Can employees claim an uplift of up to 25% in the circumstances of a dismissal for “some other substantial reason”, such as an irretrievable breakdown in the relationship between employee and employer?
Not according to the Employment Appeal Tribunal’s decision in Phoenix House Ltd v Stockman and another.
In this case, the employee’s dismissal was found to be both procedurally and substantively unfair, yet the Employment Appeal Tribunal held that the ACAS Code of Practice on Disciplinary and Grievance matters does not apply to dismissals for “some other substantial reason”. This meant that the successful Claimant was not entitled to receive an uplift of up to 25% on the compensation awarded to her because of the employer’s failure to follow the ACAS Code.
The effects of the decision are that:
the ACAS Code will not apply to dismissals involving a breakdown in working relationship and other “some other substantial reason” grounds
employers have greater discretion over what process is fair and reasonable to follow in such dismissals – through principles of “natural justice” - so some elements of the ACAS Code - will still need to be followed in any fair process
employees have lost the opportunity to argue for an uplift to compensation in these cases (and any strategic leverage that may have existed in this respect)
previously conflicting guidance provided by tribunals about the application of the ACAS Code in such cases has been helpfully clarified
Some other substantial reason
The Employment Rights Act 1996 sets out a number of potentially fair reasons for dismissal. These include conduct, redundancy, capability and a broad, catch-all reason set out at section 98(1)(b):
“some other substantial reason (SOSR) of a kind such as to justify the dismissal of an employee holding the position which the employee held” .
SOSR is an important residual reason which can be relied upon by employers seeking to terminate in a multitude of scenarios such as the end of a fixed term contract, leadership failings or due to a loss of confidence in the employee.
Ms Stockman was originally employed as a Financial Accountant at Phoenix House – a charity providing support to individuals with drug and alcohol issues. As part of a restructuring exercise, her role was made redundant. She applied for a number of alternative roles and was appointed to a more junior Payroll Officer position.
It was alleged by Ms Stockman that the Finance Director of Phoenix House had treated her unfairly in the restructuring process. She raised a grievance against him and confronted him whilst he was taking part in a separate meeting with another member of staff, the latter of which resulted in her being accused of misconduct and invited to a disciplinary hearing. Her grievance was dismissed and she was given a 12 month written warning following the disciplinary hearing. Ms Stockton appealed unsuccessfully against both outcomes.
A mediation meeting took place between Ms Stockman and the Finance Director which was unsuccessful. Subsequently, Ms Stockton was invited to a formal meeting to consider if the working relationship had irretrievably broken down. At the end of the meeting Ms Stockton was informed that her employment was being terminated for SOSR.
Ms Stockton commenced Employment Tribunal (ET) proceedings, claiming unfair dismissal and a number of other claims which are outside the scope of this update.
The ET upheld Ms Stockton’s claim of unfair dismissal, giving four reasons for its conclusion:
the dismissal process was not fair and, further, was not compliant with the ACAS Code of Practice on Grievance and Disciplinary matters (Code)
the dismissing officer’s approach was to start from the position that the relationship had broken down and put the burden on Ms Stockton to prove otherwise
the dismissing officer took into account matters of which Ms Stockton was unaware (the outcome of her appeals against the grievance and disciplinary decisions) meaning that she had not had an adequate opportunity to state her case or to challenge the assertions made against her
the finding that the relationship had irretrievably broken down was outside the range of reasonable responses of an employer in the circumstances
Phoenix House appealed against the finding of unfair dismissal, and against the decision that the Code applied to Ms Stockton’s dismissal.
Employment Appeal Tribunal
The Employment Appeal Tribunal (EAT) upheld the finding of unfair dismissal but overturned the ET’s decision that the Code applied to the termination.
The EAT considered that the ET’s decision that a reasonable employer would not have considered there to have been an irreversible breakdown in the relationship was unassailable. Ms Stockton’s role as Payroll Officer was a middle-ranking clerical position, and not one which involved inevitable day to day contact with the Finance Director. There was a more junior finance employee that Ms Stockton could have reported to.
More interestingly, the EAT held that the Code did not apply to Ms Stockton’s dismissal for SOSR. Key to the EAT’s finding was the fact that the Code does not state that it applies to SOSR dismissals, and so deeming it to do so would result in an employer facing
“a punitive element of a basic and compensatory award in circumstances in which he has not been clearly forewarned by Parliament and by ACAS that that would be the effect of failing to heed the Code.”
The EAT confirmed that certain elements of the Code could be applied to SOSR cases, such as the need to investigate the matter, which is likely to include a meeting with the employee, but no uplift could be awarded following any breach.
This decision comes hot on the heels of the EAT judgment in Holmes v Qinetiq, which confirmed that the Code does not apply to dismissals for ill health where there are no issues of performance. Both decisions will be binding on future ETs and remove the procedural necessity to follow the Code.
However, some would argue that the requirements of the Code are not particularly arduous, and that a complete disregard for it is likely to result in most dismissals being procedurally unfair in any event. For example, it is difficult to imagine many circumstances where an employer would feel confident in defending an unfair dismissal claim if no meeting has taken place with the relevant employee to discuss the proposed termination of their employment.