Employer and employee cannot agree a cap on statutory compensation

The EAT in SPI Sprits (UK) Ltd and Shefler v Zabelin, considered a contractual clause intended to limit the amount of compensation payable to an employee for unfair dismissal.

Mr Zabelin was Group Chief Investment Officer for an international group.  In March 2020, he agreed to a 30% pay cut because of the impact on the business of the covid pandemic. In June 2020, it was proposed to extend this pay-cut until September. Mr Zabelin complained about this, claiming that a unilateral pay cut was a breach of his contract, expressing concern that the employer was using the pandemic as an excuse to cut pay, that people were being intimidated into accepting pay cuts  and that a stressful and toxic environment had been created for employees, which could impact on their mental health. The Tribunal found that these comments amounted to protected disclosures.

The following working day, the major shareholder of the group, Mr Shefler, called Mr Zabelin and towards the end of the conversation told him to “sign a resignation letter if [he] didn’t agree.” When Mr Zabelin questioned this, Mr Shefler said, “Forget about everything, I am firing you." The Tribunal found that:

• Mr Shefler’s comment to Mr Zabelin was a detriment because of a protected disclosure, for which both the company and Mr Shefler were liable, and
• Mr Zabelin had been automatically unfairly dismissed.

Mr Zabelin was awarded:

• £1.6million in respect of detrimental treatment, for which the company and Mr Shefler were jointly and severally liable
• £3,589 in respect of unfair dismissal for which the company was liable.

The Company and Mr Shefler appealed against the remedy finding on a number of bases, but in particular that Mr Zabelin’s employment contract included a provision stating that in consideration for his agreement to post-termination restrictions, if his employment was terminated he would be entitled to a lump sum payment of £270,000 net (inclusive of any payments due under notice, statute or otherwise), but that he would be entitled to no more than £270,000 net.

The Company accepted that it was not possible for an employer and employee to agree a cap on compensation that overrides statutory provisions, but argued that this contractual clause should be taken into account in determining what compensation was “just and equitable” in all the circumstances and that it would be just and equitable for the contractual clause to operate as a cap on Mr Zabelin’s compensation. The Company made the particular points that:

• Mr Zabelin was legally trained and had worked as a lawyer
• He was negotiating a senior position
• He had lawyers to advise him on the employment contract
• He had negotiated a substantial sum on termination, which was payable whatever the circumstances of termination, so should be bound by both the benefit of the lump sum and the cap it applied

The EAT upheld the Employment Tribunal’s decision that the contractual provisions could not impose a cap on the amount of compensation that it would be just and equitable to award to Mr Zabelin. This decision is a useful reminder that:

• The parties to an employment contract cannot agree between themselves to override the statutory provisions that relate to compensation; and
• Compensation in whistleblowing detriment claims can be awarded against individuals personally as well as the corporate employer, and in the case of highly-paid employees can be very significant sums.

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If you have any queries you would like to discuss regarding statutory compensation and the Shefler v Zabelin case, please contact Rena Magdani or Matt McBride.

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