In Brown and others v Neon Management Services Ltd and another [2018] EWHC 2137, the High Court found that, while the act of giving and working a substantial period of notice amounted to an affirmation of the employment contract, subsequent breaches by the employer amounted to a fundamental breach, which allowed the employees to resign with immediate effect and released them from their restrictive covenants.
Facts
The three claimants, who worked in insurance/underwriting in the financial market, had lengthy notice periods of between six and 12 months. All three initially resigned with notice following breaches of their contracts of employment by Neon Management Services Ltd (Neon). However, following further breaches, the first two claimants resigned with immediate effect part-way through their notice periods. The breaches by Neon included refusing to pay the claimants the pay rises it had awarded them, the discretionary bonuses it had declared for them, and a profit commission that had been agreed.
Neon had tried to make the payments conditional on the claimants’ acceptance of new contracts of employment on less favourable terms, which included their agreement to forego their commission entirely.
Neon committed further fundamental breaches of contract during the notice periods, including taking disciplinary action against the claimants for misconduct (which was found to be entirely unjustified), alleging loss of trust and confidence in the claimants and reporting the claimants to the relevant regulator. The first two claimants sought damages for wrongful dismissal and declarations that Neon was in repudiatory breach of contract. The third claimant continued to serve out her notice period and brought an action for breach of contract.
High Court decision
The High Court found that where a notice period is for a substantial amount of time (ie six months or more), giving and working notice will amount to an affirmation of the contract. However, here, there were further breaches during the notice period that prompted the first and second claimants to resign with immediate effect. The High Court also found that Neon's conduct in making unjustified misconduct findings, reporting the employees to a regulator without reasonable grounds and making allegations about breaches of trust and confidence without allowing the employees to respond to such allegations could amount to a repudiatory breach of contract.
Neon was found to have acted unlawfully and each of its failures to pay was a repudiatory breach of contract. The first and second claimants had further been wrongfully dismissed by Neon's numerous unsubstantiated findings of wrongdoing against them, without any investigation. As a result, the High Court declared that the first and second claimants were no longer bound by the post-termination restraints contained in their contracts of employment.
Comment
Employers should be aware that, if an employee gives notice under a lengthy notice period, claiming that they have resigned as a result of a breach of contract by the employer, they may have affirmed that breach. However, should further acts amounting to a breach of contract be committed during the notice period, the employees may then resign without notice, which would mean the contracts had not been affirmed.
For employees, this case highlights the need for serious consideration, where lengthy notice periods are involved, of whether resignation should be on notice or with immediate effect.
It also highlights to employers that committing a fundamental breach of contract will repudiate the contract, which means that any restrictive covenants contained in the contract will fall away and cannot be enforced.
