Constructive Dismissal and Clawback Clauses
Where an employee is constructively dismissed, their former employer cannot rely on a clawback clause in the contract of employment in order to make deductions from final salary.
What Is a Clawback Clause?
A clawback clause is a clause under a contract of employment that permits the employer to recover money from the employee in defined circumstances. In the case of Holmes v Tellemachus Ltd, the clause allowed the employer to recover agency recruitment fees from the employee's final salary if she left her job within a certain timeframe.
Why Was the Clawback Clause Invoked?
Miss Holmes was employed by Tellemachus Ltd for less than three months in 2019. She resigned, having first brought a grievance alleging an excessive workload and bullying by her line manager. The grievance stated she felt she had no choice but to resign. She was asked to give notice in writing, which she then did.
Tellemachus deducted agency fees amounting to £945 from Miss Holmes' final wages. Miss Holmes brought Employment Tribunal claims for breach of contract. She claimed the deduction of the fees was a penalty clause and there had been an unlawful deduction from her wages. She attached her grievance letter to her claim form.
Did Miss Holmes Bring a Constructive Dismissal Claim?
Miss Holmes did not bring a constructive unfair dismissal claim. As she had under two years' service when her employment terminated, she did not qualify for the right to bring an ordinary constructive dismissal claim.
However, employees with any length of service are entitled to bring breach of contract claims. Employees who bring breach of contract claims in the Employment Tribunal can claim damages of up to £25,000. Miss Holmes brought breach of contract claims for notice pay, holiday pay and "other payments". Whilst constructive dismissal is a breach of contract, Miss Holmes did not specifically state on her claim form that she believed she had been constructively dismissed, although the correspondence she attached set out a complaint of constructive dismissal in broad terms.
What Did the Employment Tribunal Decide?
The Employment Tribunal held there was no express breach of contract that would entitle Miss Holmes to recover the agency fee. It also held the clause was not a penalty clause. The judge did not consider whether Miss Holmes was asserting she had been constructively dismissed. Miss Holmes appealed to the Employment Appeal Tribunal (EAT).
What Was the EAT's Decision?
The EAT allowed Miss Holmes' appeal. It remitted the claim to the same Employment Tribunal to consider whether Tellemachus breached the implied term of mutual trust and confidence, and if so, whether Miss Holmes had resigned in response to that breach without affirming the contract. If Tellemachus is found to have constructively dismissed Miss Holmes, the clawback clause will be ineffective.
What Can Employers Learn from This Decision?
This case is a reminder of how an employee with under two years' service can claim constructive dismissal in the context of a breach of contract claim. Employers who rely on clawback clauses, as well as any other post-termination restrictions (such as restrictive covenants), should be confident there has not been any breach of contract which could give rise to a constructive dismissal argument, in circumstances where they wish to invoke the clause.