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Some other substantial reason?

18822538_sSUMMARY: An employer’s and senior executive’s disagreement over pay did not amount to “some other substantial reason” and the employee was therefore unfairly dismissed.

Background:

There are 5 potentially fair reasons for dismissing an employee: redundancy, capability, conduct, illegality and “some other substantial reason”.

It is the final category of “some other substantial reason” that is the residual “catch-all” category.  However, that does not mean that any reason for dismissal could be potentially fair under this category; the reason must not be trivial or unworthy and there must be something that could justify the dismissal.  Examples of “some other substantial reason” for dismissal include: a business reorganisation, refusal to accept terms and conditions, personality clashes, pressure from third parties and a breakdown in trust and confidence.

It is the final category of a breakdown in trust and confidence which the employer tried to rely on as “some other substantial reason” to justify dismissal in this case.

Facts:

Mr Summers was employed as a senior manager of Handshake Ltd since 2003.  On joining, he was offered 30% of the share capital.  He did not receive this, but was paid various amounts classed as a “share of the profits”.

From 2006, Handshake unsuccessfully attempted to formalise the terms of Mr Summers’ employment.  A dispute also arose about the calculation of the net profits in 2007 and 2008.  Mr Summers was eventually dismissed on notice in August 2009 and the reasons given for his dismissal were a breakdown in the working relationship and the fact that Mr Summers was not as committed to the business as he had previously been.

Mr Summers brought claims for unfair dismissal and unlawful deductions from wages.  In this update, we only look at the unfair dismissal element of Mr Summers’ claim.

Decision:

The Employment Tribunal (ET) upheld Mr Summers’ unfair dismissal claim (although it found that Mr Summers was to some extent responsible for his dismissal so his compensatory award was reduced by 40%).

The Employment Appeal Tribunal (EAT) upheld the ET’s decision.

The EAT particularly noted that there was a distinction between a power struggle and the reason for dismissal. Mr Summers had remained pleasant and sunny at work and the parties could live with each other; trust and confidence had not broken down.  They were just rowing about the money that Mr Summers thought he was entitled to.

As trust and confidence had not broken down, this dismissal did not constitute a dismissal for “some other substantial reason”, or any of the other potentially fair reasons for dismissal.  It was therefore unfair.

What does this mean for employers?

Employers can and should consider whether trust and confidence has broken down sufficiently for a dismissal to fall within the “some other substantial reason” category.  However, it will not be enough to simply state that trust and confidence has broken down; the parties’ actions and words must demonstrate this and a fair procedure should still be followed as far as possible.  It is also unlikely to be advisable to rely on the reason of a breakdown in trust and confidence alone.

Previous cases have shown that where there is a breakdown in trust and confidence between an employer and a senior executive, for which the senior executive was responsible, and which actually or could potentially damage the organisation (or which made it impossible for the senior executives to work together as a team), this can amount to “some other substantial reason” for dismissal.

In other cases such as this one, stating that trust and confidence has broken down after a disagreement or “power struggle” is simply not enough.  If an employer is unsure as to whether the situation could amount to a breakdown in trust and confidence, they should seek legal advice on their specific circumstances.

Case:  Handshake Ltd v Summers UKEAT/0216/12

Hazel Robbins, Solicitor.

Contact Information

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.

Updated: by FG Solicitors
Call us on:  0808 172 93 22

SOME OTHER SUBSTANTIAL REASON?

18822538_sSUMMARY: An employer’s and senior executive’s disagreement over pay did not amount to “some other substantial reason” and the employee was therefore unfairly dismissed.

Background:

There are 5 potentially fair reasons for dismissing an employee: redundancy, capability, conduct, illegality and “some other substantial reason”.

It is the final category of “some other substantial reason” that is the residual “catch-all” category.  However, that does not mean that any reason for dismissal could be potentially fair under this category; the reason must not be trivial or unworthy and there must be something that could justify the dismissal.  Examples of “some other substantial reason” for dismissal include: a business reorganisation, refusal to accept terms and conditions, personality clashes, pressure from third parties and a breakdown in trust and confidence.

It is the final category of a breakdown in trust and confidence which the employer tried to rely on as “some other substantial reason” to justify dismissal in this case.

Facts:

Mr Summers was employed as a senior manager of Handshake Ltd since 2003.  On joining, he was offered 30% of the share capital.  He did not receive this, but was paid various amounts classed as a “share of the profits”.

From 2006, Handshake unsuccessfully attempted to formalise the terms of Mr Summers’ employment.  A dispute also arose about the calculation of the net profits in 2007 and 2008.  Mr Summers was eventually dismissed on notice in August 2009 and the reasons given for his dismissal were a breakdown in the working relationship and the fact that Mr Summers was not as committed to the business as he had previously been.

Mr Summers brought claims for unfair dismissal and unlawful deductions from wages.  In this update, we only look at the unfair dismissal element of Mr Summers’ claim.

Decision:

The Employment Tribunal (ET) upheld Mr Summers’ unfair dismissal claim (although it found that Mr Summers was to some extent responsible for his dismissal so his compensatory award was reduced by 40%).

The Employment Appeal Tribunal (EAT) upheld the ET’s decision.

The EAT particularly noted that there was a distinction between a power struggle and the reason for dismissal. Mr Summers had remained pleasant and sunny at work and the parties could live with each other; trust and confidence had not broken down.  They were just rowing about the money that Mr Summers thought he was entitled to.

As trust and confidence had not broken down, this dismissal did not constitute a dismissal for “some other substantial reason”, or any of the other potentially fair reasons for dismissal.  It was therefore unfair.

What does this mean for employers?

Employers can and should consider whether trust and confidence has broken down sufficiently for a dismissal to fall within the “some other substantial reason” category.  However, it will not be enough to simply state that trust and confidence has broken down; the parties’ actions and words must demonstrate this and a fair procedure should still be followed as far as possible.  It is also unlikely to be advisable to rely on the reason of a breakdown in trust and confidence alone.

Previous cases have shown that where there is a breakdown in trust and confidence between an employer and a senior executive, for which the senior executive was responsible, and which actually or could potentially damage the organisation (or which made it impossible for the senior executives to work together as a team), this can amount to “some other substantial reason” for dismissal.

In other cases such as this one, stating that trust and confidence has broken down after a disagreement or “power struggle” is simply not enough.  If an employer is unsure as to whether the situation could amount to a breakdown in trust and confidence, they should seek legal advice on their specific circumstances.

Case:  Handshake Ltd v Summers UKEAT/0216/12

Hazel Robbins, Solicitor.

Contact Information

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.