Constructive dismissal & offers to settle
In a recent case decided by the High Court the question of whether an employee, who tries to negotiate a settlement and then subsequently resigns, can make a claim for breach of contract was considered.
Constructive dismissal arises where the employer does not dismiss the employee but the employee resigns because of the employers behaviour.
In this case the employer will be in breach of an express or implied term in the employees employment contract.
The legal definition for Constructive Dismissal is in Section 95(1)(c) of the Employment Rights Act and states that an employee is dismissed if;
‘(c) the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct.’
Mr Nigel Gibbs was appointed Assistant Manager at Leeds United FC in April 2013 for a fixed term which would end in June 2016. Because his contract was for a fixed term Leeds FC were under a legal obligation to employ or pay him for the full period of the contract.
Mr Gibbs had been brought in as Assistant Manager at the same time and at the request of the new Manager Brian McDermott.
On the 31st May 2014 Mr McDermott left his employment by agreement with Leeds FC and there followed considerable speculation about who the replacement would be. Mr Gibbs was fully aware that when a new manager is appointed they usually bring their own supporting staff with them, in the same way Mr McDermott had brought Mr Gibbs along with him. It is for this reason that it is common practice to negotiate fixed term contracts so that managers have some guarantee of employment/income.
On the 2nd June 2014 Mr Gibbs met with Leeds FC Chairman Massimo Cellino. It was agreed between the parties that Mr Cellino had indicated to Mr Gibbs that he wanted him to stay and that he was considering Mr Gibbs for Head Coach, however Mr Gibbs was not interested in taking this role.
Following these discussions Mr Cellino wrote to Mr Gibbs to make it clear that he wanted him to remain at work and Mr Gibbs was instructed to return to work on the 9th June 2014. Mr Gibbs had expected to be on holiday at this time, as it was post-season and normal practice to take holiday.
Discussions then took place to explore the possibility of Leeds FC reaching an agreement with Mr Gibbs to terminate his employment, however no agreement could be reached.
Mr Gibbs was then subsequently left out of a pre-season training trip to Italy, one which he would ordinarily have gone on. Mr Cellino informed Mr Gibbs that he would be looking after the first team players who did not travel to Italy (there were not any) and that he could do some cleaning work at the training ground.
On the 19th June Mr Cellino announced at a press conference that Mr David Hockaday was to be appointed head coach/manager of Leeds and that Junior Lewis was to be appointed assistant coach. He did however also stated that Mr Gibbs would remain part of the staff of Leeds FC.
Despite continuing to attend work Mr Gibbs was left with nothing to do and he complained to Mr Cellino that he wanted work to be done that was relevant and befitting his status as Assistant Manager. Mr Gibbs was then excluded from a football staff meeting and told to work as the assistant to the Head of Young Player Development. Mr Gibbs was also not issued with the new seasons kit, instead being provided with the previous seasons kit.
On the 23rd July 2014 Mr Gibbs received a call from Club Secretary, Mr Bean to tell him that he would be receiving an email telling him his new role was with under 18 and under 21 players, not the first team players.
An email confirmed this and stated that he was to have no contact with the first team players.
Mr Gibbs resigned by a letter dated 26th July 2014 on the basis that Leeds FC were not prepared to honour his contract as Assistant Manager.
Mr Gibbs made a claim in the High Court for Breach of Contract for payment of the remaining two years’ salary in accordance with his fixed term contract.
Leeds FC argued that Mr Gibbs had intended to leave all along and that he had only held on to his job to negotiate with them and therefore he had not resigned in reliance on their breach.
The Court did not agree with Leeds FC ‘s argument stating that Mr Gibbs had been ready and willing to work under the terms of his contract as Assistant Manager however it had been Leeds FC who had indicated that they did not want him to perform work of a description normally associated with the title of Assistant Manager. It was not reasonable for Leeds FC to direct Mr Gibbs to work with under 21’s and to stay away from the first team.
There was clearly a loss of status, which was obvious to the parties, and to others with whom Mr Gibbs had to deal.
The Court stated ‘Where, objectively viewed, one party to a contract shows by their conduct that they no longer intend to be bound by it in its essential terms, that is repudiatory.’
The email of the 23rd July 2014 had prompted Mr Gibbs to resign. The fact that he had from time to time expressed the view that he was prepared to leave, under agreed terms, does not prevent the conduct of Leeds FC being a breach.
The Judge went on to state that he would have found that the conduct of Leeds FC after 31st May 2014 when taken overall, ‘to amount to a breach of contract to an extent which was repudiatory, even if the stark terms of the email 23 July were not also to be considered.’
Points to note
This is a case involving a breach of contract claim rather than a claim for constructive unfair dismissal which would ordinarily be pursued in the Employment Tribunal. The reason for this is because Mr Gibbs did not have the required 2 years’ minimum employment to claim constructive unfair dismissal.
Mr Gibbs claim was for damages for breach of the fixed term contract which meant that he could potentially recover the full amount of his loss for the remaining period of the contract approx. 2 years at a value of £420,000.
The limit on compensation in the Employment Tribunal for breach of contract is £25,000.
Action to take
- Ensure that your managers and supervisors understand the risks of treating someone unfairly during their employment and trying to induce them to leave;
- If you use long fixed term contracts consider negotiating a ‘break clause’ into them which will enable you to terminate the contract early;
- If you are unsure about the implications of this case on your business contact me for a free no-obligation discussion firstname.lastname@example.org
Mr Nigel Gibbs v Leeds United Football Club Limited – High Court