Appeal No. EAT/705/91

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 15 December 1993
	Judgment delivered on 3 March 1994

	Before

	HIS HONOUR JUDGE B HARGROVE OBE QC

	MR D O GLADWIN CBE JP

	MISS A P VALE

MARSHALL (CAMBRIDGE) LTD	APPELLANTS

MR M R HAMBLIN	RESPONDENT

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellants	MISS L BOSWELL
(OF COUNSEL)
Rustons & Lloyd
136 High Street
Newmarket
CB8 8NN

For the Respondent	IN PERSON

	JUDGE HARGROVE QC:  The Respondent was employed by the Appellants principally as a car salesman.  For a period of time he also participated in management.  At the date of his cessation of employment he had reverted to the position of salesman.  His salary comprised a basic wage and he also received a commission on the cars which he sold.  The terms upon which he received commission are set out in the "Sales Executive Commission Scheme" in the following terms:

""Conditions of Employment"

All bonus commission, merit or discretionary payments which maybe operated by the Company are outside the fixed Terms and Conditions of Employment and are operated at the absolute discretion of the Company."

His commission constituted a substantial proportion of his receipts, sometimes reaching 75%.

	On 18 November 1990, he gave written notice of resignation.  It is common ground that such notice would produce a termination date in three month's time, that is 18 February 1991.

	Negotiations were entered into between the Appellants and the Respondent for the payment of a sum of money to facilitate the Appellants dispensing with the services of the Respondent prior to 18 February 1991.  These negotiations broke down mainly upon the issue of payment of commission.  The Appellants decided to pay the Respondent the sum total of his salary (excluding any commission) up to 18 February.  Such payments were made gross.  The Appellants refused to allow the Respondent to continue working after 30 November.  One of the effects of that decision was that between 30 November and 18 February Mr Hamblin was deprived of the opportunity of selling vehicles and consequently he lost any chance of being paid commission.

	The Respondent claimed that he was unfairly dismissed and the Industrial Tribunal upheld that submission.  In relation to notice the staff handbook which we are informed was accepted by both sides in front of the Industrial Tribunal as representing the Contract of Service, the following terms appear.

"Notice

Employment may be terminated by previous notice in writing on either side in accordance with your Contract of Employment.  Unless increased by an individual Agreement, this will normally be as follows..."

There is then set out various periods of acceptable notice and in the case of Mr Hamblin who was an employee of very long standing, the period would have been not less than 12 weeks.  The handbook continues:

"Notice  will normally be given at the beginning of the appropriate pay period.  Payments in lieu of notice are at the discretion of the Company."

	The Tribunal's main findings were:

"10.  We do not accept Miss Boswell's argument based on section 49(3) of the 1978 Act.  In our view, the words "waiving his right to notice" mean waiving a right to insist that notice should be given in accordance with a contract of employment.  In this case the applicant had given notice.  This fact is agreed.  In the circumstances, the question of waiving a right to notice just does not arise.  One cannot waive a right to notice in a case where notice has already been given.

11.   In any event, whatever the meaning of section 49(3) may be, we agree with Mr Devonshire that in this case there was never any question of waiving any right at all.  On 30 November 1990 Mr Pickett purported to terminate the applicant's contract of employment - and did so.  In the Notice of Appearance the respondents have said that they used their discretion in making a payment in lieu of notice in accordance with the terms and conditions of employment.  An employer, in our view, cannot make a payment in lieu of an unexpired period of notice already given by an employee.  The meaning of "in lieu of" is perfectly plain.  In this case there was no question of the respondents giving notice to the applicant:  it was the applicant who had given notice to the respondents.

12.   We can well understand why the respondents did not wish the applicant to work his full notice.  In most cases, where there is no element of commission, no doubt an employer can satisfy his obligation to pay an employee during a notice period by making a payment in lieu of notice.  A  payment in lieu of notice, as the Court of Appeal have recently emphasised, is a payment of liquidated damages for breach of a contract of employment.  In a case where the prospect of earning commission during the notice period may be a substantial one, a payment in lieu of notice will not absolve an employer from his obligations.  We agree with Miss Boswell that an employee cannot insist on remaining in employment after giving notice.  In circumstances such as this, a mutual agreement is called for.  Such a mutual agreement, as pointed out in McAlwane v Boughton Estates Ltd [1973] 2 A11 ER 299, a case referred to us by Miss Boswell, will not alter the original character of the termination of contract of employment; it will merely alter the notice period.  In this case, there was no attempt to reach any agreement as to the liability to pay commission during the notice period.

