Knowledge Hub | Articles

24 October 2014

Deduction from salary of senior employee not a penalty

It is commonly thought that when an employee resigns with immediate effect, an employer has no right to reclaim any wages paid in advance to the employee.

However, where the employer has the contractual right and the deduction does not constitute a penalty, it is normally in order to do so. Where the deduction can be seen to be a 'penalty clause' rather than restitution for an anticipated loss based on a genuine pre-estimate of the loss, the court will not enforce it as UK law prohibits penalty clauses where the penalty is greater than the commercial loss suffered.

In the recent case of Yizhen Li v First Marine Solutions and Another, a company that specialises in support to offshore drilling activities for the oil and gas industry deducted some £5,000 from the final salary payment of a project engineer who left without working her notice period.

The employee's contract of employment provided that if she left without providing appropriate notice, 'the company will deduct a sum equal in value to the salary payable for the shortfall in the period of notice'.

The Employment Appeal Tribunal concluded that the clause was not a penalty clause as the replacement of a senior employee who leaves without notice represents a genuine commercial loss to the business.
Accordingly, the deduction was justified.

If a senior employee leaves without giving sufficient notice, contact the B P Collins LLP employment team by calling 01753 279029 or emailing employmentlaw@bpcollins.co.uk for advice on the steps you can take.

Stay in touch

Phone: +44 (0) 1753 889995

Email: enquiries@bpcollins.co.uk

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