REUTERS | David W Cerny

Contract law and terminating employment

What is it about contract law, that when a case like Geys comes long, people are left wondering why a seemingly fundamental point has either never been challenged before or else has lain dormant for so long? Is it possible that the label ‘freedom of contract’ acts as a kind of dead weight, deterring employment lawyers from making novel arguments, whereas, for example, discrimination law lends itself to and positively invites ingenious and creative argument (the results of which can be seen in judgments like Chez, for example, where the end point is exotically far from the starting point)?

Take the contractual right, commonly reserved by employers, to terminate the contract with immediate effect if certain events occur, such as loss of professional qualification, driving licence or being disqualified as a director (or terminations with immediate effect for matters which are not gross misconduct). These are often specified as events which entitle the employer to terminate the contract with immediate effect, without entitlement to notice or payment in lieu. Sometimes they are drafted as a condition to underline that, since breach of a condition constitutes a repudiatory breach of contract, the employer is entitled to treat the contract as at an immediate end. The employer gets to walk away, with peace of mind, having brought the contract to an end lawfully and with no further obligations to perform.

But is what the contract states, in a clause of this nature, the end of the story? What about the effect of section 86 of the Employment Rights Act 1996 , in particular the subsection which provides that the right to statutory minimum notice cannot be avoided or modified by a term of the contract? For the avoidance of doubt, it is made clear that this does not affect the employer’s right to terminate with immediate effect where the employee is guilty of repudiatory conduct. So the employer will of course be able to terminate with immediate effect for matters which we commonly recognise as gross misconduct. But repudiatory conduct is not necessarily the same as a repudiatory breach (as per the common express provision). The difference between the two concepts, and the difficulties this might give rise to, does not appear to have been explored in case law. Which is surprising, since as we saw from Geys, a lot can turn on whether an employer has terminated the contract lawfully.

What’s more, if an employer has not terminated the contract in accordance with section 86, an employee’s remedy will lie for breach of contract, not breach of statute. This means, ironically, that in relying on an express contractual right to effect a summary dismissal, the employer may be inadvertently acting in ‘technical’ breach of contract (by ignoring section 86). Which is just the opposite of what you would expect from a clause which is designed to give you peace of mind.

No doubt this sounds ‘far-fetched’ and ‘unlikely to arise in practice’, perhaps because few employees (often senior executives) would care to quibble about statutory notice in the context of a six-figure negotiated settlement or a situation in which they may not have the moral high ground. But then who would have thought that Mr Geys would stand to recover millions in damages for a lack of simultaneity in notifying him of what was so obviously happening to him? Perhaps law is stranger than fiction and it is the lawyer’s job to find something credible in the ludicrous. After all, a snail in a bottle led to a whole new branch of law.

Practical Law Employment Shireen Shaikh

One thought on “Contract law and terminating employment

  1. Maybe repudiatory conduct doesn’t need to be accepted by the employer and so they can rely on this whether they acceoted the breach or not?

Leave a Reply

Your email address will not be published. Required fields are marked *