If you dismiss an employee without notice, do you have to pay money for the whole of the notice period, or can you deduct a sum in respect of mitigation because the employee obtained (or could have obtained) another job during that period?

In a recent case, an employment contract said the employers had the option of giving notice or payment in lieu of notice.

They chose the latter. The Employment Appeal Tribunal decided no deduction for mitigation was appropriate, as they had promised to pay the whole sum under the terms of the agreement.

The Court of Appeal has also confirmed a payment in lieu of notice, made in accordance with an employee's contract of employment, is earning, and is therefore taxable.

Another important consequence of holding that pay in lieu of notice is "pay", is that any such contractual right must now be regarded as debt rather than compensation.

This means the employer will not be able to claim a reduction by relying on the employee to mitigate the loss by seeking other work.

These are tricky areas and expert legal advice is needed when drafting contracts of employment, if the desired results are to be achieved.

If in any doubt, consult a solicitor.