Injuncting the Contract of Employment
Tom Mallon, Barrister and Marguerite Bolger, Barrister
1. Introduction
The last three years have seen an increase in cases where interlocutory injunctive relief is sought to restrain a purported dismissal of an employee. The parameters within which the courts are prepared to grant these injunctions have broadened, but each case still turns on its own facts and the relief should still be seen as an exception to the general rule that to injunct an employment contract is tantamount to slavery.
2. The History of the Injunction
The traditional objections to the specific performance of an employment contract were first, that it would be wrong to enforce a contract requiring personal services and, secondly, that damages could provide an adequate remedy to an employee seeking to enforce their contract.
The first indication that the courts would be prepared to force people to remain in an employment relationship arose in restraint of trade cases. As early as 1853 an opera singer was restricted to singing in one theatre only . Lord Denning M.R. used this authority in the historic decision of the UK Court of Appeal in Hill v Parsons in arguing that the common law rule against the specific performance of an employment contract was not inflexible and permitted of exceptions:
"It may be said that, by granting an injunction in such a case, the court is indirectly enforcing specifically a contract for personal services. So be it. Lord St. Leonards did something like it in Lumley v Wagner. And I see no reason why we should not do it here."
In granting the injunction, Lord Denning M.R. accepted that to award such a remedy the court would have to be satisfied that trust and confidence still existed between the parties and that damages would not be an adequate remedy.
These principles laid down the initial parameters for the granting of an injunction to restrain a dismissal. A good example of their narrow application can be seen in Irani v Southampton and South West Hampshire Health Authority where the plaintiff was dismissed due to irreconcilable difference with his more senior colleague. No criticism was ever made of his conduct or professional competence. The court, in granting an interlocutory injunction restraining his dismissal, accepted that there was still complete trust and confidence between the employer and employee and that, if dismissed, the plaintiff would become unemployable in the National Health Service and would lose any right he had to use NHS facilities to treat his private patients. It is difficult to conceive of a more obvious situation that satisfied the criteria of a preservation of trust and confidence and evidence that damages would not be an adequate remedy.
3. The Approach of the Irish Courts
The first time an injunction restraining a dismissal was granted in this jurisdiction was in as exceptional a case as Irani, above. In Fennelly v Assicurazioni Generali SPA the plaintiff had an unusual relationship with his employer in that his contract was for a fixed period of twelve years. The employer attempted to terminate the contract due to a serious downturn in business. Costello J., (as he then was), held that there was a fair question to be tried that the contract had been invalidly terminated. In considering the breach of contract, he laid down the test to determine whether or not damages could adequately compensate an employee for a wrongful dismissal pointing out that in spite of efforts to have the matter heard speedily, it would be some time before it would come on for hearing:
"In the meantime the plaintiff will be left without a salary and nothing to live on. The situation in which he finds himself would be little short of disastrous. It seems to me in that situation that the balance of convenience is in the plaintiff's favour. He should not be left in the situation between now and the action in which he would be virtually destitute with a prospect of damages at the action. That seems an unjust situation."
An almost identical order was made by Keane J. in Shortt v Data Packaging Ltd . In that case the plaintiff, who was the managing director of the company, had a contract which provided for a six month notice clause. He was dismissed summarily for an alleged redundancy which he argued was a sham and was unlawful and in breach of natural justice. In a brief judgement Keane J. held:
"I am satisfied that damages are not an adequate remedy where the plaintiff will have to await the trial of the action in circumstances where he is totally without remuneration and where a trial will inevitably be some time away. Any loss sustained by the defendant will be adequately met by the plaintiff's undertakings. The balance of convenience is also in favour of the granting of an injunction pending the hearing in order to preserve the status quo."
Shortt established reasonably clear parameters for the granting of these exceptional injunctions, namely a fair issue as to the legality of the dismissal which included the issue of compliance with natural justice and that damages could not be an adequate remedy given the financial destitution in which a dismissal would leave the employee.
In the last six months an unprecedented number of applications for interlocutory injunctive relief to restrain a dismissal have come before the courts and the very volume of the cases and their varied facts have seen considerable expansion of the traditional parameters in this area.
The Preservation of Trust and Confidence
The earlier UK caseload clearly viewed the preservation of trust and confidence between employer and employee as essential before granting specific performance of the employment contract. That trust and confidence was present in Fennelly and influenced Costello J. in coming to his decision to grant an order almost identical to that granted by the Court of Appeal in Hill v Parsons. However in some of the more recent Irish cases, there has been a distinct absence of any trust or confidence whatsoever between the parties, but this does not seem to have greatly concerned the courts in granting interlocutory injunctive relief.
