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Senior executives and gross misconduct: do they have to get notice pay?

05 March 2015 #Employment


In light of the controversy surrounding the payouts made to two former Tesco directors, there have been further calls , including from the City, for the notice periods in senior executives contracts to be reduced.

A recent High Court case involving Leeds United FC raises the issue of whether a senior executive should still be entitled to notice pay, 12 months in this case, when it became known only after giving notice of termination that the executive had committed gross misconduct.

Once the decision has been made to dismiss an employee, the employee is ordinarily entitled to receive pay and any other contractual benefits during his or her notice period. What happens however, if the employer discovers that it could have dismissed the employee earlier and without notice on the grounds of gross misconduct? Can the employer rely on the employee’s gross misconduct to withhold pay and contractual benefits during the notice period?

The answer very much depends on whether the employee has the benefit of a PILON (payment in lieu of notice) clause in their contract. If an employer chooses to exercise the PILON clause upon dismissal, this gives rise to a debt which must be paid, even if it subsequently comes to attention before the monies are paid that the employee has committed an act of gross misconduct.

In the absence of a PILON clause, however, an employer may bring an employee’s contract of employment to an end immediately for gross misconduct, even when notice of termination has already been given. That is so, even if the act of gross misconduct was not known of at the time notice was given and may have taken place some years previously. This is what happened in the recent case of Williams v Leeds United Football Club [2015] EWHC 376.

Mr Williams was employed as a Technical Director at Leeds United Football Club (“the Club”). He did not have a contract of employment as his terms and conditions had been agreed orally. In July 2013, the Club underwent restructuring process and Mr Williams was identified as being at risk of redundancy. Following several meetings between the Club and Mr Williams, Mr Williams was given written notice of the termination of his employment by reason of redundancy.  By that stage, however, the Club had already decided that it was not going to pay Mr Williams any notice pay and had, for approximately a month already, been using the services of a forensic investigator to investigate Mr Williams computer.

Mr Williams was entitled to a salary of £200,000 per annum, terminable on 12 months’ notice.  Shortly after giving notice, the forensic investigators hired by the Club found that Mr Williams had sent emails containing pornographic images to several people, one of whom was a female, junior employee who worked at the Club.  The emails had been sent over 5 years prior to Mr Williams’ dismissal.

By his own admission, Mr Williams agreed that the content of the emails were obscene but argued that the act of sending the emails did not amount to a sufficiently serious breach entitling the Club to bring his contract to an end, without notice.

Mr Williams’ arguments were rejected at the hearing. The judge found that Mr Williams occupied a very senior position at the Club and consequently, he should have been aware of the potential consequences of sending pornographic emails to a number of people, including a female employee at the Club. The High Court ruled that Mr Williams’ conduct was sufficiently serious to entitle the Club to bring the contract to an immediate end, without notice. 

This case confirms that employers are entitled to bring an employee’s contract of employment to an end, without notice, upon the subsequent discovery of an employee’s gross misconduct.  Employers should tread carefully however, where the employee has the benefit of a PILON clause. Once an employer chooses to exercise a PILON clause, it cannot rely on subsequently discovered misconduct to withhold notice pay, subject to how the clause is drafted.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at employmentunit@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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