Call us now 01473 688100

No penalty when an employer deducts salary for notice not worked

Posted on 6th August 2014
Case law

When an employee does not work their notice period it is not a penalty to deduct the salary they would have been paid had they worked.

On this page

Meet the author

Julie Temple Julie
Temple
Partner Telephone: 01473 694407

the amount deducted reduced according to the balance of notice unexpired and it was not excessive

Li v First Marine Solutions Ltd [2014] EAT

The facts

Miss L was a project engineer for First Marine. Mr Moutrey, who set up First Marine, headhunted Miss L. They agreed a contract of employment, which included a clause:

‘If an employee leaves, without working the appropriate notice, the company will deduct a sum equal in value to the salary payable for the shortfall in the period of notice.’

Miss L had principal responsibility for a significant customer contract. There was a dispute between Miss L and Mr Moutrey. Miss L resigned and gave four weeks’ notice. She did not work her notice period. She claimed she was entitled to resign following the dispute and also that she had holiday to take. First Marine did not agree.
 
They wrote to Miss L the day after her resignation saying she had overtaken her holiday entitlement, Miss L would be paid to the date of resignation and her expenses, but they would deduct £5,000, being the sum equivalent to salary during the notice period she was not working.

Miss L, one week later, said that she would work the rest of her notice period. By this time First Marine had engaged a consultant to cover Miss L’s work.

As a matter of fact the employment tribunal found that Miss L had not been entitled to resign following the dispute and that First Marine had asked Miss L to work her notice period but she refused. She also did not have holiday to take. They therefore decided that First Marine was entitled under the contract of employment to deduct £5,000.

Miss L challenged the deduction on the basis that it was a ‘penalty’ or deterrent against her leaving without giving appropriate notice.

The decision

The EAT considered that Miss L was a highly paid employee, a project engineer in relatively short supply who could not be replaced at short notice without difficulty and significant expense and that she had been headhunted. It also considered that the amount deducted reduced according to the balance of notice unexpired and it was not excessive. The EAT upheld the decision that the clause was enforceable and not a penalty.

In practice

The EAT was hesitant. It did not want to set a precedent for other cases. It noted that the parties had not considered that the clause was a simple mechanism giving the employer the right not to pay an employee who does not work for all or part of their notice period. Instead they had jumped to whether or not it was a penalty.
 
In our experience clauses providing for payment of a fixed or easily calculable sum by an employee to their employer on termination are relatively few and far between. However, this case highlights that a balance needs to be struck if the clause is to be enforceable.

Review your contracts of employment today

Contracts of employment can be complex. If you need a new contract or your contracts should be reviewed to ensure that they are up to date get in touch with one of our specialist employment law solicitors today. We will discuss what you need and provide you with a fixed price quotation.

Clear, concise and accurate information for employers and HR professionals

Visit the hrlegal archive

Find out how we can help you

Click here to contact us or phone us 01473 688100

Keep your legal costs down with

Professional telephone and email advice and guidance for solving your everyday employment law and HR issues

No waffle, well written employment law updates and HR news articles, including case reports, helping employers and people managers keep up to date with what's important

Fixed-cost review and benchmarking against current legislation and best practice of your employment contracts and HR policies and procedures

Bespoke contracts of employment, policies and procedures that are legally robust, protect your organisation and comply with HR best practice

Related articles