Employer Could Not Rely On Subsequently Discovered Misconduct To Avoid Paying Contractual PILON

In Cavenagh v William Evans Ltd [2012] EWCA Civ 697 the Court of Appeal held that an employer is not entitled to withhold payment of a contractual payment in lieu of notice even though it later discovered that an employee had committed acts of gross misconduct prior to dismissal.

Mr Cavenagh was the Managing Director of William Evans and was made redundant. Williams Evans decided to exercise a clause in Mr Cavenagh's employment contract which allowed it to terminate his employment with immediate effect and pay him in lieu of his six month notice period. However, shortly afterwards William Evans discovered that Mr Cavenagh had committed acts of gross misconduct during his employment by transferring some of the company's money into his pension scheme.

The Court of Appeal held that William Evans had not been entitled to rely on this subsequently discovered misconduct when refusing to pay Mr Cavenagh the payment in lieu of notice. William Evans had brought Mr Cavenagh's employment to an end by exercising a contractual payment in lieu of notice clause. At this point Mr Cavenagh had a contractual right to receive the payment from William Evans which had accrued as a debt. There was nothing in the provision which deprived Mr Cavenagh of the payment if his employer later found out that he had committed acts of gross misconduct pre-termination.

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