Recent events at the News of the World have attracted much attention in relation to criminal acts, but they also raise some interesting employment law issues, namely:
- Would it be fair to dismiss a senior manager if he or she did not know that criminal acts were being committed by other employees, but because he or she was responsible for those employees and the criminal acts happened on his/her watch?
- Can an individual who is dismissed for engaging in illegal activity argue that he or she has been unfairly dismissed because he or she simply followed instructions from management to engage in that activity (the so-called Nuremberg Defence)?
By way of reminder, under s98 of the Employment Rights Act (“ERA“) there are five fair reasons for dismissal (i) misconduct; (ii) capability; (iii) redundancy; (iv) illegality; and (v) some other substantial reason. If there is a potentially fair reason to dismiss an employee, the dismissal will only be fair if the sanction of dismissal is reasonable in the circumstances and the employer follows a fair process in effecting the dismissal.
These situations can be extremely difficult for employers, especially if the events have created adverse publicity. Ultimately, employers need to balance taking firm action to resolve the situation with treating employees fairly and acting reasonably. In some situations, an employer may decide that firm action is the priority regardless of any employment claims that are triggered to achieve the right PR message. Even in that scenario, the employment issues should be considered so that potential claims can be assessed and valued – it will be far better to quickly resolve any claims rather than have high profile employment tribunal claims adding to the negative PR.
The Ignorant Manager
If it is discovered that an employee or a number of employees are engaging in illegal activity an employer may well feel that the manager of the relevant employee(s) or more senior managers should bear some responsibility. In serious cases, the employer may feel that the manager/more senior managers should be dismissed for not running the team/the business properly.
The first thing that the employer needs to do is to act in accordance with its disciplinary policy and carry out an investigation to determine what the manager/senior managers did and did not do and know in realtion to the illegal activity.
If the investigation uncovers that a manager has been involved in, assisted or encouraged the illegal behaviour, the employer is likely to have good grounds to dismiss him/her.
However, what is the position if (like in the News of the World case) the manager(s) claim that they were unaware of the illegal activities and there is no evidence that he/she/they were involved in, assisted or encouraged the illegal behaviour? Can a manager be dismissed on the basis that he/she should have known what was going on and/or should have prevented it?
In this type of situation, the manager(s) will not have actually committed an act of misconduct. Therefore, dismissal would be for capability reasons (i.e. the manager(s) was not capable of running the team/business) or for “some other substantial reason”.
Having established a potentially fair reason for dismissal, the employer must show that dismissing a manager in this scenario is reasonable in the circumstances.
In terms of capability. unless there is a wilful dereliction of duty, it will be rare that poor performance will be so grave as to justify instant dismissal for a single act of imcompetence. Alidair Ltd v Taylor [1978] IRLR 82 determined that failures by employees in inherently hazardous roles (e.g. pilots, nuclear scientists and train drivers) where a single mistake could lead to major consequences may provide an exception. Dunn and another v AAH Ltd [2010] EWCA Civ 183 was an example of a case in which a failure by a senior employee to comply with financial reporting obligations constituted wilful neglect of duties and warranted instant dismissal. However, both of these exceptions involved direct acts/omissions by the individual being dismissed rather than a failure to be properly aware of and control the acts/omissions of others.
In relation to dismissal for “some other substantial reason”, the employer will need to show that dismissal is a reasonable sanction in the circumstances.
To dismiss a manager for being ignorant of the activitires of his or her subordinates (unless the dismissal comes at the end of a performance management process in relation to that issue), the employer would need to show that:
- it was part of the manager’s role to oversee what the individuals who engaged in the illegal activities were doing;
- had the manager been overseeing the individuals who engaged in the illegal activities, he/she would have become aware of those activities; and
- the impact of the illegal activities is very serious for the employer.
In practice, the more senior the manager is and the more serious the consequences are, the easier it will be for the employer to fairly dismiss the manager.
The Nuremberg Defence
If an employee is found to have been engaging in illegal activities (i.e. misconduct) that would warrant dismissal, can the employee rely on the argument that he/she was just doing what he/she was told to do?
The starting point is the test in section 98(4) ERA of whether the employer acted reasonably. This is an objective test and it is for the employment tribunal to decide whether the employer’s decision to dismiss the employee fell within the range of reasonable responses that a reasonable employer in those circumstances and in that business might have adopted. Importantly:
- the tribunal must not “substitute its view” for that of the employer; and
- the tribunal must assess the reasonableness of the employer’s conduct, not the level of injustice to the employee.
In addition, the EAT’s guiidance in Coyne v John Lewis [2001] IRLR 139 (which referred back to R v Ghosh [1982] QB 1053) provides useful guidance on assessing misconduct that constitutes dishonesty:
- firstly, according to the ordinary standards of reasonable and honest people, was the employee’s behaviour dishonest; and
- secondly, must the employee who engaged in that behaviour have realised that, by those standards, his/her behaviour was dishonest.
This is an area where the particular circumstances of the case will be critical. On the one hand, if an employee has done something that is obviously illegal simply because his boss told him to (and without questioning his boss or other senior employees), dismissal is likely to be fair.
On the other hand, take the example of a junior employee who is asked to do something that she feels is wrong, but which she did not know was actually illegal and which was not obviously illegal. If the employee has raised her concerns, but her boss assures her that the course of action is acceptable, it is likely to be reasonable for the employee to defer to her boss’s greater knowledge and experience. In this scenario, it is likely to be unfair to dismiss the employee. This will be especially the case if the employee also raised her concerns with another superior member of staff or a specialist department such as Legal or Compliance.
Another potential scenario is where an employee knows that she is being asked to do something illegal and she raises this concern to her boss, but her boss tells her that if she does not follow his instructions she will be dismissed. In this situation, it is far less clear whether dismissing the junior employee would be fair. The employee knows she is doing something illegal, but she has raised this and has been threatened with dismissal if she does not do as she has been told. On balance, dismissing the employee is likely to be unfair, although the employee would be in a better position if she had also raised her concerns with another more senior employee or a specialist department such as Legal or Compliance who had also told her just to do as her boss had told her.
Employers may face the situation where employees are providing different versions of what happened. For example, a more junior employee may allege that he raised concerns but was forced by his manager to carry out her instructions, whereas the manager may state that the employer never raised any concerns. In this scenario the case of Monie v Coral Racing Ltd[1981] ICR 109 is instructive. In that case, it was decided that if an employer, despite carrying out a full investigation, cannot identify the particular culprit(s) who is responsible for the misconduct, it may be reasonable to dismiss all those who could have been responsible.
This is a very difficult position for an employer. A balance needs to be struck down between taking firm action in relation to staff who have committed criminal acts and ensuring that employees are treated fairly.
In high profile cases like the phone hacking scandal at the News of the World, adverse publicity can easily cause an employer to lean more towards taking firm action, even if there is the risk of facing claims from a dismissed employee.
However, it is important for the employer to bear in mind that, if the employee has raised concerns about the illegality of instructions, any employment tribunal claim is likely to include a whistleblowing claim under Part IVA of the ERA, which will remove the cap on unfair dismissal compensation. This can result in the employer facing significant legal liabilities if a number of employees are dismissed and/or the employees who are dismissed are high earners. It may also mean that the employer could be in the employment tribunal very quickly if the employee, having alleged whistleblowing, applies for an interim hearing within seven days under s128 ERA. Notwithstanding the potential claims an individual may have, in this type of case any award is likely to be reduced to some degree on the basis that the employee has contributed to his/her dismissal.