SUMMARY
UNFAIR DISMISSAL – Reasonableness of dismissal
Employment Tribunal failed to address the question whether the
conduct identified by the Respondent as the reason for the dismissal
constituted, as a matter of law gross misconduct in the form of a breach of the
implied term of trust and confidence.
THE HONOURABLE MR
JUSTICE WILKIE
Introduction
1.
This is an appeal by Mr Khan and Mr Hemming against a decision
of the Employment Tribunal held at Cardiff sitting on
19 and 20 April 2011, which decided to dismiss each of
their claims of unfair dismissal brought against their erstwhile employers,
Landsker Child Care Ltd.
Background
2.
Landsker is a company which owns and operates five children’s care
homes in South Wales. They have one in Margam and one in Maesteg, as well as
three in Pembrokeshire. They provide residential care home services for
children in social care and their contacts and contracts are with local
authorities. Mr Khan had been in employment with Landsker since
30 June 2003 and, ultimately, was promoted to the position of manager
of their care home in Maesteg in January 2008. Mr Hemming started in
employment with Landsker on 29 July 2002, and, by July 2006, he
was promoted to be manager of the care home in Margam.
3.
They were dismissed on 8 June 2010 for alleged gross
misconduct. The gross misconduct was described in the letter that dismissed
each of them in the following terms:
“By planning to set up in business in competition with Landsker
Child Care and using the company resources to do so you have breached the
fundamental trust and confidence essential to our contractual relations.”
4.
Each of them appealed against that decision. Their appeals were heard on
separate dates, and their appeals were dismissed by letters in different forms.
5.
The circumstances giving rise to those allegations of gross misconduct
and dismissals occurred on 25 May 2010. On that occasion a
Ms Nuala Sharpe was present in Mr Khan’s office. It would
appear that there may have been another manager also there, a Mr Thomas.
A computer supplied by the Respondent was present in Mr Khan’s office and,
opened on that computer was Mr Khan’s private email account. Within the
inbox of that account Nuala Sharpe saw an email title that caused her some
concern. She opened the email, which came from Mr Hemming from a private
email account of Mr Hemming, and, finding it blank, she then opened the
attachment. The attachment was a document headed “Genus Care Ltd Business
Plan”. There then appears, over a series of pages, what the Respondent
concluded was a serious, detailed and worked‑up business plan setting out
in very clear and carefully worked‑out terms the fact that Genus Care Ltd
was the corporate creature of Mr Khan and Mr Hemming, who had between
them 25 years of residential care experience. It was clear that it was a pitch
for investment in the business, which they appear to have intended to open,
with a view to purchasing and running initially one, later two and ultimately,
possibly, three residential care homes for children, taking children referred
to them by local authorities in the South Wales area, including local
authorities who sent children to the care homes at which they were respectively
employed.
6.
The seriousness, as the Respondent saw it, of this particular document
was reflected in the fact that the figures that they saw seemed broadly
parallel to the figures of costings that were approrpaite to the Respondent’s
own business. Furthermore, the firmness of those intentions was thought to be
reflected in the following passage in the foreword to the document:
“We have in place all personnel and care policies, all paperwork
systems and all contacts. We have viewed property across south Wales and are totally confident of finding a suitable home. The figures we have put
together are based on 2 properties, one up for sale for £395,000 (although this
is under offer) and one priced at £345,000. Bearing in mind the current state
of the economy, we fancy our chances of paying less than asking price for the
right property.”
7.
The Appellants were then, respectively, suspended, and separate
disciplinary hearings were held, in respect of Mr Khan on 3 June and
in respect of Mr Hemming on 4 June. It is right to say that, when
Mr Hemming had initially been asked about the company Genus Care Ltd, he
denied all knowledge of it and only accepted knowledge of it when confronted
with the business plan. The line that each of them took, albeit perhaps
couched in different terms, was that this business plan did not represent any
firm intention to set up such a business as would be in competition with
Landsker in the near future but was, in effect, a paper exercise not to be
taken seriously as representing an imminent threat to the business of
Landsker. Following the disciplinary hearings, at which they had every
opportunity to give their account and explain the document, they were dismissed
in the terms to which we have already referred.
