Employment E-Missive No.21 - Harsh Decision on Constructive Dismissal Compensation!
by Charles Price, LLB.(hons) LLM, barrister No5 Chambers, Birmingham - Bristol - London Telephone 0870 203 5555 www.no5.com
1. Court of Appeal Dishes Out Harsh Decision on Constructive Dismissal Compensation!!
2. Pay in Lieu of Notice – Can an Employer Force an Employee to not Work his Notice?
3. Preventing Ex-Employees from Working for the Opposition
4. Recommended Expert Witness CVs
A Legal Commentary Email.....
Charles Price specialises in Respondent and Claimant work in England and Wales. This e-mail is for academic purposes only. Legal considerations mustbe looked at in the light of the particular circumstances and it may be wise to seek legal advice.
1) New Law - Harsh Decision on Constructive Dismissal Compensation!
It has always seemed fair that when claiming constructive dismissal an employee should be able to claim damages for his/her loss leading up to the dismissal. So ideally for the Claimant, if the reason for resignation/dismissal was a breach of confidence but leading up to that, the employer had bullied an individual, who subsequently became sick as a result, then compensation would flow from the general mal treatment. In the Court of Appeal last week however a frugal judgement was doled out.
In GAB ROBINS (UK) LIMITED and Gillian Triggs C.App 30th January [2008] EWCA Civ 17 The employer's appeal, brought with the permission of the EAT, was solely against the upholding of the ET's remedy directions. The employer's case, was that the ET misdirected themselves in holding that, in assessing Mrs Triggs's entitlement to compensation for the loss she sustained in consequence of the dismissal, account could and should be taken of the loss flowing from the employer's injurious, repudiatory conduct towards Mrs Triggs which she accepted so as to effect the dismissal in respect of which she brought her claim.
That conduct had caused her to become ill, following which she left work and was on sick pay for part of the time leading up to the eventual dismissal. The employer's submission was that it was not open to the ET, in assessing compensation for her unfair dismissal, to have regard to that pre-dismissal conduct: the assessment must be confined to compensating her for the loss sustained by the dismissal itself, namely (in this case) compensating an employee who at the time of dismissal was already ill and on sick pay, being pay in respect of which her rights were shortly to be exhausted.
The key quote came from Lord Justice Rimer: ‘Sympathy cannot, however, be allowed to get in the way of principle; and Mr Clarke's submission was that the ET's approach was wrong in principle and cannot be reconciled with the guidance provided by the House of Lords in Eastwood and another v. Magnox Electric plc; McCabe v. Cornwall County Council and others [2004] IRLR 733 ("Eastwood"), which was one of the five authorities to which the ET were referred.
The point, in short, was that loss of the type identified by the ET did not flow from the dismissal, which happened in March 2005. In so far as it was caused by the employer, it was caused by the employer's antecedent breaches of the implied term of trust and confidence, being breaches which, by the time of the dismissal, had already caused Mrs Triggs to become ill and so impaired her earning capacity. Mr Clarke accepted that she might have a separate common law remedy in respect of the damage so caused (including her reduced income-earning capacity); and we were told that Mrs Triggs has issued a claim form for such a remedy. But it was not recoverable as compensation in an unfair dismissal claim before an employment tribunal.’
It wasn’t all bad for Mrs Triggs however as it was held that compensation in respect of such lost wages might be recoverable as damages in a personal injury claim brought in the ordinary civil courts. Of course were Mrs Triggs to bring such a claim, she would have to give credit in it for any compensation for lost earnings that she had earlier recovered in her unfair dismissal claim. http://www.bailii.org/ew/cases/EWCA/Civ/2008/17.html
Recommended Expert CV
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2) 'Pay in Lieu of Notice - Can an Employer Force an Employee to not Work his Notice?
This question was inadvertently put before the Court of Sessions in Scotland in the case of Morrish v NTL Group Ltd [2007], which considered whether a company could lawfully terminate its employee’s contract summarily by making a payment in lieu of notice (PILON) when no such clause existed in the contract. Mr Morrish had an express term in his contract entitling him to 12 month's written notice but no PILON provision.
