#15484 - Wrongful Dismissal - Employment Law

Wrongful Dismissal

Termination

• Not every termination is a dismissal

• Statutory dismissals (s.95 Employment Rights Act 1996):

  1. Termination by employer with/without notice

  2. Termination of a fixed term contract without renewal on the same terms

  3. Constructive dismissal

1. Mutual agreement

   • Not a dismissal for either statutory or contractual purposes

   • If threat of dismissal was the reason - then there is no genuine choice and there will have been a dismissal

2. Genuine resignation

   • Not a dismissal for either statutory or contractual purposes

   • If threat of dismissal was the reason - then there is no genuine choice and there will have been a dismissal

   • What if invited to resign but only does so once negotiated a pay off?

     • Sheffield v Oxford Controls: court should consider the causation, whether it was the threat or other motivations

   • s.86 ERA 1996: employee must give one week's notice (contract can require more than any SNP) - less notice = breach of contract enforceable by employer (rarely enforced)

3. Dismissal on notice by the employer

   • This is dismissal for both statutory and contractual purposes

   • Notice periods:

     • s.86 ERA 1996

     • Employee is entitled to the greater of the contractual notice or the SMN.

       • Continuously employed for more than one month but less than two years: SMN = one week

       • Continuously employed for two years or more but less than 12 years: SMN = one for each complete year of employment week

       • Continuously employed for 12 years or more: SMN = capped at 12 weeks

     • Unless, employer pays in lieu of notice.

       • Clause should specify exactly how the payment will be calculated and whether includes bonus, commission, holidays, or basic salary.

       • Société Générale, London Branch v Geys: employer should ensure any PILON is unambiguous.

       • If this procedure is followed there can be no compensation for wrongful dismissal.

       • NB. Mandatory PILON ('will') or discretionary PILON ('may')

         • Under discretionary, employee is under a duty to mitigate their loss.

   • Wrongful dismissal = any restrictive covenants are unlikely to be enforceable (General Billposting)

PILON clauses

• If employer terminates without PILON - should negotiate a settlement agreement (this will be considered genuine compensation for loss of office)

• Termination in breach = restrictive covenants will be unenforceable.

  • If covenants are restated in a settlement agreement, additional consideration must be paid to make them enforceable.

4. Summary dismissal (without notice or PILON)

   • This is dismissal for both statutory and contractual purposes.

   • Employer only entitled where employee commits serious breach of contract that goes to the root of the contract.

5. Constructive dismissal

   • This is dismissal for both statutory and contractual purposes.

   • s.95(1)(c) ERA 1996 = employee who resigns in circumstances such that he is entitled to terminate his contract without notice by reason of the employer's conduct is treated as having been dismissed.

     • Employer's conduct must be a fundamental/repudiatory breach of contract.

   • Were the employer’s actions significant or serious enough to amount to a repudiatory breach of contract? (Note the breach must strike at the root of the contract)

   • Was the resignation a direct consequence of the employer’s breach?

     • Wright v North Ayrshire Council: it is sufficient that the repudiatory breach "played a part in the dismissal" (Nottingham County Council v Meikle)

       • Compensation may be reduced where there are also other reasons.

   • Did the employee act promptly and resign, or has the employee ‘affirmed the contract’ by continuing to work, and effectively waived his right to claim constructive dismissal?

     • Chindove v Morrisons Supermarkets plc: claim does not depend on when the employee resigned --> focus is on employee's conduct in the period leading up to resignation.

Constructive dismissal is not a cause of action in itself.

6. Expiration of fixed term contracts

   • End date must be predictable when the contract is made.

     • s.1(2) Fixed-term Regulations 2002: a contract which will terminate on:

       • Specific date/after a specified period

       • Completion of a particular task

       • Occurrence or non-occurrence of a specific event

   • Expiry of a fixed term without renewal is:

     • Dismissal for statutory purposes

     • Not a dismissal for common law purposes

   • i.e. can be used for an unfair dismissal claim but not a wrongful dismissal claim.

   • Fixed term contracts can have notice clauses.

     • If the contract does not contain a notice provision, damages for breaching that contract will run to the end of the fixed term.

   • Protection under Regulations:

     • Right to be treated no less favourably than a comparable permanent employee;

     • Right to information about any permanent vacancies;

     • Right to statutory minimum notice for short-term contracts of three months or less.

     • Employees who have been employed under a series of fixed-term contracts for four years or more will automatically become permanent employees unless continuing the fixed-term contract can be objectively justified.

7. Frustration (unforeseen circumstances)

   • Contract impossible to perform/performance would be radically different.

     • E.g. death, sickness, imprisonment.

   • Contract terminates by operation of law.

   • Not a dismissal for unfair dismissal or contractual purposes

   • BUT if frustrating event relating to employer, does constitute a dismissal for statutory redundancy payment purposes (s.136(5) ERA 1996)

Wrongful Dismissal (dismissal in breach of employment contract - e.g. insufficient notice)

• Damages to place the employee in the position they would have been in had the contract been performed (for net loss)

• Bonus - contractual or discretionary?

  • Clark v Nomura International plc (2000): bonus scheme “not guaranteed in any way”.

    • Was still employed at the time the bonus payment was due

    • Held: employer will breach the contract of employment if it exercises its discretion in a way that no reasonable employer would.

      • Decision to award nil bonus to an employee who earned substantial profits for the company was irrational and did not comply with terms of employer's discretion.

      • Had employer complied, it would have paid Clark 1.35 million.

  • Horkulak v Cantor Fitzgerald International [2005]:

    • Resigned with two years left to run on a fixed term contract.

    • Successfully claimed wrongful and unfair dismissal

    • Court of Appeal approved the decision in Clark v Nomura.

    • Employee entitled to "bona fide and rational" exercise of discretion.

• Mitigation

  • Mandatory PILON = debt claim (no duty to mitigate)

  • No PILON/discretionary PILON = damages claim (duty to mitigate applies)

    • Losses can stop at the point of starting a new job OR

    • Court awards discretionary damages where new job is not as well paid.

  • Cooper Contracting Ltd v Lindsey [2015]: burden of proof is on the employer to show that the claimant acted unreasonably by failing to mitigate

• Accelerated receipt

  • Usually only arises in cases of very long-term (years rather than months) notice periods or remainders of fixed-term contracts.

  • “Deduction for accelerated receipt” made from damages to reflect the fact that the employee receive damages in one lump sum.

  • Typically 5% reduction (suggestion it should be 2%)

• Loss of reputation

  • Malik and Mahmud v BCCI: successfully sued for damage to reputation & employment prospects as a result of association with a dishonest and corrupt employer.

  • Brown v Baxter: stigma damages will only be awarded where the employee's difficulty in finding new employment is attributable to the dismissal.

• Tax treatment

  • Full notice/garden leave = payment treated as ordinary income

  • Payment for other contractual promise = subject to income tax in full

• Genuine compensation for loss of office = 30,000 tax free exemption

  • Pay income tax on any amount above 30,000 (double taxation ET will gross up damages to compensate)

  • E.g. X = 32,000 x100/60 --> i.e. X = 53,333

• PILON = depends whether contractual OR genuine payment for loss of office

  • Amount substantially the same as if no PILON had been made? (income)

  • Amount looks more like damages for breach? (30,000 exemption)

• Habitual payment in lieu of notice = autoPILON

• Government proposed legislation (April 2018):

  • Make all PILONs taxable.

  • Require payment of NI on sums over 30,000

  • Ensuring personal injury payments are subject to tax.

• Possible to have a claim for wrongful dismissal AND unfair dismissal (e.g. unfairly dismissed without proper notice)

  • In such a case:...