Resigning Employee Held to Contract Without Pay

An employer who refused to accept an employee’s resignation in breach of contract has been granted an injunction requiring the employee to observe the terms of his employment contract. As he did not return to work following his purported resignation, he was not entitled to be paid as he was not ready and willing to work.

In Sunrise Brokers LLP v Rodgers, R’s contract prevented him from resigning before September 2014, after which point he could resign by giving 12 months’ notice. His contract also contained restrictive covenants and a garden leave clause. On 27 March 2014, he purported to resign with immediate effect. He had secured a job with a competitor and intended to relocate to the USA. His employer refused to accept his resignation and required him to come into work and when he refused it did not pay him.

Various exchanges took place between solicitors for both parties, during the course of which the employer offered to accept R’s contract as coming to an end on 16 October 2014. When this was not agreed, it sought a declaration that R was still employed, an injunction requiring him to observe the terms of his contract and an order restraining him from working elsewhere.

The High Court held that the employment contract continued until 16 October. R’s purported resignation was a repudiatory breach of contract. The employer had the option of accepting the breach as bringing the contract to an end, or affirming the contract as continuing if it had a good reason for doing so. Preventing R from working for a competitor was a good reason and it was not necessary to look for another reason, such as doing a handover.

The employer’s decision to stop paying R was not an acceptance of his repudiatory breach in resigning. Nor was its refusal to pay him a repudiatory breach by the employer. There was no contractual obligation to pay him if he was not reading and willing to work. In addition, R could not assert he was on garden leave and entitled to be paid. It is for the employer to choose whether to place an employee on garden leave. The employee cannot insist on it.

The court granted an injunction requiring R to observe the terms of the contract (but not perform work) until 16 October 2014. During this time he was not to work for any competitor, nor contact any clients. It took into account the fact that he had already agreed not to work for anyone else until September 2014 and that his contract with his new employer would not start until January 2015. The post termination restrictions were upheld (but for a shorter period than in the contract) until 26 January 2015.

The Court regarded itself as precluded form ordering R to work by s236 Trade Union and Labour Relations (Consolidation) Act 1992 which provides that a court cannot compel any employee to do any work.

This case shows that employers have a choice in the way they respond to an employee’s resignation in breach of contract where they are leaving to work for a competitor. They can choose to hold the employee to the terms of the contract, rather than accepting the resignation (which would mean they would be limited to relying on post-termination restrictions to prevent the employee working in competition). In addition, if the employee refuses to work they do not have to pay him.

Employers wishing to go down this route will need to be careful about how they react to resignations in breach of contract. They should have set procedures in place which managers understand so that they do not inadvertently do something which indicates that they are accepting the breach as bringing the contract to an end.

If you would like further advice on this or help with developing a strategy for dealing with resignations in breach of contract, please contact Peter De Maria or your usual Doyle Clayton contact.