Deducting Pay for failing to Work a Notice Period

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The Problem

Situations occasionally arise when an employee hands in their notice but wants to leave without working their contractual notice period.  For a number of good reasons employers are often reluctant to agree to this and insist that the employee honours the contract. But what happens if that employee refuses to work their notice and the employer then wishes to rely on a contractual term entitling the employer to deduct a sum equivalent to the notice pay? Is such a term enforceable?

The Principle

This was the situation facing First Marine Solutions (Li v First Marine Solutions & Another (2013)).  In this particular case Ms Li was employed as a project engineer.  She refused to work her notice period when she first resigned because she believed she had outstanding holiday entitlements.  First Marine disputed this and said it would deduct pay equivalent to one month’s notice period from Ms Li’s final salary for not working. Ms Li’s contract of employment included a clause entitling First Marine to do this.  The contractual clause noted “if an employee leaves without working the appropriate [one month] notice the company would deduct a sum equal in value to the salary payable for the shortfall in the period of notice”.

Although Ms Li later indicated that she was prepared to work the remainder of her notice, by this time First Marine had employed a consultant to replace her and did not allow her to do so.  The EAT agreed with the tribunal’s decision that the above clause was not a penalty clause and it was therefore enforceable.

The Practice

It should be noted that this case was distinguished from a similar case (Giraud UK Limited v Smith) which found that a similarly worded clause was held to be a penalty clause.  The difference was the fact that Ms Li was a highly skilled project engineer whereas the employee in Giraud was a driver who could easily be replaced.  The EAT was also careful to warn that this case should not be used as authority to generally deduct sums equivalent to notice pay.  Employment contracts are unique and each case should be determined on its own facts.

In light of this case, employers may wish to consider adding such a provision to their contracts, but the provision will need to be carefully worded and employers will need to remember there is still no certainty that such a provision will be deemed enforceable if it was ever challenged.

For more information, help or advice please contact Tim Davies on 0191 211 7927.