Abrahams v Performing Right Society Ltd

An express contractual option to terminate employment summarily by making a payment in lieu of notice creates an alternative lawful mode of termination. The employee’s resulting entitlement is a contractual sum due, rather than damages for wrongful dismissal, and is not reduced by earnings obtained or reasonably obtainable during the notice period.

Where parties agree that employment will continue under the terms of an existing contract, notice and payment-in-lieu provisions remain effective unless the new agreement clearly excludes them. The court also considered that a valid liquidated-damages clause would likewise exclude mitigation, because it fixes recovery irrespective of actual loss; that conclusion was unnecessary to the decision.

The claimant had been employed under a fixed-term service agreement which, as varied in 1989, entitled the employer to give two years’ notice or make an equivalent payment in lieu. In March 1992, after negotiations for a fresh agreement failed, the parties agreed that he would remain in post until 31 March 1994 under the terms of his existing contract.

The employer summarily terminated his employment in October 1992. It accepted that it had not paid the stipulated sum. The Master and Sir Michael Davies, sitting as a Deputy High Court Judge, held that the claimant was not required to mitigate and struck out the relevant part of the defence. The employer appealed.

The central issues were whether the March 1992 agreement excluded the existing notice and payment-in-lieu provisions, and whether a claim for payment in lieu was subject to mitigation.

1. Appeal dismissed. Lord Justice Hutchison held that the March 1992 agreement preserved the notice and payment-in-lieu terms of the existing contract. The words that the claimant would remain employed under those terms were clear. Neither the pleaded case nor the agreed contractual documents provided a basis for excluding those provisions.

2. The employer could have protected itself by serving notice. The fact that the agreed two-year extension might otherwise leave a continuing entitlement to notice or payment in lieu was not absurd. It did not justify treating the claimant as having surrendered a valuable contractual protection without clear language.

3. The contract gave the employer alternative lawful methods of termination: notice or summary termination with the stipulated payment. Its summary termination was therefore an election not to serve notice, leaving the claimant entitled to enforce the payment in lieu as a contractual debt. It was not a claim for damages for wrongful dismissal and mitigation did not arise.

4. The court followed the modern analysis in Rex Stewart Jeffries Parker Ginsberg Ltd v Parker, [1988] INLR 483, and the category of payment identified in Delaney v Staples, [1992] 1 AC 687. Those authorities distinguished a contractual payment in lieu from a payment made following an unauthorised summary dismissal.

5. Lord Justice Hutchison further considered that, even if the stipulated payment were liquidated damages rather than a debt, mitigation would not reduce it. A valid liquidated-damages clause fixes recovery irrespective of actual loss. That alternative conclusion was not necessary to the dismissal of the appeal. Lord Justice Aldous also would dismiss the appeal.

• Court of Appeal (Civil Division): dismissed the employer’s appeal and upheld the ruling that the claim for payment in lieu was not subject to mitigation.
• High Court, Queen’s Bench Division: Sir Michael Davies, sitting as a Deputy High Court Judge, dismissed the employer’s appeal from the Master and struck out the mitigation plea.
• Master: held that the claimant was not under a duty to mitigate.