Having the ha'penny and the cake?

Added On: 29th June 2011

Having the ha'penny and the cake?

Sometimes trying too hard to be helpful to staff can come back and bite you. The recent case of Publicis Consultants UK Limited v O’Farrell is an example of how costly this can be.

O’Farrell was made redundant by Publicis, and although her contract of employment entitled her to three months’ notice, she was given only four days. Her termination letter didn’t mention pay in lieu of the balance of this notice, but referred to her receiving “an ex gratia payment equivalent to three months’ salary”. This payment was made free of tax and National Insurance.

Ms O’Farrell went on to bring a claim against her employer for breach of contract in not giving her any notice pay. Publicis believed that this had been covered by the three months “ex gratia” payment, especially since it had been described in this way to enable Ms O’Farrell to receive it without deduction of tax. Unfortunately for Publicis, both the Employment Tribunal and the Employment Appeal Tribunals agreed with Ms O’Farrell.

The EAT considered what the language used in the termination letter would convey to the ordinary reader. It concluded that “ex gratia payment”, meant a payment made freely and not under obligation. It also found that there was nothing in the letter that suggested or implied that this payment was in fact another way of making a payment that the company was obliged to make, i.e. a payment for a period of notice. It went on to say that even if there had been some ambiguity in the construction of the letter, Ms O’Farrell was entitled to rely on the construction that best advantaged her, as it was the employer who had drafted the letter.

As a result Publicis was obliged to pay Ms O’Farrell her outstanding notice monies as well as the ex gratia payment, resulting in an additional payment of around £20,000!

The message for employers is clear, only payments which are over and above an employee’s contractual or statutory entitlements should be referred to as ex gratia payments. Termination letters should accurately reflect the nature of the payments being made, especially where they are contractual or statutory.