Employment Law Cases

Fentem v Outform EMEA Ltd

Where an employee resigns and the employer brings forward the termination date by exercising its right to make a contractual payment in lieu of notice, there is no dismissal.

Background

Mr Fentem worked for Outform (and various predecessors under a series of employment transfers) until he resigned giving the nine months’ notice required by his contract of employment. There was also a right under that contract for the employer to terminate the contract earlier by making a payment in lieu of notice (PILON) at any time during that notice period. A month before his employment was scheduled to end, the employer exercised its discretion to make a PILON bringing his employment to an immediate end. Mr Fentem subsequently tried to bring an unfair dismissal claim and a tribunal had to decide, as a preliminary issue, whether he had been dismissed as defined in s. 95 of the Employment Rights Act 1996.

It found that he had not been dismissed. The employer successfully argued, relying on the case of Marshall (Cambridge) Ltd v Hamblin [1994] IRLR 260, that where an employer had properly relied on a PILON clause, all that had changed was the date of termination and that was still by resignation. The fact that a dismissal is defined in s. 95(1)(a) as including where ‘the contract under which he is employed is terminated by the employer (whether with or without notice)’ does not, it was argued, apply to this kind of case.

Mr Fentem appealed. He accepted that the tribunal was right on what Hamblin said but he argued that the EAT shouldn’t follow it.

EAT decision

The appeal was dismissed. In order to depart from previous case law, the EAT would have to conclude that their decision in Hamblin had been ‘manifestly wrong’. This means that it can be seen to be obviously wrong, without the need for extensive or complicated argument.

Mr Fentem argued that the Hamblin decision was manifestly wrong – and that the EAT should depart from it. His termination was, he said, clearly within s. 95(1)(a) – he was employed under a contract and it was terminated by his employer. His termination resulted from a unilateral act of his employer, regardless of the fact that he had resigned or that a termination by the employer was allowed for under the employment contract.

The EAT was clearly troubled by the Hamblin decision, in particular its conclusion that, in the circumstances of that case, the employer was entitled to cause Mr Hamblin’s employment to end earlier, without that giving rise to either a breach of contract or to a dismissal. However, they concluded that although the reasoning in the decision itself was ‘problematic’, the proposition of law said to emerge from Hamblin could not be said to be obviously wrong, without needing any detailed consideration or analysis of the arguments or potentially relevant authorities. The EAT said:

‘I do not, ultimately, think that I can say that it is simply not reasonably arguable that a provision of the contract itself could provide, or have the legal effect, that, following a resignation, the employer can, without also needing the post-resignation agreement of the employee, cause the employment to end sooner than the date given by the employee, by making the employee a contractually-prescribed payment, by reference to the unexpired period of the employee’s notice, in a way that only alters how and when the resignation takes effect.’

As a result, the EAT in this case was bound by the Hamblin decision and so the appeal failed. Any resolution was now for the Court of Appeal.

Link to judgment: https://www.bailii.org/uk/cases/UKEAT/2022/36.html

Comment

The general proposition is that a resignation by an employee can only be amended by agreement – so it cannot be unilaterally withdrawn or changed: the employer has to agree. However, this case makes it clear that provided an employer has a payment in lieu of notice clause in the contract then it can unilaterally move the resignation date and it will remain a resignation. From a practical perspective, as the employee had already resigned, the compensation due would be a months’ pay, being the balance of the notice period, and a basic award. Neither of these are huge sums justifying a full-blown argument in the Court of Appeal - however permission to appeal has been granted. It will however be important if the employee is deprived of a bonus or share options because they were not in employment as at the payment/award date.