Gross misconduct employee should have received pay in lieu of notice

It is a well-known fact that if an employee commits gross misconduct, their employer is entitled to dismiss them without notice. But what happens where the conduct is not discovered until after the employee has been dismissed in a manner that would contractually entitle him to receive pay in lieu of notice?

In Cavanagh v William Evans Ltd, Mr Cavanagh was dismissed by reason of redundancy with immediate effect and was told he would receive 6 months’ pay in lieu of notice. The Company then discovered that he had committed gross misconduct and so did not make the payment. Unsurprisingly, he lodged a claim for the money owed.

The Court of Appeal found:

  • Mr Cavanagh was owed a debt by the Company, as it had exercised its power to dismiss him and pay his notice in lieu;
  • His contract did not state he would lose the right to payment in lieu if an act of gross misconduct was later discovered; and
  • There was no law to prevent him from recovering the debt that was owed to him.

This may seem like a strange decision, as an employer can rely on misconduct discovered after an employee’s dismissal to defeat their claim for wrongful dismissal. However, the difference here is that Mr Cavanagh was claiming for payment of his notice pay as a debt. He would not have been able to do this if the Company had not agreed to make the payment in lieu when it terminated his employment.

Tips for employers

To prevent your company ending up in the same position as William Evans Ltd, your contracts of employment should be amended to make it clear that in the event the employee is found to have committed gross misconduct after the termination of their employment, they will not be entitled to receive pay in lieu of notice. Such wording would be particularly worthwhile in contracts with employees who are high earners and have long notice periods.