8.
The contracts of service of each of them were in a standard form. The
relevant clause was summarised by the Tribunal at paragraph 12.1 of the
decision, in particular clause 20.1:
“During your normal hours of work you may not, without the prior
written consent of the company, devote any time to any business other than the
business of the Company or to any public or charitable duty or endeavour.”
9.
It does not appear that this particular clause was relied on, ultimately,
by the Respondent as founding the contention of breach of contract. That is
so, it seems apparent, from the fact that, in the letter dismissing Mr Khan’s
appeal, at sub‑paragraph 3 on the second page of that letter, there
is a paragraph that appears to eschew reliance on the use of company time but
emphasises that what was in play was use of company resources, which had been
described more fully in sub‑paragraph 2 in the following terms:
“That the reference to the existence of policies and procedures
in the business shows you have used company information and that this is also
true of the costings which were based on Landsker costings and which you were
aware of because of your role in setting up a home and that there is no
evidence to suggest that what is stated in the plan is not the case.”
10.
In the disciplinary procedure that applied to each of the Appellants
there is a list of examples of gross misconduct, which include:
“Abuse of company resources without prior consent, eg use of
facilities for private gain, (private use of telephones, internet, cars,
budgets, fuel cards, credit cards).”
11.
The Employment Tribunal, at paragraph 12, in numerous sub‑paragraphs,
set out its findings of fact. The Tribunal there rehearsed briefly the
disciplinary process which then took place, referring to both being interviewed
on 1 June; to Mr Hemming initially indicating he did not know what
Genus Care was, but upon being shown the business plan stating it was just an
idea and not serious; Mr Khan having taken a position similar to
Mr Hemming, saying that Genus Care was just an idea and that he had no
settled intention to set up in business on his own; then referring to the
disciplinary meetings that took place, summarising in the case of both
Claimants that they were guilty of gross misconduct by planning to set up in
business in competition by using the Respondent’s resources to assist them and
by breaching the implied term of trust and confidence. By expressing itself
thus, the Tribunal was expressing itself, effectively, in parallel terms to the
terms of the letter of dismissal. There is nothing in the succeeding sub‑paragraphs
that goes beyond that assertion, of what came to be the grounds upon which the dismissal
was founded; in the succeeding sub‑paragraphs, 12.8 replicates the
important part of the dismissal letter, and 12.9 and 12.10 briefly summarise
the fact of the appeals and refer to the letters dismissing those appeals.
12.
At paragraph 13 of the decision the Tribunal summarised the
Claimants’ and Respondent’s contentions. In particular, the Claimants’
contention was that the Respondent’s conclusions regarding their alleged
misconduct were fundamentally flawed. It was submitted there was no evidence
that the Claimants had used the Respondents’ resources inappropriately. It was
submitted that the Respondent was too quick to come to the conclusion that the
business plan was a serious document. It was submitted that the Respondent
should have accepted the Claimants’ case that the business plan was never intended
to be serious and that it should have been made plain to the Respondent that
nothing had been done to further the business plan. It was accepted that the
document required an explanation from the Claimants but that the Respondent had
wrongly rejected the explanations for no good reason. On that basis, it was
submitted that the Respondent’s investigation, which went no further than the
disciplinary hearings themselves, was unsatisfactory.
13.
In paragraph 14 the Respondent’s submissions were summarised. It
was submitted it was not unreasonable for the Respondent not to accept the
Claimants’ explanations for the business plan and it was open to the Respondent
reasonably to conclude that the business plan represented a serious intention
on the part of the Claimants to set up a business in direct competition and
that the plan had been furthered using the Respondent’s resources.
14.
The Tribunal, in paragraph 15, said that it was apparent that the
main issues in the case concerned: the reasonableness of the investigation into
the alleged gross misconduct; the question whether there were reasonable
grounds to believe that the Claimants were guilty of gross misconduct; and
whether the decision to dismiss fell outside the band of reasonable responses.
