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Can a mistaken interpretation of a contractual provision amount to a fundamental breach of contract?

A recent Employment Appeal Tribunal decision has confirmed that if an employer mistakenly interprets a contractual provision and intentionally acts on that mistake, they can be in fundamental breach of an employee’s contract of employment.

In Roberts v The Governing Body of WhiteCross School, Mr Roberts went on sick leave due to work-related stress and depression. A collective agreement governing sick pay confirmed that 100% sick pay was payable, “in the case of absence due to accident, injury or assault attested by an approved medical practitioner to have arisen out of and in the course of the teacher’s employment”. On the basis that Mr Roberts suffered work related stress, he considered that he was entitled to full sick pay. The School considered otherwise and said that this collective agreement only covered physical injuries and not psychological ones.

The Employment Tribunal found that the provisions regarding 100% pay applied equally to both physical and psychological injury. However, it concluded that the failure to pay full sick pay was not a fundamental breach of contract because of the honest, though mistaken, view of the School that 100% sick pay was not payable.

At the EAT, the School’s actions were found to be a fundamental breach of contract, contractual provisions relating to pay going to “the root of the contract”. The EAT found that the School was aware that the interpretation of the collective agreement was not clear cut and that it had a “settled intention” not to pay 100% sick pay. That intentional failing amounted to a fundamental breach of contract which could potentially justify the employee leaving work and claiming constructive dismissal.

This case serves as a useful reminder to employers to ensure that contractual provisions, and in particular those relating to pay, are clearly worded. This would avoid any confusion about interpretation of contractual obligations arising in the first place.

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