Beware of unlawful penalty clauses. This month we look at deductions for
lack of notice plus cases on discretionary bonus payments, maternity leave,
union representation at hearings and "same race" discrimination
Clause allowing deductions for lack of notice unlawful
Giraud UK Limited v Smith
Unreported, June 2000, EAT
Smith’s contract contained a clause that if he failed to give four weeks’
notice or work his notice, Giraud could deduct from his final salary a sum
equivalent to the amount of notice not given or worked.
Smith resigned and left immediately and Giraud withheld four weeks’ pay.
Although Smith’s constructive dismissal claim was unsuccessful, the tribunal
held the clause was a penalty clause and therefore unenforceable.
Giraud appealed, arguing the clause was a lawful "liquidated
damages" clause. The EAT found the clause enabled Giraud to deduct the pay
irrespective of whether it suffered any actual loss. Further, the company had
an unlimited right to recover damages from Smith if its actual loss exceeded
four weeks’ pay.
There had been no genuine pre-estimate of loss by Giraud – the purpose of
the clause was to deter employees from leaving without notice. Consequently, it
was a penalty clause. The appeal was dismissed.
Advance notice of changes could constitute fundamental breach
Nelson v Kingston Cables Distributors
IRLB 645, EAT
While on maternity leave, Nelson was informed by letter that she would be
required to perform a different role on her return to work.
She refused to accept the changes and resigned but her constructive
dismissal claim was dismissed.
The tribunal held Nelson had acted prematurely: she had not returned to work
and so had not actually been given a different role, so had suffered no
Nelson successfully appealed. The EAT considered the letter was a clear
indication that there would be a fundamental change to Nelson’s role on her
return to work and that Nelson had to accept this role if she returned from
maternity leave. Further, the letter could be interpreted as Kingston’s advance
intention not to be bound by its original contract (an "anticipatory
repudiation"), enabling Nelson to treat the contract as at an end.
Discretion to be exercised rationally
Clark v Nomura International
Unreported, September 2000, Queens Bench Division
Clark was an equities trader whose contract provided for a discretionary
bonus "dependent on individual performance".
Clark was successful, earning profits of almost £14m in his first year for
which he was paid a bonus of over £2m. He was dismissed for misconduct and
given three months’ notice.
He was paid no bonus for his second year even though he had earned profits
of £6m. Clark brought a successful breach of contract claim.
Nomura argued that satisfactory performance was merely one factor to be
taken into account when exercising its discretion. The Court disagreed. The
bonus was dependent solely on performance. Although Clark had been dismissed,
the reason (which included inappropriate dress and poor timekeeping) had no
impact on his performance.
Nomura’s discretion had to be exercised rationally and without perversity.
It was irrational not to pay a bonus to such a successful trader and Clark was
awarded £1.3m in damages.
Unions obliged to represent members
English v Unison
IDS Brief 668, County Court
On 4 September the statutory right to be accompanied came into force giving
workers the right to be accompanied by a colleague or trade union official at
disciplinary and grievance hearings.
There is no statutory obligation to act as the companion but a trade union
may breach its own rules if it declines to act. English was a member of Unison
and his union rule book provided that members were entitled to a Unison
representative at disciplinary hearings.
English had been accompanied by a Unison representative at two disciplinary hearings.
When a third incident occurred Unison refused to provide representation because
English’s case lacked merit. English was eventually dismissed.
He brought a successful breach of contract claim. The judge said the
provision in the rule book was a contractual term but held members had a
qualified right to representation unless in all the circumstances that would be
Possible to discriminate against person of same race
Graham v London Borough of Barnet
IRLB 647, EAT
Graham, a training adviser, and Bennett, her line manager, were both black.
Graham abandoned a training course she was presenting halfway through after
learning her daughter was ill. She was suspended on full pay and given a
written warning by Bennett for unacceptable behaviour.
Her internal appeal was dismissed, as was her race discrimination claim. The
tribunal held Graham could not infer from the facts that Bennett would have
treated a white woman differently. It considered it unlikely Bennett would have
discriminated against someone of the same race as herself.
Graham appealed. The EAT held it could not be assumed that two people of the
same racial group would not discriminate against each other although the
"sameness" could be taken into account. Bennett’s treatment of Graham
was not race-based and the appeal was dismissed.