The Court of Appeal has held that an employee who had his
employment terminated on the basis that he would receive a payment
in lieu of notice remained entitled to the payment, even though his
employer had later discovered his gross misconduct was sufficient
to warrant summary dismissal.
Having confirmed that it would make a payment in lieu of notice,
the employer subsequently discovered Mr Cavenagh's gross
misconduct and decided not to honour its agreement to pay him in
lieu, arguing that it was discharged from its obligation to do so
in light of the misconduct that had been discovered.
The County Court dismissed Mr Cavenagh's claim for recovery of
his notice pay as a debt. It did so on the basis that the prior
gross misconduct gave the company a complete defence to the
The Court of Appeal overturned the County Court's decision and
held that the company owed the notice pay as a debt. Having
considered earlier decisions relevant to the issues, the Court held
that there was no authority that after-discovered misconduct
provides an employer with a defence to an action for payment of a
debt. Neither was there any contract law principle which
precluded Mr Cavenagh from recovering the debt owed to him.
This decision is a helpful warning to employers that, in the
absence of careful drafting, PILON clauses may entitle employees to
an unjust reward.
Employers should consider amending PILON clauses so that they
provide that the obligation to make a PILON will not apply where
facts come to light before payment which, had they been know
beforehand, would have entitled the employer to dismiss without
In an earlier Court of Appeal decision in Boston Deep Sea
Fishing v Ansel, it was held that an employer could justify an
otherwise wrongful summary dismissal by reliance on facts not known
at the time it dismissed an employee. The court in this case
rejected the argument that this meant an employer could rely on
information discovered after a lawful termination in order to avoid
payment of an accrued debt.
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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