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Constructive Dismissal - Withholding Occupational Sick Pay Was a Fundamental Breach of Contract

on Thursday, 23 June 2022.

The Employment Appeal Tribunal (EAT) has confirmed an employer can commit a fundamental breach of contract without intending to end an employment relationship.

In the case of Singh v Metroline West Ltd, Mr Singh was signed off on sick leave shortly after being invited to a disciplinary hearing. He produced a sick note, and attended an appointment with occupational health during his sick leave. Occupational health did not suggest Mr Singh's sickness was not genuine. However, Metroline believed Mr Singh was trying to avoid the disciplinary hearing, and withheld Mr Singh's occupational sick pay, paying him statutory sick pay only. Mr Singh brought a claim for constructive dismissal, claiming the failure to pay him company sick pay was a fundamental breach of contract.

What Is a Fundamental Breach of Contract?

In the context of employment contracts, a fundamental (or repudiatory) breach of contract is a breach so serious that it goes to the root of the employment relationship. In response to a fundamental breach of contract, an employee will be entitled to 'accept' the breach by resigning, they may claim constructive dismissal. In these circumstances, the employee would also be released from any ongoing obligations under the contract of employment, such as any post-termination restrictions.

Did Metroline Commit a Fundamental Breach?

The Tribunal found Metroline had breached the employment contract, but held it was not a fundamental breach as it had not intended to end the employment relationship in doing so. Its aim was, in fact, to encourage Mr Singh to participate in the disciplinary procedure.

The EAT disagreed. The Tribunal was wrong to believe Metroline needed to have intended not to continue with the employment relationship in order for the breach to be fundamental. Metroline chose to significantly reduce Mr Singh's weekly wages by withholding occupational sick pay. It could have invoked a clause in the contract in order to withhold sick pay if Mr Singh was not genuinely unwell. Metroline did not invoke that contractual clause. Instead it breached the contract and the breach was fundamental.

The claim has been remitted to the Tribunal for to consider whether Mr Singh resigned in response to that fundamental breach of contract.

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What Can Employers Learn from this Decision?

Employers do not have to intend to end an employment relationship in order to commit a fundamental breach of contract. Instead, the test is whether there is an intention on the employer's part to no longer comply with one or more terms of the contract, that is so serious it goes to the root of the contract.

For assistance navigating the terms of your employment contract, please contact Madeleine Shields in our Employment team on 0117 314 5226, or complete the form below.

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