Cantor Fitzgerald International v Callaghan and Others; 21 January 1999, Court of Appeal (The Times 25/1/99)
The Court of Appeal has held that, in a contract of employment, arrangements for pay between employer and employee are of crucial importance.
A deliberate and determined refusal by an employer to honour an agreement which reduced the value of an agreed salary package was effectively a cancellation of the contract (repudiatory breach in the jargon).
The five employees of Cantor Fitzgerald International ('Cantor') were members of a team of brokers.
Their contracts of employment with Cantor made provisions for payments to each of them of four-year £60,000 loans that included arrangements to exclude any tax liability being incurred by the employees.
However, each employee eventually became liable to tax and Cantor refused to do anything about the problem. In 1997, all five employees left the company on the same day, handing in a joint notice of termination of their employment.
Cantor sued the five for breach of contract, claiming that clauses prevented them from moving immediately to work for a rival firm. The employees claimed that their contract of employment had been repudiated on the grounds (among others) that Cantor had wrongly failed or refused to comply with the agreed arrangements in relation to their salary packages, in particular with assurances given to them about tax liabilities.
In his judgment, Lord Justice Judge commented that, "it was difficult to exaggerate the crucial importance of pay in any contract of employment. In simple terms, the employee offered his skills and efforts in exchange for his pay". The Court held that whether or not an employer's non-payment of wages or interference with salary amounted to a fundamental breach of contract depended on the facts of each case.
If a failure or delay in payment was repeated and persistent (as opposed to a temporary error), perhaps also unexplained, the court might be driven to conclude that the breach or breaches were so severe that the contract was essentially cancelled. Further, where an employer unilaterally reduced his employee's pay or diminished the value of his salary package, the entire foundation for the contract of employment was undermined.
An emphatic denial by an employer of his obligation to pay an agreed salary or wage, or determined resolution not to comply with his or her contractual obligations in relation to pay and remuneration, would normally be regarded as so serious that the contract was effectively at an end.
In this case, the loan agreement was integral to the contract of employment and formed part of the defendants' agreed salary package.
In the context of the overall package the amount at issue was not very great, although the sums at stake were not trivial. However, the refusal to pay was deliberate and determined, motivated by a desire improperly to make the brokers work harder and undermined the contract of employment to such a degree that the employer ended the contract.
The case is not simply of importance to well salaried brokers. It illustrates that a deliberate and determined refusal by an employer to honour an agreement in relation to an agreed salary package may amount to a such a serious breach of the contract of employment that it enables an employee to claim that he or she was constructively dismissed.
This case is a further advance in the law of constructive dismissal following the recent decision of Weatherfield Limited t/a Van and Truck Rentals v Sergeant [1999] IRLR 1994 (see also Issue 31 of LELR). In Weatherfield the Court of Appeal held that, in order to establish a claim of constructive dismissal, there is no requirement as a matter of law that an employee must tell the employer the true reason why they are leaving.
This overturned the holding of the Employment Appeal Tribunal in Holland v Glendale Industries Limited [1998] ICR 493 that constructive dismissal can not be established unless it is made clear to the employer that the employee is leaving because of the employer's repudiatory conduct.