In December 2012, in the case Société Générale, London Branch v Geys, the Supreme Court concluded that, if an employer dismisses an employee with immediate effect in breach of the employment contract, the employee can choose whether to accept the breach as bringing the contract to an end. If the employee does not accept the breach, the contract will continue until the end of the contractual notice period.
The Court of Appeal has now confirmed in Sunrise Brokers LLP v Rodgers that the reverse is also true, so that if an employee resigns with immediate effect, in breach of their contract, the employer can choose whether or not to accept the breach as bringing the employment contract to an end. This decision, and the steps the employer takes after an employee’s breach, can have significant implications.
What happened in this case?
Michael Rodgers was employed as a derivatives broker by Sunrise Brokers LLP. The new employment contract he signed in 2011 provided that the contract could not be terminated by him before September 2014, and then he could terminate his employment on 12 months’ written notice. The contract included extensive post-termination restrictions, preventing him from competing with Sunrise and/ or soliciting customers for 6 months, but provided that if he was placed on garden leave, these restrictions would be reduced accordingly.
On 27 March 2014, Mr Rodgers told Sunrise that he was leaving immediately and refused requests to return to work. Sunrise made clear to Mr Rodgers that they did not accept his resignation and that he therefore remained bound by his contractual restrictions, although Sunrise later offered to accept his contract coming to an end on 16 October 2014. Sunrise did not place him on garden leave, and instead stopped his salary and bonus payments because he refused to return to work.
A month later, he informed Sunrise that he would be relocating to the US to work for EOX Holdings LLC, a competitor. Sunrise applied to the High Court for a declaration that Mr Rodgers was bound by his contract terms and an injunction preventing him from working for another employer.
What the Courts said
The High Court held that Sunrise’s refusal to pay Mr Rodgers’ salary did not amount to a breach of contract because Sunrise genuinely wanted Mr Rodgers to come back to work and he refused to do so. In view of Mr Rodgers’ financial circumstances, the judge did not accept that an injunction would have the effect of compelling Mr Rodgers to work for Sunrise or otherwise he would starve, and Sunrise was granted an injunction holding him to his employment until 16 October. As he was refusing to work, he was not entitled to be paid. His posttermination restrictions were held to apply for only four months (not the six months provided under the employment contract) after 16 October 2014.
Mr Rodgers appealed, but the Court of Appeal upheld this decision and enforced the injunction.
What this means for employers
This decision will of course be welcomed by employers. If an employee refuses to turn up for work after giving notice, the employer can stop paying them without breaching their own contractual obligations. Employers are not under an obligation to place the employee on garden leave, which would entitle the employee to be paid.
This case illustrates how important it is, if an employee’s resignation may be in breach of contract, to carefully consider how to respond and, if you decide to hold the employee to the contract, to avoid taking any steps that could be treated as accepting the employee’s breach of contract so that post-termination provisions remain in force.