Dishonest employee wins claim to receive notice pay

Now here’s a decision that will cause an uproar.  In Duncan Cavenagh v William Evans Ltd the Court of Appeal ruled that where an employer had informed an employee that his employment would terminate by reason of redundancy, the employer still had to make the promised payment of notice pay, even where it then discovered that the employee had committed gross misconduct.

Mr Cavenagh was informed by his employer that he was redundant and that he would, as part of his redundancy package, receive a payment in lieu of his 6 month notice period.  However, before making the payment, the employer uncovered the fact that Mr Cavenagh had transferred a sizeable amount from the Company’s account into his own personal pension.  Quite naturally, the Company’s reaction was to refuse to pay the notice pay.

As a quick overview of the law in this area, in an unfair dismissal case, an employer cannot escape liability for unfair dismissal by relying on misconduct discovered after the decision to terminate. However, in a wrongful dismissal case (i.e. where the employer terminates without notice), it can rely on it to justify the dismissal.

The Court of Appeal said that there was a lawful dismissal for redundancy in this case, and that the Claimant’s claim was for payment of the notice pay as a debt, not for damages for any breach of contract or unfair dismissal. The employer had no contractual provision to rely to get out of paying the debt so as a matter of law, so the employee remained entitled to it.

The Court of Appeal did suggest that perhaps this case would have turned out differently if the employer had raised other arguments but this is an example of what feels morally wrong is not supported by the legal position. Frankly we are astonished that Mr Cavenagh even brought the claim in such a public forum, and it has led to commentators suggesting that the Court of Appeal has condoned dishonesty.

Action points
Whilst it is hoped that this scenario will not come up too often, you can put in place steps to cover this situation from a contractual point of view.

• You could consider inserting appropriate wording into your contracts of employment but this may not be so practical;
• It is likely to be easier to cover this in your compromise agreements (or if you are not asking your employees to sign compromise agreements, consider asking them to sign a simple letter which can contain many of the similar terms). Include a warranty from the employee that they have not done anything that could be considered to be a breach of contract or an act of gross misconduct.  If you then subsequently uncover any wrongdoing, you can rely on that clause.