According to a long-established rule of law, the 'least burdensome' course of action for an employer in a wrongful dismissal claim usually involves the termination of the contract as early as possible. In Mackenzie v AA Ltd and anor, the Court of Appeal held that although the 'least burdensome' approach is not always the cheapest, the basic rule was sound and should be applied in this case.
Mr Mackenzie, the chair and chief executive of the AA, had a contract which stated that his employment could be ended in one of the following ways:
- 12 months’ written notice which could be given by either party
- Unilaterally by the company with pay in lieu of notice (PILON)
- Summary dismissal in the event of an act of gross misconduct.
At the end of a strategy away day, Mr Mackenzie launched an unprovoked assault on a subordinate colleague in the bar of the hotel in which the away day had been held. According to a report by a clinical psychologist, the attack was the result of a combination of excess alcohol, extremely high-stress levels suffered by Mr Mackenzie over a long period of time and exhaustion.
Mr Mackenzie then asked the company to release him from his employment with immediate effect. The company refused and instead dismissed him on the ground of gross misconduct. He lodged a claim for wrongful dismissal for the loss of 12 months’ salary; loss of benefits, including his right to participate in a discretionary annual bonus scheme; and the loss of shares known as the Management Value Participation (MVP) shares. He also claimed for psychiatric injury as a result of his excessive workload.
High Court decision
After striking out the benefits claim on the basis that it had no real prospect of success, the High Court judge held that courts had to assume, in a wrongful dismissal claim, that the employer would take the 'least burdensome' (in other words, the cheapest) course of action to bring about the earliest possible lawful termination. In this case, that would be the PILON clause for basic salary. It, therefore, struck out all Mr Mackenzie’s other claims.
He appealed, arguing that the High Court judge was wrong because the 'least burdensome' rule was no longer sound and should not be followed. The judge was also wrong to equate the 'least burdensome' option as synonymous with the 'cheapest' option as a matter of principle.
Court of Appeal decision
Whilst agreeing that there was no rule of law which said that the cheapest or quickest mode of termination of a contract would always be the least burdensome, the court rejected the argument that the basic rule was unsound.
Whether through his own misconduct or because he was physically or mentally unwell, Mr Mackenzie was, by his own account, unfit to carry on with his duties. In addition, the supporting medical evidence said that he required a complete break from work for at least six months, if not more. Given these facts, it was clear that dismissal with pay in lieu of notice was the least burdensome mode of terminating the contract.
The suggested alternative of giving Mr Mackenzie 12 months’ notice, placing him on sick leave for at least six months, appointing an acting CEO in the interim and awaiting what would no doubt have been the uncertain prospect of his return to work in the seventh month of the notice period, was, the court said, “wholly implausible”.
The judge was therefore correct to hold that the rule applied and that the benefits and bonus claim should be struck out. In those circumstances, the challenge to the striking out of the MVP shares claim also failed.