In Cavenagh v William Evans Ltd [2012] EWCA Civ 697 the Court of Appeal held that an employer is not entitled to withhold payment of a contractual payment in lieu of notice even though it later discovered that an employee had committed acts of gross misconduct prior to dismissal.
Mr Cavenagh was the Managing Director of William Evans and was made redundant. Williams Evans decided to exercise a clause in Mr Cavenagh's employment contract which allowed it to terminate his employment with immediate effect and pay him in lieu of his six month notice period. However, shortly afterwards William Evans discovered that Mr Cavenagh had committed acts of gross misconduct during his employment by transferring some of the company's money into his pension scheme.
The Court of Appeal held that William Evans had not been entitled to rely on this subsequently discovered misconduct when refusing to pay Mr Cavenagh the payment in lieu of notice. William Evans had brought Mr Cavenagh's employment to an end by exercising a contractual payment in lieu of notice clause. At this point Mr Cavenagh had a contractual right to receive the payment from William Evans which had accrued as a debt. There was nothing in the provision which deprived Mr Cavenagh of the payment if his employer later found out that he had committed acts of gross misconduct pre-termination.
Comment: It is interesting that an employer will be able to rely on subsequently discovered misconduct as a defence to claims for wrongful dismissal – that is, where the employer terminates employment in breach of the terms of the employee's employment contract. This is because the claim is one for damages rather than for payment of a debt. However, where an employer lawfully brings the employment to an immediate end by invoking an express contractual payment in lieu of notice clause, the payment crystallises as an accrued debt and an employer cannot renege on payment simply because it later uncovers that the employee was guilty of gross misconduct prior to dismissal. A practical step for employers would be to incorporate wording into payment in lieu of notice clauses allowing them to withhold payment in these circumstances.
http://www.bailii.org/ew/cases/EWCA/Civ/2012/697.html
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