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False reason for dismissal breaches implied term of trust and confidence?

The implied duty of mutual trust and confidence

An employer must not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between employer and employee (Malik v Bank of Credit and Commerce International SA (In Liquidation [1998] AC 20.)

In the same way as an employer who dismisses an employee can defeat a wrongful dismissal claim by relying on grounds of which it was unaware at the time of dismissal, an employee can point to an employer’s fundamental breach to justify their refusal to perform their contract, regardless of the reason why they left employment or whether they knew of the employer’s breach at the time (Tullett Prebon plc and others v BGC Brokers LP  and others [2010] IRLR 648).

The Facts

Mr Rawlinson was employed as group legal counsel by Brightside Group Ltd (the “Company”) from 1 December 2014. He had a 3 month notice period.

A new CEO was appointed in January 2015 and identified concerns with Mr Rawlinson’s performance and started an internal investigation.  Mr Rawlinson was aware that senior management had concerns which needed to be addressed, but the details were not shared with him.  When the internal investigation concluded in March 2015, the CEO decided that Mr Rawlinson’s position was untenable because of issues with his performance. The Company intended, in due course, to issue Mr Rawlinson his 3 months’ notice and for him to work out this period in order to hand over to his replacement. 

It was decided not to tell Mr Rawlinson that he was being dismissed due to concerns about his performance but instead to state that his dismissal was a consequence of a review of legal services, in order to soften the blow. 

In May 2015 Mr Rawlinson’s line manager met with him and told him that the Company had reviewed its approach to managing its legal service requirements and had taken feedback from stakeholders and concluded that the current arrangements were not working. There would be a re-organisation of Mr Rawlinson’s work, which would be carried out in future by an external service provider. He was given 3 months’ notice and told that his dismissal would be confirmed in writing.

Mr Rawlinson thought the outsourcing would be a TUPE transfer and asked to whom the services were being outsourced. As the work was not really going to be outsourced his line manager would not comment. 

Mr Rawlinson considered that the Company was acting in breach of contract. He said that he was resigning in response to the breach and refused to work his notice period. After his employment was terminated he submitted a Data Subject Access Request which informed him of the real reason behind his dismissal.

Mr Rawlinson brought claims in the employment tribunal for constructive, wrongful dismissal for his notice pay, a failure to inform and consult under TUPE and a breach of the consultation requirements on a collective redundancy.

The Employment Tribunal Decision

The Employment Tribunal rejected Mr Rawlinson’s TUPE claim finding there was no relevant transfer and rejected his collective redundancy claim as he had not been dismissed for redundancy. 

The Employment Tribunal also rejected the claim for constructive wrongful dismissal because it found the Company’s failure to forewarn Mr Rawlinson of any performance concerns and the potential for dismissal did not amount to a breach of the implied term of mutual trust and confidence. His claim was basically for damages for the manner of his dismissal. The case of Johnson v Unisys Ltd [2001] IRLR 279 HL had established that an employee is not able to claim damages suffered as a result of the manner of a dismissal.

Employment Appeal Tribunal (EAT) Decision

Mr Rawlinson appealed as the Employment Tribunal declined to review its decision. He argued that the Company were under a duty to act in good faith and not mislead him.

The EAT found that the Company’s reasons for misleading Mr Rawlinson as to the reason for his dismissal had not been entirely altruistic as it had wanted him to work his notice period so that it could find a replacement and carry out a handover.  The implied term obliges an employer to act in good faith and not to deliberately mislead the employee. However, in the EAT’s view this does not mean that an employer is obliged to volunteer information, but where a choice has been made to tell the employee the reason for his dismissal, then he must be told the true reason.  There may be some cases where the operation of the implied term could permit a white lie, but this was not one of them.

The EAT held that the tribunal had incorrectly characterised the nature of Mr Rawlinson’s complaint as relating to the manner of his dismissal. The EAT found that his complaint related to the untrue reason he had been given for his dismissal and that he had suffered financial loss by resigning in response to the breach of the implied term that preceded, and stood apart from his dismissal.

The EAT therefore allowed the appeal and held that Mr Rawlinson’s wrongful dismissal claim succeeded. He was entitled to be paid the balance of his notice pay.

What does this mean for you or your business?

  • Whilst you might think you’re helping the employee by not telling them the real reason for their dismissal it can, as in this case,  have unintended consequences and backfire.

  • If you give a misleading reason for dismissal you will be in breach of the implied term of trust and confidence and at risk of a claim for breach of contract.

  • The “real” reason for dismissal may be revealed by the disclosure required in dealing with a subject access request if the employee makes one or via the Tribunal disclosure process if they bring a claim.

  • If you give an incorrect reason for dismissal to an employee who then claims social security benefits or makes a claim under an insurance policy the Department for Work and Pensions and/or the insurer may contact you for confirmation of the reason for dismissal and further details. You don’t want to be a party to potential fraud.

What do you need to be doing now?

  • Follow procedure and be honest with employees as to the reason for dismissal as this is less likely to cause problems for you going forward.

  • If you anticipate that an employee won’t take the news well you should make contingency plans.

 

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.