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Can Unacceptable Conduct Justify Summary Termination, Even If the Employer Has Fundamentally Breached the Contract Themselves?

on Friday, 20 November 2020.

The High Court recently considered the impact of an employee's unacceptable conduct on their breach of contract claim.

A Summary Termination

In the case of Palmeri and others v Charles Stanley & Co Ltd, the Claimant (Mr Palmeri) was a self-employed investment manager who provided his services to Charles Stanley & Co Ltd (the Company). Mr Palmeri's contract contained a three-month notice period but no payment in lieu of notice (PILON) provision.

Mr Palmeri earned revenues with the Company, taking a contractual slice in exchange for providing office space, back office services and regulatory approvals.

The Company decided to change its operating model in 2014 in order to take a larger slice of revenue from Mr Palmeri and other self-employed investment managers. The Company undertook a lengthy process of moving investment managers on to the new terms, or letting them go on notice. Mr Palmeri was one of the last unresolved cases.

On 21 April 2017, the Company held an unscheduled meeting with Mr Palmeri in which he was given an ultimatum - sign the new terms there and then, or leave immediately with pay in lieu of notice.

Mr Palmeri lost him temper, raised his voice, disparaged the competence of the Company and its management using strong language and personally abused one of the managers present in the meeting.

Mr Palmeri then agreed to sign the new terms under protest and made remarks suggesting he was not going to be with the Company for much longer anyway. The Company withdrew the offer of new terms and summarily terminated his contract.

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Was The Termination Justified In The Circumstances?

Mr Palmeri brought breach of contract proceedings against the Company, arguing that they did not have a contractual right to propose to make a payment in lieu of notice.

Mr Palmeri accepted that his conduct was unacceptable. However, he sought to contexualise his conduct in the world of city finance which he said was vigorous and where thrust, flair and long hours were demanded with vocabulary and behaviours to match. Mr Palmeri argued that the phrases he had used were common currency and that robust exchange was the norm.

In addition, he argued that he was a big, passionate character with a high and expressive emotional trigger and that the Company has sought to exploit his volatility by inviting him to the meeting without any notice and given him an ultimatum that would provoke him to react in an unacceptable way.

The High Court took this context into account, but held that Mr Palmeri conduct was nevertheless a serious breach. His attack on the competence and integrity of the Company's management was incompatible with the mutual relationship of trust and confidence. Therefore, the High Court held that the Company was entitled to summarily terminate Mr Palmeri's contract.

The High Court also held that the Company's own intention to deprive Mr Palmeri of his contractual notice period when giving Mr Palmeri the ultimatum did not affect the Company's entitlement to rely on the his conduct as a repudiatory breach of contract. Therefore, Mr Palmeri's claim failed.

Multiple Allegations of Breach

Although this case involved a self-employed contractor and not an employee, it applied principles that are also relevant to employment relationships.

This means that employers will not lose the right to terminate employment contracts without notice if an employee's conduct is considered a repudiatory breach, even where the employer themselves are in breach of contract or intending to breach the contract, or where they have different motives or reasons for wanting to terminate employment.


For further information , please contact Nick Murrell in our Employment Law team on 07500 009162, or complete the form below.

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