Eastbourne Borough Council v Foster

A void ultra vires compromise cannot be enforced or recreated through an alternative contractual foundation. Its invalidity does not require a court to ignore the parties’ subsequent conduct. That conduct may remain relevant to restitution and to the factual reality of an employment relationship.

Where an employee accepts the employer’s repudiation of an existing contract by working in a materially different role, the old contract ends. A continuing de facto employment relationship may nevertheless require a contractual solution on a new basis. In deciding when that employment ended, continuing availability for work and entitlement to reasonable notice may show that employment continued despite garden leave.

The Council and its director of environmental services entered a compromise agreement intended to preserve his employment beyond his fiftieth birthday and secure eligibility for enhanced early-retirement benefits. The agreement was common ground to be ultra vires and void.

After the director’s post was abolished, he worked part time on a coastal-protection project and was later placed on garden leave while continuing to receive salary and benefits. The Deputy High Court Judge held that the 1993 employment contract had ended consensually on 28 September 1998 and that no later contract existed.

On the employee’s appeal, the central issue was whether his employment ended before or after his fiftieth birthday, and in particular whether the void agreement and the parties’ conduct ended the original contract or sustained a new employment relationship.

1. Appeal allowed unanimously. Lord Justice Rix, with whom Lord Justice May and Lord Justice Aldous agreed, held that the 1993 contract ended in late September 1998, but that the employee’s employment continued until 31 August 1999.

2. The ultra vires compromise was void and could not bind the Council. Nor could a promise, representation or purported consensual variation be used to give the Council an obligation which it lacked power to undertake. However, voidness did not erase events which occurred in fact. Payments and services remained relevant to restitution, and the parties’ conduct could be examined to identify the true legal consequences of their relationship. [1999] QB 215 was applied on that point.

3. The abolition of the employee’s former post was not a consensual termination. His consent was confined to the void compromise. It was instead a repudiation of the 1993 contract. By accepting substantially different, part-time work after his post disappeared, he accepted that repudiation; the former full-time director’s contract was therefore supplanted. The Court applied the reasoning in [1918] 2 Ch 96 and [1965] 1 WLR 629.

4. That conclusion did not mean that employment ceased. The continuing relationship was one of employment on a new basis. In that setting the law required a contractual solution, alongside any restitutionary consequences, rather than enforcement of the void bargain. The employee remained available to assist the Council after being placed on garden leave. He was therefore entitled at least to reasonable notice.

5. On the facts, employment did not end on 10 February 1999. The appropriate termination date was 31 August 1999, the date which the parties had treated as the intended end of employment and for which the Council had given notice. The Court declared accordingly, remitted the case to the High Court, and left any issue concerning reconsideration of benefits under the Local Government (Discretionary Payments) Regulations 1996 for further resolution.

• Court of Appeal (Civil Division): allowed the employee’s appeal in [2001] EWCA Civ 1091, set aside the costs order below, and declared that his employment ended on 31 August 1999.
• Queen’s Bench Division: Mr Colin Mackay QC, sitting as a Deputy High Court Judge, held that the 1993 employment contract ended consensually on 28 September 1998 and that no later contractual relationship existed.