15.
In that context, the Tribunal went on to deal with the law. Having
cited the relevant sections of the Employment Rights Act, they
then rehearsed a passage from the Judgment the well-known authority of British
Home Stores Ltd v Burchell [1978[IRLR 379. They reminded themselves of
the law concerning the band of reasonable responses and cited a passage from Iceland Frozen Foods Ltd v Jones
[1983] ICR 17, another well‑known case. In connection with the Burchell
test, they also reminded themselves, in passing, though not citing any passage
from the cases, on the rider that now applies in respect of the reasonable
investigation stage as established in A v B [2003] IRLR 405, a Judgment of Elias J, as he then was, the then President of the
Employment Appeal Tribunal, and the Court of Appeal Judgment of the same Judge
in Salford v Roldan [2010] EWCA Civ 522, namely that, where
the circumstances of a dismissal would create serious consequences for the
future of an employee, particular care must be given to the investigation. At
paragraph 22 of the Judgment the Tribunal said as follows:
“Having regard to the legal principles summarised above and the
evidence and submissions in the case, the Tribunal was unanimous in its
Judgment that the Respondent had established that it had a genuine belief that
the Claimants were guilty of gross misconduct and that that was the reason for
their dismissals. The gross misconduct which the Respondent genuinely believed
the Claimants to be guilty of consisted of planning to set up in business in
competition with the Respondent, using company resources to assist in the
setting up of a business in competition with the Respondent and breaching the
implied term of trust and confidence.”
16.
In that paragraph, therefore, what the Tribunal established to its
satisfaction was that there was a genuine belief which informed the dismissals for
gross misconduct in precisely the same terms as were used in the letters of
dismissal. In paragraph 23, the Tribunal went on to consider the question
whether there had been a reasonable investigation following the discovery of
the business plan on 25 May 2010 and concluded that there had been.
The Tribunal was satisfied that the Respondent could not reasonably be
criticised for failing to extend the ambit of the investigation to include
approaches to the banking organisation referred to in the business plan or to
interviews with third parties. It was sufficient, in the judgment of the
Tribunal, for the Respondent to give the Claimants an opportunity to explain
the business plan and for the Respondent to reach its conclusions based on
those explanations.
17.
In paragraph 24 the Tribunal said as follows:
“Based on its investigation, which the Tribunal finds to have
been reasonably conducted, the Respondent reasonably concluded that there were
grounds to believe that the Claimants were guilty of gross misconduct in
planning to set up in business in competition with the Respondent using company
resources to assist in the setting up of a business in competition with the
Respondent and breaching the implied term of trust and confidence.”
18.
Once again, the Tribunal’s Reasons do no more than replicate what was
said in the dismissal letter and accept that there was a reasonable
investigation on the basis of which it was reasonable to conclude that the
Claimants were guilty of gross misconduct in that respect. The Tribunal briefly
considered whether the question of dismissal was inside or outside the band of
reasonable responses open to a reasonable employer and concluded that it was within
the band of reasonable responses.
The appeal
19.
In our judgment, the Tribunal cannot be criticised for having found that
the Respondent had a genuine belief in the Appellants’ gross misconduct as
described briefly in the letter of dismissal; nor is the Tribunal to be
criticised for concluding that in all the circumstances of the case the
investigation conducted by the Respondent was reasonable. However, it is
apparent, and not in dispute, that there was before the Tribunal a further dimension
to the legal argument. That was to the effect that what the Respondent
believed, namely (i) that the Claimants were guilty of planning to set up in
business in competition with the Respondent, and (ii) using company resources
to assist in doing so was not, as to (i) capable of amounting as a matter of
law to gross misconduct, and as to (ii) was not supported by any evidence or
analysis by the Tribunal as to what those resources might have been and
whether, if it was no more than the kind of information used in the business
plan, it was capable of being confidential information the unauthorised use of
which would amount to a breach of contract and gross misconduct so as to
support the Tribunal’s conclusions in paragraph 24.
