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Rejecting a resignation

Historically in employment law, it had been generally thought that if an employee resigned, using unambiguous words to communicate that resignation, then his employment terminated, regardless of whether the resignation was effected in accordance with the contract of employment or in breach of the contract.  In the event that the employee’s method of termination was in breach of contract, the employer’s remedy was to seek damages for the breach.  It would be a rare case in which that breach will have caused any provable loss to the employer and therefore a claim for breach of contract by the employer against the employee was unlikely. 

Similarly if an employer dismissed an employee in breach of contract, the dismissal was thought to be effective, but the employee would have a claim for wrongful dismissal as a minimum.

This position became the subject of debate in case law in the 1980’s and 1990’s and was changed in 2012 in the case of Société Générale, London Branch v Geys.  When SG purported to dismiss G summarily, pursuant to a pay in lieu of notice clause (“PILON”), G argued that the contract still subsisted because his employer had not operated the PILON in accordance with the terms of the contract. The Supreme Court confirmed that a repudiatory breach does not automatically terminate the employment contract.  The contract is not brought to an end unless and until the innocent party elects to accept the breach. G had decided not to accept SG’s attempt to terminate his employment in breach of the terms of his contract, therefore the contract was not in fact brought to an end when the employer told G that it was dismissing him summarily. G was employed until the date on which he was deemed to have received unequivocal communication of his employer's decision to properly exercise its contractual right to summarily dismiss him by making PILON, i.e. SG effected termination in accordance with G’s contract.  

A further case has now been decided in which the boot was on the other foot.  In Sunrise Brokers LLP v Rodgers [2014] the High Court considered whether an employee's purported resignation with immediate effect, in breach of contract, was effective. It also considered what, if any, remedy the employer was entitled to if the contract had not been brought to an end.

R’s contract stated that his period of employment was for an initial fixed term of three years and thereafter it could be terminated by him on notice.  A garden leave clause and post termination restrictions were also present in the contract.  R was contractually obliged to inform SB if he received an offer of employment from a third party.

R received an offer of employment from a competitor and signed a contract of employment with that competitor.  R did not tell SB about the offer.  He also disclosed confidential information to the competitor.  He then sought to resign from SB with immediate effect in breach of his contract as he was still within the initial three year fixed term of his employment. 

The director of SB to whom the resignation was submitted did not accept it.  R left the office of SB and did not return.  SB attempted to persuade him to do so, but he refused.  SB ceased to pay R but nevertheless asserted through solicitors that his attempt to terminate in breach of his contract was not accepted, that he remained employed and bound by the terms of his contract.  During the course of the correspondence, SB offered to accept R’s contract as coming to an end some 6 months after R had purported to resign. 

In subsequent proceedings, the High Court determined that:

  • The employment contract remained in existence until 6 months after R’s resignation, (i.e. until the date SB offered as the date on which they were willing to allow the contract to end) as a result of the fact that R had resigned in repudiatory breach and SB had not accepted the breach as bringing the contract to an end.  It had good reason for refusing to accept the breach.
  • In the circumstances, non-payment of salary did not operate as a breach by SB which would entitle R to bring the contract to an end.  R’s right to payment of salary in this case was dependent on his readiness and willingness to work.
  • An injunction was granted requiring R to observe the terms of his contract (but not to perform work) until the termination date offered by SB. 
  • The post termination restrictions contained in the employment contract were upheld in part.

This case is a useful tool for an employer’s protection in a situation in which a key employee attempts to leave without fulfilling the termination provisions of his contract.  To gain the full benefit of it, an attempted resignation in breach of contract must be carefully considered before any response is made.  However, a response must be made without unreasonable delay.  If there is a continuing interest to protect, the attempt to resign in breach of contract must be clearly rejected and the employer needs to affirm the contract to ensure it continues. 

For further information on the issues raised in this article, please contact Helen Wyatt on 020 7925 8083 or by email at helen@spencer-wyatt.com.

+44 (0)20 7925 8080 info@spencer-wyatt.com