Don’t leave me this way… or it will cost you

CarolineLeaver

Whilst many of us were packing our bags for our summer holidays, the High Court was dealing with a particularly interesting and tricky issue – Sunrise Brokers LLP v Rodgers.

This case sets out the proposition that an employment contract still subsists even where the employee is refusing to work and is not receiving salary, and it reinforces the concept of ‘no work, no pay’. The case also clarifies that an injunction may be obtained requiring an employee to observe the terms of his/her contract without compelling the employee to do any work. 

Commentators were particularly ‘excited’ to see this case come to Court as it follows on from the Supreme Court’s decision in Societe Generale, London Branch v Geys. It was held in that case that if an employer committed a repudiatory breach of contract it did not automatically terminate the employment relationship until the wronged party – in that case, the employee – accepted it. The elective theory applies for the benefit of the wronged party, whether employee or employer.

After Geys, there was some speculation as to what an employer’s remedy would be if the ‘boot was on the other foot’ and it chose not to accept the employee’s resignation in breach of contract. It had long been held that the courts would not compel the parties to work together and this led to the question: might it be possible for the employer to seek a declaration that the contract still subsisted and apply for an injunction restraining the employee from working for another employer during the notice period?

Enter stage left Sunrise Brokers LLP v Rodgers

This case is quite complicated in terms of timings but in summary, in March 2014, Mr Rodgers left Sunrise with no notice, having accepted a position with a competitor commencing in January 2015. His contract was for a fixed term until September 2014 and then contained a 12 months’ notice provision and enforceable restrictive covenants (including a 6 month non-compete). The contract also provided for garden leave (at Sunrise’s discretion) for a period which would not normally exceed 6 months.

Sunrise refused to accept Mr Rodgers’ repudiatory breaches in purporting to terminate the contract without notice and elected to keep the contract alive. Sunrise had a good reason for affirming the contract, namely preventing Mr Rodgers from working for a competitor. He was not placed on garden leave which would have the effect of reducing the length of the restrictions whilst he sat in the garden. But Sunrise still wanted to agree a termination plan with Mr Rodgers and offered him 6 months’ notice to expire on 16 October 2014 at which time Mr Rodgers would then be bound by the 6 months’ non-compete restriction.

After his resignation, Mr Rodgers did not return to work and from April 2014 due to his unauthorised absence, Sunrise ceased to pay Mr Rodgers’ salary, but confirmed that payments would recommence on his return to work. Mr Rodgers claimed that non-payment of salary either amounted to accepting Mr Rodgers’ repudiatory breach of resigning with immediate effect or else was a repudiatary breach by Sunrise which Mr Rodgers accepted. Either way, his positon was that the contract had come to an end.

Sunrise sought a declaration and an injunction and were successful with both.

‘No work, No pay’

Willingness to work and wages are, in general, mutual obligations and the non-performance of one excuses the non-performance of the other. It does not mean that the contract automatically ceases, it means that the obligation to pay is suspended until the obligation to work is performed – ‘no work, no pay’.

‘Limited injunction’

The Court would not enforce the performance of the contract by injunction, but it did agree that Sunrise had good reason to keep the contract alive and granted an injunction requiring Mr Rodgers to observe the terms of his contract (although not perform any work) until 16 October 2014. During that time, he was not to work for a competitor and was not to contact Sunrise clients. The restrictions in the employment contract would be upheld until 26 January 2015, 10 months from the date of the last client contact.

Interestingly, Mr Rodgers was not planning on starting with the new employer until January 2015 which on the face it of it makes Mr Rodgers sound like the winner (particularly since the offer originally made by Sunrise would have meant that he could not have started employment until April 2015). However, Sunrise did not have to pay for the period Mr Rodgers was on notice and had won in the Courts, so Mr Rodgers was ordered to pay Sunrise’s costs (assessed at £168,000) as well, presumably, as his own: not such a winning position after all.

Important ‘takeaways’:

(1)  If an employee “walks”, their employer does not have to accept that as terminating the contract of employment (probably quite different from how it would be in the USA).

(2)  An employee cannot force an employer to place them on garden leave during which time they receive salary and require that if there are any post-termination restrictions they are reduced by that period of garden leave. Sunrise was prepared to have Mr Rodgers back to work despite the way he had behaved, which placed them in an excellent position. This is unusual and many employers would not want the employee back particularly if they have access to sensitive information and/or client contact.

(3)  If an employee refuses to work, he/she may not be entitled to be paid and the contract can be kept alive. It would be sensible to expressly state this in the contract.

(4)  The Court can enforce the notice period by way of restriction which (i) it may reduce to whatever it considers appropriate and (ii) it may in its discretion order that the restriction will not apply to non-competing work.

(5)  This case dispels the belief that injunctive relief would not be granted as such an order will force the employee to work for the employer or remain idle. Even if this is the true position, the Court has shown that any restraint can be modified to allow an employee to work in a non-competing area thereby avoiding the employee being ‘forced to work or starve’.