20.
That dimension was referred to in argument before the Tribunal by
Mr Morris, counsel for the Appellants. It was based on the decision of the
EAT in Laughton and Anor v Bapp
Industrial Supplies Ltd [1986] ICR 634. In that case, the
applicants were warehousemen employed by a company that supplied nuts and
bolts. They had written to ten of their employer’s suppliers informing them
that they intended to start up in business on their own, trading in nuts and
bolts, and asking for details of their products. The employer learnt of those
letters and summarily dismissed the employees for gross misconduct. An
Industrial Tribunal, as it then was, found that the employer was justified in
its decision that the employees were in breach of the implied term in their
contracts of employment that they should be loyal to their employer and that
the dismissals were not unfair. The employees’ appeal before the EAT was
upheld. It was held that the Industrial Tribunal had erred in law in holding
that an intention to compete in the future with their employer, expressed by
the employees in letters to their employer’s suppliers, was itself a breach of
the duty of loyalty owed by the employees to the employers, and that,
accordingly, the employer was not justified in dismissing the employees and
their dismissals were unfair. In particular, in that Judgment, there is a
passage that we read in its entirety, as we think it is important that the
Tribunal subsequently dealing with this case should have it before them:
“The crucial question on this appeal is whether it is a breach
of the term of loyalty for an employee whilst still in the employment of his
employer to indicate an intention to set up in competition with the employer in
the future. The employers and the Industrial Tribunal have assumed that it
is. In our view, the Tribunal fell into error in accepting that the indication
of such intention was in itself sufficient. In Harris & Russell Ltd v Slingsby
[1973] ICR 454, Sir Hugh Griffith giving the Judgment of the National
Industrial Relations Court, said at page 457:
‘This court […] would regard as a wholly insufficient
reason to dismiss a man that he was merely seeking employment with a competitor
unless it could be shown that there were reasonably solid grounds for supposing
that he was doing so in order to abuse his confidential position and
information with his present employers. In the nature of things, when a man
changes employment it is more than likely that he will be seeking fresh
employment with someone in the same line of business and, therefore, a competitor
of his present employers.’
That was said in the context of a case where the employee had
given notice, which was accepted, and when he had been given time off to look
for alternative employment, but as a general proposition not confined to those
special circumstances it is correct this was not disputed by Mr Robinson,
and we would adopt it. Mr Robinson submitted that it did not apply where
the employee sought to set up in competition on his own account, but we do not
see why in principle that should make a difference. An employee with
experience in a particular industry who is intending to leave, whether to join
a competitor as an employee or to set up in competition on his own account,
commits no breach of contract in doing so, unless either there is a specific
term of his contract to that effect which does not fall foul of the doctrine
against restraint of trade or he is intending to use the confidential
information of his employer otherwise than for the benefit of the employer. In
general, an employer is not entitled to protect himself against competition on
the part of a former employee. The employee may, in the course of his
employment, have acquired additional skills and knowledge of the trade in which
he had been employed, with the result that he is a more formidable competitor
upon the termination of his service, but that additional skill and knowledge
belonging to him and their exercise cannot be lawfully restrained by the
employer. It is only the trade secrets and other confidential information of
the employer that the employee is not entitled to use or disclose. Not every
piece of information which the employer regards as confidential will be
protected by the court. The limits on the scope of confidential information
have recently been expanded by the Court of Appeal in Faccenda Chicken Ltd v
Fowler [1986] ICR 297. Where there are reasonably solid grounds for the
employers to suppose that the employees intended to set up in competition in
order to abuse their confidential position and information with the employers.
We accept that if there were, then the employers would be justified in
dismissing the employees for a breach of the duty of fidelity or loyalty. Thus
if at the time of dismissal the employers knew or genuinely believed on reasonable
grounds that they were compiling confidential information such as by making
lists of customers or even memorising such lists for use after their employment
had ceased, then the employers could dismiss them for breaches of the implied
term, but there is no evidence that the employers had any such knowledge or
belief at the relevant time.”
