July 24, 2014

Deduction for failure to serve notice is not a penalty clause

Her employment contract had a clause which stated: "Either the company or the employee may terminate the employee’s employment hereunder by notice in writing of not less than [1 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".

When the employer wrote to her after she resigned, it told her that she was owed £3,000 in salary and £2,835.62 for expenses, out of which it stated that it was going to subtract 1 month’s salary of £5,000 in exercise of the above mentioned clause representing the shortfall in the notice period. When she issued proceedings, the Tribunal held that the clause was not a penalty clause and was therefore enforceable as being a genuine pre-estimate of loss. She had failed to work her notice period and as such the clause was applied. This decision was upheld in the EAT which again held that the clause was not a penalty clause but was a genuine pre-estimate of loss based on the employee’s refusal to work her notice period. The onus was on the Claimant to demonstrate that the clause was a penalty clause, which she had failed to do.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.

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