However, he was dismissed by NTL without notice and was instead given a payment in lieu. Mr Morrish argued that he would have been entitled to a bonus and commission had he worked the 12 month notice period and brought a claim for breach of contract and loss of opportunity. NTL argued that it was not in breach because Mr Morrish’s contract included an implied term giving it the right to lawfully terminate his contract by making a payment in lieu of notice. The Scottish Court of Sessions was not prepared to accept NTL's argument as Mr Morrish’s contract already contained an express clause dealing with his notice period.
It commented that it had “strong reservations as to whether, in the 21st century, there is any scope for the implication of such a term”. It also referred to s86 of the Employment Rights Act 1996 which sets out minimum statutory notice periods of termination in employment contracts. Section 86 sets out statutory entitlement to employees for minimum periods of notice and the Court was reluctant to imply a term into the contract where a statutory term already existed. The Court referred to the decision of Lord Hoffmann in Johnson v Unisys Ltd [2003] 1 A.C. 518 who said: "Any terms which the courts imply into a contract must be consistent with the express terms.
Implied terms may supplement the express terms of the contract but cannot contradict them. Only Parliament may actually override what the parties have agreed." Failure by an employer to give the minimum notice required by ERA 1996 s.86 is a breach of contract and therefore amounts to wrongful dismissal (see ERA 1996 s.91(5). The period of loss ends at the time when the employer could have terminated the contract lawfully.
The result of the case highlights the importance of having an express PILON clause in the contract of employment. Without an express clause, employers will be open to a breach of contract claim by employees who have missed the opportunity to enjoy benefits or other payments during the notice period. Employers should also be aware that if an employee’s employment is terminated by a payment in lieu of notice, and no express provision exists in the contract, then there will have been a breach and therefore any post-termination restrictions contained within the contract will not normally be enforceable.
So how does a prudent employer protect itself? One answer is to include a term in the contract to place an employee on 'garden leave' during their notice period. This means that the employee is still employed but is normally required to stay away from the workplace during the period of leave, which is often the notice period to terminate the contract. As long as the clause is reasonable, there will be no breach of contract and therefore no right by the employee to claim additional damages. However, although there is a general right at common law to tell most employees not to turn up for work as long as they are paid, the courts have indicated a willingness to make an exception to the general rule and imply a duty to provide a reasonable amount of work in order that the employee maintains his or her particular skill set.
This implied term can be very relevant when considering the enforceability of garden leave if it would lead to a diminution in an employee's marketable skills. A garden leave clause will allow an employer to keep an employee away from the workplace whilst retaining an employees express and implied duties towards the employer, for example, not to set up in competition with the employers business and to maintain a duty of confidentiality, both during and after employment.
Employers should note that garden leave can only be invoked when there is an express provision in the contract as no such implied term exists. For most employers the effect of the decision in Marrish v NTL Group Limited [2007] will not cause too much concern except to ensure that a PILON clause includes compensation for car use and other benefits so as not to be unreasonable, and therefore unenforceable. However, with executive contracts, bonus entitlements may be affected and an employee could bring a claim based on failure to pay bonus or loss of entitlements.
There may be an adverse effect on accrual of pension rights (beyond the loss of premiums) if the notice period is sufficiently lengthy. Of most significance is that a breach of contract by the employer can nullify the enforcement of restrictive covenants rendering them inoperable. Employers should also note that an employee who is wrongfully dismissed does not have to give credit for sums earned from other employers during the notice period as established by Norton Tool Co. Ltd v Tewson [1972] and supported in the Court of Appeal recently in the case of Burlo v Langley [2007]. From a practical point of view, before putting an employee on garden leave, employers should consider the length of the notice period and the nature of the employees skills sets.
The longer the notice period and the more skilled the employee, the more likely it is that the employee could challenge the requirement to stay at home and 'garden'. Employers should also consider the tax position. The Revenue has indicated that where a PILON clause exists any payment under it to the employee is taxable, any payment in lieu of notice where there no such provision exists is effectively compensation for breach of contract which does not normally give rise as a taxable payment. Employers are therefore lawfully able to force their employers not to work their notice periods if express provision allows for it in the contract. If not, employers run the risk of a claim for damages for losses up to the point where they could have legitimately terminated the contract.