An employee’s contract should say what happens if it’s terminated......

An employee’s contract should say what happens if it’s terminated. Usually there is a notice period, and sometimes it’s explicitly stated that the employer can pay salary instead. If that’s the case, there is no doubt that the payment in lieu is fully taxable – you don’t get the first £30,000 tax-free as you do with some ex gratia payments.

Maybe that’s why an employer recently paid someone ‘an ex gratia payment equivalent to 3 months’ salary’ on dismissing her with 4 days’ notice. She banked the cheque, then sued on the basis that her contract entitled her to 3 months. It seemed clear that the employer intended the ‘ex gratia’ payment to stand in for her contractual right – but the employment appeal tribunal went with the written words. They said the company had made her a gift which wasn’t her contractual right; she was entitled to her contract as well.

When it comes to paying off someone who has no reason to see it your way – say what you mean and mean what you say!