Employment Contracts

Posted on Sep 27, 2018

Employment contracts can be complicated documents to get right; if employers are too vague they can land themselves in a lot of trouble, as in the case of Brown & Anor v Neon Management ltd & Anor.

In this case the defendants breached the claimants’ employment contracts by not paying salary increases and discretionary bonuses. In response to this repudiatory breach of contract, all three claimants resigned on notice. However, during their notice periods, the defendants committed further breaches such: as unjustified findings of misconduct, loss of trust and confidence, and reporting alleged misconduct to the first and second claimants’ regulators. After these further breaches, the first and second claimants accepted the repudiation by resigning with immediate effect and then brought actions of wrongful dismissal and breach of contract. However, the third claimant continued to serve the notice period and then brought an action for breach.

There were two questions arising from this case that had to be answered: 1) Does resignation on lengthy notice periods, here being six and twelve months, constitute affirmation of an employment contract? 2) Can making unwarranted findings, alleged loss of trust and confidence, and reporting an employee to a regulator constitute repudiation of employment contracts? The High Court ruled that the answer to both questions was yes.

This resulted in two important findings. Firstly, resignation of notice, where the time frame is six months or more, constitutes affirmation of employment terms, meaning the contract survives so long as there are no further breaches. Secondly, making unwarranted findings, reporting an employee to a regulator without proper evidence and alleging los of trust and confidence (without giving the employee a chance to defend themselves) constitutes a repudiation of contract of employment.

In conclusion, this is an important case. It states that, where notice periods are of a certain length, employers must ensure they don’t commit any further breaches to avoid landing themselves in more trouble. This case also reinforces the need for employers to ensure they have ample evidence if they make any claims against employees and to ensure employees could dispute such claims. Whilst these two points may seem obvious it is easy for employers to fall into traps if they don’t incorporate them in their contracts.