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Is the test for unfair dismissal in conduct cases going to change?

Fri, 01 Jun 2018

Does Burchell face an uncertain future?

Arnold J’s ruling in British Home Stores Ltd v Burchell has been followed and applied for nearly 40 years but are things about to change following Baroness Hale’s obiter comments in Reilly-v- Sandwell Metropolitan Council? Anthony Korn highlights some of the problems, explores the options and assesses the likelihood of change.

The Reilly ruling

The Reilly ruling was reported in ELA Briefing in April 2018. In dismissing, Ms Reilly’s appeal, the Supreme Court in fact followed and applied the conventional Burchell approach namely that the School Governors at a School where Ms Reilly was Head Teacher (which at the material time was under the Council’s control), was entitled to summarily dismiss Ms Reilly for failing to disclose her ‘close’ relationship with Mr Selwood who had been convicted of making indecent images of children. 

Lady Hale’s sets the ‘hares’ running

However, in paragraphs 32 of the judgment, Lady Hale observed:

“The case might have presented an opportunity for this court to consider two points of law of general public importance which have not been raised at this level before. The first is whether a dismissal based on an employee’s conduct can ever be fair if that conduct is not in breach of the employee’s contract of employment. Can there be “conduct” within the meaning of s 98(2)(b which is not contractual misconduct? Can conduct which is not contractual misconduct be “some other substantial reason of a kind such as to justify the dismissal,” within the meaning of s 98(1)(b)”?

In paragraph 33 of the judgment, Lady Hale continued:

“ Nor have we heard any argument on whether the approach to be taken by a tribunal to an employer’s decisions both as to the facts under s 98(1) to (3) of the Employment Rights Act and as to whether the decision to dismiss was reasonable or unreasonable under s 98(4), first laid down by the Employment Appeal Tribunal in British Home Stores Ltd v Burchell [1978] ICR 303 and definitively endorsed by the Court of Appeal in Foley v Post Office [2000] ICR 1283 is correct”?

It is clear from her subsequent observations in the same paragraph that Lady Hale was not limiting the possibility of a challenge to the three steps identified by Arnold J in the Burchell judgment namely that the tribunal had to be satisfied first that the employer believed that the employee was guilty of the misconduct,; second that it had reasonable grounds to sustain its belief; and third  that , prior to forming that belief, it had carried out a reasonable amount of investigation into the matter but also to other issues under s 98(4) namely having formed that belief, did the employer act within the range of ‘reasonable responses’ in dismissing the employee for that offence.

Is conduct limited to conduct in breach of contract?

The combined effect of Section 98(1)(a) and 98(2)(b) is that a reason which ‘relates’ [my emphasis) to an employee’s conduct is a potentially fair reason for dismissal.  In Reilly, the Supreme Court had no difficulty in upholding the ruling of the tribunal, the EAT and the Court of Appeal that Ms Reilly was under an express duty to ‘advise, assist and inform the Governing Body in the fulfilment of its responsibilities and “to be accountable to the Governing Body for the maintenance of the…safety of …all pupils and by virtue the Governing bodies safeguarding responsibilities” (Section 175(2) of the Education Act 2002 makes specific reference to ‘safeguarding and promoting the welfare of children”) and, that this extended to a duty to disclose her close relationship with Mr Selwood following his conviction. It was acknowledged by Lord Wilson in paragraph  24 of his judgment that the EAT has held that ‘conduct can precipitate a fair dismissal even if it does not constitute a breach of her contract of employment: see the observation of Phillips J… in Redbridge London Borough Council v Fishman [1978] ICR 569 at 574 , adopted by the EAT in Weston Recovery Services v Fisher UKEAT/0062/10/ZT)”.  But Lady Hale obesrvess that “it is not difficult to think of arguments on either side of this question”.         

With respect, I would suggest that it is a bit more difficult to think of arguments restricting Section 98(2)(b) to contractual misconduct than she thinks as there is nothing in that section which expressly restricts ‘conduct’, which potentially justifies dismissal, to conduct which is in breach of contract. Indeed the more liberal approach adopted by Phillips J seems to be supported by the fact that the statute actually defines the reason as a reason which relates to conduct (which contrasts to Section 98(2)(c) which contemplates a particular state of affairs that the employee is ‘redundant’ within the meaning of Section 139(1) of the Employment Rights Act).

Furthermore, if a reason related to conduct was limited to contractual breaches, this could give rise to the obvious problem that outside the public sector, disciplinary rules and procedures are normally expressly stated to be non-contractual and the definition as to what does and does not amount to ‘gross misconduct’ is normally expressed in non-exhaustive terms. The effect of limiting ‘conduct’ to contractual breaches would there result in a significant change in practice: lawyers and HR professionals would be given the almost impossible task of coming up with an all embracing exhaustive definition of ‘conduct’. In the absence of clear express contractual  terms, doubtless, it would be argued that certain types of misconduct could be implied. This could lead to interesting legal arguments but, it could be argued, this would add an unnecessary degree on legal complexity to something which is normally quite straightforward.