13.   Section 55(4)(a) of the Employment Protection (Consolidation) Act 1978 provides that the effective date of termination, in relation to an employee whose contract is terminated by notice, means the date on which the notice expires.

14.   On 30 November 1990 the applicant was still employed by the respondents.  His employment was terminated summarily, with a "payment in lieu of notice", on that date.  He was dismissed by the respondents."

The Majority View
"Payment in lieu"
	The Tribunal gave their decision before the case of Delaney v Staples [1992] ICR 483 was decided and at page 488 Lord Browne-Wilkinson analysed the expression "payment in lieu of notice" as follows:

"The phrase "payment in lieu of notice" is not a term of art.  It is commonly used to describe many types of payment the legal analysis of which differs.  Without attempting to give an exhaustive list, the following are the principle categories.

(1)  An employer gives proper notice of termination to his employee, tells the employee that he need not work until the termination date and gives him the wages attributable to the notice period in a lump sum.  In this case (commonly called "garden leave") there is no breach of contract by the employer.  The employment continues until the expiry of the notice:  the lump sum payment is simply advance payment of wages.

(2)  The contract of employment provides expressly that the employment may be terminated either by notice or, on payment of a sum in lieu of notice, summarily.  In such a case if the employer summarily dismisses the employee he is not in breach of contract provided that he makes the payment in lieu.  But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment.

(3)   At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice.  Again, the employer is not in breach of contract by dismissing summarily and the payment in lieu is not strictly wages since it is not remuneration for work done during the continuance of the employment.

(4)  Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice.  This is by far the most common type of payment in lieu and the present case falls into this category.  The employer is in breach of contract by dismissing the employee without proper notice.  However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment.  Since the employment relationship has ended no further services are to be rendered by the employee under the contract.  It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment.

The nature of payment in lieu falling within the fourth category has been analysed as a payment by the employer on account of the employee's claim for damages for breach of contract.  In Gothard v Mirror Group Newspapers Ltd [1988] ICR 729, 733, Lord Donaldson of Lymington MR stated the position to be as follows:

"If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal.  During the period to which the money in lieu relates he is not employed by his employer."

In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category.  But it is not, and was not meant to be, an analysis of a payment in lieu of the first three categories, in none of which is the dismissal or breach of contract by the employer.  In the first three categories, the employee is entitled to the payment in lieu not as damages for breach of contract but under a contractual obligation on the employer to make the payment."

Had the employer given notice the present case would have fitted within the second category as defined by Lord Browne-Wilkinson in Delaney.  Does the fact that the employee gives notice affect the position?  This raises the problem whether such a term of a contract can be utilised in order to cut short the period of notice already given by the employee.

	The approach of the Tribunal was that the employer could not waive a notice which had already been given by the employee.  With respect we do not consider that this is a correct analysis of the situation.  Until such time as the employee's notice expires, the contract of employment continues.  The employer is entitled to utilise a term of that contract to bring the employment to an end at an earlier date than the date of the expiry of the employee's notice.  The waiver of the employer is in relation to the period of notice (provided he pays the appropriate sum in lieu).  In spite of some considerable hesitation we have come to the conclusion that in a contract of employment which gives the employer option to make a payment in lieu, there is no right in the employee to work out his notice.

	We therefore agree with the contention of the Appellants that if this does not fit precisely within the analysis of the second category outlined by Lord Browne-Wilkinson, we regard it as a further category with the same attributes as the that category save only that the employee has given notice.  It was urged upon us that any other approach to the problem would result in the employee being in a position to "blackmail" the employer by forcing him to retain an unwanted employee in his service.    

	The Tribunal here held that an employee cannot insist on remaining in employment after giving notice.  It does not seem to us that this is a decisive argument, and if our interpretation of contracts containing the discretion to make a payment in lieu of notice is correct the difficulty does not arise.

