Share and share alike

Levett v Biotrace IRLR [1999] 375 CA

The Court of Appeal has confirmed the old legal principle that an employer cannot deprive an employee of rights by relying on its own breach of contract. The case related to valuable benefits under a share option scheme, but could have wider implications, for example in relation to pensions and other employee benefits.

Mr Levett was entitled to twelve months notice of termination of employment. His contract of employment contained a payment in lieu of notice clause. He was also entitled, subject to the rules of Biotrace's share option scheme, to an option to purchase 1.7 million shares in the company at any time over a period of seven years.

The rules of the scheme dealt with a number of situations when the option holder ceased to be an "eligible employee". Rule 5.7.1 provided that the option would lapse immediately if Mr Levett became subject to disciplinary proceedings and his contract was consequently terminated.

A side letter to Mr Levett's contract of employment also stated that if he was given notice of termination by the company, then, provided that he did not go to work for a competitor, he would still be able to exercise his option within the seven year period.

The company became dissatisfied with Mr Levett's work. He was called to a disciplinary hearing, which he did not attend, and was dismissed.

The Company argued that Mr Levett's option lapsed on the termination of his employment because of rule 5.7.1 - i.e. because he had been subject to disciplinary proceedings and his contract had been subsequently terminated.

But the Court of Appeal rejected that argument, finding that rule 5.7.1 only applied where the contract of employment was lawfully terminated. Mr Levett had been summarily dismissed with no payment in lieu of notice in breach of contract. He had been dismissed in breach of contract. Rule 5.7.1 did not therefore apply and Mr Levett was entitled to rely on the terms of his side letter and exercise his option. It was a simple contract point - quite separate from any unfair dismissal claim that Mr Levett might have had.

If the company had made a payment in lieu of notice, then there would probably have been no breach of contract in the dismissal, and, from its own reasoning, the Court of Appeal may well have held that he was not entitled to the company shares.