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This case concerned an employee whose employment was terminated
with the employer exercising its contractual right to making a
payment in lieu of notice. Shortly afterwards, the employer
discovered breaches by the employee that would have entitled it to
dismiss the employee summarily. It sought to withhold payment in
lieu of notice.
The Court of Appeal held that even though the employees only
misconduct would have justified summary dismissal without payment
in lieu, the employer was not entitled to go back on its decision
to make payment. The exercise of the right to make payment in lieu
of notice created a debt and there was no provision in the contract
releasing the employer from its debt, and no principle of general
law that it could be released simply because the employer later
discovered something which could have been relied on to justify a
summary dismissal.
Comment The ruling could apply to commercial contracts such as
outsourcing or long term services agreements, where an agreed
payment can be made by the customer to terminate a contract early.
One way of dealing with the issue is to provide that the customer
has the right to set off damages for repudiatory breach against any
termination payments due.
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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The High Court and, most recently, Court of Appeal decisions in the "banker bonus" litigation stemming out of the Commerzbank/Dresdner merger in 2008 have received extensive media coverage.
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