In Shortt the plaintiff was informed without any warning that he was being made redundant. He was told to remove his personal belongings and to vacate his office with immediate effect. The facts of the case showed that, at least in the opinion of the employer, there had been a breakdown of trust and confidence. Nevertheless, Keane J. was satisfied that there was a fair issue to be tried that the plaintiff's dismissal was ineffective for being in breach of natural justice and contrary to the constitution of the company. Although he described the order granting the injunction as largely in the form of that made by Costello J. in Fennelly, no mention was made of the issue of trust and confidence between the employer and employee, even though that issue distinguished Shortt from Fennelly on the facts.
It would appear that this requirement of the preservation of trust and confidence between the parties was not essential where a fair issue that the dismissal was unlawful or ineffective or that damages would not be an adequate remedy was established. This was a particularly interesting development given the implicit understanding underpinning the development of the law in the area of specific performance of employment contracts, i.e. that specific performance would only be granted in exceptional circumstances. It would seem that in Irish law exceptional circumstances can be provided by a breach of natural justice rather than the preservation of trust and confidence. This line of reasoning has been followed in subsequent cases, most clearly in Harte v Kelly and others where Laffoy J. expressly found that there had been a "total breakdown of trust and confidence" between the parties . This did not prevent her from granting an injunction restraining the dismissal of the plaintiff, although she refused to extend this to re-involving him in the management of the company. Thus, the relief granted fell short of what had been awarded in Fennelly and Shortt where the plaintiff was directed to do whatever work was required of him by the employer, which could have included no work at all.
Just what sort of circumstances establish a breach of natural justice can be seen from the decision in Maher v Irish Permanent plc where Laffoy J. referred to the caselaw confirming the principle that an employee is entitled to natural justice in how their employee takes any decision which may affect rights or impose liabilities . She decided that the plaintiff had not been granted natural justice in the manner in which allegations of sexual harassment against him had been investigated. The employer had got it wrong in failing to furnish the plaintiff with copies of the statements made by his accusers in advance of an oral hearing, in failing to inform the plaintiff in reasonable time that he was entitled to be legally represented at the hearing and in going ahead with the hearing in the absence of the plaintiff who had declined to attend. In those circumstances, Laffoy J. held that the hearing could not be considered fair and that the decision taken at the meeting to terminate the plaintiff's employment could have no effect. Therefore his employment never actually terminated and still subsisted. Interestingly, this seemed to be a different way of achieving the same result of an injunction restraining a dismissal, i.e. that the decision to terminate was invalid as being in breach of the plaintiff's right to natural justice and never actually took effect. Again, as in Harte, Laffoy J. refused to reinstate the plaintiff to his previous position of branch manager in view of the serious allegations of misconduct against him.
One recent case shows some divergence from the trend of granting relief in the absence of any remaining trust and confidence. In O'Malley v Aravon School Ltd Costello P. refused to grant interlocutory relief to restrain the dismissal of a school principal. The plaintiff had originally been appointed joint principal with her husband and in 1996 she was appointed sole principal. Subsequently the employer became concerned at the manner in which the terms of that agreement were being implemented and put their concerns to the plaintiff. The plaintiff was invited to a meeting at which Costello P. found that "careful consideration" was given to her answers. Following the meeting her position was terminated.
Costello P. discussed the background to the cases where injunctive relief was granted to restrain a dismissal and referred to Lord Denning M.R.'s discussion in Hill v Parsons of the exceptions to the general rule that a servant cannot claim specific performance of their contract. Costello P. went on to mention his own judgement in Fennelly as one of those exceptions to the general rule. Applying that law to the facts of Ms O'Malley's case he stated:
"This is a case of a school where the Board of Governors have lost confidence in the principal. Loss of confidence must be judged on an objective basis. In my view this is a wholly exceptional case where the whole essence is that confidence and trust has broken down and it would be wrong for the court to continue the employment of the plaintiff. In these circumstances I must hold that the plaintiff has failed to bring herself within the exceptions to the general principles."
It is arguable that O'Malley can be distinguished from the line of cases in which trust and confidence had been shattered by the fact that the plaintiff had been dismissed with at least some regard to principles of natural justice. The grounds for her employer's dissatisfaction were put to her, she was given an opportunity to respond and careful consideration was given to her response. The existence of at least some recognition of an employee's rights to fair procedures is in stark contrast to the summary manner in which the successful plaintiffs in Shortt, Harte, Courtney and Phelan were dismissed. On the other hand, the procedures applied were minimum and the Court could have taken the same approach as had been taken in cases where virtually no procedures were applied without any great inconsistency in the developing line of caselaw. Costello P. also seemed to be very influenced by his belief that the trial judge would not be prepared to grant a permanent injunction. In those circumstances he felt it inappropriate to grant interim injunctive relief.
