UK: A Reason To Withhold Money?

Last week the High Court delivered its judgment in the case of Mr Williams v Leeds United Football Club. Mr Williams was given notice of termination of his employment by reason of redundancy in July 2013. At the time, the Club was actively looking for evidence to justify dismissing him (and others) without notice, as it had no intention of paying any further money. It had apparently engaged a forensic investigator to search its computer systems for such evidence, which it thought it found a day after Mr Williams was given notice. This was in the form of a pornographic e-mail that Mr Williams had sent to his friend, ex-footballer Dennis Wise, over 5 years earlier, in 2008, using the Club's e-mail system. The Club summoned Mr Williams to a disciplinary hearing and dismissed him with immediate effect a few days later for gross misconduct. Mr Williams sued the Club for wrongful dismissal, claiming loss of earnings for his 12 month notice period (based on an annual salary of £200,000 plus benefits).

The High Court found that the Club was justified in dismissing Mr Williams summarily, so he received no compensation for his lost notice period. Some might find this decision surprising, and these are some of the issues the Court had to consider:

1. Mr Wise was (allegedly) not offended by the e-mail, this was an apparent one-off, and Mr Williams had never seen the Club's e-mail policy prohibiting the circulation of offensive material. So how does this amount to gross misconduct?

A key twist here is that, during the course of the legal proceedings, the Club discovered that Mr Williams had in fact sent the e-mail to others beyond Mr Wise, including a junior female employee at the Club. This was a killer blow for Mr Williams. The Court refused to comment on whether the single e-mail to Mr Wise would have been sufficiently serious to amount to a breach of the implied contractual duty of trust and confidence, but the e-mail to a junior female employee put the matter beyond doubt. As for the fact that Mr Williams had never been told in writing not to circulate such material, the Court reminded the parties of a comment made in another case that applied here too: 'It did not make the conduct any less grave or gross because it had not been spelt out. Spelling out should not have been required to a person in the claimant's position'.

2. This is football. Isn't this sort of thing rife in football and would that make a difference to whether it is gross misconduct?

The Court acknowledged that one relevant factor in assessing the seriousness of a breach of contract is the nature of the business. The Club argued, and Mr Williams admitted, that it relied heavily on its reputation to secure and retain sponsors and supporters, and e-mails risked media interest if disseminated. The Club's youngest players and prospects also looked up to Mr Williams as an authority figure, being a member of senior management. The Court accepted these facts, as well as indicating that there was no way of getting around the fact that 'viewed objectively' Mr Williams's conduct was incompatible with his role as a senior manager. Mr Williams appeared to help the Club's defence further by admitting that that the imagery attached to his e-mails was not common in professional football at the time. If Mr Williams's evidence had been different, or he had not been a senior manager, perhaps the result might have been different too.

3. What about the fact that this all happened 5 years previously? Employers are often told to act quickly, as otherwise they risk losing the right to act at all.

This remains true. The distinguishing feature in this case was that the Court was satisfied that none of the individuals involved in dismissing Mr Williams were aware of his conduct from 5 years previously until after he had been given notice of dismissal. According to the Court, the fact the information was held on the employer's systems did not mean, in itself, that the employer had waived the employee's breach of contract. But remember, this was a High Court case for wrongful dismissal, not an Employment Tribunal case for unfair dismissal (for which different rules apply, and on which see more below).

4. What about the fact that the Club didn't know about the e-mail to the female employee until long after Mr Williams had been dismissed for gross misconduct? If only both e-mails together amounted to sufficient justification for his summary dismissal, why was Mr Williams unsuccessful in his claim? Employers are often told that it is only what they know at the time of dismissal that matters.

This is true for the statutory claim of unfair dismissal. An employer can defend a claim of unfair dismissal only by reference to what it knew at the time of the dismissal. Mr Williams was not claiming unfair dismissal in this case. He was claiming wrongful dismissal, meaning breach of his contractual notice period. Employers can defend wrongful dismissal claims relying on facts of which they become aware even after dismissal, as long as they existed at the time of dismissal. This was established in the Boston Deep Sea Fishing case in 1888.

There are a variety of reasons why Mr Williams might not have claimed unfair dismissal (in the Employment Tribunal) as well as (or instead of) a claim for wrongful dismissal (in the High Court). These might include him accepting that his original redundancy was valid, which would have affected how much he could claim for unfair dismissal, and the fact that unfair dismissal claims have a monetary cap which for high earners is relatively low. It is fair to say however, that an Employment Tribunal is likely to have been more critical of the Club in the context of a claim concerning the fairness of Mr Williams's dismissal than the High Court was in the context of determining simply whether that dismissal had been in breach of contract.

5. Why didn't it make a difference that the Club was actively looking for a reason to justify not making payment and had already decided not to honour Mr William's notice period in any event? Wasn't it acting in bad faith and in breach of contract itself?

As far as the Court was concerned this did not matter, because Mr Williams had breached the contract before the employer did (and the employer had not waived that breach).

6. Would the result have been the same if, instead of serving notice, the Club had originally paid Mr Williams in lieu of notice under a contractual right to do so when it decided to make him redundant? Could it have claimed that money back?

The result would not necessarily have been the same, and would depend upon the contract terms. A case in 2013 (Cavenagh v William Evans Ltd) confirmed that when an employer makes a payment in lieu of notice under a contractual right to do so, it is converting notice monies into a contractual debt. The Boston Deep Sea Fishing principle does not apply to contractual debt claims. This is perhaps a good reason for employers not to make hasty decisions to pay employees in lieu of notice to get them out of the door.

However, if they are not going to give notice or pay in lieu of notice they do need to be confident that the employee has actually done something that would justify summary dismissal. This is a higher test than the 'band of reasonable responses' test that operates in an unfair dismissal case.

7. What are the key lessons for employers to learn from this case?

  • Don't assume that if you discover that an employee has behaved badly, there is nothing you can do if you have already given notice of dismissal.
  • But if you have known about the bad behaviour for a while, don't assume you can escape your financial obligations easily.
  • If you are entering into a settlement agreement with an employee, the employee will be waiving most or all of his/her rights against you; be careful not to inadvertently waive your rights against him/her (at least without understanding exactly what you are giving up).
  • Think carefully before making a decision to pay in lieu of notice. If you have any concerns about handing over this money if the employee has a hidden secret, investigate first. Review the terms of any payment in lieu of notice clause before operating it.
  • Always consider what is generally acceptable in the workplace. Singling out one individual for bad behaviour when similar behaviour has been tolerated in others could cause problems.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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