In Four Seasons Healthcare Ltd v Maughan, Mr Maughan, a nurse in a residential care home, was suspended after an allegation of assaulting a patient. Four Seasons Healthcare (FSH) suspended him without pay for an initial period of seven days, as provided for in his contract of employment.
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Subsequently, Maughan was arrested, charged and released on bail subject to two conditions. First, he was prohibited from re-entering the care home. He was also required not to come into contact with prosecution witnesses. As a result, his suspension without pay continued.
After a couple of months, Maughan’s union requested that full pay be reinstated in arrears apart from the initial seven-day period. The employer said that, due to the seriousness of the charges, unpaid suspension would continue until a full investigation had been undertaken. However, at the request of the police, this could not take place until the prosecution had been completed.
Maughan was convicted and sentenced to two years’ imprisonment, but he brought a claim for his arrears of wages. The tribunal upheld his claim on the basis that only his eventual conviction was sufficient to terminate his contract on the legal ground of frustration. In the meantime his contract continued, and wages had to be paid.
On appeal, the issues for consideration were:
– whether the assault itself was enough to frustrate the contract of employment, particularly as it meant that it was unlawful for FSH to continue to employ Maughan under care home regulations
– whether the bail conditions that prevented him from entering work were sufficient to bring the contract to an end by frustration.
The Employment Appeal Tribunal (EAT) upheld the tribunal’s decision that Maughan was entitled to arrears of wages during his unpaid suspension up to the date of his conviction.
According to the EAT, automatic termination of the contract of employment by frustration requires “some outside event or extraneous change of situation, not foreseen or provided for by the parties within the contract”.
The fact that Maughan’s contract made specific reference to the physical abuse of residents in a detailed disciplinary procedure, meant that this could not be regarded as a frustrating event, as it was not unforeseen.
Although care home regulations made it unlawful for FSH to continue to employ Maughan unless he was “fit for work”, the EAT held that this was a qualitative decision that was inconsistent with automatic termination from a frustrating event.
It also dismissed the claim that a period of bail or bail conditions, rather than an eventual term of imprisonment, had frustrated the contract.
Lessons to be learned
The case confirms that frustration of a contract of employment is limited to a restricted set of circumstances. Effectively, the EAT points out that only a term of imprisonment will operate to automatically terminate the contract.
Even if the employee’s acts are so serious that they are prevented from working due to bail conditions or regulatory rules, employers must comply with the contract of employment and continue paying wages unless they have an express right to withhold them.
In many cases, as in this case, the employer will be requested by the police to suspend detailed investigations for fear of prejudicing a criminal trial. According to the EAT, FSH nevertheless had the option to dismiss Maughan rather than continue to suspend him, as there was sufficient information for grounds for dismissal.
However, the option to dismiss without an investigation will not be available in all cases, and should not be embarked upon without careful consideration. In some situations, this could open employers up to unfair dismissal claims, as well as breach of statutory dispute resolution procedures.
By Julie Quinn, partner, employment department, Allen & Overy