Discovering Gross Misconduct after Redundancy Dismissal

The recent Court of Appeal case of Cavenagh v William Evans Limited raises a very interesting issue for employers when considering what provisions to make for termination without notice in their contracts of employment.

The usual situation is for contracts of employment to stipulate that employment can be terminated with a specific period of notice or, in cases of gross misconduct, without any notice at all.   Sometimes contracts of employment provide that employment can be terminated without notice provided that a payment in lieu of notice is made instead.  However, I have never come across a contract of employment which deals with what happens to a payment in lieu of notice if, subsequent to the dismissal, the employer discovers that the former employee had committed an act of gross misconduct which would have entitled the employer to dismiss summarily.  Reading this case, however, I may advise my clients to consider this situation when drawing up their contracts and to make specific contractual provision for payments in lieu of notice not to be payable if subsequent gross misconduct is discovered. 

Mr Cavenagh’s employers made him redundant and, as per its entitlement to do so under his contract of employment, paid him in lieu of 6 months’ notice rather than requiring him to work his notice.    However, after Mr Cavenagh’s employment was terminated, but before the payment in lieu was made to him, the employer discovered that he had committed an act of gross misconduct which would have entitled the company lawfully to dismiss him without notice, or pay in lieu of notice (or indeed, without any entitlement to a redundancy payment).  The company therefore withheld the notice pay.   Mr Cavenagh sued.

The Court of Appeal held that, as Mr Cavenagh’s contract had been terminated by reason of redundancy and not by reason of gross misconduct, and because the contractual provision to exercise the right to make a payment in lieu of notice had been exercised and not the right to dismiss summarily for gross misconduct, Mr Cavenagh had acquired an accrued right to the payment and the company was therefore not entitled to withhold it.  Specific mention was made of the fact that there was no provision in the service agreement denying him the right to the payment in lieu if the company subsequently discovered that he had committed a prior act of gross misconduct.   Something that the company (like most companies) had probably not even contemplated when drawing up the contract of employment but which it will probably ensure is dealt with in subsequent contracts.

This contrasts with the position where a former employee sues for unfair dismissal and the employer is able to show that conduct discovered post-dismissal amounted to gross misconduct.  In that situation, even if the dismissal at the time was unfair, any award can be reduced to zero because the conduct subsequently discovered mitigates any entitlement to compensation.


About Belinda Lester
I am the managing director and founder of Lionshead Law, a boutique virtual law firm specialising in employment, immigration, commercial and IP law.

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