No work and no pay – injunction granted to protect employer during notice period

In the recent case of Sunrise Brokers LLP v Rodgers (EWCA/Civ/2014/1372), the Court of Appeal upheld the High Court’s decision to grant an injunction to hold an employee to their notice period when they had resigned without giving the full period of notice.  As the employer did not accept the employee’s breach, the Court held that it was the employee’s choice to not work during his notice period and, as such, the employer could refuse to pay him his salary without being in breach of contract.

This case is good news for employers as it means that there is now a low cost but effective course of action that can be taken to prevent an employee who has failed to give proper notice from benefitting from their own breach and joining a competitor earlier than they would otherwise have been able to.  However, employers should tread with caution as it may not be the best approach in every situation and will still very much depend on the facts of the case.

Facts

Mr Rodgers became an employee of Sunrise Brokers LLP (Sunrise) in May 2009.  Sunrise decided to move into the precious metals market in 2011 and Mr Rodgers was moved from being a general derivatives broker to setting up the precious metals desk with another broker in October 2011, working mainly with US based clients.

At the time of his move, Mr Rodgers signed a new contract of employment with Sunrise that provided:

  • It was not terminable by Mr Rodgers for an initial period of three years.
  • Thereafter, it was terminable by him on 12 months’ notice.
  • Sunrise could terminate the contract on three months’ notice.
  • There was a garden leave provision which entitled Sunrise to place Mr Rodgers on garden leave provided he continued to receive salary and benefits from Sunrise.
  • The contract contained extensive post- termination restrictions, preventing Mr Rodgers from competing with Sunrise and/or assisting customers.
  • Mr Rodgers had an obligation to inform Sunrise if he received an offer of employment.

After becoming increasingly unhappy working for Sunrise, Mr Rodgers signed an employment contract with EOX, one of Sunrise’s key competitors, to commence on 1 January 2015 for an initial fixed term of five years.

In breach of his employment contract with Sunrise, Mr Rodgers did not tell Sunrise about his employment offer from EOX.  Mr Rodgers also disclosed confidential information about Sunrise’s clients and revenue to EOX.

Mr Rodgers resigned with immediate effect on 27 March 2014 in breach of his employment contract (Mr Rodgers was not able to give notice before September 2014 and at that point a 12 month notice period applied followed by a non compete restriction for six months).  Mr Rodgers said that there was no turning back and he would not come back to work for Sunrise as he was getting on a plane to New York the next day.  He assured Sunrise that he would not start work for anyone else before September 2014 but he did not disclose the offer from EOX.

During lengthy correspondence between the parties’ lawyers, Sunrise confirmed that Mr Rodgers’ resignation on 27 March 2014 was a repudiatory breach, which was not accepted by Sunrise.  However, if he wished to return to work they would pay him.  If he did not, then he would remain an employee but they would not pay him as he was not willing and ready to work.

Mr Rodgers’ position was that Sunrise could not purport to continue to employ him while refusing to pay him and that non-payment by Sunrise amounted to acceptance of the repudiatory breach or it was a repudiatory breach in itself.  The Court should not enforce the contract with Sunrise as it was unrealistic to expect Mr Rodgers to do a handover.  Since the last client contact was in March 2014, the Court should not enforce any restrictions beyond September 2014 (a six month period from the last client contact).

Decision

Could Sunrise refuse to accept Mr Rodger’s repudiatory breach?

It was found that Sunrise did have good reason to refuse to accept Mr Rodger’s repudiatory breach, at least at the time when it made its original decision to do so.  If a party acts in repudiatory breach of the employment contract, it does not automatically bring the contract to an end.  Instead, the party who is not in breach can decide whether to affirm the breach and bring the contract to an end or refuse to accept the breach so that the contract stays alive.  In this case, Sunrise’s desire to keep Mr Rodgers from working for a competitor for as long as possible was a good reason not to accept the breach and, as such, the contract was kept alive by their actions.

Could Sunrise refuse to pay Mr Rodgers during the notice period without being in breach of contract?

The Court held that it could.   Sunrise established that work (or rather readiness and willingness to work) and wages are, in general, mutual obligations.  If Mr Rodgers did not want to work during his notice period, Sunrise did not need to pay him.  Therefore, Sunrise’s decision to seize paying Mr Rodgers did not amount to an acceptance of his repudiatory breach.  Therefore, Mr Rodgers still remained employed by Sunrise even though he was not being paid.

Remedy granted?

The Court accepted that it was legally not possible to enforce the terms of the contract against Mr Rodgers by injunction if the effect of this would be to compel Mr Rodgers “to do any work or attend at any place for the doing of any work”.  Equally, a Court will not grant an injunction of this kind if it would not mean that Mr Rodgers “would either have to go on working for his former employers or starve or be idle”.

However, on the facts of this case, the Court did not believe that a limited injunction would have this effect and granted an injunction requiring Mr Rodgers to obey the terms of his contract (apart from the obligation to work) until the end of the notice period (which had been reduced by agreement between the parties).  In granting such an injunction, the Court took into account the fact that Mr Rodger had already confirmed in an email that he would not start work elsewhere until September 2014 so an extra month could hardly be said to be oppressive or force him to return to his former employer.  Mr Rodgers also gave evidence that he was currently living on savings that he had.  Furthermore, the employment contract that Mr Rodgers signed with EOX had a start date as late as 1 January 2015.  The injunction also required Mr Rodgers to comply with his contractual post-termination restrictions until 26 January 2015.

Comment

This is a helpful decision for employers as it will no doubt deter employees from thinking that they can resign without giving proper notice and get away with it.  Previously, redress for employers was limited and would normally involve the employer having to force the employee to take paid garden leave to prevent them from joining a competitor.

However, this decision should be treated with a little caution – it does not mean that a Court will always grant an injunction to enforce an employee’s notice period in these circumstances.  In this case, the Court granted the injunction as Mr Rodgers would suffer little loss in not returning to work and, as such, was not compelled to return.  If the lack of pay would have given Mr Rodgers no choice but to continue to work for Sunrise to avoid being put in a position where he would “starve or be idle”, then it is unlikely that the injunction would have been granted.  However, the effect of non-payment on the employee may not be clear at the point when the employer has to make the difficult decision about the best course of action in the circumstances.  If the facts had pointed towards serious hardship for Mr Rodgers, the outcome in this case may have been quite different.

Employers need to be clear of their strategy from the outset as tactics will be key.  Employers should consider the following practical points:

  • Are you prepared to have the employee back to work? If so, then adopting Sunrise’s approach may work in your favour.  However, whether a Court will grant an injunction to enforce any notice period will depend on the circumstances of the case and the employee’s individual situation.
  • If you adopt this approach, it is likely that there would need to be a reduction in the period of any restrictive covenants to take account of this “garden leave” period, particularly where there is a non-compete restriction.
  • It would be helpful to have a clause in the employee’s contract of employment that allows the employer to put the employee on special projects during any notice period. This will strengthen the employer’s position in terms of the balance of convenience and where it would lie in granting an injunction in these circumstances.  Equally, it would be helpful to have a clause in the contract that states that an employee will not be paid if he is not ready or willing to work to avoid any breach of contract claim.
  • If you are not prepared to have the employee back to work and/or you want certainty that the employee will be held to his full notice period, you may choose to waive the breach and place the employee on garden leave. However, you would have to pay the employee and post-termination restrictions would need to be offset against any period of garden leave if the contract required this.  Alternatively, you could accept the breach and enforce the post-termination restrictions against the employee to prevent him from joining a competitor after termination.

 

Claire Holland
Senior Associate

Employment Practice