On the other hand, in fairness to Lady Hale, the actual result which she contemplates is that non-contractual forms of misconduct could potentially be justified in appropriate cases as ‘some other substantial reason for dismissal’ within the meaning of Section 98(1)b) of the Employment Rights Act 1996 or as Lord Denning put it in Hollister v National Farmers Union [1979] IRLR 238 adopting the phraseology of Arnold J in the EAT in the context of a business reorganisation: ‘some sound, good business reason’ and could be potentially fair for that reason. It could be argued that SOSR dismissals involve less of a ‘stigma’ than dismissals for misconduct. But this would not address the problems identified above. To give a couple of examples: if there was no contractual right to dismiss for dishonesty or fighting at work, doubtless such a dismissal could be justified as an SOSR but is it right that those who were dismissed for such a reason should escape the stigma of a conduct related dismissal (assuming that such a stigma exists)?

The three Burchell steps

Section 98(1) of the Employment Rights Act imposes a burden on the employer to show the reason for dismissal and that that reason falls within one of the permitted categories. Interestingly Lord Wilson in paragraph 20 of the judgment appears to consider that the Burchell requirements are directed at Section 98(1) to (3) of the Employment Rights Act. Lady Hale notes that those requirements ‘do not fit well into the inquiry mandated by s 98(4)”.

I would suggest that the first two requirements are closely linked with the need to establish a reason for a valid dismissal. It is well established that the reason for a dismissal is a set of facts known to the employer or beliefs held by the employer which cause the employer to dismiss the employee (Abernethy v Mott, Hay and Anderson [1974] IRLR 123). The fact that a potential reason for dismissal exists is not sufficient if this is not the genuine reason for dismissal (Associated Society of Locomotive Engineers and Fireman v Brady [2006] IRLR 576). I would suggest that the third factor identified in Burchell  either goes to the genuineness of the dismissal or its reasonableness under Section 98(4). As regards the latter it could be argued that Burchell is a ‘gloss’ on the statute as there is no reference to ‘reasonable investigation’ either as a matter of procedure or substance in Section 98(4) itself.

Furthermore, the Burchell test is not without its difficulties from a Claimant’s point of view: for example, it is well established in criminal cases that a dismissal based on the employer’s reasonable belief at the time of dismissal is fair even if the former employee is subsequently acquitted of the charges. Similarly, it is well established that where an employer is unable to establish which employee has committed the misconduct in question it is open to the employer, subject to certain safeguards, to dismiss the group (as illustrated by Monie v Coral Racing Ltd [1980] IRLR 464, Parr v Whitbread plc [1990] IRLR 39, Frames Snooker Centre v Boyce [1992] IRLR 472 and Whitbread & Co plc v Thomas and ors [1988] IRLR 43), even though this again may mean that ‘innocent’ employees are fairly dismissed.

More recent case law has established that an innocent employee may be dismissed where allegations are manufactured against him or her or are made out of spite provided the manager who carries out the dismissal is unaware of this. This ‘weakness’ of the Burchell approach is highlighted and well-illustrated by the Court of Appeal rulings in Orr v Milton Keynes Council [2011] ICR 704 and more recently in Royal Mail Ltd v Jhuti [2018] IRLR 251 where at page 260 (paragraph 60), Underhill LJ gives two examples: the first is of a case where a colleague with no relevant managerial responsibility procures the dismissal by presenting false evidence against the employee by which the decision taker is innocently (and reasonably) misled adding that the employee has suffered ‘an injustice at the hands of the Iago figure…but the employer has not acted unfairly’ in the context of an ‘ordinary’ unfair dismissal. Underhill LJ confirms that the same approach applies where the ‘manipulator’ is the employee’s manager but is not responsible for the dismissal itself (as in Jhuti). Of course in some cases, it will be open to the Claimant to argue, in line with Burchell, that there has not been a reasonable investigation in that the manager responsible for the dismissal has not examined the motivation of the person making the complaint. It has been accepted that this is part of a reasonable investigation in cases where the complaint is made anonymously (Linford Cash & Carry Ltd v Thomson and another [1989] IRLR 235) and there is no reason in principle why this should not apply in the above scenarios.

These are just a few examples where the Burchell approach arguably operates harshly, unjustly and to the disadvantage of potential Claimants. There may well be others. It is less easy to identify examples of how it operates in a manner which is harsh or unjust to employers. But what is the alternative? One possibility is for the employment tribunal to act as an ‘industrial jury’ and simply apply the words of Section 98(4) of the Employment Rights Act to the facts before it viz whether the dismissal was fair or unfair (having regard to the reason shown by the employer). Some of factors for and against this approach are considered below. 

The ‘reasonable responses’ test     

I would suggest that the ‘reasonable responses’ test is a separate but related development to Burchell.

