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Unfair Dismissal – the current state of play

Charles Wynn-Evans and Georgina Rowley of Dechert LLP review the current unfair dismissal landscape.

Whilst the focus in recent times in relation to employment legislation has largely been on new developments, in terms of legislation coming through relating to agency workers, additional paternity leave, the abolition of the retirement age and phased introduction of the Equality Act, the importance of the statutory claim of unfair dismissal as an essential aspect of employee protection legislation should not be lost sight of. Compensation for unfair dismissal remains a potentially significant exposure for employers with the maximum unfair dismissal compensation in normal cases having now increased with effect from 1 February 2011 to £68,400. This article notes some of the most recent important cases and how the current consultation about tribunal and dispute resolution reform may affect this area.

In troubled economic times, it is inevitable that there will be more dismissal related claims as more people lose their jobs. Behind the official statistics that indicate a 50% increase in valid tribunal applications between 2008 and 2009, the picture in relation to unfair dismissal is somewhat more nuanced. Some 50,900 unfair dismissal claims were brought in 2009/10 of which 12,200 were withdrawn, 22,400 were settled through ACAS and 3,900 struck out before a full hearing. Only 5,200 claims were successful, with the average compensation award being £9,120 and the median award £4,903. These statistics may indicate that employers are dealing with claims effectively (in terms of settlement of meritorious higher value claims etc) and/or that levels of compensation on average remain low due to claimants’ low earnings (on which losses are assessed), nonetheless unfair dismissal claims still present considerable potential exposure in terms of (normally irrecoverable) legal costs, management time and, on occasion, publicity. Some recent cases illustrate the risks employers face.

A point which is often lost on those bringing unfair dismissal proceedings is that fact that the test of unfairness is based on the “range of reasonable responses”. The employment tribunal must consider what a hypothetical reasonable employer would have done rather than substitute its own view for what would have been appropriate in the particular circumstances. In the recent decision in Bowater v North West London Hospitals NHS Limited, a nurse was dismissed for gross misconduct for uttering the following comment when restraining a naked patient – “it’s been a few months since I have been in this position with a man underneath me.” The employment tribunal found that dismissal was unfair, not least as the majority of the population would have found the comment as nothing more than a lewd and humorous remark. The Employment Appeal Tribunal considered that it was inappropriate for the employment tribunal to have, as it saw it, substituted its own view and criticised the tribunal for having taken its view of popular opinion into account. However, the Court of Appeal upheld the original tribunal decision, making clear that the test of range of reasonable responses is one for the tribunal to apply in all the circumstances.

The fact that a reasonable dismissal decision in cases of misconduct requires a reasonable investigation was reiterated in the decision of City of Edinburgh Counsel v Dixon in which the dismissal of an employee for watching pornography on a school computer was found to be unfair due to the employer’s failure to investigate the employee’s claim that his uncharacteristic behaviour was the result of a hypoglycaemic episode brought on by diabetes. However compelling the reason for dismissal may seem, employers will need to be able to show that they carried out a reasonable investigation to avoid tainting fairness.

The issue of when overseas employees can bring employment tribunal proceedings has been challenging the courts in recent months including in relation to the unfair dismissal regime. The test established in 2006 in Lawson v Serco of when unfair dismissal claims can be brought in the UK tribunals is based on there being three broad categories of employee. The first category is the standard case where an employee is working in Great Britain at the time of dismissal and can bring claims for unfair dismissal in the tribunal. The second category is “peripatetic” employees who have a base in Britain such that it should be treated as their place of work and who are also able to bring tribunal claims. The third category is of “expatriate” employees who work and are based abroad. They normally fall outside the scope of unfair dismissal legislation unless posted abroad by a British employer for the purposes of a business carried on in Great Britain or work in what can be described as an extra territorial British enclave in a foreign country. In YKK Europe v Heneghan, an employee who worked in Germany but was absent on garden leave in the United Kingdom at the time of dismissal was not entitled to bring an unfair dismissal claim. In contrast, in Ministry of Defence v Wallis, two British employees who worked for the Ministry of Defence at NATO’s overseas headquarters and were entitled to bring unfair dismissal claims given the strong connection with Britain constituted by their terms and conditions of employment being based on those for dependents of the British military posted to serve abroad.