	We find some support for our view that the employer has a right to waive a period of notice and where it is specified in a contract, make a payment in lieu, by the terms of section 49(3) of the Employment Protection (Consolidation) Act 1978.  This provides:

"Any provision for shorter notice in any contract of employment with a person who has been continuously employed for [one month] or more shall have effect subject to the foregoing subsections, but this section shall not be taken to prevent either party from waiving his right to notice on any occasion, or from accepting a payment in lieu of notice."

Commission
	Does the fact that the employee derives the major part of his remuneration from commission affect the position?  At one stage we were attracted to the argument that an employer in such cases is under a duty to allow the employee to earn his commission.  A waiver of notice and a payment in lieu prevents the employee earning such commission and the employer would thereby be in breach of contract.  With some hesitation we have reached the conclusion that two factors negate that approach.  The first is that there is no right to commission at all under the contract.  All payments are made at the discretion of the Company under the terms of the contract.  We considered whether, although there was no right to payment of commission, was there a breach by the employer of preventing the employee from placing himself in a position where the Company's discretion could be exercised towards him?  In the final analysis we considered this goes beyond the accepted approach that an employer may not prevent an employee from earning  a commission.

	Secondly, upon the hypothesis that some sum in respect of lost commission is due to the Respondent that does not prevent the employer waiving his notice and bringing matters to an end.  Any further claims can be pursued under section 50, Schedule 3 of the 1978 Act.  The employee's right is to pursue a claim in the County Court (see Westwood v Secretary of State for Employment [1985] ICR 209.

Admission of Wrongful Dismissal
	By paragraph 4.3 the Industrial Tribunal held:

"There followed an exchange of letters, as recorded in the Originating Application, and, on 30 November 1990, there was a meeting attended by the applicant, with Mr Sayer in attendance, Mr Pickett and one of the respondents' directors.  Mr Sayer took a comprehensive note, which included the following paragraph:

"Mr Pickett, addressing Mr Hamblin, commented that it was common for the Contract of Employment to be terminated by the Company and for the payment to be made in lieu of notice.  By making such a payment, the Company recognised that it was in breach of contract satisfying any claim for damages by paying in lieu.  He went on to say that the payment in lieu could be made free of tax and confirmed that it would be so here.  He was adamant that Mr Hamblin's employment would end as from tonight.""

We do not accept that such an admission binds the Court in any way.  Moreover it seems to have been made after considering the passage in Harvey "Industrial Relations and Employment Law" volume 3, paragraph Q224 which is in the following terms:

"Note however that where the employee resigns if the employer imposes a termination of the employment before the expiry of the notice given, this will amount to a dismissal; the British Midland Airways Ltd v Lewis [1978] ICR 782."

	We have considered that case and insofar as the entry in Harvey indicates that any termination during a period of the employee's notice will amount to a dismissal, there is no support for that proposition in the case cited and in our view the passage in Harvey is misleading.

Conclusion
	There was no dismissal in this case.  The Respondent resigned and within the terms of the contract the Appellants paid wages (but not commission) until the expiry of the notice.  Insofar as such commission is contractually recoverable that is a matter which lies outside the jurisdiction of the Industrial Tribunal, the correct forum for such claims being the County Court.

Mr D O Gladwin CBE, JP Dissenting
	The result of a contract between an employer and an employee is more than a mere exchange of labour for wages.  It carries with it rights, duties, liabilities, immunities and status.  These may be expressed or implied.  Where a contract of employment provides that termination shall be upon a period of notice it follows that in default of specific terms the employee may be required by the employer to work out his notice.  If the contract gives the employer a right to substitute a payment of money for the period during which the employee would be working, that falls within the second category described by Lord Browne-Wilkinson in Delaney v Staples [1992] ICR 488.  The House of Lords did not purport to deal with the case of an employee who gives notice.  Very different considerations apply in such cases.  Prima facie the employee is acceptable to the employer up to the date of the service of notice of termination by the employee.  Further, the employee has made a decision to bring his employment to an end at a date in the future in accordance with the terms of the contract.

	Unless there is a clear provision in the contract that the employer is entitled to remove the employee's right to continue working then the only manner in which the employer can rid himself the employee (agreement apart) is by termination on a summary basis.  The employee, in giving notice, has a reasonable expectation that he will be permitted to complete that period within the terms of the contract.  It may well be that mere payment of wages will not be adequate compensation for such termination.  For example, assume that an employee wishes to obtain a period of time qualification before obtaining some professional or semi-professional qualification.  Although there may be no duty upon the employer within the terms of the contract to permit him to work out his notice the damage which such termination and payment in lieu will produce would be considerable.  Similarly in cases where the earning of commission provides the employee with the overwhelming bulk of his remuneration the loss of the period when such remuneration can be earned should be a decisive factor.

