Constructive Dismissal, Swords, Shields and Grumpy Toddlers

What binds lawyers together is that we are all afflicted with a similar way of thinking. Whilst we like to talk in high-falutin’ terms of “legal-reasoning” and “jurisprudence”, the truth is that we are really in thrall to a toddler’s model of fairness. If you are a lawyer then, like me, you probably spent much of your early life enraged by your parents’ casual inconsistency in enforcement of rules relating to everything from bed times to portion size. You craved fairness more than Haribo.

I tell you this in the hope that it will explain to you why I remained so consistently bothered by an apparent inconsistency in approach taken by authority to the consequences of a party to a contract of employment committing a repudiatory breach. A repudiatory breach is one which is so bad that the law allows the other party to say “that’s it, I’ve had enough, I am terminating this contract right now!” It is a legal licence to flounce.

Where an employee commits such a breach, the employer is entitled summarily to dismiss the employee. Usually (though not invariably) a repudiatory breach on the part of an employee will be said to amount to “gross misconduct” or “gross incompetence”. The word “gross” means, effectively, “bad enough for me not to have to bother giving you notice”.

What if it turns out, however, that the employer has got it wrong and the employee did not commit the repudiatory breach relied on as a justification for terminating the contract? The answer, at Common Law, is that the employee will have an action for breach of contract. The measure of damages will be the money he would have received during the notice period. This type of claim is called “wrongful dismissal”.

Usually what happens when an employee is summarily dismissed is that the employer will scrabble around checking to see whether there were any other grounds that would have justified summary termination. A long hard look at expense claims, for instance, is often fruitful. What if something turns up? Can an employer rely upon a breach by the employee which is identified only after the employee has been dismissed? The good news for the employer is that you can. The principle was established in in Boston Deep Sea Fishing v Ansell (1888) 39 ChD 339. The net effect is that the employer will succeed in seeing off a wrongful dismissal claim provided that he can show that the employee committed a repudiatory breach even if he cannot show that it was that particular breach that he relied upon when terminating the contract of employment.

So what about the employee? Is what is sauce for the goose also sauce for the gander? If an employer commits a repudiatory breach of contract, the employee can generally terminate the contract without notice. So far, so good. Where the employee summarily terminates a contract of employment in response to a breach it is known as “constructive dismissal”. Constructive and wrongful dismissal are twins.

Does Boston also apply? Can an employee resign and then rely upon a breach they only find out about after the resignation? The approach taken by the authorities has been that the employee must show that they have resigned in response to the alleged repudiatory breach if they wish to establish that they have been constructively dismissed (see for instance, Meikle v Nottinghamshire County Council, [2004] EWCA Civ 859 Per Keene LJ at para 30). Since you can’t rely on a breach you don’t know about, it seemed that you could not have what one might call a “Boston Constructive Dismissal”.

It was this point that scratched at my toddler sense of injustice for many a year. Weren’t employers being cut some slack that employees were not? I appreciated that for employers a late discovered repudiation was a shield (i.e. a defence to a claim of wrongful dismissal) whereas as for employees it was potentially a sword (the basis for a claim of constructive dismissal) but there was a nagging sense of asymmetry.

Then in RDF Media v Clements [2008] IRLR 207 HC the Deputy High Court Judge said the following:

“… as a matter of principle, an employee who claims constructive dismissal on the grounds of breach of the implied obligation may, if he fails to establish the breach on which he purported to claim that his employment ended, rely on any matters constituting a breach which he has discovered only since he resigned. This seems to follow from the application of general contractual principles laid down in the case of Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339.”

My little toddler heart glowed with happiness. Then in Tullett Prebon v BGC Brokers LP [2010] IRLR 648, the issue came up again. Again, the judge (in that case Jack J) was prepared to allow an employee to rely upon Boston:

“Turning to the situation with which I am concerned, the converse of that in Boston Deep Sea Fishing, it follows that an employee may justify his refusal to perform his contract of employment by any grounds which existed at the time of his leaving. So, if he simply walks out without apparent justification, but later discovers that his employer was fraudulently deducting from his pay on account of tax more money than he should, his employer would fail in any action brought against him, whether for damages or for an injunction to restrain him on the basis that the employment was continuing” [at Para 79]

Note, however, that the learned judge is talking about using Boston as a shield. He also considered whether it could be used as a sword and makes an excellent point: a claimant wanting to rely upon a late discovered repudiatory breach to found a claim has a problem with causation (see Para 77 of the decision):

“the employee has to establish that his loss was caused by the conduct which he relies on as constituting the constructive dismissal, that is the employer’s breach of the duty not seriously to damage the relationship of trust and confidence between him and his employee. If the employee had left for some other reason, he cannot establish the necessary causation.”

