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Employee misconduct: How to protect the business

Any business faced with potentially serious employee misconduct, particularly by someone senior, will face some difficult choices and risks. What are the implications of getting a misconduct dismissal wrong.

The risk of breach of contract
The contract of a key employee probably contains provisions designed to protect the business. These typically include restrictive covenants to prevent them setting up in competition for a period after termination of employment, approaching or dealing with key clients/trading partners, and soliciting staff.

  • Termination and employee misconduct resources
  • Director’s restrictive covenants contract clause
  • Include a pay in lieu of notice clause in an employment contract
  • How to handle gross misconduct dismissals
  • An employer which breaches a contract in terminating the employment loses the right to enforce these covenants.
  • In dealing with allegations of serious employee misconduct, an employer must, therefore, act within the terms of the employment contract, to enforce its covenants.

Employee misconduct
Misconduct typically arises around: Acts of employee misconduct during employment including dishonesty, unacceptable behaviour with colleagues or clients, or breach of company rules; Behaviour preparatory to leaving to join a competitor with a plan to damage the business; or Behaviour outside work which brings reputational damage to the organisation. Each scenario brings risks of reputational harm, both internally and externally, and potential financial damage to the business. The problem is magnified if the business is in the public eye as a result of the conduct, something now more common as a result of issues going viral on social media.

If the employee’s behaviour amounts to gross misconduct, an employment contract can be terminated without notice or payment in lieu of notice. Contractual provisions may expand the right to terminate without payment to a wider range of serious failings. If the employer wishes to terminate and protect the restrictive covenants, it will wish to satisfy itself that the alleged misconduct took place and justifies termination without notice. Often this will be obvious, but employers should not make assumptions and must check the facts on which they rely. The individual should always be given an opportunity to put their side of the story, so that the employer can be confident that it understands the full picture before making a decision. Where allegations are disputed, the employer is entitled to reach its own conclusion, and provided it behaves reasonably in doing so, a court is unlikely to interfere with its decision.

The risks in reacting to public opinion
In addition to preserving restrictive covenants, a business will want to manage the expectations of other employees, particularly if the allegations relate to conduct towards colleagues; and may also be mindful of the views of customers and wider public opinion. These concerns will be critical, but care must be taken not to permit them to cloud the employer’s judgment on its contractual obligations. A very public dismissal followed by a successful claim by an employee, or a failure to enforce restrictive covenants leading to a move of lucrative business to a competitor may have a far reaching impact on a business.

Garden leave
The contract may contain a right to place the employee on garden leave once notice has been given. This offers the employer the opportunity of giving notice to terminate the contract, and thereby avoid any arguments that it has acted in breach of contract. An employee on garden leave can be directed not to have contact with customers, suppliers or media. Thus the impact of termination may be less immediately dramatic. The individual would remain an employee during the notice period and so would not be free immediately to join a competitor. Such an employee would, however, be seen to remain in employment and to enjoy the benefits of the contract. The PR impact of this will need to be assessed.

Payments in lieu of notice
A payment in lieu of notice breaches contract unless made in accordance with an express power in the contract. In the absence of such a clause, such a payment will render restrictive covenants unenforceable. Where a payment in lieu is permitted, the employer, again without breach of contract, can bring the relationship to an immediate end whilst preserving the right to enforce restrictions. The key downside of such a route is that payment must usually be made for the value of salary and benefits for the entire notice period. This may lead to concern that an employee is receiving a substantial payment amidst serious allegations against them. This situation attracts particular criticism where the employee moves immediately to a new role, having received payment in full for a long notice period.

Restrictions in the contract on joining or setting up a competitor would, however, remain enforceable. It simply may not be possible to satisfy all interested parties. Dismissing an employee in breach of contract may, however, have longer term disadvantages for the business, in terms of freeing the individual to take valuable business and profile elsewhere. The priority must be the protection of the assets and reputation of the business. Employers often spend a large amount of time drafting a fair disciplinary policy, but fail to give the same attention to the contracts of their most senior employees.

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