What is PILON (payment in lieu of notice)
Payment in Lieu of Notice (PILON) allows employers to end an employee's contract by paying them what they would have earned during their notice period, bypassing the need for the employee to work their notice period. This tool offers speed and flexibility for both sides.
Employees with over one month's service get statutory minimum notice: one week per year of service up to 12 weeks maximum. Employers can use PILON to terminate right away and pay basic salary (and sometimes benefits) for that period instead. Contracts must explicitly allow PILON and detail what it covers like base pay and when termination takes effect. Without a PILON clause, paying in lieu risks breaching the contract, potentially invalidating post-termination restrictions like non-competes. PILON differs from garden leave, where the employee stays employed but sidelined.
Table of Contents
Why companies use PILON
PILON vs. Garden Leave: how are they different
Key takeaways for employers
Why companies use PILON
Companies use PILON to terminate employment without having the employee work their notice period often to avoid risk or operational friction. Possible reasons include confidentiality or IP concerns or immediate separation is operationally necessary.
PILON vs. garden leave: how are they different
PILON and garden leave differ since employees put on garden leave must be available to work during their normal hours and must perform any duties the employer requests until the employment contract is terminated.
Garden leave is a period that a terminated employee stays on a company's payroll but is not allowed work at another company. This practice is a popular protective measure in Australia and the U.K., and emerging as a practice in the U.S. Garden leave limits access to sensitive information.
Key takeaways for employers
Key takeaways for employers include having clear PILON clauses in contracts to avoid breach risks, regular review of employment contracts to evaluate compliance with laws, documenting what's included in the clauses, and communicating termination dates precisely.
Navigate PILON with confidence
Schedule a 30-minute demo to learn how TCWGlobal can help you execute PILON while minimizing legal exposure and protecting your business across every jurisdiction.
