Protecting your business when an employee walks out in repudiatory breach – should you pay or call their bluff?

Written on 27 Oct 2014

An employee purported to resign with immediate effect in breach of contract – he had agreed to join a competitor. His employer, Sunrise Brokers LLP, was very clear that it did not accept his resignation and invited him to carry on working for an agreed reduced notice period of 6 months. Sunrise confirmed he was still employed (i.e. it did not accept the employee’s repudiatory breach) but they did not pay him because he refused to attend work. Sunrise sought an injunction to prevent him joining the competitor.

The Court of Appeal (“CA”) upheld the High Court’s decision to grant a 10 month injunction preventing the employee from starting work with the competitor. There was no corresponding obligation on the employer to pay salary or contractual benefits to the employee, even though the employee might otherwise have spent at least some of this period on garden leave.

Key points from the CA decision include:

  • Even during the notice period, the employer’s obligation to pay salary is dependent on the employee’s willingness to work.
  • Courts will be willing to enforce a restriction on an employee’s ability to work for a competitor while employment is on-going.
  • The High Court was entitled to consider what would have happened had the employee not been in breach. The 10 month period was decided on the basis of the employer’s evidence that the employee would have been asked to continue to work for 2 to 6 months to complete a handover before being placed on garden leave for the remainder of his notice period. Had the employee not been in breach he would have been released from his employment with Sunrise 10 months from giving notice of resignation.
  • on the facts of this case, granting the injunction would not put the employee in a position where he was reduced to “idleness or starvation” which would compel him to return to work for the employer. The hurdle for the employee is quite high to fulfil this test, and it was not sufficient that holding him to the employment contract without pay made him suffer some hardship. It was also relevant in this case that the only barrier to the employee being paid was his own unwillingness to work. The employee did not provide sufficient evidence that he was suffering from significant financial hardship or that keeping him out of the job market was causing damage to his future career.
  • the CA also considered that the injunction was not “oppressive” to the employee.

What does this mean for employers?

Whilst as emphasised by the CA, cases of this kind are fact sensitive, it is helpful for employers to have confirmation that an employment contract may subsist despite non-payment of salary in such circumstances. It is also helpful that an injunction may be obtained requiring an employee to observe the terms of a contract and this will not necessarily be unenforceable for compelling the employee to do work.

What is clear is that tactics for dealing with an employee in such circumstances are key.

  • An employer should not necessarily be compelled by an employee’s actions to pay that employee simply to protect its business. Indeed, as the judge noted here, the employer may well have had no intention of allowing the employee to physically return to work in this case had he been willing to do so. Had the employee “called their bluff” and made himself available to work it is very likely he would have been placed on paid garden leave.
  • employers should also take care not to inadvertently accept an employee’s repudiatory breach in such circumstances – for example by casual words or sending a P45 in haste. Similarly, a less strategic employer may well have simply dismissed the employee once he was absent without leave, potentially leaving the employee with free reign to join the competitor immediately.

Employers should seek legal advice and respond carefully to resignations in breach of contract where, as here, there is a continuing business interest to protect. In the meantime, employers should ensure their contracts of employment contain up to date restrictive covenants and garden leave provisions adequate to protect the business should an employee call that bluff.

Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373