Legal update: Does an employee affirm his or her contract of employment and lose the right to claim constructive dismissal by engaging and using the employer’s grievance procedure?05Feb2021
If an employee claims that his or her employer has breached the contract of employment and engages in the grievance procedure, is he or she still entitled to claim constructive dismissal? We examine the recent UK case of Gordon v J & D Pierce (Contracts) Ltd (UKEATS/0010/20/SS).
- The employee claimed that he had been constructively dismissed and his employer had breached the implied obligation of trust and confidence between the parties. The Employment Tribunal (the “Tribunal”) held that applying the test in Malik v Bank of Credit and Commerce International SA  UKHL 23 the employer did not breach the implied obligation of trust and confidence and as a result the employee was not entitled to treat the contract as at an end and claim constructive dismissal.
- However, the Tribunal also decided that even if there was a breach of contract entitling the employee to claim constructive dismissal, he could not succeed because he had affirmed the contract of employment by engaging in the employer’s grievance procedure, which formed part of the contract of employment, thereby forfeiting his right to rely on the prior breach of that contract and in particular the implied term of trust and confidence.
- The employee appealed against the Tribunal’s decision to the Employment Appeal Tribunal (the “EAT”).
Legal Principles on Affirmation of Contract
- Generally speaking, where a contract is repudiated by the conduct of a party in a serious breach of contract, the innocent party may choose to either treat the contract as having been terminated by the other party or affirm the continued existence of contract.
- The EAT referred to the Court of Appeal case of Kaur v Leeds Teaching Hospitals NHS Trust  4 All E.R. 238 in which Underhill, LJ stated that “exercising a right of appeal against what is said to be a seriously unfair disciplinary decision is not likely to be treated as an unequivocal affirmation of the contract.”
- The EAT noted that a contract is a bundle of obligations where some are mutually interdependent and some serve distinct and severable purposes, and reliance on one contractual right does not necessarily signify an acceptance that all other contractual rights are intact. It follows that exercising a right of grievance or appeal, which itself is a form of objection to the relevant conduct under specialised and specific provisions of the contract, should not be regarded as an affirmation of the contract as a whole.
- The EAT held that on the issue of breach of the implied obligation of trust and confidence the Tribunal’s judgment did not suggest that the wrong test had been applied. Accordingly the EAT concluded there was no constructive unfair dismissal.
- However, on the separate question of affirmation of contract (if there had been a constructive dismissal), following Kaur, the EAT held that by engaging in a grievance process available under the contract of employment the employee did not affirm the contract. In particular, the EAT stated:
“Grievance or appeal provisions may be regarded as severable from the remainder of the contract and capable of surviving independently even though the remainder of the contract is properly regarded as terminated through breach. …
It appears to me that where an employee intimates that he considers the contract has come to an end, he is not to be taken to affirm that the contract has come to an end for all purposes. In particular I do not consider that the parties can be presumed to intend that a clause designed to procure the resolution of differences should be regarded as being evacuated because one party asserts that the implied obligation of trust and confidence has been breached.”
Even though this is a UK case the law in Hong Kong is governed by similar common law principles, and the position in Hong Kong is likely to be the same or very similar. The decision in Gordon v J & D Pierce (Contracts) Ltd serves as an important reminder to employers that employees may claim constructive dismissal notwithstanding their attempts to resolve their disputes via a grievance procedure. The mere fact that employees have engaged in a grievance procedure or raised an appeal does not mean they have affirmed their employment contract and waived the right to claim constructive dismissal. Each case will depend on its own facts but there is a clear risk that grievance or appeal provisions may remain binding even when employees consider their contract of employment has come to an end through breach. Employers should at all times deal with employees’ complaints in accordance with their policies and procedures.
On the other hand, employees may still exercise their rights to rely on grievance or disciplinary procedure after a breach of their contract of employment has occurred without fearing they will lose their right to claim constructive dismissal. Employees should however exercise care to ensure they do not act in a way suggesting that they have accepted all waived the employers’ repudiatory breach in some other way, during the grievance or disciplinary process.
Russell Bennett and Agnes Lau
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.