Our thoughts on the world of employment law - and beyond.

Holding an employee to notice and keeping the contract alive

Is it possible for an employer to hold an employee to his/her notice in the event that they leave without giving proper notice, whilst at the same time not paying them because of their failure to work?

Last week the High Court confirmed that it is, in certain circumstances and to a certain extent. It issued an injunction requiring an employee to obey certain terms of his contract of employment for a period of time (albeit shorter than his notice period would have been) by not working for any competitor firm and not contacting his employer’s clients.

Mr Rodgers was a derivatives broker who was employed by Sunrise Brokers and helped set up its Precious Metals Desk. By 2014, Mr Rodgers had become disenchanted with life at Sunrise. Whilst on a trip to see the Denver Broncos play the Seattle Seahawks in the 2014 Super Bowl, at the invitation of a Sunrise client and paid for by Sunrise, Mr Rodgers was introduced to the CEO of another company, OTC Holdings. Just over one month later, Mr Rodgers had signed an employment contract with a subsidiary company of OTC, EOX Holdings, to start work on 1 January 2015, despite the fact that his contract with Sunrise contained a 12 month notice provision which could only be exercised by him after 22 September 2014.

In April 2014 Mr Rodgers told Sunrise that he was leaving and that he wanted to go immediately. He was told to return to work and not to make any decision until the director with responsibility for Mr Rodgers’ area was back in the office, but instead Mr Rodgers left and never returned (save for one meeting with Sunrise’s General Counsel). Later that month, Sunrise stopped paying him. Mr Rodgers was instructed to return and told that he would be paid if he did so.

The High Court’s decision to grant an injunction against Mr Rodgers is based on the important principle that a material breach of contract does not bring the contract to an end automatically: an innocent party can elect not to accept the breach and instead to affirm the contract if there is good reason to do so. Crucially in this case, Sunrise made it clear in correspondence with Mr Rodgers and his lawyers that Sunrise did not accept his resignation and that he therefore remained in employment. They had good reason to do so (the protection of their business). They also made it clear that his failure to attend work was a breach of contract; that they reserved their rights in relation to that, but that for so long as he refused to work they would not be paying him.

This principle [that it is for the innocent party to elect whether to accept a breach] applies whether the breach is by employer or employee. In a Supreme Court case in 2012 [Societe Generale, London Branch v Geys], it was the employer (Soc Gen) that purported to terminate the contract in breach and the employee (Mr Geys) that refused to accept the breach and instead treated the employment contract as continuing.

Some conclusions:

  1. An employer does not have to accept a summary resignation by an employee as bringing the contract to an end: it can elect to keep the contract alive. There may be good reasons why an employer would wish to keep the contract alive, for example to protect its business from an employee who intends to work for a competitor.
  2. Likewise, an employee does not have to accept a wrongful dismissal by his/her employer: he/she can also elect to keep the contract alive. There may be reasons why an employee would wish to do that, such as to remain in employment until a critical date (such as a bonus payment date).
  3. An employer can, in similar circumstances to those in Rodgers v Sunrise, elect to keep the contract alive whilst at the same time choosing not to pay an employee who refuses to work – no work, no pay – although ideally there would be an express provision in the contract supporting this principle.
  4. If the innocent party (whether employer or employee) wishes to keep the contract alive, it is critical that they make clear to the other that they do not accept the breach and that they do not inadvertently do or say something that would amount to an acceptance of the breach. They should also reserve their rights.
  5. Employers and employees should look carefully at the termination provisions of a draft contract before signing it and consider whether it gives them the flexibility/protection that may be needed.
  6. Injunctions are discretionary remedies that will only be granted where damages alone would be an inadequate remedy, and a court will not – indeed cannot – grant an injunction that would compel the parties to work together.

Sunrise Brokers LLP v Rodgers [2014] EWHC 2633 (QB) (29 July 2014)

Societe Generale, London Branch v Geys [2012] UKSC 63 (19 December 2012)

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