The Adequacy of Damages
In Fennelly Costello J. was of the view that a plaintiff would have to show potential financial destitution in order to succeed. Interestingly, there was no attempt made in either Shortt or Fennelly to suggest that the plaintiff might have avoided destitution by seeking employment elsewhere. The reality of such circumstances was recognised by Barron J. in Boland v Phoinix Shannon plc where, in holding that damages would not be an adequate remedy, he stated:
"The plaintiff has his profession and to that extent should be in a position to earn, but in practical terms his dismissal will leave him in the same situation as the plaintiff in Fennelly's case."
The necessity to show a level of destitution was further rolled back in Harte. Whilst the plaintiff would be at the loss of his salary pending the trial of the action, his income from the company would only have been reduced by half as he received some £3,000 per month net of tax in respect of royalty payments. However Laffoy J. held that a Fennelly type order was not limited to a situation where the plaintiff can establish that he would face pecuniary loss if the order was not made. In this case, whilst implicitly accepting that the plaintiff would not face pecuniary loss in losing half a salary of £67,000, Laffoy J. held that it would be:
"an unjust situation to leave him without approximately half his net income pending the trial and the action and only with the prospect of an award of damages at the trial".
Accordingly she held that damages would not be an adequate remedy.
The requirement of destitution as seemingly laid down in Fennelly and Shortt was further cut down in Phelan. Costello J. accepted that the plaintiff would not be destitute as he was to receive a pension and held shareholding valued at some £300,000 but was clearly influenced by the particular manner in which this managing director was summarily dismissed. He suggested that it would be open to a judge at the hearing of the action to grant exemplary damages, including damages for loss of reputation or even to reinstate the plaintiff as managing director. In those circumstances he held that damages were not adequate to compensate the plaintiff. The decision on the appropriate interim relief seemed to be influenced by the anticipated attitude of the trial judge, an attitude subsequently taken by Costello P. in O'Malley, above.
If one looks back to the earlier caselaw in the area, issues wider than financial destitution were accepted as evidence of the inadequacy of damages. In Parsons v Hill Sachs L.J. suggested that granting an injunction might have the effect of enabling the employee to persuade the employer to change his mind . In Robb v Hamersmith and Fulham London Borough Council the court held that damages could not compensate the plaintiff for the loss of an opportunity to defend himself. These cases represent a more realistic approach in that whether or not the employer would change their mind upon listening to the employee, the employee is at least entitled to try.
A different type of adequacy of damages argument was put forward in Courtney. The plaintiff had been a radio presenter who was dismissed for alleged misconduct in relation to the presentation of his radio programme. The argument that damages would not be an adequate remedy was premised on the fact that the broadcasting community in Dublin was so small that any publicity that he had been suspended or dismissed would seriously damage his reputation and possibly render him unemployable. Laffoy J. granted an injunction preventing the dismissal and obliging the employer to pay the plaintiff's salary until the trial of the action but refused to restrain the employer from appointing any other person to his radio slot on the basis that "the show must go on" . The peculiar status of a radio presenter in terms of an intellectual property type right to their reputation as an employment right did not seem to find favour with the Court. On the other hand this argument may be more relevant at the full hearing of the matter in establishing the appropriate level of damages.
Conclusions
Specific performance of an employment contract always was and still is an exceptional remedy. However what circumstances may be considered exceptional have broadened in recent times. At one time only a plaintiff who could demonstrate the continued existence of trust and confidence between them and their employer as well as financial destitution if they were dismissed, could hope to succeed. Now, it is arguable that the most important requirement is a fair issue whether natural justice and the employer's own procedures have been satisfied. Each case will turn on its own facts, but it is clear that in terminating an employee's employment, an employer ignores fair procedures at their peril.
The development of specific performance of the employment contract is an important recognition of an employee's property rights in their job. In this age of increasing deregulation of the workplace, as more and more workers enter the twilight zone of temporary, contract and part-time work, the concept of property in employment may have even more far reaching effects in the future for the rights of employees and the obligations of employers.
NOTE: Several of the cases discussed above are due to go to trial in the near future. The authors intend to provide an update on these developments in a future edition of the Bar Review, at which point it is hoped it will be possible to provide some clarification on the increasingly uncertain parameters of this expanding area of law.