21.
Mr Morris referred the Employment Tribunal to that case, and yet
there is no mention of it anywhere in the Employment Tribunal’s decision,
notwithstanding the fact that it carried out a fairly comprehensive survey of
what they regarded as the relevant law. In our judgment, that omission is
stark and significant. Leaving aside for the moment the fact that the
Appellants’ defence was along the lines that the business plan was not to be
regarded as evidence of a serious intent, which the Respondent rejected and
which, as we have indicated, they were entitled to reject, having conducted
reasonable investigations, the question of law nonetheless remained: whether,
in the circumstances, there was, as a matter of law, any breach of contract at
all by either of these Appellants, let alone something that could be described
as gross misconduct.
22.
As can be seen from the Laughton case, it is not in itself
gross misconduct for an employee to make preparations for a future business to
be conducted after his employment with his current employer has terminated, nor
is it necessarily the case that every piece of information that the employer
has, and that the employee may be aware of, and which the employer might regard
as important or confidential, is properly to be regarded, as a matter of law,
as confidential information. Both of these issues were placed foursquare
before this Employment Tribunal by the reference made to Laughton;
that is to say, whether, on the basis of what they regarded to be a serious
business plan evidencing a future intention to compete, that, in itself,
constituted gross misconduct, and/or whether the matters that appear to have
been referred to by the employer in sub‑paragraph 2 of the second
page of the letter to Mr Khan, rejecting his appeal, could properly, as a
matter of law, be described as confidential information or was simply the kind
of knowledge and expertise that a person in Mr Khan and Mr Hemming’s
positions would have accumulated over the number of years they had been
employed by the Respondent, in particular in the positions that they latterly
occupied. There is nowhere in the Employment Tribunal’s decision any evidence
of them addressing either or both of those questions which would be necessary,
in our judgment, to inform a decision by the Tribunal as to whether what the
Respondent genuinely believed, after the reasonable investigation they had
undertaken, did, as a matter of law, constitute gross misconduct on the part of
either or both of Mr Hemming and Mr Khan so as to entitle the
respondent fairly to dismiss them as a response to such gross misconduct as was
alleged and recorded in the letters of dismissal.
Conclusion
23.
Unfortunately, that did not happen and, accordingly, in our judgment,
the decision of the Tribunal, as presently comprised, is infected by an error
of law, namely their failure to address both of these important issues of law,
which went to the heart of what they had to decide. Therefore, this appeal
must succeed, to the extent that the finding of unfair dismissal against both
Mr Hemming and Mr Khan must be quashed.
Disposal
24.
We have been addressed by both Mr Morris and Mr Isherwood on the
question of what should follow. Mr Isherwood, in our judgment, sensibly
and properly submits that we are not in a position to substitute our Judgment
for that of the Tribunal. Plainly, these matters are very fact‑sensitive
and, whilst we have a lot of the evidence in the form of notes of hearings and
so on, we are not remotely in a position to take a decision. Mr Morris
has submitted that this matter should not go back to the same Tribunal. He
says that they have made a fundamental error and there is always the danger of
giving them a second bite at the cherry. Mr Isherwood, in fairness to
him, has not indicated one way or another any wish that the matter should be
remitted either to the same or to a differently constituted Tribunal.
25.
In our judgment, however, the just and proportionate result must be to
send this matter back to the same Tribunal for them to complete their
deliberations by addressing the issues that, by our judgment, we have concluded
they have omitted to address. This was a two‑day hearing. There was plainly
quite a lot of evidence. The Employment Tribunal has made its findings of fact,
and, in so far as they have done, they have come to conclusions that, in our
judgment are eminently proper. Their error has been to fail to address the
additional issues of law that we have sought to identify, and illuminate, by
referring at length to Laughton. In our judgment it would be
just and proportionate, if it were now practicable, for this case to go back to
the same Tribunal for them to complete their deliberations on this case, having
heard any further evidence and/or argument that either side wishes to place
before them. Accordingly, we will remit this case to the same Tribunal for
that purpose.
