Contract of employment providing for payment in lieu of statutory minimum period of notice – employee dismissed summarily in breach of contract – payment directly into employee’s bank account unaccompanied by any form of notice held not sufficient to constitute proper notice of termination.
The employee was employed in 2005 in terms of a written contract of employment with the following provisions:
Paragraph 13: “Your employment can be terminated on the expiry of 3 months’ written notice of termination given to you by to the company or by the company to you.;”
Paragraph 5.14: “The Company will, within 28 days after such termination of your employment, make a payment to you (the “termination payment”) as specified in paragraph 5.15.”
Paragraph 8.3: Termination by SG and payment in lieu of notice
“SG reserve the right to terminate your employment at any time with immediate effect by making a payment to you in lieu of notice (or, if notice has already been given, the balance of your notice period) based upon the value of your basic salary, flexible benefits allowance…”
A staggered bonus clause had the effect that termination before or after 31 December 2007 made a substantial difference to the value of the bonus.
The employer purported to dismiss the employee summarily on 29 November 2007 in breach of the provisions set out above: no written notice or payment in lieu of notice was made.
The employee was immediately escorted from the premises after clearing his desk.
On 18 December 2007, the employer paid a sum of money directly into the employee’s bank account amounting to 3 months’ salary in lieu of notice as required by clause 8.3.
The employee became aware of the payment, by his own admission, before 31 December 2007.
Throughout December 2007 and until a written notification from the employer on 4 January 2008, the employee contested the lawfulness of his dismissal.
On 4 January 2008 the employer formally advised the employee of his dismissal in writing.
A divided Court: Lords Hope Wilson, Carnwath and Baroness Hale of Richmond against Lord Sumption held that the summary dismissal was a repudiation which did not end the contract without acceptance by the injured party; that payment on its own on 18 December 2007 was insufficient notice, and the contract only came to an end on formal notification by the employer on 4 January 2008.
As set out above, this made a substantial financial difference to the parties.
Lord Sumption relied on Lord Reid’s dictum in White and Carter to the effect that in some circumstances, the injured party is obliged to accept repudiation and is confined to a claim for damages.
The majority saw the dispute as a contest between two rival approaches, in employment law specifically: does repudiation by either party automatically end the contract or does the injured party have an election? The rationale for the first alternative would be the fact that, generally, there is no specific performance in employment contracts.
Lord Sumption remarked: “Rarely can form have triumphed so completely over substance.”
The correct answer would appear to be that this case should be confined to its facts: the circumstances were such that the employee had no real choice in keeping the contract alive. On the exception in White and Carter, he should have been confined to damages and it should have been found that his contract terminated when he was escorted from the building with no prospect of return.
Put differently, this was not straight contest between two rival positions but the application of a general principle (albeit an exception) valid for all contracts. Compare Mediterranean Shipping v Cottonex Anstalt.
Baroness Hale’s judgment contains a useful discussion on the executory requirements of a termination mechanism. She quotes Lord Steyn in Mannai Investment Co Ltd as follows:
“Making due allowances for contextual differences, such notices [under a break clause in the lease] belong to the general class of unilateral notices served under contractual rights reserved, eg notices to quit, notices to determine licenses and notices to complete … To those examples may be added notices under charterparties, contracts of affreightment, and so forth. Even if such notices under contractual rights contained errors they may be valid if they are sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they were intended to operate … The test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice.”
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