20 June 2014: What do you do if an employee leaves without working their contractual notice?

In Li v First Marine Solutions this month, the EAT held that a clause deducting a month’s pay for Ms Li’s failure to work her contractual notice period was not a penalty clause.

Ms Li resigned but did not work her notice period because she wrongly thought she had outstanding holiday to use up. Under her employment contract, Marine Solutions were able to withhold her pay for a) the period not worked but b) also a further sum equal that shortfall. The notice clause actually said:

“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.”

Most people would think that meant ‘no work, no pay, but the parties agreed it was also meant to compensate for the additional costs on breach; namely a hurried recruitment.

The EAT held that this was not an unenforceable penalty clause; Ms Li had not worked her notice period, and it was difficult and expensive to recruit a replacement at short notice.

Comment: It would be unwise for employers to assume that similar clauses could be used to protect themselves against employees who resign and leave without serving their contractual notice.

The EAT observed that tribunals should consider the ‘reality of employment circumstances’, and what effect was really intended. The normal principle remains ‘no work, no pay’. Tribunals have to think whether the clause is a penalty clause, a liquidated damages clause or merely a clause allowing the employer to withhold pay.

Employers can always sue their employees for breach of contract if they leave without serving their contractual notice. In practice few employers do so, because it can be difficult to quantify the losses arising from someone leaving in those circumstances.

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