Bethan Jones, assistant solicitor in Lanyon Bowdler’s employment law department, looks at the discovery of gross misconduct post-dismissal, which does not negate an employee’s entitlement to payment in lieu of notice.
It is well established that dismissal for gross misconduct can be justified by relying on facts which were not known to an employer at the time of dismissal, but were subsequently discovered. A case has recently been heard by the Court of Appeal dealing with what happens when an employee is dismissed and is to be paid in lieu of their notice, but the employer discovers after dismissal that the employee, prior to being dismissed, committed an act constituting gross misconduct, which would have entitled the employer to dismiss summarily and not make any payment in respect of notice. It should be noted that reference to a payment in lieu of notice in this context is reference to where an employer has an actual contractual entitlement to dismiss an employee and pay them in lieu of their notice, and exercises that entitlement, as opposed to any kind of payment that is purported to be in lieu of notice.
Mr C was employed as a managing director of a company. He was made redundant and the company decided to exercise its contractual entitlement to dismiss Mr C immediately and pay him in lieu of his notice, the period of which was 6 months. Following dismissal, but before the payment was made, the company discovered that Mr C had wrongly procured a payment of £10,000 to be made by the company to his pension provider. The company withheld the payment in lieu, alleging that Mr C had committed an act of gross misconduct prior to his dismissal which entitled the company to treat the contract, and all its obligations under that contract, as having ended at that point (as gross misconduct will constitute a fundamental breach of contract) and therefore it was not liable for any contractual payments in respect of notice. Mr C brought a claim for the unpaid monies.
The Court of Appeal held that once the company had notified Mr C that it had elected to exercise a payment in lieu clause in the contract of employment, he became entitled to be paid in accordance with that provision. There was nothing in his contract of employment which entitled the company to not make the payment, including where gross misconduct was subsequently discovered after dismissal. Therefore, Mr C’s claim succeeded.
Employers should review their contracts of employment to check if any payment in lieu of notice provisions stipulate that entitlement to payment in lieu of notice will cease if an act of gross misconduct is subsequently discovered and, accordingly, that any payments that have been made will be repayable. Such provisions are currently rare, and amendments to employment documentation are likely to be necessary to best protect employer’s interests. Employers should seek legal advice if there are no such provisions, and they wish to have them included, as contracts of employment cannot be simply unilaterally amended and, if contracts are not amended properly, the new provisions may not have the desired effect.
Advice should also be sought before including a payment in lieu clause in a contract and before exercising such a provision, as it will often be contrary to an employer’s interests to do so.
Where a settlement agreement is to be offered, such agreements should contain warranties on behalf of the employee that he/she has not committed any acts of gross misconduct which would have entitled the employer to dismiss without notice. The inclusion of such a warranty will either force the employee to disclose any acts of gross misconduct, which may mean that no payments have to be made, or, if they fail to do so and gross misconduct is subsequently discovered, the employer can either refuse to make any payments, or, if they have already paid, recoup them.