Li v First Marine Solutions
The Employment Appeal Tribunal (“EAT”) held in this case, that a clause deducting a month’s salary for an employee’s failure to work their notice period, was not a penalty clause.
Ms Li resigned and did not work her notice period because she said she had outstanding holiday. The parties agreed that the effect of the contract, was that the employer could not only withhold her pay for the period not worked, but also deduct from any sum outstanding, an amount equal in value to that shortfall. The Claimant argued that this was unenforceable as a penalty clause.
The Employment Tribunal held that the clause was enforceable. The Claimant had not worked her notice period and did not have holiday remaining, plus it was difficult and expensive to recruit a replacement at short notice. In upholding their decision reluctantly, the EAT expressed concerns, that the parties had agreed the effect of the clause. However, since the clause was clear and unambiguous and reflected the reasonable loss suffered by the employer, it was not a penalty clause and thus was enforceable.
In Practice
This case will be a surprise to many who would not think it is possible for an employer to deduct money in this way. The EAT was very sympathetic to the employee in this case and said this was an exceptional case. Paul Burton, Employment Associate says, “It will still not normally be acceptable to have such clauses and any employer considering doing so should seek legal advice beforehand.”
At Frettens, all of our solicitors offer a free initial meeting or chat on the phone to answer your questions. If this article raises issues for you or your business, please call us on 01202 499255 andKate or Paul will be happy to discuss it with you.
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