Key points Where an employee commits a fundamental breach of contract and the employer wishes to take action in response, it must do so without delay. If it is not possible to take such action, the employer should reserve its position and should not take steps which could affirm the contract (and so waive its rights).
If an employee has committed a fundamental breach, you should take action without delay. If the employee is subsequently absent, make it clear that your position in relation to such action is reserved.
MSHK Limited – formerly Ministry of Sound Holdings – summarily dismissed Ben Cook on the basis that he had committed a fundamental breach of his employment contract.
The Court of Appeal considered whether it had waited too long before accepting the breach and so, had affirmed the contract.
Cook informed MSHK that he was resigning (with six months’ notice) having accepted a job at Warner Music UK. He confirmed he would not undertake any activities that competed with MSHK. Afterwards there was some dispute as to whether he would be competing or not. Cook then went off sick during his notice period.
When he returned to work some time later, disciplinary proceedings were commenced against him and he was summarily dismissed. MSHK said Cook had breached the essential bond of trust and confidence on the following grounds:
He had lied when he said his new employment would not be competitive (Ground 1);
He had accepted a £100,000 company loan after handing in his resignation which had breached his fiduciary duties (Ground 2).
MSHK issued proceedings in the High Court seeking a declaration of the lawfulness of Cook’s dismissal (to protect its position) and damages.
The High Court found partially in MSHK’s favour. Cook appealed against that decision, arguing that MSHK had affirmed the contract and so could not rely on the alleged breaches to summarily dismiss him.
The Court of Appeal allowed Cook’s appeal in part. It found that MSHK had given no indication during his absence that it intended to commence disciplinary proceedings against Cook in relation to Ground 1. Moreover, during his absence, MSHK had tried to smooth things over, expressing a hope that he would return to work soon.
Overall, the Court of Appeal held that this amounted to a waiver by MSHK of its rights in relation to Ground 1.
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
By contrast, the Court of Appeal found that MSHK had reserved its position in relation to Ground 2, by writing to Cook, indicating its concern and stating that its position was reserved and so, therefore, it was entitled to rely on that ground to justify the summary dismissal.
“MSHK had given no indication during his absence that it intended to commence disciplinary proceedings against Cook in relation to Ground 1”.
