Effective date of termination of employment – impact on incentive plans

18 January 2012 |

The Supreme Court confirm the timing of the effective date of
termination (“EDT”) of employment on summary dismissal – a key date for
vesting of rights under incentive plans.

The Supreme Court held that when employment is summarily terminated
by letter the effective date of termination is the date on which the
employee read the letter or had a reasonable opportunity to discover its
contents.

In this case the employee was visiting a relative when the letter
was received at her own home address.  Although she telephoned home she
did not ask about her mail.  It was held that her EDT was when she
returned home and actually read the letter.

Commentary

The effect of the case is that an employer cannot be sure of the EDT
when he summarily dismisses an employee by letter.  Many incentive and
benefit plans provide that rights under them cease to accrue or are
forfeited on termination of employment.  It is therefore, key to know
when that date arises.

Employers should consider arranging for summary dismissals to be
communicated in person to employees in order to achieve certainty as to
the date of dismissal and corresponding entitlement under any incentive
and benefit plans.

Resources

Gisda Cyf v Barratt [2010] UKSC 41

For further information or to discuss the issues raised, please get in touch.

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

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To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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