How to avoid complications during the termination of employment

In this insight we consider ways in which a contract of employment may be brought to an end and some of the complications that an employer may encounter in those circumstances.

Resignation

Employees may terminate a contract by resigning, in the same way as employers may terminate a contract by dismissing. A resignation is the termination of a contract of employment by the employee in the same way as a dismissal the contract will not actually come to an end until the employee has communicated his or her resignation to the employer, either by words or by conduct.

Is the resignation clear?

In order to be an effective resignation an end date has to be identified in the notice given. An employee stating an intention to resign will not be sufficient. However, a resignation need not be expressed in a formal way and may be inferred from the employee’s conduct and the surrounding circumstances.

Usually it is not difficult to recognise a resignation but there are circumstances in which the situation may not be so clear. One example was in the case of East Kent Hospitals University NHS Foundation Trust v Levy UKEAT/0232/17.

The facts were that Mrs Levy, an assistant administrator, had worked in the records department for over ten years when difficulties working with a colleague had led to her applying for an alternative position in the radiology department. Her application was successful and she was offered the post subject to pre-appointment checks. Having received the offer she handed her manager a letter on 10 June 2016 which stated “please accept one month’s notice from the above date”. The manager replied the same day accepting her resignation and confirming that her last day of work in the records department would be Friday 8 July 2016. 

Six days later, the offer of a position in the radiology department was withdrawn due to Mrs Levy’s sickness absence record. She immediately contacted her manager to withdraw her notice. The manager though decided not to accept her retraction and confirmed the date of termination.

Mrs Levy brought a claim of unfair dismissal but had she been dismissed or had she resigned?

It was held that she had not resigned. The words used in her letter giving ‘notice’ did not identify the subject in respect of which notice was being given – it could have been either a notice of intended transfer or notice of termination. 

The Employment Appeal Tribunal considered that even if the words had not been ambiguous there were special circumstances meaning that the letter had to be read in the context that it was known she was unhappy in the records department and that a conditional offer for a new role in another department had been given. Given that background the letter would have led a reasonable observer to conclude that Mrs Levy was doing no more than informing her manager at the earliest opportunity of her intention to accept what was then a conditional offer of a transfer. 

The decision is an important reminder that whilst an employer would usually be entitled to take a clear notice of resignation at face value there may be factors which will require the employer to make further enquiries to clarify whether it is the intention of the employee to leave the business. 

Not giving correct notice

Resigning without giving full notice can cause commercial difficulties for the employer. It might be thought that the employer has no option but to accept it but where the employee gives notice in breach of the contractual terms the employer may decide not to accept it and the contract will continue.

This was highlighted in the case of Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373 where Mr Rodgers, a key employee, was required to give 12 months’ notice of resignation. When Mr Rodgers received an offer of a post with one of Sunrise’s competitors he informed his employer that he wanted to leave Sunrise immediately despite the 12 month notice clause.

Rather than accepting it, Sunrise rejected the resignation as being as being in breach of contract and told him to return to work. Mr Rodgers disputed he was still employed and refused to attend work. Sunrise stopped paying his salary and also obtained an injunction that prevented him from working for the competitor because he was still their employee.

The decision usefully shows that when an employee breaches his or her contract, either by not giving the requisite notice of termination or by refusing to work, the usual reaction of accepting the employee’s conduct as terminating the contract may not always be the most commercial one. 

In some employment contracts there may also be an express provision that will set out that there will be financial consequences if the employee fails to give proper notice. However employers will need to ensure that the financial sums stipulated reflect the losses from the employee’s breach.

In Li v First Marine Solutions UKEATS/0045/13/BI the provision was challenged on the grounds that it was a penalty clause. 

Miss Li’s employment contract entitled her employer to deduct a month’s salary if she failed to work her notice period. Miss Li had fallen out with her employer and given notice. She refused to work her notice period as she believed that she had sufficient holiday outstanding. However the employer disagreed and deducted one month’s salary for the shortfall of her notice period. Her challenge in the Employment Tribunal failed. It was held that the clause was not a penalty but was a genuine pre-estimate of loss and as a result was enforceable. It took into account that there were costs from lost work and the expense of providing emergency cover.

What about the employee who gives too much notice of resignation? If the employee when giving notice of resignation gives more notice than required by the contract it will still be valid. For example, in Beadnell v James Howden and Co Ltd ET Case No.71141/95, Mr Beadnell agreed on 22 December 1994 to give up his company car in return for a payment of £4,400. It was a term of the agreement that if he left within 12 months he would have to repay £2,200. Mr Beadnell gave his notice on 15 November 1995, saying that he would like to leave as soon as possible after 22 December.

