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Will Working a Notice Period After Resigning in Response to Repudiatory Breach Affirm the Contract?

on Friday, 31 August 2018.

In the face of a repudiatory breach of contract, an employee must not leave it too long before resigning, otherwise, they will be taken to have waived the breach.

A recent case highlights the importance of prompt action following a repudiatory breach of contract and the need to strongly consider whether a resignation in response should be on notice. A notice period of six months or more is likely to keep the employment contract alive in the absence of any further breaches.

It also provides a cautionary reminder that an employer's actions after an employee has resigned can still constitute a repudiatory breach. Employers should be careful not to unwittingly free a departing employee from their restrictions, or from working their notice, by responding so unreasonably to a resignation that their actions amount to a fundamental breach. 

This case relates to wrongful dismissal and breach of contract claims.  Whilst it may well have relevance in some constructive unfair dismissal cases, the Employment Rights Act makes provision for employees being able to bring claims for constructive unfair dismissal where they have terminated their contract "with or without" notice.  

Brown & Anor v Neon Management Ltd & Anor

Three employees alleged that their employer, Neon Management, had breached their contracts of employment due to various failings. This included a failure to pay salary increases and discretionary bonuses that had been awarded to them, which they averred individually and cumulatively amounted to a repudiatory breach of contract entitling them to resign. They decided to resign giving their contractual notice periods, which ranged from six months to twelve months duration.

Whilst serving their notice periods, the three employees contended that Neon Management had committed further repudiatory breaches of contract, including making unjustified findings of misconduct, alleging loss of trust and confidence, and reporting the alleged misconduct to the relevant regulator. Neon Management sought to argue that these actions were justified. Two of the three employees resigned with immediate effect as a result of these actions, and all three of them issued claims for wrongful dismissal and breach of contract.

Neon Management argued that, by resigning on full notice, the employees had affirmed the alleged repudiations and had therefore kept their contracts alive.

The High Court's Decision

The High Court had to determine whether Neon Management was in repudiatory breach of the employees’ contracts, and if so whether they had accepted that breach.

The High Court ruled that the employer's initial conduct was a breach that amounted to a repudiatory breach, and that the three employees were entitled to recover damages for the breach (in respect of the failure to pay salary and bonuses).

It also held that by resigning and giving their full notice, the employees had affirmed their contracts, thereby waiving their right to treat their contracts as void.

However, the Court held that Neon Management 's subsequent actions in making unwarranted findings (as opposed to raising allegations), reporting their conduct to the regulator without proper foundation, and stating that they had lost trust and confidence in them, amounted to a further repudiatory breach which two of the employees had accepted by then resigning without notice. Accordingly, those two employees were entitled to treat themselves as wrongfully dismissed. They were therefore entitled to further damages and their post termination restrictions fell away.


For more information, please contact Lorna Scully in our Employment Law team on 0121 227 3719.

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