Employment Contracts

Termination Clauses: How to End Employment Legally

Ending an employment relationship is one of the highest-risk moments for a small business. Get your termination clauses right to protect yourself.

Last updated: February 2025

Notice Periods and Statutory Minimums

UK law sets minimum notice periods based on length of service. Your contract can provide longer notice than the statutory minimum but never less. Many small businesses offer one month's notice after probation, increasing to three months for senior roles.

  • Statutory minimum: one week's notice for each year of service, up to 12 weeks maximum
  • Employees must give at least one week's notice regardless of service length
  • Contractual notice can exceed statutory minimums and is enforceable by either party
  • Notice periods during probation are often shorter — one week is common practice

Garden Leave and PILON Clauses

Garden leave and payment in lieu of notice (PILON) give employers flexibility when an employee is leaving. Without these clauses in the contract, you may be required to let the employee work their full notice period, which can be problematic if they are joining a competitor.

  • Garden leave keeps the employee on the payroll and bound by contract but not required to attend work
  • PILON allows immediate termination with a lump sum payment instead of worked notice
  • A contractual PILON clause means the payment is subject to tax and National Insurance from day one
  • Without a PILON clause, payments in lieu are treated as damages and the first £30,000 may be tax-free

Summary Dismissal and Gross Misconduct

Summary dismissal — dismissal without notice — is only lawful in cases of gross misconduct. Your contract should define what constitutes gross misconduct, but the list should not be exhaustive. Common examples include theft, fraud, violence, and serious insubordination.

  • Always follow a fair disciplinary process, even for gross misconduct
  • Suspend on full pay while investigating — unpaid suspension is almost never appropriate
  • The ACAS Code of Practice on Disciplinary and Grievance Procedures must be followed
  • Failure to follow the ACAS Code can increase tribunal compensation by up to 25%

Key Takeaways

  • Statutory minimum notice is one week per year of service up to 12 weeks — contracts can only exceed this, not undercut it.
  • Include both garden leave and PILON clauses to give yourself maximum flexibility when employees leave.
  • Always follow the ACAS Code of Practice when dismissing, even for gross misconduct, to avoid increased tribunal awards.

Frequently Asked Questions

Can I make someone leave immediately without paying notice?

Only in cases of gross misconduct can you dismiss without notice (summary dismissal). Even then, you must follow a fair disciplinary process including investigation, a hearing, and the right to appeal. Failing to do so exposes you to unfair dismissal claims.

What is the difference between garden leave and PILON?

Garden leave means the employee remains employed and on the payroll during their notice period but does not attend work. PILON means employment ends immediately and the employee receives a lump sum covering their notice period. Garden leave keeps restrictive covenants active; PILON ends the employment relationship.

Do I need to give a reason for dismissal?

If the employee has two or more years' continuous service, you must have a fair reason for dismissal: capability, conduct, redundancy, statutory illegality, or some other substantial reason. Employees with less than two years' service can be dismissed without a fair reason, but you still cannot dismiss for a discriminatory reason.

Related Guides

Employment Contract Guide for UK Small Businesses (2026)

Probation Period Clauses: What's Legal in 2026?

What Must Be in a UK Employment Contract?

Every Contract Your Small Business Needs (2026)

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This is guidance for UK businesses, not legal advice. For complex legal matters, consult a qualified solicitor.

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