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Can employers withhold contractual payments if they become aware of gross misconduct?

June 2012

The Court of Appeal held that an employer could not withhold a contractual payment as the employee’s contract of employment allowed for such payment in the event of summary termination.

After dismissing an employee under an express term in his service agreement, which provided for a payment in lieu of notice ("PILON") of 6 months' pay, the employer refused to make this payment after subsequently discovering the employee’s prior gross misconduct.

Background

The claimant, Mr Cavenagh, was employed by William Evans Limited, the respondent. The respondent made the claimant's position redundant and summarily terminated the claimant's service contract. The claimant was entitled to 6 month's PILON and the respondent agreed to make this payment.

Prior to making the payment the respondent discovered that the claimant had committed gross misconduct before being dismissed by the respondent and the respondent refused to pay the PILON.

The claimant then brought a claim to recover the PILON as a debt due to him. The court held that the claimant’s gross misconduct was a defence to the claim and dismissed the claimant’s case. The claimant appealed.

On appeal, the Court of Appeal held that the claimant was entitled to the PILON as the claimant’s employment had been terminated in accordance with the relevant provision in his service contract. There was nothing in the service contract which excused the respondent from making this payment if the respondent subsequently discovered that the claimant had previously committed an act of gross misconduct. There was also no general principle of contract law which would prevent the claimant from recovering, or which would extinguish the claimant’s right to recover, the 6 months’ pay as a debt.

Commentary

This case illustrates the importance of ensuring that provisions allowing the employer to withhold or recover PILONs are contained in its employment contracts, in case the employer discovers prior acts of gross misconduct.

Resources

Cavenagh v William Evans Ltd

For further information or to discuss the issues raised, please contact David Widdowson or Emma Clark on +44 (0)20 3051 5711.