Case Law Update: Resignation & Termination

The Employment Appeal Tribunal was asked to consider whether or not the claimant was dismissed by the respondents’ actions in terminating his employment early during his notice period, which he was serving as a result of his resignation.

If you want a quick summary of the case and the main takeaway points, you can skip ahead to our Too Long; Didn't Read section here.

Law relevant to this case

Section 95 Circumstances in which an employee is dismissed Employment Rights Act (ERA) 1996

(1) For the purposes of this Part an employee is dismissed by his employer if (and, subject to subsection

(a)the contract under which he is employed is terminated by the employer (whether with or without notice),

(b)he is employed under a limited-term contract and that contract terminates by virtue of the limiting event without being renewed under the same contract, or

(c)the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct.

(2)An employee shall be taken to be dismissed by his employer for the purposes of this Part if—

(a)the employer gives notice to the employee to terminate his contract of employment, and

(b)at a time within the period of that notice the employee gives notice to the employer to terminate the contract of employment on a date earlier than the date on which the employer’s notice is due to expire; and the reason for the dismissal is to be taken to be the reason for which the employer’s notice is given.

Also relevant to this case is Marshall (Cambridge) Ltd v Hamblin

In this case Mr Hamblin, a car salesman, was paid a basic wage plus commission for cars which he sold. The commission could amount to 75% of his wages. In November 1990 he gave three months’ notice of his resignation. The employers decided to pay his wages for that period and refuse to allow him to continue working. He claimed unfair dismissal. His claim succeeded in the employment tribunal. The employers appealed, and the EAT ruled that where a contract of employment gave an employer the right to pay wages in lieu of notice, the employee had no right to work out his notice. The question of loss of commission did not affect this rule. There had been no dismissal: Mr Hamblin had expressly resigned.

 

 

Fentem v Outform EMEA Ltd

Facts

An employee resigned from their position in April 2019. They had nine months’ notice. This meant his employment was due to end in January 2020. However, in December 2019 the employer invoked a payment in lieu of notice (PILON) clause in his contract. This allowed the company to:

“Terminate the employee’s employment forthwith.”.

The claimant’s salary was paid in full (excluding bonuses) to what would have been the end of his employment.

Following this, the claimant brought an unfair dismissal claim.

What the Employment Tribunal (ET) found

Firstly, the ET had to determine whether a dismissal had actually taken place. They relied on the case Marshall (Cambridge) Ltd v Hamblin. The ET held that by invoking this clause, it was not a dismissal in law.

In invoking the PILON clause, all that was changed was date of termination. This action did not have the effect of turning the resignation into a dismissal. As a result, it was decided that no dismissal had taken place. This is despite the wording of section 95 ERA, which states:

“The contract under which he is employed is terminated by the employer (whether with or without notice.”

This was appealed.

Employment Appeal Tribunal (EAT)

Whilst the claimant accepted the ETs reliance on Marshall, he argued it should not be followed. This would effectively mean that the EAT would be declaring their own decision ‘manifestly wrong’. In other words, it was plain to see that it was obviously wrong, without the need for an extensive explanation as to why.

The claimant based his argument on the wording of section 95 ERA. He claimed his dismissal clearly fell within this section. He had been employed under a contract, and that contract was terminated, as a result of a unilateral act by his employer. This was regardless of the fact that he had resigned 8 months previously.

In dismissing the appeal, the EAT clearly showed some discomfort with the decision in Marshall (Cambridge) Ltd v Hamblin. They particularly took issue with the fact that employers can cause employment to end earlier than intended without a breach of contract or dismissal. However, it could not be said to be ‘obviously wrong’ without a detailed analysis of the matter. Therefore, it was still binding on the EAT in this case.

 

Note for employers

This case offers reassurance to employers hoping to exit employees from the organisation earlier than the employee had intended. Of course, there must be a suitable PILON clause in place. This will be of particular use in situations where an exiting employee becomes ‘troublesome’ toward the end of their notice.

The wording of the PILON clause is particularly important, however. There is still a risk of a breach of contract in certain circumstances. For example, if the employee misses out on benefits or bonuses they would’ve received. That’s why you should take extra care how the PILON is worded.

TL;DR

An employee resigned. Their employer terminated their employment a month early. They paid the employee what would’ve been a full salary to the end of their employment. He claimed unfair dismissal.

The ET relied on previous case law to declare that the resignation wasn’t a dismissal. This was despite the fact the employer ultimately terminated the claimant’s contract. The employee appealed this decision.

The EAT found that the reliance on previous case law was flawed. However, they couldn’t dismiss a previous ruling without detailed analysis. Therefore, the original ET ruling held. The employee resigned, and wasn’t dismissed.

Support with unfair dismissal and PILON

Terminating a contract always carries some risk. So, it pays to have the assistance of employment law experts when you dismiss someone. Our team is made up of solicitors and legal advisors ready to support you immediately.

For advice on PILON and termination of contract, speak to one of our consultants today on 01455 858 132.