Termination Payments and Penalty Clauses

[Thanks to Naomi Cunningham of Outer Temple Chambers for preparing this case summary]

Where termination of a fixed term contract was permitted provided the employer paid the employee’s salary for the unexpired portion of the term, was that arrangement an unenforceable penalty cause? Obviously not, holds HHJ Pelling QC in Hennigh Berg v Blackburn Rovers Football Club & Athletic plc.

The contract of employment between the Football Club and Mr Berg permitted early termination of his fixed term, but required the Club to pay Mr Berg his salary for the whole period if it chose to terminate early. It did so choose, and Mr Berg claimed that sum.

Refusing the Club permission to withdraw its admission that the sum was due, the judge ruled that it was not arguable that the clause was an unenforceable penalty, because it was not a penalty for breach at all: it operated when the Club did something it was entitled under the contract to do.