Occasionally, employers will overlook an employee's breach of contract, for example, where the individual is highly valued or where the employer considers it too much effort to reprimand the culprit. In Cook v MSHK Limited and Ministry of Sound Recordings Limited, the courts examined the issue of an employer's failure to act at the time of the breach.
Cook was a senior employee of MSHK, a record label. His contract contained a 6 month notice period and posttermination restrictive covenants. Cook resigned in May having accepted a job at another label. In his resignation meeting Cook stated that the activities in his new role would not compete with MSHK. During Cook's notice period MSHK discovered that Cook had lied about his new role which did in fact compete with MSHK's activities. Cook went off sick with stress after being shouted at during a heated confrontation. MSHK tried to smooth things over with Cook in an attempt to avoid a constructive dismissal claim and Cook returned to work in July. Disciplinary proceedings were then commenced on a number of grounds, including the fact that Cook had lied about the competitive nature of his new employment. Cook was summarily dismissed on 3 August. MSHK then made an application for a declaration of the lawfulness of Cook's dismissal to demonstrate that Cook was still bound by his restrictive covenants.
The Court of Appeal held that Cook's dismissal could not be justified on the ground of dishonesty as MSHK had affirmed Cook's contract by its conduct between the time it realised Cook had been dishonest and the time it took to call Cook to a disciplinary hearing. MSHK's conduct in meeting Cook to discuss returning to work after it had knowledge of Cook's dishonesty (essentially offering him an olive branch), paying him full salary without any reservation of its rights all affirmed Cook's breach of contract. MSHK's actions in trying to 'smooth things over' and prevent a constructive dismissal claim from Cook went too far resulting in the affirmation of Cook's contract.
It goes without saying that if you discover that an employee has breached a term of their contract you should act as quickly as possible to limit the risk of waiving your rights to take any action. If there is going to be a delay in taking formal action because, for example, you are attempting to resolve matters on a without prejudice basis, then it is prudent to "openly" reserve your right to take further formal action at some point in the not too distant future.