The High Court in Brown & Anor v Neon Management Ltd & Anor has ruled that employees working a notice period of six months or more could result in them affirming the contract and waiving the employer’s repudiatory breach, although in this case the claimants had not done so as the employer committed further breaches in their notice periods.
The three claimants worked under contracts of employment which provided for their profit commission to be ring-fenced and based on actual rather than estimated losses, as their employer was a loss-making syndicate. The claimants had negotiated these terms carefully to ensure they received meaningful bonuses. Their employer subsequently issued new employment contracts, removing the profit commission scheme and replacing it with a discretionary bonus, and introducing other less favourable terms. Further, the profit commission due to be paid had been calculated on the basis of an estimated loss and therefore fell a long way short of what it should have been. The employers refused to pay the claimants a discretionary bonus or pay rise until they signed the new contracts.
The claimants resigned on notice in response to this. Their notice periods were six and twelve months respectively, and during this time the employer made allegations that the claimants had committed acts of misconduct, and reported them to their regulator. They also alleged a breakdown in the relationship of trust and confidence. Two of the claimants subsequently resigned with immediate effect as a result. They sought damages for wrongful dismissal and declarations that their employer was in repudiatory breach of contract, and that their post-termination restrictions should fall away. The third claimant served her notice and only claimed breach of contract.
The High Court had to determine whether the employer was in repudiatory breach of the claimants’ contracts, and if so whether the claimants had accepted that breach. It found that Neon’s initial conduct did amount to a repudiatory breach, but by resigning and working their notice, the claimants would have affirmed their contracts. Justice Choudhury emphasised that employees “must not leave it too long” before they resign as this risks amounting to affirmation - even though they had reserved their rights, they were still working. He went on to say it would be “unconscionable” to be able to end a repudiated contract that long after the event unless there were any further breaches of contract. The crucial factor for the claimants was that Neon had committed further breaches, by not paying the pay rises or discretionary bonuses, making findings of misconduct without proper basis or investigation, raising unspecified concerns with the claimants’ regulator without notifying the claimants and telling the claimants that they had lost trust and confidence in them. The High Court ruled the acts each amounted to a repudiatory breach, or if there was dispute as to this, then they also cumulatively amounted to “repudiatory conduct.” As a result, the claimants were entitled to resign with immediate effect and were found to have been wrongfully dismissed.
The claimants’ post-termination restrictions also fell away as a result of the employer’s unlawful termination of the contract.
Alex Payton comments:
“This decision makes sense as working a long notice period of six months or more is not consistent with an employee arguing that their employer has committed a breach of contract so serious that the employee is entitled to bring the employment contract to an end. Indeed, working any notice creates a real risk for an employee that they are deemed to have affirmed the contract. This may also apply in “constructive dismissal” although in that case, the legislation does allow for an employee to resign on notice and still pursue a constructive unfair dismissal claim. If you would like any further advice, please get in touch with a member of the team.”
