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No Work, No Pay

Articles, Employment and HR, Latest News

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 post-termination 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.

The Employment Appeal Tribunal Rules That Holiday Pay Should Include Overtime, But Employers Gain Some Relief As The Scope For Back Pay Claims Is Restricted

Articles, Employment and HR, Latest News

The UK Employment Appeal Tribunal (EAT) has today handed down its decision in the conjoined cases of Bear Scotland Ltd and ors v Fulton and ors; Hertel (UK) Ltd v Woods and ors; Amec Group Ltd v Law and ors.

The position in the UK had been very clear for many years. Workers with normal, basic working hours under their contract have had holiday pay calculated using just those basic hours and basic pay. Overtime pay has not been included. This was confirmed as the correct approach about ten years ago by the Court of Appeal (Bamsey and others v Albon Engineering and Manufacturing plc [2004] IRLR 457) so employers had a high level of comfort that basic pay is the correct approach for holiday pay.

The European Court of Justice (ECJ) in British Airways plc v Williams and Others [2012] ICR 1375 said that holiday pay needed to include “normal remuneration”, which includes payments “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment”.

Earlier this year, the ECJ (Lock v British Gas Trading Limited and others (C-539/12)) held that holiday pay needed to include commission payments. It didn’t explain how businesses are supposed to do that, and the case has gone back to the UK tribunal to be heard in February.

The EAT has now decided that overtime needs to be included in holiday pay, even though it means that the UK Working Time Regulations have to be interpreted in a different way from how they were by the Court of Appeal in the Bamsey case ten years ago. The EAT decision has been reached because of the need to comply with the European Working Time Directive, as interpreted by the ECJ. Mr Justice Langstaff, in delivering his decision, refused to refer the case to the ECJ on the basis that there was no need – the European position is clear.

The decision applies only to the four weeks’ holiday per year that the European Working Time Directive requires, not the additional 1.6 weeks that are given under the UK rules – and also not to any additional contractual holiday employers may offer.

There were fears that the decision could mean claims against employers for a shortfall in holiday pay going back many years. The EAT has said that claims for back pay can only be pursued in a tribunal if there is no more than a three-month gap between times when the four week European minimum holiday is taken. As soon as there is a three-month gap, it means that earlier shortfalls cannot be pursued in a tribunal. Also, workers do not decide which holidays are the European four weeks and which are the UK ‘extra’. This gives employers considerable scope to limit claims.

There might be scope for arguing that the decision relates only to overtime that the worker is required to do, and does not apply to overtime that is genuinely voluntary. The decision leaves that line of defence for employers slightly open.

We can expect the decision to be appealed – leave has been given to appeal to the Court of Appeal, and a later appeal to the Supreme Court is also likely. There may also be a need to refer the case to the ECJ at the later stage, even though the EAT chose not to do so at this stage.

Despite the fact that the overtime and commission cases roll on, employers need to come to terms with the fact that the days of just paying basic pay during holidays are over.

Employers that are not doing so already should plan for how to reduce the impact of this decision and budget for increased costs. The increased costs may have an effect on planned pay rises, approaches to overtime, commission criteria and recruitment.

Employers should also review their holiday policies – before the decision it did not matter whether a particular day’s holiday counted as “European leave”, “UK extra statutory leave” or “additional contractual leave” as the pay was the same for each. Now that the EAT says that “European leave” is at a higher rate of pay, there are now two types of holiday and the approach to booking holidays will need to be adapted to take that into account.

As for calculating holiday pay during the “European leave” to take into account overtime, the implication from the EAT decision is that employers need to look at the average pay (including overtime) over the 12 weeks prior to the start of that holiday. If overtime is irregular, workers may try to take holiday shortly after a period of high levels of overtime. However, remember it is not just for the worker to decide which holiday is “European leave”. In practice, it seems that the employer will be able to decide – if workers are getting at least four weeks’ holiday with pay that takes into account overtime, it would be difficult for them to establish a claim that it should be different weeks.