garden leave for employers

Statutory minimum notice

Section 86 of the Employment Rights Act 1996 sets the minimum notice each side must give, and no contract can go below it. Once an employee has one month's continuous service, the employer must give at least one week's notice. From two years' service it becomes one week for each complete year, so an employee with five years is owed five weeks. The scale stops at twelve: an employee with twelve years or more is owed twelve weeks, however long they stay after that.

The employee's side is shorter. After one month's service an employee must give at least one week's notice, and that figure does not rise with length of service. An employee with fifteen years and no written contract can lawfully leave on a week's notice.

Section 86(3) allows either party to waive their right to notice on any occasion, or to accept a payment in lieu of it. That is what makes an agreed early exit lawful. The paperwork for one should record the agreement in terms, so that nobody later has to prove it from conduct.

Statutory notice runs alongside whatever the contract says. Where the contract gives more, the contract governs. Where it gives less, or says nothing, the statutory period applies instead.

Contractual notice

Most written contracts give longer notice than the statute requires, and they usually make it mutual. One month is common for staff, three months for managers, and six or twelve months for a director or a senior person whose departure would hurt.

The length is a commercial decision and it cuts both ways. A long notice period from the employee gives the business time to recruit and hand over, and combined with garden leave it keeps a departing salesperson out of the market. A long notice period from the employer is expensive when the business wants somebody gone, and it is owed in full when the employer dismisses without cause, whether or not the person works it.

The notice period must appear in the written statement of particulars under section 1 of the Employment Rights Act 1996, which is due on or before the first day. A contract that says nothing leaves the employer with the statutory minimum and the employee with one week. Our guide to hiring your first employee covers the statement itself.

Where the contract gives the employer a longer period than the employee, that is lawful. Where it gives the employee less than section 86 requires, the statutory figure replaces it.

Pay in lieu of notice

An employer often wants the employment to end on the day the decision is made, with the notice period paid as a lump sum and the person gone the same afternoon. Whether it can do that cleanly depends on the contract.

With a pay in lieu of notice clause, sometimes shortened to PILON, the contract itself gives the employer the right to end the employment immediately by paying a sum for the notice period. The termination is lawful, the contract ends on the date the employer chooses, and the remaining terms, including confidentiality and any restrictive covenants, survive it. The clause should say what the payment covers: basic salary only, or salary plus benefits, bonus and pension contributions. If it is silent, the argument is about the value of everything the employee would have received during notice.

Without a clause, ending the employment immediately and paying the money is still a breach of contract, however fair the sum. The employee is unlikely to sue for money they have been paid, so the practical consequence is elsewhere: an employer in repudiatory breach cannot then enforce the post-termination restrictions in the same contract. A business that pays a leaver in lieu without a clause and then tries to hold them to a non-compete has usually lost it.

Tax no longer turns on the clause. Since 6 April 2018 the post-employment notice pay rules treat the notice element of any termination payment as earnings, subject to income tax and National Insurance, whether or not the contract contains a pay in lieu provision.

Garden leave and why it must be in the contract

Garden leave is the period during notice when the employee is told to stay away from work. They remain employed, they are paid their salary and contractual benefits, and they are still bound by their duties. They simply do not attend, do not work, and do not have contact with clients, suppliers or colleagues except as the employer permits.

It exists because notice periods can be used against the business. A departing employee who works their three months with full access to the client list, the pipeline and the team is a risk; one at home for three months on full pay, while their knowledge goes stale and their successor takes over the relationships, is a much smaller one.

The right to send somebody home needs a clause. An employer's basic obligation is to pay wages, and for many employees the employer need not provide work at all. But where the work itself matters to the employee, because their skills or reputation or earnings depend on doing it, the courts have found a right to work, and sending such a person home with nothing to do can be a breach. An express garden leave clause removes the argument. It should say that the employer may require the employee not to attend work, not to perform duties, not to contact clients or staff, and to return property, for all or any part of the notice period, and that salary and benefits continue.

Garden leave is only available during notice. It cannot be used to park an employee indefinitely, and it ends when the notice period ends.

What an employee can and cannot do on garden leave

Because the employment continues, so does the implied duty of fidelity. An employee on garden leave cannot start work for a competitor, cannot work for themselves in competition, and cannot solicit clients or colleagues, whether or not the contract contains express covenants. Doing any of those things is a breach that justifies summary dismissal and can support an injunction.

They can be told to stay away from the premises, to hand back the laptop and phone, to stay off the company systems, and to refer any approach from a client to a named person. They can also be required to remain available: the employer may want them to answer questions during handover, and the clause should say so.

They keep their pay, their benefits and their accrued holiday. They continue to accrue holiday and continuous service. A garden leave clause that stops commission or bonus during the period needs to say so expressly, and it should be checked against the bonus scheme rules, because a discretionary scheme that pays on results may have its own provisions for leavers.

Acas guidance puts it plainly: an employee on garden leave is still employed, and must be paid as usual including contractual benefits.

Garden leave and restrictive covenants

Garden leave and post-termination restrictions do the same job by different means. Garden leave keeps the employee out of the market while paying them; a restrictive covenant keeps them out after the employment has ended, unpaid. Both are restraints of trade, and the courts look at the total period of restraint when deciding whether the covenants are enforceable.

That produces the set-off. A well-drafted contract provides that any period spent on garden leave is deducted from the length of the post-termination restrictions. Six months' garden leave followed by a six-month non-compete reads as a year out of the market, which a court is likely to regard as longer than necessary; six months' garden leave followed by a non-compete reduced to nothing, or a twelve-month covenant reduced to six, reads as what it is. A contract that stacks the two without set-off risks the covenant being struck out entirely, and a struck-out covenant protects nobody.

