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Notice Jumping and Penalty Clauses

Giving notice to quit employment while often a simple act, can sometimes lead to disputes between the outgoing employee and their soon to be former employer. The logic to this is simply that one is trying to leave, preferably as soon as possible, while the other is now having to fill the gap left by the leaver and requires time in order to fill said gap.

The concept of ‘notice jumping’, though it means a breach of contract on the part of the leaving employee, is nothing new and happens every day in practice. The core question often put to us by employers is what can they do about it?

The recent Employment Appeals Tribunal (EAT) case of Yizhen Li v First Marine Solutions gives some assistance in answering this question in limited circumstances.

Miss Li was employed as an engineer, when a dispute arose between her and her employer, she resigned and claimed constructive dismissal. The original Employment Tribunal (ET) found that there had been no repudiatory breach and so Miss Li had not been constructively dismissed.

The core dispute and reason why this case has been reported however related to a clause in Miss Li’s contract which entitled her employer to deduct a month’s salary if she failed to work her notice. Miss Li gave notice asserting that she had sufficient outstanding annual leave to stay away from work during her notice period, her employer disagreed and claimed she had used all her entitlement and so requested she work her notice; Miss Li refused.

A clause in an employment contract can provide for liquidated damages, where a pre-determined sum is payable upon breach. However unless it reflects a genuine pre-loss estimate of the employer’s losses, the clause may be unenforceable for being a penalty.

Miss Li argued that the clause amounted to a penalty. The EAT upheld the decision of the original ET in finding that the clause in question was not a penalty and instead was a genuine pre-estimate of the employer’s loss and so was enforceable. The practical underpinnings were that such was the importance of Miss Li’s work to her employer, that it had to bring in (and obviously pay) a consultant to carry out her work during her notice period. The loss of one month’s pay was therefore an accurate estimate.

The deciding judge made the observation that parties should consider such clauses very carefully at the time of contracting and that such agreements should be construed with the circumstances in which they had in mind.

If you have an enquiry relating to a contract of employment, contact me for a free consultation on 0113 350 4030 or alternatively samira.cakali@scesolicitors.co.uk.

Please note that the information in this blog is to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with SCE Solicitors or other professional counsel before acting on the information contained here

Samira Cakali

Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.

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