In Publicis Consultants UK Ltd v O’Farrell, the Employment Appeal Tribunal (EAT) has held that a termination payment described by the employer as ‘ex gratia’ could not be used to meet its obligation to pay damages for breach of contract.
This decision is an express reminder, if one was needed, that employers should take care when drafting termination letters, or they should protect themselves with a compromise agreement.
Ms O’Farrell was dismissed on less than her contractual notice period of three months. She received a severance package, including a payment that the termination letter described as ‘an ex gratia payment equivalent to three months’ salary’. Her contract did not include a right to pay in lieu of notice and she claimed breach of contract in the tribunal.
The EAT upheld the tribunal’s decision that the payment was truly ex gratia, rather than a payment which the company was obliged to make.
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