Ex Gratia Payments Not Off-set Against Notice Pay

The Employment Appeal Tribunal has handed down its decision that the true construction of the meaning of the words used by an employer in a letter of dismissal in which it paid monies to an employee as an ‘ex gratia payment’ was a question of law.


Fiona O’Farrell was employed, as Director Head of Corporate, by Publicis Consultants LTD from April 2007 until her dismissal in May 2009.

O’Farrells contract provided for termination by either side with 3 calendar months notice. It went on to say that the company may at its absolute discretion require you not to attend work during the whole or part of your notice period, and may at its discretion relieve you of some or all of your contractual duties during that period.

In 2009 a redundancy situation arose and O’Farrell was selected for redundancy.

O’Farrell received a letter dated Thursday 14 May 2009 which notified her that her role was terminated by way of redundancy with effect from Friday 15 May 2009.

Set out in the letter were details of the final package due to O’Farrell and these stated:-

  • You will be paid up to and including Monday 18 May 2009.
  • Ex-gratia Payment equivalent to three months’ salary.
  • Statutory Redundancy Payment.
  • Holiday pay

She claimed damages for dismissal without notice and for breach of contract by failing to pay notice pay.

The Employment Tribunal Decision

The Employment Tribunals reached a decision that the dismissal was unfair and that the company was in breach of contract by failing to make a payment in lieu of notice.

The company appealed against the breach of contract claim.

The Employment Appeal Tribunal Decision

The Employment Appeal Tribunal described the payments made by the employer as follows:

  • Two are payments that the employer is making because it must make them; that is to say, the statutory entitlement to redundancy pay, and the contractual entitlement to holiday pay.
  • The third payment referred to in the letter of 14 May 2009 is in contrast a payment described in terms as “ex gratia payment”; that is to say, on its ordinary construction, a payment made freely and not under obligation.

The Appeal agreed with the Employment Tribunal that the words ‘ex gratia’ ordinarily import the sense of something being paid by way of gift or favour. Nothing in the language used in the letter of 14 May 2009 suggests or implies that that payment is in fact another form of payment that the company is legally obliged to make, ie a payment for a period of notice.

The appeal was dismissed.

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Ex Gratia Payments Not Off-set Against Notice Pay

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