The claimant in Li v First Marine Solutions Ltd and Moutrey was a senior project engineer working on major oil rig contract. Under her contract she had to give one month's notice and there was also a provision saying:
"If an employee leaves, without working the appropriate notice, the company will deduct a sum equal in value to the salary payable for the shortfall in the period of notice."
When the claimant resigned, she refused to work her notice because she claimed (erroneously, the Tribunal found) to have outstanding holiday. The employer applied the shortfall clause and deducted a full month’s salary from money otherwise due to her. The claimant argued that it operated as a penalty for leaving employment and was therefore unenforceable.
The Tribunal and the EAT concluded that the clause was not a penalty; it was a genuine pre-estimate of the losses that might be incurred if, at short notice, a replacement for the claimant had to be recruited. There had been a previous EAT case where a very similar clause was found to be a penalty clause but that concerned a very different type of employee – a driver who ought to be easily replaceable – whereas this employee was a senior professional on a high salary who had been specifically headhunted for a particular project and could be difficult (and expensive) to replace at short notice.
The EAT did comment that it was not entirely satisfied that the parties' intention at the time the contract was signed was that it was a complete (and therefore "genuine") pre-estimate of damages; there was no clear evidence that the company had in mind the additional expenses of recruitment and replacement that might result from early termination, for example. As a result, the EAT warned that this should not be regarded as a precedent for future cases. The bottom line was that the onus was on the employee to show that it was a penalty clause and she had not been able to do this.