The need to ensure that a dismissal is conducted in a procedurally fair fashion is of course a central issue in much unfair dismissal litigation and a number of recent cases have provided important reminders of that point. In Sarkar v West London Mental Health NHS Trust, an employment tribunal was held to have been entitled to find that dismissal under a formal disciplinary procedure for conduct based on issues broadly already dealt with under an informal misconduct procedure was outside the range of reasonable responses. In Salford Royal NHS Foundation Trust v Roldan, an employee was unfairly dismissed because the employer had not clarified the full extent of the charges that the employee faced and did not investigate the conflicts and the evidence before it.

Employers also need to appreciate that unreasonable breach of the procedural safeguards for employees in the ACAS Code or Disciplinary and Grievance Procedures can have serious consequences. Although the Code has only been in force since 2009 so it is difficult to assess overall how tribunals have approached the issues of adjusting compensation when the Code has been breached, the potential for a 25% uplift to compensation (subject always to the cap of £68,400) renders procedures all the more important when managing employment law risk.

Pinewood Repro Limited v Page is an important decision in relation to individual redundancy consultation. The employer had failed to explain its scoring in a redundancy selection exercise to an employee who scored lowest in a selection pool of three. The employer had refused to explain its reasoning with regard to the mark which the employee had been given for flexibility and the dismissal was found to be unfair because inadequate information was provided from which fair consultation could take place. This decision makes clear how important it is, when consulting employees about their selection for redundancy, to provide employees with enough information to be able to comment upon and respond to their selection especially in relation to qualitative criteria such as performance.

In Fulcrum Pharma (Europe) v Bonassera an employee had been made redundant on the basis that her role was a “pool of one”. Dismissal was found to be unfair because the employer had failed to consult the individual affected about the decision (which it was entitled to take provided that it was reasonable in so doing) of treating her as the sole candidate for potential redundancy. Whilst an employer may be entitled not to pool a provisionally redundant employee with others if the role of the provisionally redundant employee is not interchangeable with others, it needs to consult the affected employee about that decision.

Employers will also want to keep a close eye on the results of the consultation which has recently been launched about resolving workplace disputes. In addition to its various proposals with regard to the reform of the Tribunal system (including the payment of fees as a condition of bringing tribunal proceedings and various other procedural measures) the consultation documents propose an increase to the qualifying period for unfair dismissal from one year to two years. Such a change would inevitably reduce the number of unfair dismissal claims which employers face if only by virtue of reducing the constituency eligible to claim unfair dismissal. Employers will have greater flexibility to dismiss without unfair dismissal exposure during the longer two year period if this proposal proceeds.

One concern, however, is that an increase in the qualifying period for unfair dismissal will only lead to employees who are as a result disenfranchised from bringing unfair dismissal claims seeking to establish other statutory claims, such as automatic unfair dismissal by virtue of whistleblowing or unlawful discrimination claims, in order to bring proceedings in respect of their dismissals. Those sorts of claims are more costly, more time consuming and often more sensitive than unfair dismissal claims and therefore, whatever the policy benefits of such a change, employers will still need to consider these other potential employment law exposures as well as unfair dismissal claims for those eligible to make a claim.

The complexities of unfair dismissal litigation and the exposure which can arise from potential claims only emphasises the need to ensure that employers do all they can to reduce their risks in this regard. Many claims still arise as a result of failure adequately to follow the provisions of the ACAS Code on disciplinary and grievance procedures, unreasonable breach of which can lead to an uplift in compensation of up to 25 percent. Careful and measured performance management processes need to be followed in cases of under performance and fair and appropriate selection and consultation are essential in redundancy cases. Failure to follow proper process can easily undermine the substantive as well as the procedural fairness of a dismissal and training of managers remains crucial in managing the employment law risk presented by unfair dismissal.

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