Constructive dismissal: employer's "settled intention" to halve employee's sick pay was fundamental breach of contract

Roberts v Governing Body of Whitecross School EAT/0070/12

constructive dismissal | sick pay | fundamental breach of contract

The Employment Appeal Tribunal (EAT) has held that an employer was in fundamental breach of contract when it indicated to an employee on long-term sick leave its settled intention to reduce his sick pay by 50%, which was in breach of a collective agreement. 

Mr Roberts, a teacher, went on sick leave in November 2009. On 29 March 2010, the deputy headteacher wrote to him to say that he would be placed on half pay from 28 May 2010. Mr Roberts immediately queried this and, on 29 April 2010, his representative wrote to the employer alleging that a reduction in his sick pay while on sick leave because of stress and depression caused by work would be contrary to a collective agreement that was incorporated into his contract of employment. The employer insisted that its interpretation of the collective agreement was correct. Mr Roberts resigned on 26 May 2010, two days before the reduction in his sick pay was due to take effect. 

In his first employment tribunal claim, Mr Roberts claimed unlawful deductions from wages for the difference between the half and full sick pay that he alleged he was entitled to under the collective agreement. The employment tribunal upheld Mr Roberts claim for unlawful deductions from wages, finding that Mr Robert's injury arose in the course of employment and that he was entitled to be paid full sick pay under the terms of the collective agreement. However, the employment tribunal did not make any findings regarding the reason why the employer maintained that it was obliged to pay only half pay or whether or not the employer had an honest belief that it was entitled to reduce Mr Roberts' sick pay. 

In his second employment tribunal claim, Mr Roberts claimed constructive dismissal, arguing that the decision to put him on half pay was a fundamental breach of contract. The employment tribunal rejected Mr Roberts' claim, holding that the alleged breach was not fundamental because the respondent was honestly mistaken about the meaning of the relevant contractual term. Mr Roberts appealed against the second employment tribunal decision. 

The EAT allowed the appeal. On the evidence before the employment tribunal, it was apparent that the employer had formed the view that it was obliged to pay only 50% of Mr Roberts' pay, while he and his trade union had been of the view that he was entitled to remain on full pay. The tribunal had found that the employer had a settled intention to reduce Mr Roberts' sick pay by 50%, despite the fact that the employer had been put on alert that the interpretation of the collective agreement was not clear. From 29 March 2010, "the decision was finalised" in the deputy headteacher's mind and nothing from that date until the date of Mr Roberts' resignation suggested any different. 

The EAT reiterated the following principles:

• While adopting a mistaken view on a contractual obligation is unlikely, without more, to be an actual and/or anticipatory fundamental breach of contract, to act on that belief is likely to constitute a fundamental breach of contract. An employer facing a claim for breach of contract will not be able to defend the claim by showing that it believed that its interpretation of the contract was correct. 
• A pay term is a term that goes to the root of the contract of employment. It may not be a fundamental breach of contract for the employer not to honour a pay term if this happens due to an error or a simple mistake. However, where the employer intends to reduce pay to a material extent and that intention does not arise from an error or a simple mistake, there is likely to be a fundamental breach of contract. 
• Whether or not a reduction in pay is a fundamental breach of contract cannot depend on its effect on employees. If that was the case, whether or not the reduction in pay was a fundamental breach of contract would be different for different employees arising out of the same reduction in pay carried out by the employer. However, there may be circumstances in which the effect on the employee is material in coming to this conclusion. 

The EAT concluded that, applying these principles to the present case, there could be no other conclusion than that the employer was in fundamental breach of contract when it indicated its settled intention to reduce Mr Roberts' sick pay by 50%. The EAT remitted the case to a new tribunal to consider whether or not Mr Roberts was constructively dismissed. 

Additional resources

• Assamoi v Spirit Pub Company (Services) Ltd (formerly known as Punch Pub Co Ltd) EAT/0050/11 In this case, the EAT held that the employment tribunal was entitled to find that an employee was not constructively dismissed when he resigned after his manager unjustly took disciplinary action against him that was dropped after a swift and fair-minded investigation. 
• How to protect against claims of constructive dismissal The XpertHR "how to" service provides guidance on protecting against claims of constructive dismissal. 
• Line manager briefing on resignations This line manager briefing explains the steps that line managers should take when an employee resigns and the legal implications of a resignation. 

Case transcript of Roberts v Governing Body of Whitecross School (Microsoft Word format, 70K) (on the EAT website)