Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373

Why care?

The Supreme Court in Société Générale, London Branch v Geys [2012] UKSC 63 held that when either party to an employment contract commits a repudiatory breach of contract, the wronged party has a choice whether or not to accept that breach. If they do, this brings the contract to an end. In this case, the employer did not accept the employee's resignation in breach of contract. When the employee nevertheless stopped attending work, could the employer lawfully stop paying him?

As a matter of policy, courts will not usually order specific performance of an employment contract, so the Court of Appeal also considered whether an employee not receiving payment of salary when an injunction had been granted would in effect be compelled to go back to work for his employer.

The case

R's contract of employment was signed on 22 September 2011 for an initial term of three years from that date, thereafter to be terminable on 12 months' written notice from him. This contract contained garden leave and post-termination restrictive covenants, and an obligation to tell Sunrise if he was offered another job.

On 5 March 2014, R signed an employment agreement with EOX Holdings Limited, one of Sunrise's competitors, under which he would start employment in New York with an EOX subsidiary on 1 January 2015. On 27 March, he told one of the directors of Sunrise that he "was leaving Sunrise and wanted to leave now". Although he was told to return to his desk, R left the office and did not return to work again.

On 9 April R had a meeting with the Respondent's general counsel at which he was told he should come back to work and agree a termination plan if that was what he wanted. Instead, he sent an email on 16 April explaining that he was in New York arranging his relocation but he that he agreed to being on garden leave until September 2014.

As R was not working, Sunrise did not pay him the salary and bonus he was due on 1 May. Sunrise's solicitors wrote to R on 25 April reminding him that his contract prevented him from giving 12 months' notice until September 2014. Therefore he was not in his notice period, would not be put on garden leave and was required to return to work by 30 April. R said he had resigned with immediate effect on 27 March, and told Sunrise for the first time that he had accepted a new job with EOX. In the alternative, if his resignation was not effective on 27 March, he said he was entitled to terminate now because of the non-payment of salary and bonus.  Sunrise continued to assert the contract had not terminated but offered to accept his email of 16 April as notice to terminate on 16 October 2014 (six months' notice) on condition he returned to work until then.

The High Court held that the employment contract was still in existence and would come to an end on 16 October 2014 as Sunrise had offered that date as an early release from R's notice. Sunrise had not accepted R's repudiatory breach (his resignation) and its decision to stop paying was not a repudiatory breach of its own. An injunction was granted requiring R to observe the terms of his contract (except that he was not required to do any work for Sunrise) until 16 October, although he would not be paid during this time. 

R appealed to the Court of Appeal who dismissed his appeal, noting the employer had not invoked the garden leave clause in the contract (as it would have been entitled to do), in which case salary would have had to be paid. There was no obligation on an employer in these circumstances to offer to pay the employee, even though it is not uncommon for this to be offered; this is to overcome any objection that an unpaid employee will be compelled to work. The principle that no injunction should be granted where the effect is that an employee should be compelled to work remains sound.

However, whether non-payment means that the employee is in fact compelled to work for their employer will vary case by case, and there is no rule requiring an undertaking to pay salary in order to get an injunction. The total ten-month period without pay was reasonable.  R had agreed to six months' post-termination restrictions in any event, and the additional four-month period was because he had refused to return to work when asked to do so. As many contracts do, his contract stated that time spent on garden leave could be deducted from the length of the post-termination restrictions, but this did not mean that injunctive relief could not be granted for more than six months if it was appropriate to do so.

What to take away?

The case is helpful for employers who are faced with an employee who wants to join a competitor and clarifies that, where an employee is refusing to work, there is no obligation to pay and an employer need not be concerned that the non-payment may itself be a breach resulting in restrictive covenants falling away. However, not every employer will want to call an employee back to work in these circumstances – they may prefer to put them on garden leave to keep them away from clients and confidential information. It is good practice to have a garden leave clause which entitles the employer, if it chooses, to either exclude the employee completely or entitles it to give the employee other duties and to limit their access to clients, colleagues and confidential information.

The Court of Appeal sets out the approach which should be taken to the question of compulsion. Whilst the employee does not have to be faced with "idleness or starvation", a degree of hardship is insufficient. It is for the employee to show that they will be compelled to work for the employer if they cannot work elsewhere (whether for financial or other reasons, such as atrophy of skills and knowledge), but the court is only expected to carry out a "broad assessment" of this question so the employee needs to provide only "sufficient information" to make this possible.