Payment in lieu must be made: Shaen Catherwood wins in Court of Appeal

The Court of Appeal (Mummery, Hallett and Tomlinson LLJ) has handed down judgment in Cavenagh v William Evans Limited, unanimously allowing the appeal. Shaen Catherwood appeared for the successful Appellant, Mr Cavenagh.

The Court has held that where an employer dismissed an employee under an express contractual right to terminate and make a payment in lieu of notice, the employee’s right to the payment in lieu accrued as a debt and could not subsequently be defeated by reliance on an earlier act of gross misconduct unknown to the employer at the time of dismissal.

The facts were that Mr Cavenagh, whilst managing director of William Evans, took £10,000 from the company as a pension contribution in January 2010. Unaware that he had done so, the company made him redundant in March 2010 and, in doing so, exercised its contractual right to dismiss him and make a payment in lieu of notice. In fact, following his termination, the company failed to pay Mr Cavenagh the sums they had promised. Mr Cavenagh issued proceedings in the County Court to recover the payment and William Evans defended his claim on the basis that it was entitled to treat its termination for redundancy as the acceptance of a repudiatory breach by Mr Cavenagh, namely the taking of the £10,000 pension payment. The trial judge found that, contrary to Mr Cavenagh’s case, he was not entitled to the pension payment and that he had taken it in knowledge that he was not entitled to it. She ruled that this act of gross misconduct meant that Mr Cavenagh could not recover the payment in lieu. Mr Cavenagh appealed this decision.

A key issue for the Court of Appeal was whether the principle in the well-known case of Boston Deep Sea Fishing v Ansell extends to situations in which an employer seeks to defend a claim in debt. The Court held that it does not, Mummery LJ explaining that Boston Deep Sea Fishing applies in circumstances in which an employer seeks to justify at trial a dismissal that would otherwise be wrongful by reliance on prior misconduct unknown at the time of dismissal. Mr Cavenagh’s dismissal was not wrongful but pursuant to the terms of the contract of employment.

Tomlinson LJ added that where an employer exercises a right to terminate by offering a payment in lieu of notice it elects for a clean break and takes the risk that it may subsequently discover matters which would have justified summary termination for breach. By agreeing to the payment in lieu provision, Mr Cavenagh had surrendered valuable rights and conferred a corresponding benefit on the employer. In exercising its rights under that provision, William Evans had obtained precisely that for which it had bargained.

Shaen was instructed by Wilsons Solicitors LLP.

A copy of the judgment is available here.

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