Resigning on notice may amount to affirmation

Brown, Bhoma and O’Reilly v Neon Management Ltd

When an employee resigns and claims wrongful dismissal (not constructive dismissal), but does so on notice, where there is a lengthy notice period, they have affirmed the contract and so lost the ability to claim wrongful dismissal. However, if further breaches occur after affirmation, they are entitled to count the earlier affirmed breaches and claim that cumulatively they have caused the employee to resign without notice. Their restrictive covenants also do not apply.

Background

Mr Brown and two colleagues alleged that their employer breached their contracts of employment by, amongst other things, failing to pay salary increases and discretionary bonuses that had been awarded to them, making the salary increases and bonuses conditional upon acceptance of detrimental new contractual terms and the removal of profit commission agreed at the time of their recruitment. They argued that those breaches individually and cumulatively amounted to a repudiatory breach of contract entitling them to resign. They resigned on 16 March 2018. Those resignations were on notice (6 and 12 months respectively). Thereafter, they argued that their employer committed further repudiatory breaches of contract by, amongst other things:

  • failing to pay the agreed salary increases and bonuses
  • failing to pay profit commission and/or calculating it on a basis that was contrary to that which was agreed
  • making unjustified findings of misconduct on their part without investigation including sending emails to private accounts
  • not being in the office when they were supposed to be, not performing their duties, telling them they had lost trust and confidence and that they had been unprofessional, and
  • raising unspecified concerns with their regulator Lloyds

Mr Brown and one other colleague accepted that alleged repudiation by resigning with immediate effect on 1 May 2018. The third employee worked out her notice. Their High Court claim was for damages and in respect of the two who resigned on 1 May, declarations that they were wrongfully dismissed, with the effect that their contractual post-termination restrictions could not be enforced by their employer.

High Court judgment

All three employees succeeded in their claim for breach of contract in respect of pay and bonuses. Mr Brown and his colleague who had resigned on 1 May 2018 were also successful in their claims of wrongful dismissal and that their post-termination restrictions no longer applied. Their colleague who resigned on notice (and indeed was still working out that notice at the time of the hearing) did not claim wrongful dismissal but nevertheless recovered damages for breach of contract in relation to the pay and commission. In the course of a long judgment, the High Court made the following three important findings.

In relation to withholding the discretionary bonus payment, the employer sought to rely on the following clause as disentitling the employees to the bonus because they gave notice on 16 March before the payment date of 23 March:

You shall not be entitled to receive a bonus if on the date that the bonus is due to be paid you are no longer employed (for whatever reason and howsoever caused and whether the termination of the employment was in breach of contract or otherwise) by [employer] or any group company or you are under notice of termination of employment (whether such notice is given by you or [employer]) or on garden leave, or subject to a disciplinary investigation, or suspended pursuant to the terms of this agreement.

The clause did not say that bonus may be withheld when notice is given ‘for whatever reason and howsoever caused and whether [because of] a breach of contract or otherwise’. Instead, the clause provides that the bonus will not be payable ‘whether such notice is given by you or [employer]’. So, on a proper construction, the employees would not be disentitled from receiving their declared bonus awards in March 2018 if notice was given in circumstances where the employer was in fundamental breach of contract.

In relation to whether, by resigning on notice, Mr Brown and his colleagues had effectively affirmed their contracts by initially resigning on notice, it is well-established that in the face of a repudiatory breach of contract the employee must not leave it too long before resigning otherwise he will be taken to have affirmed. However, here there were further breaches of contract entitling them to resign as a result of their employer’s conduct, and two of them acted promptly in so doing (on 1 May). They relied in this respect on the Court of Appeal’s judgment in Kaur v Leeds Teaching Hospitals NHS Trust which held that even where breaches have been affirmed, they can still count towards a later ‘cumulative’ claim of a series of breaches ending in a final straw.

In relation to whether the employer’s conduct had breached the employees’ contracts, the High Court held that the employer had unjustifiably and without reasonable foundation concluded that Mr Brown and his colleagues had been guilty of ‘misconduct’ – comprising a breach of unspecified contractual obligations/misuse of IT systems/breach of confidentiality/general unprofessionalism. In light of this, the employer had reported them to the regulator, told them it had lost trust and confidence in them and not given them an opportunity to explain their actions. The High Court held that the combination of making unwarranted findings (as opposed to raising allegations), reporting their conduct to the regulator without proper foundation, and stating that they had lost trust and confidence in them, amounted to a repudiation of their contracts of employment. Because of this, the employer could not enforce the post-termination restrictions.

Link to judgment: https://www.bailii.org/ew/cases/EWHC/QB/2018/2137.html

Comment

This was a case of wrongful dismissal and not constructive dismissal and it is important to remember that in constructive dismissal an employee is entitled, by s .95(1)(c) of the Employment Rights Act 1996 to resign on notice. However, if the employee gives longer notice than they are obliged to or does something else to affirm the contract, they might lose the right to claim constructive dismissal. Also, resigning on notice does not invalidate restrictive covenants.

This case is an important reminder of the dangers of resigning on notice if the employee wants to bring a common law claim of wrongful dismissal (payment for their notice period). Here, although the three employees resigned in March, they were all held to have affirmed their contracts by resigning on long notice periods and lost the right to bring a claim of wrongful dismissal.

However, because there were subsequent breaches of contract which, when added to the earlier ones, amounted to repudiatory breach of contract, the two employees who resigned without notice in May, could still pursue claims for wrongful dismissal and also claim that their restrictive covenants no longer applied because of their employer’s breach. The third employee, although successful in her claim for breach of contract for unpaid pay rises and bonus, sensibly did not claim wrongful dismissal or that her restrictions no longer applied.