Gregory v Wallace (1998) IRLR 387, Court of Appeal

Is payment made in lieu of a notice period a debt due under contract as found in Abrahams v Performing Rights Society [1995] IRLR 486, or alternatively is it damages for breach of contract?

Claiming the money as a debt means that any income from a new job could not be offset against it. If it amounts to damages for breach of contract, income from a new job could be offset against it thus reducing the value of the award in line with normal contractual principles.

Mr Gregory was employed as Group Financial Director on an annual salary of £125,000. In August 1992, he was given oral notice of the summary termination of his employment after the company was put into administration. Mr Gregory found a new job and started work on 21 September 1992.

Mr Gregory's Service Agreement provided for two years written notice of termination. It also said that if notice was given to terminate, he would not have to attend the office regularly and may accept other full time employment during the notice period.

Clause 1(c) of the Agreement said: 'Upon the giving by [the employer] of such notice to terminate, [the employer] shall be entitled to terminate this agreement henceforth. In such event, [the employer] shall at the election of the executive either (i) pay to the executive in monthly installments in arrears over the two year period of the notice, the executive's gross basic salary at the rate in force at the date of termination of the employment; or (ii) pay to the executive the aggregate of all such monthly installments, discounted to reflect the present value as at the date of termination.'

In 1995, Mr Gregory began proceedings against the administrators claiming his entitlement to two years' salary, discounted in line with Clause (c)(ii) of his Agreement, as a debt. Claiming the money as a debt meant that the income received from his new job would not have to be deducted from the two years' salary.

The administrators said that the summary dismissal was a repudiatory breach of contract and Mr Gregory' could only claim damages. They said the damages should be the net value of two years' salary and contractual benefits less income received by Mr Gregory in mitigation of his loss.

The High Court concluded that Mr Gregory was entitled to the sums claimed as a debt without deduction of earnings from other employment. Judgment was given for Mr Gregory in the sum of £227,838 in line with the decision in Abrahams.

The Court of Appeal held that the High Court Judge was wrong in saying that Mr Gregory was entitled to claim the sum as a debt. They said that, as the termination was oral and without any notice, it was therefore not a termination under the terms of the contract - and so could not be treated as a debt - but a deliberate breach of contract and therefore a claim for damages.

The appeal court said that those damages must be calculated on the basis that the contract would have been performed in the way that was most beneficial to the employer. In Mr Gregory's case, the employers would have given him two years notice, and it would have been their choice whether he worked the notice period or they terminated the contract straight away making the payments due under the service agreement.

However, because of the terms of Mr Gregory's agreement, he did not have to give credit for his earnings from other employment during his notice period. This is because if the employer had given notice to Mr Gregory, the terms of his contract permitted him to receive the money from the company and work for someone else. This is an unusual situation which will not often apply.

What are we to conclude from this decision? That whether an employee must give credit for sums from other employment depends on the wording of the contract and how it is terminated.