A firm was entitled to terminate the contract of a self-employed stockbroker without notice for a breach of trust and confidence even though the firm was also in repudiatory breach of contract.
The facts
Mr Palmeri was a self-employed investment manager who contracted with Charles Stanley & Co, a financial services and investment management firm.
Charles Stanley decided to change its operating model. One of the effects of this change would be that Mr Palmeri would suffer a significant cut in income. After several years of discussion, Mr Palmeri attended a meeting at which he was given an ultimatum: accept the change in contractual terms, or leave. Mr Palmeri was told that, if he left, he would not be allowed to work out his three month contractual notice period, but would be paid in lieu of notice. This was in spite of the fact that there was no payment in lieu of notice clause in his contract.
Mr Palmeri decided to accept the change (although his intention was to end the contract when he had worked out an exit strategy). During the meeting, he became very angry, shouting and swearing, and referring to members of senior management by name in (as the court later described it) “offensive expletive-laden terms”, describing them as “devious”, “deceitful” and “dishonest”.
Charles Stanley decided that the relationship between it and Mr Palmeri was damaged beyond repair by his conduct at the meeting and terminated his contract without notice.
Charles Stanley later found that Mr Palmeri had committed several serious regulatory breaches during his time at Charles Stanley.
Mr Palmeri sued Charles Stanley for breach of contract in relation to the termination without notice. He also alleged that the failure to allow him the opportunity for an orderly transition of his clients’ business was a breach of the implied term of trust and confidence.
Charles Stanley argued that it was entitled to terminate without notice because of Mr Palmeri’s conduct in the meeting. It also argued that the regulatory breaches that it had discovered after Mr Palmeri’s engagement had ended entitled it to terminate the contract without notice.
The High Court agreed that Charles Stanley had no contractual right to present Mr Palmeri with an ultimatum that he would be paid in lieu of notice. However, Mr Palmeri’s conduct amounted to serious misconduct and a breach of the implied duty of trust and confidence which justified termination of the contract without notice. The fact that Charles Stanley had been ready to terminate and pay in lieu of notice, in breach of contract, did not affect its entitlement to rely on the conduct that happened at the meeting, or on the regulatory breaches that were later discovered.
The High Court did not need to make a decision as to whether the failure to allow Mr Palmeri to arrange an orderly transfer of his clients’ business was a breach of trust and confidence.
What does this mean for employers?
It is notable that there was an implied contractual term of mutual trust and confidence, in spite of the fact that Mr Palmeri was self-employed, rather than an employee.
This case is a reminder of the importance of payment in lieu of notice clauses. Had Mr Palmeri’s conduct not been such as to justify termination without notice, it is possible that his argument that he was entitled to the time, during his notice period, to perform an orderly handover of his clients might have been successful. A payment in lieu of notice clause might have defeated this argument.
