Court of Appeal Gives Employers Cause for Concern
The long-awaited judgment in United General Insurance Company Limited v Marilyn Hamilton, was handed down last Friday and is posted on the Court of Appeal’s website. Every HR professional and labour lawyer should read and, as a result, consider amending your employment contracts and dismissal practices immediately.
Marilyn Hamilton was an IT Systems Manager who was dismissed from UGI in 2006 following a server crash. The company blamed her for it and said so in the dismissal letter. They did, however, pay her one month’s salary in lieu of notice. She sued them for wrongful dismissal (among other things) and won. There were 2 aspects of that judgment that were alarming, but only 1 is relevant now, and that is whether the court can imply a term that an employment contract can only be terminated on reasonable notice in circumstances where there is an express clause for termination.
The legal principle, first pronounced in England in 1939 and later confirmed by the Privy Council in 2002, is that a contract which contains no express provision for its determination is generally subject to an implied term that it is determinable by reasonable notice. The implied term is inserted as a matter of necessity, because otherwise the contract would be incapable of being determined at all. Thus, if there is no termination-by-notice clause it will be implied that either side can terminate without cause by giving a reasonable amount of notice, which will vary depending on the circumstances. Based on decided employment cases, what is reasonable might range from 2 weeks’ notice to 12 months’ notice.
In Mrs Hamilton’s case, the termination clause in her contract included the following provision:
“During the three (3) months’ probationary period, neither party will be required to give notice of termination. However, should your probation be extended beyond three (3) months the required notice period is two weeks as stipulated by Law. Once appointed, a minimum period of one month will be required.”
As Mrs Hamilton had passed her probationary period, only the final sentence applied.
The first surprise came when Supreme Court Justice Sinclair-Haynes (as she then was) ruled that the contract did not bind Mrs Hamilton to receive only one month’s notice. The operative word, she said, is ‘minimum’ and because that word was used, there was an implied term that reasonable notice should be given. She took into account Mrs Hamilton’s position, age and the fact that UGI was “a large corporation” and determined that 1 year’s notice was reasonable. Last Friday, the Court of Appeal upheld that finding, with the practical consequence that, by including the word “minimum”, UGI was in the same position as an employer who didn’t have a termination-by-notice clause at all.
There are a myriad of reasons why an employment contract would include the phrase “a minimum of one month’s notice” or “at least 2 weeks’ notice”. Efficiency is one such reason. Under the Employment (Termination & Redundancy Payments) Act (“ETRPA”), an employee with 5-10 years of service is entitled to at least 4 weeks of notice; an employee with 10-15 years of service is entitled to at least 6 weeks of notice and so on, until you reach a maximum of 12 weeks’ notice. Rather than including the sliding scale in the contract or amending the contract every 5 years to increase the notice entitlement, many employers opted to include the word “minimum” or the phrase “at least” so that the contract would never be in breach of the law.
Perhaps what is most confusing is why the Courts felt it necessary to imply that reasonable notice was required to terminate the contract when there was already an express termination clause. The Court of Appeal found that one month’s notice was “unreasonably short”, even though that was what both Mrs Hamilton and UGI voluntarily agreed to accept and receive and was double the minimum that each would have been entitled to under law at the start of the relationship.
To further complicate things, the Court of Appeal ruled “a dismissal for cause cannot properly include payment in lieu of notice”. Respectfully, this statement appears to be irreconcilable with s. 3(5)(a) of the ETRPA. That provision says that if an employer doesn’t terminate the contract within 4 weeks of becoming aware of an employee’s misconduct, he cannot thereafter terminate as a result of that misconduct without giving notice. Because of disciplinary hearings and other due process requirements, it’s very rare for employers to be able to terminate for cause within 4 weeks of becoming aware of misconduct. Thus, many businesses are, in fact, compelled by law to pay in lieu of notice when terminating for cause.
Section 3(5) of the ETRPA only allows you to avoid giving notice where you are terminating the employment contract for gross misconduct. For less serious types of misconduct and poor performance, the employer is generally required by law and the employment contract to give notice of dismissal or pay in lieu. These are still dismissals for cause. Although there is a local Court of Appeal decision that said that when an employer pays in lieu of notice, it can be considered cogent evidence that the dismissal is not for cause, the Court has not (before now) said that such payment “trumps” the alternative of dismissing for cause. This aspect of the decision might very well have far-reaching implications for thousands of past dismissals.
Employers routinely pay notice even where not required by law or contract because (i) statistically, employees who don’t receive notice pay are more likely to challenge their dismissals for cause than those who receive notice pay; and (ii) it’s often cheaper to pay notice rather than engage in litigation to defend the dismissal for cause. The payment of the notice should not, therefore, be taken as a waiver of the employer’s reasons for dismissal, in the same way that accepting pay in lieu of notice is not, without more, a waiver of the employee’s right to sue. In this case, UGI told the court that the payment was a gesture of good faith, although that was not stated in the termination letter. The likely impact of this aspect of the ruling is that such gestures of good faith by employers will cease, leading to more unhappy employees and an uptick in wrongful dismissal claims.
UGI was partially successful in its appeal on points not discussed here, so a further appeal to the Privy Council is uncertain. In the meanwhile, now would be a good time to review and revise your employment contracts and discontinue any unnecessary notice payments. Consider yourself put on notice!
Gavin Goffe is a partner at Myers, Fletcher and Gordon, and is a member of the firm's Litigation Department (Labour and Employment Law Practice Group). He may be contacted at firstname.lastname@example.org .jm or through the firm's website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.