Having unsuccessfully tried to persuade him to stay, he was told that as he was required to give only four weeks’ notice his employment would terminate on 13 December 1995. It was held that Mr Beadnell was entitled to give notice to terminate on 22 December and that by bringing the date forward, his employer had unfairly dismissed him. 

When resignations amount to constructive dismissal

A resignation may amount to a constructive dismissal only if it is in response to a fundamental breach of contract by the employer.

In addition to showing that there has been a fundamental breach the employee also needs to show a causal link between the breach and the employee’s resignation. Delays in resigning may lead to doubts as to whether the breach was the reason for the resignation.

For example, in Dixon and ors v London General Transport Services Ltd EAT 1265/98 it was held that resignations that took place a year after the employer’s breach were not caused by the employer’s repudiation, as alleged by the employees. The employees, who had signed a petition against the imposition of new terms and conditions by their employer, were found not to have accepted the employer’s breach of contract because they had elected to continue working. 

Agreed termination

Parties to a contract of employment are free to agree between themselves to terminate it. Both sides are then released from further performance of their obligations under the contract and the contract is discharged by mutual consent. 

There can be a fine line between termination by agreement and termination by resignation. Indeed, some reported cases that have held that the employee has resigned also refer to an agreement to that effect having been reached between employer and employee.

Since the effect of a termination by agreement is to deny the employee statutory employment protection rights, courts and tribunals are reluctant to make such a finding unless there is very clear evidence that an entirely voluntary arrangement has been entered into. 

Termination by agreement can be initiated by the employer and still be genuine. However, the Employment Tribunal will look into the intention of the employer and the attitude of the employee and consider if there was a threat of dismissal and if the employee acted voluntarily. Finding that an employee has acted voluntarily will be difficult where an employer gives an employee various options to choose from, but the employee does not like any of them and simply picks the least objectionable one. 

For example, Mr F was employed to work for a specific client. When the client no longer required his services the agency offered him two weeks’ notice pay and the choice between looking for a new assignment for him or a redundancy payment. Mr F accepted the second option. However, it was held that this was a dismissal rather than a mutual agreement. Both options given involved dismissal.

In contrast it is more likely that mutual agreement will be found as the reason for termination where the employee initiates the discussion, for instance seeking medical retirement. 

Frustration

A contract of employment may come to an end by way of ‘frustration’ when an unforeseen event makes performance of the contract impossible or radically different from what the parties originally intended.

When a contract is frustrated it ends automatically by operation of law, without a dismissal on the part of the employer or a resignation on the part of the employee, and the parties are discharged from further obligations under it. The employee cannot therefore claim unfair dismissal and is not entitled to any notice or payment in lieu. 

Courts and tribunals are generally reluctant to find that a contract of employment has been frustrated and will require strong evidence before allowing a contention to this effect to succeed. One reason for this is that the doctrine of frustration sits uncomfortably with the modern-day employment relationship and the statutory employment protection. 

The burden of proof is on the party asserting that the contract has been frustrated and the existence of any term in the contract – whether express or implied – indicating that the contract may continue in the circumstances will tend to indicate there has been no frustration. 

In Gryf-Lowczowski v Hinchingbrooke Healthcare NHS Trust 2006 ICR 425, QBD for example a consultant surgeon’s employment contract was not frustrated where, owing to an external assessment of his abilities, he was required to undertake a reskilling programme with another Trust before resuming his duties. Although reskilling was proving difficult to arrange, so long as it remained a realistic possibility, the contract was still capable of performance.

Whether a custodial sentence has the effect of frustrating a contract will depend on all the circumstances of the case, but the length of the term to be served will invariably be a significant factor as will the impact on the employer. 

In FC Shepherd and Co Ltd v Jerrom 1986 ICR 802, CA, the sole apprentice in a fairly small company was sentenced to Borstal for between six months and two years but which was expected to serve nine months. It was held that the apprenticeship contract was frustrated. 

Summary

There are a number of ways in which the termination of employment may come about. In the majority of cases it will be due either to dismissal or resignation. Whichever way it happens steps should be taken to ensure that the formalities for ending the employment are followed and that the exit interview is conducted, company property returned, final payments made and P45 issued.