UK: Pilon Clauses: No Clawback For Misconduct

Cavenagh v William Evans Ltd [2012] EWCA Civ 697

The Court of Appeal has held that an employee who had his employment terminated on the basis that he would receive a payment in lieu of notice remained entitled to the payment, even though his employer had later discovered his gross misconduct was sufficient to warrant summary dismissal.

Facts

Having confirmed that it would make a payment in lieu of notice, the employer subsequently discovered Mr Cavenagh's gross misconduct and decided not to honour its agreement to pay him in lieu, arguing that it was discharged from its obligation to do so in light of the misconduct that had been discovered. 

The County Court dismissed Mr Cavenagh's claim for recovery of his notice pay as a debt. It did so on the basis that the prior gross misconduct gave the company a complete defence to the claim. 

The Court of Appeal overturned the County Court's decision and held that the company owed the notice pay as a debt. Having considered earlier decisions relevant to the issues, the Court held that there was no authority that after-discovered misconduct provides an employer with a defence to an action for payment of a debt.  Neither was there any contract law principle which precluded Mr Cavenagh from recovering the debt owed to him.

Comment

This decision is a helpful warning to employers that, in the absence of careful drafting, PILON clauses may entitle employees to an unjust reward. 

Employers should consider amending PILON clauses so that they provide that the obligation to make a PILON will not apply where facts come to light before payment which, had they been know beforehand, would have entitled the employer to dismiss without notice.

In an earlier Court of Appeal decision in Boston Deep Sea Fishing v Ansel, it was held that an employer could justify an otherwise wrongful summary dismissal by reliance on facts not known at the time it dismissed an employee. The court in this case rejected the argument that this meant an employer could rely on information discovered after a lawful termination in order to avoid payment of an accrued debt.

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