UK: Resignation - But Not As We Know It?

Last Updated: 9 March 2008
Article by Barry Mordsley

Originally published in In House Lawyer Magazine

It is generally known that a "heat of the moment" resignation is not a resignation, and that employers should allow a cooling off period before accepting it. A prudent employer might suggest that the employee raise the matter within the framework of the grievance procedure.

However, the situation is less clear when an individual opts to resign rather than be disciplined or dismissed.

The boundaries become even more blurred when the employee resigns with a pay off. This was the situation in Sandhu v Jan de Rijk Transport Limited [2007] EWCA Civ 430. The Court of Appeal overturned the Tribunal and Employment Appeal Tribunal's findings that the employee had resigned, and held that Mr Sandhu had been dismissed.

The facts were that Mr Sandhu had been called to a meeting, without knowing the reason for it. He was told at the beginning: "Your contract, we are going to finish it".

If Mr Sandhu had left at that point it is accepted that he would have been dismissed.

What actually transpired was that Mr Sandhu negotiated a severance package, which included him staying employed (on garden leave) for 4 months, retaining his company car for two months and his mobile phone. The company then wrote to him, and although little weight was attached to this letter, it did not actually record that Mr Sandhu had resigned, but that: "We hereby agree that we terminate your employment" at a date four months hence.

Delivering the judgment Lord Justice Wall reviewed the long line of authorities on this issue. It is settled law that if an employee is told "Resign or be dismissed" and resigns, it will be regarded by the Tribunal as a dismissal. The earliest case on this point was East Sussex County Council v Walker (1972) ITR 280.

If, however, an employee is told that it might be "in their best interests to resign" rather than be subject to disciplinary or performance proceedings, then the resignation will normally be effective and it will not be deemed to be a dismissal. The rationale is that the dismissal is not actually a foregone conclusion, although everyone suspects this would be the outcome. The employee makes a free choice. (Staffordshire County Council v Donovan [1981] IRLR 108)

What is more difficult is where the employee is invited to resign but only does so after negotiating a pay off. The first case on this point was Sheffield v Oxford Controls Company Limited [1979] IRLR 133 EAT. Arnold J, giving the decision of the EAT, said the question of causation provided the answer. If the employee is agreeing to the resignation because of the threat of dismissal then that is a dismissal. However, where terms of settlement emerge, the question of whether this is a dismissal or a resignation becomes harder to determine. At some point the dismissal is overtaken by the resignation and it becomes the employees free choice. Adopting Arnold J's causation test, the courts need to decide whether the resignation was prompted by the threat of dismissal or by the financial or other severance terms offered.

The other early case that the CA addressed in the Sandhu decision was Crowley v Ashland (UK) Chemicals Limited (unreported) EAT 20 April 1979.

In that case the employee was invited to leave on a voluntary basis. Crucially, the company did not give an absolute threat of dismissal but said "it is not a case of us dismissing [him] tomorrow as an alternative" to his resignation. Over the next 4 days a package was negotiated and Mr Crowley signed the resignation letter. This was held to be a resignation. Cases of Staffordshire County Council v Donovan [1991] IRLR 108, Logan Salton v Durham County Council [1989] IRLR 99 EAT, Jones v Mid Glamorgan County Council [1997] IRLR 685 all followed the Sheffield and Crowley line.

In the Sandhu matter the lower courts were satisfied that Mr Sandhu fell into the Sheffield / Crowley line of cases. They said his willingness to resign was as a result of the deal he had negotiated, not the threat of dismissal. The Court of Appeal disagreed. And in so doing it has carved out another possible line of argument.

The CA held that Mr Sandhu's situation was "wholly different from both" Sheffield and Crowley. It held that the "causation point" was the key. Mr Sandhu could not be regarded as negotiating freely, he had no warning of the purpose of the meeting, had had no advice and no time to reflect. The deal was done in that single meeting. The CA held that Mr Sandhu was trying to salvage the best he could from an irretrievable situation. He resigned because of the threat of dismissal, not because of the package he had negotiated. The CA also noted that the package Mr Sandhu had agreed was not generous.

Practical Tips

  • Encourage employee to lodge a grievance
  • Keep the prospect of dismissal open ended
  • Depending on the package enter into a compromise agreement
  • Allow the negotiations to extend over a period of days or weeks
  • Encourage the employee to take advice

Obtain a resignation letter with a statement that the employee has made the decision to resign on the basis of the package and has not been pressurised into the arrangement – ie it should not be a take it or leave it approach.

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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