Tuesday Law Report: 26 January 1999 - Refusal to pay was repudiatory breach

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Cantor Fitzgerald International v Callaghan and others

Court of Appeal (Lord Justice Nourse, Lord Justice Judge and Lord Justice Tuckey) 21 January 1999

A DELIBERATE failure by an employer to pay agreed remuneration to an employee would normally be regarded as a repudiatory breach of the contract of employment.

The Court of Appeal allowed the defendants' appeals against an injunction restraining them from canvassing or soliciting anyone to transact on behalf of any competitor of the plaintiff.

The defendants were members of a team of inter-dealer brokers employed by the plaintiff on its Belgian securities desk. On 8 January 1997 the defendants purported to resign from their employment by handing in a joint written notice. They intended to start work with Liberty EurAsia Ltd, a major competitor of the plaintiff.

Allegations of "poaching" teams of brokers had resulted in a mutual agreement which had expired on 31 December 1996 between the plaintiff and Liberty to end the practice. When the defendants left to join Liberty, the plaintiff's entire German desk left simultaneously with the same purpose.

The plaintiff applied for an injunction to restrain the defendants, until after 1 May 1997, from canvassing or soliciting anyone to transact on behalf of any competitor of the plaintiff.

The defendants claimed that their contracts of employment had been breached by the plaintiff in that the plaintiff had wrongly failed or refused to comply with agreed arrangements in relation to the defendants' salary packages, in connection with, inter alia, assurances given to them about tax liabilities.

The judge, in granting the injunction, held that although the plaintiff was in breach of a contractually enforceable obligation, nevertheless the failure to pay the sums in question did not amount to "a significant breach going to the root of the contract of employment". He found that the defendants, in purporting to terminate their contracts of employment, were themselves in repudiatory breach. The defendants appealed.

Eldred Tabachnik QC and Jane Tracy Forster (McGrath & Co) for the defendants; Alistair McGregor QC and Nigel Porter (Norton Rose) for the plaintiffs.

Lord Justice Judge said that the question whether non- payment of agreed wages, or interference by an employer with a salary package, was or was not fundamental to the continued existence of a contract of employment depended on the critical distinction to be drawn between an employer's failure to pay or delay in paying agreed remuneration, and his deliberate failure to do so.

Where the failure or delay constituted a breach of contract, that might represent no more than a temporary fault in the employer's technology, an accounting error or a simple mistake, or illness, accident, or unexpected events, and it would be open to the court to conclude that the breach did not go to the root of the contract.

Where, however, an employer unilaterally reduced his employee's pay or diminished the value of his salary package, the entire foundation of the contract of employment was undermined. An emphatic denial by the employer of his obligation to pay the agreed salary or wage, or a determined resolution not to comply with his contractual obligations in relation to pay and remuneration would, therefore, normally be regarded as repudiatory.

Furthermore, it was doubtful whether de minimis had any relevance: if the amount at stake was very small and the circumstances justifying a minimal reduction were explained to the employee, the likelihood was that he would accept a mutual variation of the original contract. However, an apparently slight change imposed on a reluctant employee by economic pressure exercised by the employer should not be confused with a consensual variation.

In the present case the sums at stake, although not great in the context of the overall package, were not trivial. The refusal to pay them was deliberate and determined, motivated by a desire improperly to pressurise the defendants into harder work. The decision wholly undermined the contract of employment and, accordingly, constituted a repudiatory breach.