Employment Cases Update

Constructive Dismissal – Shields and Swords

Date published: 02/12/2010

Sean Jones, of 11KBW, looks at causation in breach of contract claims in the light of the recent High Court decision in Tullett Prebon

image of sean jones, 11kbw

Sean Jones, Barrister, 11KBW

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 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, Nottinghamshire County Council v Meikle, [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.