	What therefore is the meaning of the phrase:
"Payments in lieu of notice are at the discretion of the Company"?
This phrase appears in the Staff Handbook at page 33 of our bundle.  It does not appear in the 1981 version of the handbook which appears at page 104 of our bundle.  The phrase is preceded by the following sentence:

"Notice will normally be given at the beginning of the appropriate pay period."

	Considering those two sentences together one is driven to the conclusion that what is contemplated is a position where the employer gives notice and then makes a payment in lieu.  The decision to give notice at the beginning of an appropriate pay period is a matter which must be principally referable to the employer's notice.  It is an indication of intention on the part of the employer, it is obviously not binding upon the employee who, provided he gives an appropriate period of notice, is not bound to give it at the beginning of a pay period.  One can go further; the normal course of events would lead anyone to suppose that the expression "payment in lieu of notice" refers to a payment by an employer after he has given notice of some sort.  It is noteworthy that all the examples cited by Lord Browne-Wilkinson in Delaney are examples of an employer's activity in giving notice or dismissing in some other manner and payment of a sum in relation thereto.

	One can test the position further.  Assuming at the start of the contract both employer and employee, in this case, had been asked whether that payment meant that the employer could as soon as an employee gave notice of termination bring his working period at the firm to an end by payment of wages and thereby prevent him from earning or being in a position to earn his commission, both parties without hesitating would have replied that such a situation was wrong.  They would have agreed that there was an implied term, that such a payment in lieu only applied if the employer was giving notice and that any other shortening of the employee's period of work must be by agreement.

	There may well be cases where once an employee has given notice, owing to the sensitive nature of the work he is doing, there must be implied into the contract a term (even if it is not specifically stated) that an employee can be required to go on "gardening leave" in order to preserve the sensitivity of the materials or information he is handling.  But the mere fact that it is not convenient, or not in the employer's best interest, that the employee should continue to work is insufficient reason for implying any such term.  The argument that this will result in employers being blackmailed by employees is invalid.  In the ordinary course of events employers are in a superior position, tactically, upon a termination, to the employee.  If in this one instance an employer finds that the playing field is not sloping in the usual direction he cannot complain.  I therefore do not accept the Tribunal's view that there is no right to continue to work if the employer does not wish it.

	Apart from a specific term in the contract, is the employer entitled to bring to an end the working period of notice by waiving his "right to notice".  The very useful phrase "right to notice" is misconceived.  I agree with the Tribunal that one cannot waive a notice which has already been given.  But the expression "waiver" misunderstands the correct analysis of the position.  An employer is entitled to receive notice from the employee.  Once received, specific agreement apart, the employee has a right to be paid for the period during which he works, the employer is entitled to expect the employee to work during the period of notice and the employee is entitled to be employed for the remaining period of the notice.  Even if, which is doubtful, the employer is entitled to waive the period of notice, that only deals with the right to expect and to give notice, it does not affect the quite separate rights of the employee to work during the period of notice and to be employed for that period.  This flaw in analytical reasoning undermines the whole of the argument put forward by the Appellants in this case.

	While the payment of commission is in the terms of the contract within the discretion of the employer, it is noteworthy that from the start of the Respondent's employment on 19 May 1964 the practice and custom had been for all payments to be made without any discretionary deduction.  It is obvious therefore that commission was a vital part of the contractual and employer-employee situation.  While an employee did not have a right within the contract to payment, it must have been an implied term of the contract that the employer would do nothing which would hinder the employee from placing himself within a position whereby the employer's discretion could be exercised.  If the employer terminates a contract (and in my view it does not matter in this situation or whether there is or is not a "payment in lieu of notice" provision) he is in breach of a fundamental term of the contract and the requirement upon Mr Hamblin that he should leave on 30 November 1990 was therefore a dismissal.

	I would uphold the Tribunal's decision and dismiss this appeal.

	Upon the view of the majority this appeal is allowed and there shall be a finding that the Respondent was not dismissed.

	Leave to the Respondent to appeal to the Court of Appeal was granted unanimously.