Contractual disciplinary procedures

In an age of austerity, the Supreme Court has helped an NHS Trust facing a claim from a doctor who had been dismissed for gross misconduct. A doctor alleged losses of £3.8 million as a result of his dismissal which he claimed was in breach of a contractual disciplinary procedure, principally around the make up of the disciplinary panel.

In Edwards v Chesterfield Royal Hospital NHS Foundation Trust, the Supreme Court had to consider whether an employee can potentially recover damages for loss arising from the unfair manner of his dismissal in breach of an express term of an employment contract.

It has been established for some time, that an employee cannot rely on the implied term of trust and confidence to bring a common law claim for the manner in which they are dismissed. Such loss must be pursued as an unfair dismissal claim in the tribunals. But does the same rule apply where there is an alleged breach of an express contractual disciplinary procedure? The Supreme Court confirmed that it does. As such, any claim Dr Edwards may have would be subject to the unfair dismissal compensation statutory cap.

It remains highly preferable to ensure that disciplinary and dismissal procedures are explicitly and clearly stated to be non-contractual where possible. It also remains important for employers to ensure disciplinary procedures are followed. It is still open to an employee who believes the employer is acting in breach of a contractual disciplinary procedure, to seek an injunction to stop the process and/or to seek an appropriate declaration.

Payment in Lieu of Notice (PILON)

'You pays your money and takes your chances!' In the absence of an express contractual clause to the contrary, where an employer terminates employment with a payment in lieu of notice, the employer has committed to paying the PILON. Payment cannot be avoided if the employer subsequently discovers that the employee had committed a repudiatory breach that would have entitled the employer to dismiss him without notice.

The long-standing principle has been that an employer can rely on after-acquired knowledge of gross misconduct to defend a claim for damages for an otherwise wrongful dismissal. However, this does not apply where the employer has chosen to terminate lawfully under a PILON clause, giving rise to a debt (Cavenagh v William Evans Limited).

Bonus announcement

An announcement made to an entire workforce can give rise to contractual obligations, provided it is stated in sufficiently certain terms and an intention to create legal relations can properly be inferred.

In Attrill and others v Dresdner Kleinwort Ltd and Commerzbank AG, the High Court considered whether an employer was contractually bound to pay bonuses to employees from a guaranteed bonus pool announced in a 'town hall' style meeting with the aim of retaining staff. The information given to the employees amounted to a promise that gave rise to a contractual obligation and was not, as the employer argued, a promise that was binding in honour only.

While employers may be well aware of the need for bonus schemes to be drafted very carefully, remember that any oral assurances given need equally to be carefully considered and phrased to avoid a bonus bonanza.

Restrictive covenants

This year the courts remind employers to revise and reconfirm restrictive covenants as employees are promoted throughout their careers. Oh, and don't forget to get the new contract signed!

In PAT Systems v Neilly the High Court reminds us that the reasonableness of a restrictive covenant is judged at the time it was entered into, not at the time when the employer seeks to enforce it. A subsequent change of circumstances, such as a promotion, does not turn an invalid covenant into a valid one.

In FW Farnsworth Ltd v Lacy, the employer had a lucky escape. Following a promotion, Mr Lacy was sent a new contract to sign which contained post-termination restrictive covenants. However, Mr Lacy never signed and returned the new contract. Was his employment governed by his original or the new unsigned contract? Luckily for the employer, Mr Lacy's acceptance of the new contract could be implied by the fact that he actively applied for private medical insurance cover that was only available to him under the terms of the new contract.