As Lady Hale points out in paragraph 33 of the judgment in Reilly, the correctness of the ‘reasonable responses’ test was confirmed by the Court of Appeal in the co-joined appeals of Folley v Post Office (ante] and HSBC Bank plc (formerly Midland Bank plc) v Madden. where at page 1295 Mummery LJ stated in the context of the Maddon appeal, that the ‘function of the tribunal is to decide whether [the] investigation is reasonable in the circumstance and whether the decision to dismiss in the light of the results of that investigation, is a reasonable response”.

The Court of Appeal also confirmed that in applying that test it is not for the tribunal to substitute its view for that reasonably taken by the employer and , following the earlier Court of Session ruling in  Spook Erection Ltd v Thackray [1984] IRLR 117, it is no longer open to the EAT to overturn  tribunal decisions on questions of fact on the basis that those decisions are contrary to established good employment practice, a point re-emphasised by the Court of Appeal in Yeboah v Crofton [2002] IRLR 634, admittedly in the context of a race discrimination claim.  In Sainsbury Supermarkets Ltd v Hitt [2003] IRLR 23 the Court of Appeal also applied the ‘reasonable responses’ to the reasonableness of the employer’s investigation and the procedural followed by the employer (the third Burchell requirement).

The combined effect of these rulings is that employers have considerable discretion in deciding whether or not the allegations are sufficiently serious to justify dismissal. It is also well established that the fact that one employer may not have dismissed does not mean that another employer acts ‘unreasonably’ in taking a harsher view.

Whilst the employer’s discretion is not completely unfettered as the test to be applied by the tribunal is ‘objective’ as stated by the Court of Appeal in Fuller v London Borough of Brent [2011] IRLR  414 and reaffirmed by the Court of Appeal in Turner v East Midlands Trains Ltd [2012] ICR 375/ Newbold v Thames Water Utilities Ltd [2015] IRLR 734 and the employer must act ‘proportionately’  (Connolly v Western Health and Social Care Trust [2018] IRLR 239). Further, under S98(4), regard must also be had to ‘equity and the substantial merits of the case’. Nonetheless, a common perception of Claimants is that the effect of these decisions means that the tribunal is simply ‘rubber stamping’ the employer’s decision. Again it is arguable that the ‘reasonable responses’ test is also a ‘gloss’ on the statute.

Alternatives to the reasonable responses test 

One possible alternative to the ‘reasonable responses’ text is for greater judicial intervention in laying down ‘guidelines’ as to what does and what does not amount to a fair dismissal; a good example of this being the well-known case of Williams v Compair Maxam [1982] IRLR 83 where President Browne Wilkinson sought to ‘codify’ previous case law on redundancy dismissals. But ‘guideline’ authority of this kind went ‘out of fashion’ during the 1980’s (although Compair Maxam itself has survived).     

A more radical alternative is to adopt the approach of the EAT in Haddon v Van Den Bergh Foods Ltd [1999] ICR 1150 which held sway for a short time before it was overruled by the Court of Appeal in Madden namely that the tribunal should decide what it would have done in the circumstances in determining what a reasonable employer should have done as the ‘tribunal is composed of people who are chosen to sit as an industrial jury applying their own judgment’ and therefore are assumed to be familiar with what is good employment law practice.

There are many particularly in the academic world who believed that this was the intention of the Donovan Commission who originally proposed that there should be a statutory right to complain of unfair dismissal. But it is not without its practical difficulties and problems. One practical difficulty is that unfair dismissal cases are now determined by judges sitting alone without the benefit of the input of lay members. Whilst not doubting the integrity of employment judges (or the process by which they are appointed), although most employment judges these days have considerable specialist knowledge and experience of employment law, they have more limited experience of what does and does not constitute ‘good employment practice’. Furthermore, whatever the position in 1968, the universality of such a concept in 2018 is open to doubt. In addition, the Haddon approach would cause great uncertainty and make it more difficult to advise on when dismissal is and is not likely to be fair. It could even lead to quite arbitrary results. That uncertainty could potentially be reduced by ACAS guidance but traditionally the ACAS Code has focussed more on the fairness of the process of dismissal rather than the merits of the decision itself.            

Concluding observations

As Lady Hale points out in paragraph 34 of the judgment “There may be very good reasons why no-one has challenged the Burchell test before us. First, it has been applied by Employment Tribunals, in thousands of cases which come before tem, for 40 years now. It remains binding upon them and on the Employment Appeal Tribunal and Court of Appeal. Destabilising the position without a very good reason would be irresponsible. Second, Parliament has had the opportunity to clarify the approach which is intended should it consider that Burchell is wrong, and it has not done so. Third, those who are experienced in the field, whether acting for employees or employers may consider that the approach is correct and does not lead to injustice in practice’.

For all these reasons, and also for the lack of a coherent and practical alternative, my hunch is that any challenge will fail but Lady Hale has certainly ‘put the cat among the pigeons’.

 

Anthony Korn is a Barrister specialising in employment and discrimination law at No5 Chambers. This article was published in the June edition of ELA Briefing.  

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