Sacking prompts contract decision

A High Court judge has ruled that the Unfair Contracts Act can be applied to terms of employment, writes Roger Pearson.

A High Court ruling has opened an important avenue of attack for workers who want to sue their employers after being sacked.

Mr Justice Morland ruled in Brigden v American Express Bank Ltd ruled on 14 October that section 3 (2) of the Unfair Contract Terms Act 1977 not only applies to consumer deals, but can also apply to employment contracts.

Julian Brigden was sacked by American Express Bank from his £130,000-a-year post as regional head of sales in September 1998 with a £33,918 pay-off in lieu of notice.

He launched a claim against American Express for unpaid bonuses and unpaid contractual benefits.

In his claim he challenged the fairness of one of his contract terms. This stipulated that during the first two years of his contract he could be dismissed without the implementation of disciplinary procedures.

The latest ruling followed a hearing in which a High Court master struck out the part of the claim which related to the unpaid contractual benefits.

Brigden, challenging that decision, argued that the denial of disciplinary procedures in the first two years was an exclusion clause and unreasonable under the provisions of the Unfair Contract Terms Act 1977.

It was the first time in the 22 years of the act that it was argued that the provisions could be applied to employment contracts.

While the judge dismissed Brigden's appeal on other grounds, he said he considered that Parliament, in drafting the act, had clearly intended that it should apply to contracts of employment and that given the right circumstances an employee could be given the legal status of a "consumer".

Michael McNally of Knights in Tunbridge Wells, Kent, who acted for Brigden, says: "Up until now it [section 3 (2) of the Unfair Contract Terms Act] has been assumed that it only applied to traditional consumer type contracts – in other words, where a member of the public is dealing with an organisation which has standard terms of business with exclusion clauses which unreasonably exclude or restrict liability for breaches of contract.

"It had not been considered that it might apply to contracts of employment and that a contract of employment could be a contract where the employee takes on the status of a consumer.

"In this case, our argument was that American Express breached the contract of employment by dismissing our client summarily and wrongfully, and then sought to exclude its liability for that breach by pointing to this particular clause.

"Our argument was unsuccessful because the court ruled that in this case the clause was not actually an exclusion clause, but a term of the contract.

"The judge nevertheless made it clear that given the right circumstances, section 3 (2) of the act could apply to employment contracts.

"The sort of situation where this could happen is where the employer's standard contract of employment contains a disciplinary procedure, but the employer summarily dismisses the employee without good reason and tries to exclude the employee's right to it by pointing to a clause which purports to allow him to do so.

"Application of the act in employment situations is likely to be restricted to situations where the employer gets rid of the employee on the spot and then points to a clause which purports back what he has done.

"Sacking employees on the spot without having any regard to their contract of employment and the common law is not unusual.

"This decision is a warning to employers.

"Employers must be more careful about drafting contracts of employment where they wish to exclude employees rights to benefits and procedures to which they would otherwise be entitled."