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be careful of your labels

28 June 2011

The decision in Publicis Consultants v O’Farrell is a stark warning to employers to be careful how they label termination payments in dismissal letters.

O’Farrell claimed breach of contract because Publicis’ dismissed her on four days’ notice instead of her three months’ contractual notice. O’Farrell was therefore entitled to claim damages for breach of contract, equivalent to her 3 months’ notice. However, her dismissal letter stated that she would receive a “ex gratia payment equivalent to three month’s salary”. Publicis claimed that the ex gratia payment was intended to compensate her for her period of notice and therefore should be offset against her notice pay. The EAT held the money was unambiguously advanced as an ex gratia payment and should not therefore be offset against her claim.

Care should be taken when labelling payments as ex gratia and it be made clear that the payment is intended to compensate the employee for their loss of notice to ensure it will be offset against any claim for notice pay.

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