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Giving notice under contract [of employment]: Traps and tips

Employment contract, with terms of employment section Print publication

09/05/2018

Giving notice under any contract can be fraught with risk. Walker Morris’ Heads of Commercial Dispute Resolution and Employment, Gwendoline Davies and David Smedley, explain and offer their practical advice.

Serving notice: a risky business

The giving of an effective notice is often a vital trigger or safeguard in a contractual arrangement. For example, notice may be required before an option can be exercised; before a business arrangement or a lease can be brought to an end; before a person’s employment can be terminated; and so on.

Most modern contracts – including many commercial contracts and contracts of employment – contain certain time limits and other conditions or restrictions which must be met before effective legal notice can be given. Many contracts also contain separate, detailed ‘service of notice’ clauses with additional obligations and requirements which, if they are not strictly complied with, can invalidate any notice. Apart from contractual requirements, the common law and statute may sometimes also affect whether a notice is validly given.

The opportunities for error in the service of legal notices are therefore many. At the same time, the consequences of getting it wrong can be significant.  Imagine, for instance, the business impact where a tenant has signed a 25 year lease of new commercial premises, only to find that its notice to terminate its existing lease was ineffective, so that rent is still due on the old premises for a further 15 years; the financial, HR and PR problems that could arise if a business appointed a new, high profile executive, only to find that its notice to terminate the employment of his or her predecessor was never legally served; or the commercial wrangles that would result where a business completed an ‘exclusive’ supply contract with one party before validly terminating its ‘exclusive’ arrangement with another.

In the context of a notice to terminate an employment contract, the Supreme Court has given crucial clarification of the rules in the recent case of Newcastle upon Tyne Hospitals NHS Foundation Trust v Haywood [1].

Unusual facts, but widely applicable case

Although the particular facts of this case are unusual, the principles considered in the case will be of wide interest and use to all employers and contracting parties involved in the service of legal notices.

Mrs Haywood was dismissed by reason of redundancy. Her contract of employment provided that 12 weeks’ notice of termination was required, but it did not specify how notice should be given.  On 20 April 2011, while Mrs Haywood was on holiday (a fact of which the employer was aware), the employer sent a letter giving written notice of termination by recorded delivery to her home address.  On 26 April 2011, a day before Mrs Haywood returned home, her father-in-law visited her home, found that the recorded delivery had been attempted, collected the letter from the local sorting office, and left it at the house.  On 27 April 2011 Mrs Hayward returned home and opened and read the letter.

Mrs Haywood’s employment contract contained separate provisions that, if her employment was terminated by reason of redundancy on or after her 50th birthday, she would be entitled to a non-actuarially reduced early retirement pension.  Mrs Haywood’s 50th birthday was 20 July 2011.  The date on which the termination notice was validly served therefore determined whether or not she was entitled to such a pension.

The employer argued that the letter was legally served, and the notice period therefore started running, on 21 April 2011 (the day on which recorded delivery was attempted). It sought to rely on the common law contractual principle that service of a notice becomes effective on delivery, regardless of whether the intended recipient was there to receive it.

Mrs Haywood argued instead that, in the case of an employment contract notice, notice was only validly served when it had actually been received and the employee had either read or had had a reasonable opportunity of reading it.

Supreme Court conclusions

The Supreme Court majority agreed with Mrs Haywood. It concluded that:

  • There has been a long-standing common law contractual rule that notice is given when it is duly delivered by hand or post, regardless of whether the intended recipient was there to receive it. That rule has been founded on a sensible and even-handed policy objective of creating certainty for both parties and on a fair allocation of risk [2]. It has also been reflected in various statutory service-deeming provisions [3]. However…
  • …that ‘rule’ was not necessarily as clear cut and universal as the employer had tried to suggest. Receipt of the notice was still required, and arguably by a person authorised to receive it. Even statutory presumptions of receipt at an address were rebuttable.
  • In any event, the Employment Appeal Tribunal (EAT) was an expert tribunal familiar with employment practices. Its approach, when dealing with employment contracts, was that notice only took effect when it had actually been received by the employee and the employee had read or had had a reasonable opportunity of reading it.
  • There was no reason to suppose that this receipt approach should cause any real difficulty in practice. Employers could always make express alternative provision in the contract or could ensure that notice was actually received by the employee in sufficient time, say, for termination of employment to take place on a specified day.

Practical advice

The Newcastle NHS v Haywood case therefore confirms that the default position, at least in the context of employment contracts, is that it is receipt by the employee – and not delivery by the employer – that is paramount when it comes to the question of whether or not a legal notice has been validly served.  The case highlights that the courts may therefore take a different approach in employment contract disputes than in other commercial situations.

It is, however, open to employers to alter the default position by expressly providing otherwise in the employment contract itself, and it is suggested that that may be sensible to do.

So far as the effective service of any legal notice more generally is concerned, a good tip is to remember the mantra: who, when and how?  Immediately when a party considers serving a notice, it should ascertain exactly:

  • Who is required to give notice and on whom the notice should be served. (Consider the party/counter-party itself? Legal representatives? Other agents? Have there been any assignments, novations or variations which change the position? What are the current names and addresses/contract arrangements for the relevant parties/agents?).
  • When the notice should be served, including whether there are any long-stop dates for service or for completion of any other conditional/procedural steps (such as commencing any follow-on court claims, or the like).
    • It is also important to bear in mind, when calculating dates, that there may be different dates to ascertain. For example, depending on the nature and wording of the contract, you may need to know the date on which a notice actually has to take effect; the date by which it has to be served on/received by the receiving party; and/or the date by which it has to be issued.
    • All of those dates can be influenced by other factors. For example, what is the required method of valid service (first class post/recorded delivery/personal or hand delivery?); how long will that take; does the contract designate when service will take place or does it rely on external [4] deeming provisions; are there any weekends/bank holidays to take into account and/or do only working/business days count (which can differ across different countries); and so on?
  • The ‘how‘ covers:
    • The content of the notice, the form of the notice and any strict procedural requirements. (In the famous Mannai [5] case Lord Hoffmann said: “if the [termination] clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper“).
    • The fact that service must be effected in accordance with any contractually specified method. That, in turn, can lead to problems if notification obligations within contracts are drafted in isolation from, or inconsistently with, more general service clauses and other relevant contractual provisions. For example, what happens if a party gives a PO box as its service address, but the contract specifies service by recorded delivery? (You cannot effect recorded delivery on a PO box.) What happens if the contract specifies that the service address is a party’s registered office, but the agreement is assigned to an individual? (Individuals do not have registered offices).

The best advice is to leave the service of any legal notice entirely to the experts. The consequences of getting a notice wrong can be too costly to gamble and instructing specialist legal representatives to take on the risk for you reduces the chance of any problems arising.

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[1] [2018] UKSC 22
[2] that is, between the party giving notice being responsible for risk up to the point up to delivery, and the receiving party being responsible for risk of mishap thereafter
[3] such as section 7 of the Interpretation Act 1978; section 196 of the Law of Property Act 1925; section 1147 of the Companies Act 2006; section 29 of the Misuse of Drugs Act 1971; section 267 of the Public Health Act 1875; and Part 6 of the Civil Procedure Rules, all of which provide for the service or giving of notices by post to the intended recipient’s address
[4] which might be the common law contractual ‘rule’, a statutory deeming provision or the Newcastle NHS v Haywood employment contract rule
[5] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, HL

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