The two also depend on the same thing: the employer keeping to the contract. Garden leave without a clause, or pay in lieu without a clause, can be a repudiatory breach, and a repudiatory breach releases the employee from the covenants. Our guide to restrictive covenants covers what makes them enforceable in the first place.

Holiday during notice

Holiday continues to accrue throughout the notice period, whether the employee is working it or on garden leave.

The Working Time Regulations 1998 allow an employer to require a worker to take leave on particular days by giving notice of at least twice the length of the leave, unless the contract says otherwise. Employers commonly use that during garden leave, requiring the employee to take their accrued holiday before the termination date so that it is used and not paid out. The contract can shorten the notice required, and a well-drafted garden leave clause usually does.

Whatever is untaken at termination must be paid. Regulation 14 requires a payment in lieu of statutory leave that has accrued and not been taken, and the payment is due however the employment ended, including on dismissal for gross misconduct. Contractual holiday above the statutory 5.6 weeks is governed by the contract, which can provide that it is lost on termination or on dismissal for misconduct.

Recovering overtaken holiday runs the other way. An employee who has taken more leave than they have accrued can only have the excess deducted from final pay where the contract or a written agreement allows it. Without that, the employer bears the cost.

Resignation without notice

An employee who resigns and leaves the same day, in the absence of a repudiatory breach by the employer, is in breach of contract. In practice there is little the employer can do about it.

An employer cannot compel anybody to work. It can, in principle, claim damages for the loss the breach caused, such as the cost of agency cover above the salary saved, and Acas notes that such a claim would go to the county court. Losses of that kind are hard to prove and rarely worth the cost of pursuing. Some contracts allow a deduction from final pay for the cost of cover; that only works where the clause is clear, the deduction is limited to actual loss, and it does not take pay below the National Minimum Wage.

What the employer must still do is pay for the work done up to the last day and the accrued holiday, and provide the P45. Withholding wages already earned because the employee left without notice is an unlawful deduction, and it converts the employer from the innocent party into the one facing a claim.

The one thing to check before accepting a walk-out is whether the employee says the employer broke the contract first. A resignation letter that alleges a fundamental breach is a constructive dismissal letter, and our guide to constructive dismissal for employers sets out how to respond.

These rules apply across Great Britain; Northern Ireland has its own employment legislation.

Frequently asked questions

What is the statutory minimum notice an employer has to give?

Under section 86 of the Employment Rights Act 1996, once an employee has one month's continuous service the employer must give at least one week's notice. From two years' service it is one week for each complete year, so five years means five weeks, capped at twelve weeks for twelve years or more. The contract can give more but cannot give less, and where it says nothing the statutory period applies.

How much notice does an employee have to give?

The statutory minimum is one week once they have one month's service, and it does not increase with length of service. Longer notice from the employee has to be written into the contract, and for anyone whose departure would damage the business it should be, ideally matched with a garden leave clause so the period can be spent away from clients and colleagues.

Can I pay in lieu of notice if the contract has no clause allowing it?

You can pay the money, but ending the employment immediately without a clause is a breach of contract. The employee will rarely sue for pay they have received. The real cost is that an employer in repudiatory breach cannot then enforce the restrictive covenants in the same contract, so a leaver paid off without a clause is often free to compete. A pay in lieu clause should be in every contract that contains covenants.

Is a payment in lieu of notice taxable?

Yes. Since 6 April 2018 the post-employment notice pay rules treat the notice element of a termination payment as earnings, subject to income tax and National Insurance, whether or not the contract contains a pay in lieu clause. The £30,000 exemption for termination payments applies only to genuine compensation for loss of employment, after the notice element has been taken out.

Do I need a garden leave clause in the contract?

Yes. The employer's basic duty is to pay, and for many roles there is no duty to provide work, but where the work matters to the employee's skills, reputation or earnings the courts have found a right to work, and sending them home can be a breach. An express clause removes the argument. It should allow the employer to keep the employee away from work, clients and colleagues for all or part of the notice period, on full pay and benefits.

Can an employee on garden leave work for someone else?

No. They remain employed, so the implied duty of fidelity continues. Working for a competitor, setting up in competition or soliciting clients or staff during garden leave is a breach of contract that justifies summary dismissal and can support an injunction, whether or not the contract contains express restrictive covenants. They can be required to stay off the premises and systems and to remain available for handover questions.

Does garden leave reduce the length of restrictive covenants?

Usually, and the contract should say so. Courts look at the total period an employee is kept out of the market, so garden leave stacked on top of a non-compete of the same length can make the covenant unreasonable and unenforceable. A set-off clause deducts time on garden leave from the post-termination restriction. Six months' garden leave and a twelve-month non-compete then leave six months of restriction after the employment ends.

What can I do if an employee leaves without working their notice?

Very little in practice. You cannot make them work, and a damages claim for the cost of cover is hard to prove and rarely worth pursuing. A clear contractual clause can allow a limited deduction from final pay for actual loss, without taking pay below the minimum wage. You must still pay for work done and accrued holiday and issue the P45. Check first whether the letter alleges a breach by you, because that is a constructive dismissal claim.

Sources & further reading

• Employment Rights Act 1996, section 86
• Employment Rights Act 1996, section 1
• Working Time Regulations 1998, regulation 14
• Working Time Regulations 1998, regulation 15
• HMRC Employment Income Manual EIM13874: post-employment notice pay
• Acas: when an employee does not have to work notice
• Acas: notice when resigning
• GOV.UK: taking holiday before leaving a job

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).