The Employment Appeal Tribunal (EAT) has upheld a tribunal decision that a clause entitling an employer to deduct a month’s salary if an employee fails to work their notice period was not a penalty, despite the employee not receiving their notice pay.
In this case, the EAT held that a tribunal had been correct to conclude that the relevant clause was a genuine pre-estimate of loss, rather than a penalty, and was therefore enforceable (Yizhen Li v First Marine Solutions and another UKEAT/0045/13).
Miss Li was employed by First Marine Solutions Ltd (FMS) and was appointed as the principal engineer on the Maersk contract. When a dispute arose between her and FMS, Miss Li resigned and claimed constructive dismissal. The tribunal found that there had been no repudiatory breach and therefore no constructive dismissal, so Miss Li had simply resigned.
The dispute arose over clause 12 of Miss Li’s employment contract which stated: “Either the Company or the Employee may terminate the Employee’s employment hereunder by notice in writing of not less than [one month] which may be from time to time adjusted… 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 Li gave notice on 18 July 2012, asserting that she had sufficient remaining holiday to stay away from work for the one month notice period which would expire on 31 August 2012. FMS argued that she had already exhausted her holiday entitlement and would need to work her notice period. Miss Li refused because she thought she had outstanding holiday.
In a letter dated the day after her resignation, FMS stated that she was due £3,000 salary for the period to 18 July and £2,835.62 in expenses. From that sum, FMS made a deduction of one month’s salary (£5,000) under clause 12 for the shortfall in the notice period. On 25 July 2012, Miss Li informed FMS that she was prepared to work her notice from that day. However, FMS had already engaged a consultant to replace Miss Li on the Maersk contract. FMS responded to Miss Li stating that it was too late for her to work her notice.
The tribunal held that clause 12 was not a penalty and was therefore enforceable. The £5,000 was a genuine pre-estimate of loss and not an “extravagant and unconscionable” sum. Miss Li had failed to work her one month’s notice so clause 12 applied. FMS had paid the sums referred to in the letter of 19 July so no further sum was due to Miss Li; who went on to appeal.
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