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Does an employee waive an employer’s repudiatory breach by resigning on notice and continuing to work?

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If an employer commits a repudiatory or fundamental breach of the employment contract, such as failing to pay the employee or acting in breach of the implied term of mutual trust and confidence, the employee has a choice.

He or she can choose to accept the breach as bringing the contract to an immediate end – in other words, as a constructive dismissal entitling the employee to resign without working out his or her notice period. He or she will be freed from all future obligations under the contract.  Importantly, these will include any restrictive covenants that would otherwise prevent the employee from competing with the employer after the employment has ended.

Alternatively, the employee can choose to waive the employer’s breach and affirm the contract as remaining in force. He or she will be taken to have done so by delaying too long in accepting the breach or by doing something inconsistent with treating the contract as at an end.

What happens if the employee asserts that he or she has been constructively dismissed but resigns on notice and continues to work?

The High Court in Brown and others v Neon Management Services Ltd and another [2018] EWHC 2137 held that working a lengthy period of notice after resigning in response to a repudiatory breach can amount to a waiver of the breach and affirmation of the contract, such that the employee will not be released from his or her restrictive covenants.

The court found that failing to pay certain salary increases and discretionary bonuses was a repudiatory breach which the employees in this case were entitled to accept as bringing their contracts to an end. The notice periods were 6 months for some and 12 months for others.  Mr Justice Choudhury found: “It would be unconscionable to keep one’s right to discharge a repudiated contract alive for that length of time in the absence of any further breaches of contract.”  Accordingly, by indicating that they would work their notice periods, the employees had waived the repudiatory breaches and affirmed their employment contracts as continuing in force.

Mr Justice Choudhury held that even if the employee has purported to reserve their rights: “It is well-established that in the face of a repudiatory breach of contract the employee must not leave it too long before resigning otherwise he will be taken to have affirmed”.

However, in this case, the employer committed further repudiatory breaches whilst the employees were working out their notice periods (including making unwarranted findings of misconduct, reporting such conduct to the regulator without proper foundation, and stating that they had lost trust and confidence in the employees). The court held that the employees were entitled to accept those subsequent breaches (alone and in combination with the previous breaches) as bringing their contracts to an end and releasing them from their restrictive covenants.

Employers may therefore take some comfort that, even if they are in repudiatory breach, if the employee continues to work out their notice, the employee may have waived the breach and affirmed the contract. An employee cannot have his or her cake and eat it – he or she cannot accept salary and other benefits under the employment contract from the employer and at the same time treat  themselves as discharged from future obligations under it, including compliance with restrictive covenants at an end.

However, employers should be wary that employees may be on the “look-out” to allege repudiatory breaches during the notice period as a way of escaping from restrictive covenants, especially in team move situations. Conduct relied on before giving notice may be taken into account in combination with the conduct relied on afterwards in order tip the scales to establish a repudiatory breach.  Employers should be careful to ensure that any communications or dealings with such employees do not result in such a breach.

It should be noted though that this case involved claims for wrongful dismissal and breach of contract. It did not deal with statutory claims for unfair dismissal under the Employment Rights Act 1996, which expressly provides that employees may claim constructive unfair dismissal whether they resign with or without notice in response to the employer’s conduct.