Be careful with ex-gratia payments

Opinion

Be careful with ex-gratia payments

How often have employers found it expedient to dismiss an employee and then give them an ex-gratia payment to keep them happy (and quiet)? Well those that follow this practice should be aware of a recent case - Publicis Consultants UK Ltd v O'Farrell.

In this case, the employee was dismissed with less than her three month contractual notice. As part of the package, she was given an ex-gratia payment that was described as being 'equivalent to three months salary'.

However, the contract didn't include a right to payment in lieu of notice so the employee issued a claim for breach of contract. The Employment Appeals Tribunal found that the payment was ex-gratia and not the payment that was required under the contract. The net effect was that the employer had to make an additional payment based on the required notice period.

The lesson for employers? Only use the term 'ex-gratia' when a payment is truly a gift.

This was first published in August 2011

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