Put another way, the loss claimed in constructive dismissal claims is loss caused by the employment coming to an end. If the late discovered breach is not the reason for the resignation it equally cannot be the reason that the loss was suffered. The Claimant would have a claim but it would usually be worthless.

As the penny dropped for me and then rolled irritatingly round on the desk in front of me, it occurred to me that for many years I had been troubled by an inconsistency that ultimately had very little real world significance. Of course, as a lawyer, that hardly bothered me at all.

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7 thoughts on “Constructive Dismissal, Swords, Shields and Grumpy Toddlers”

  1. Absolutely brilliant. The penny dropped for me too just as I was getting to the end. I hadn’t even considered the shield/sword argument.

    More annoying I find is the inconsistency concerning whether a wrongful dismissal is actually a termination or merely a repudiatory breach by the employer that can be accepted (or not) by the employee. I’m still not sure I’ve found a straight answer to that one. But I haven’t looked for a while.

  2. The whole question of the extent to which contracts of employment are subject to the same rules as ordinary commercial contracts, or have thier own special principles, is endlessly fascinating.

    Geys v Societe Generale is the most recent case I know of the the question of whether a wrongful dismissal is a termination or a repudiatory breach (http://www.bailii.org/ew/cases/EWHC/Ch/2010/648.html). From memory, the judge in that case seemed to accept it was just a repudiatory breach without much argument (and with some difficult consequences for the employer).

    On the point of whether employment contracts are subject to the same rules as ordinary contracts, I am waiting for attempts by employers to expressly contract out of terms that are implied into the contract of employment, like the duty of trust and confidence. Under normal principles that ought to be allowed, but tribunals might not see it that way.

  3. You can witness Sedley being sorely tempted to treat employemnt contracts as special in the Bournemouth case. In fact, you can almost feel his pain as he defaults to an orthodox analysis.

    After Reda v Flag I floated the idea of contracting out of T&C at a couple of talks. No-one seemed keen to push their luck then or now. Surely BGC, ICAP or Tullett can be persuaded to give it a go?

  4. I’d be interested to see how you would go about effectively contracting out of T&C. It wold require very explicit wording – a standard “whole agreement” clause won’t work. How about:

    “Without prejudice to the rights and duties set out in this contract, the parties shall be entitled to act in a manner calculated and/or likely to destroy mutual trust and confidence”.

    Put like that I can’t see much commercial sense in it for the employer. Or would you limit it to “the employer shall be entitled..”? Who in their right mind would work for an employer who used such a clause?

  5. Employers would want to limit it to contracting out of their obligations. Something like “the implied term that the employer shall not act in a way calculated or likely to undermine or seriously destroy [etc]… shall not apply to this contract” might do the job.

    As for who would sign it, at one end of the pay spectrum there would be employees who wouldn’t read or understand it, and who would sign anything for the sake of a job. At the other end, the BGC,ICAPs of this world will presumably pay sufficient £s to make it worthwhile people signing despite the restriction of their rights.

    I agree it would be difficult to get mid-range employees to sign it, but in practice I would have though that it was employers at the lower and higher end of the pay spectrum who would be most inclined to take advantage of it.

  6. Lindsay J explored the issue of contracting out of the implied T&C term in the March 2001 Industrial Law Journal if anyone is feeling geeky. He raised more questions than he answered, but the main thrust was that T&C is not a “business efficacy” type term but a term implied by law as a NECESSARY incident of ALL employment contracts, and therefore it may be incapable of exclusion. However, he points out that the main difficulty of this argument is that Lord Steyn in Malik seemed to say that it could be excluded.

    He also wonders whether the term is really necessary in a contract for a senior executive that has been negotiated by lawyers on both sides. It would certainly be interested to see this one argued. Personally I think the term ought to be inviolate as it is so central to the employment relationship, but I can see how that principle doesn’t sit well with traditional common law analysis.

    Sorry Sean, we seem to have rather gone off the main topic of your piece!

    1. You’re right, he did.

      I have some sympathy for the proposition that the T&C duty (in at least its most basic form) is a necessary incident of an employment relationship. If, however, the proposition is that an employment relationship cannot function without it, it shines an interesting light on RDF Media’s other contention: that you cannot accept a repudiatory breach of the T&C term if yourself are in breach. I have some problems with that analysis (perhaps it’s time for a bother blog piece) but, on the face of it, if an employee breaches the T&C term, his employer is then effectively at liberty to do so too. The employment relationship continues but with neither party entitled summarily to terminate as a result of each other’s breaches.

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