Lockhart v FHS Group Limited [2011] NIIT 00342

THE INDUSTRIAL TRIBUNALS

CASE REF: 342/11

CLAIMANT: Edward Lockhart

RESPONDENT: FHS Group Limited

DECISION

The majority decision of the tribunal is that the claimant was unfairly dismissed and he is awarded compensation of £12121.62.

Constitution of Tribunal:

Chairman: Mr B Greene

Members: Mr N Jones

Mr R Hanna

Appearances:

The claimant was represented by Mr J Coyle, of counsel, instructed by McAteer & Company Solicitors.

The respondent was represented by Mr T Sheridan of Peninsula Business Services Limited.

Sources of evidence

1. The tribunal heard evidence from the claimant and on behalf of the respondent from Roger Pannell and John Pannell. The tribunal also received two bundles of documents amounting to 105 pages.

The claim and defence

2. The claimant claimed unfair dismissal. The respondent denied that the claimant had been unfairly dismissed. The respondent asserted that the claimant had been dismissed for gross misconduct.

The issues

3. The issues to be determined by the tribunal were:-

(1) Was the claimant unfairly dismissed by the respondent.

(2) If the dismissal was unfair what is the appropriate remedy.

Findings of fact

4.	(1)	The respondent employed the claimant from 1 July 2009 until 21 October 2010 as a strategic development director. The claimant was born on 23 January 1950 and is an accountant by occupation. The respondent regarded the claimant as a good employee in good standing and he was well thought of by the respondent. The claimant’s primary role was to identify suitable investment/acquisition opportunities with engineering businesses based in Northern Ireland that would generate an increase in the respondent’s turnover and operating profit.

	(2)	The respondent runs a number of different businesses under the Unicorn brand. It employs 120 people and has an annual turnover of approximately £8.5 million. It produces street litter bins, hospital waste bins, vending machine dispensers and washroom hygiene products.

	(3)	Roger Pannell is the sole shareholder and managing director of the respondent company. The company was previously owned by John Pannell, the father of Roger Pannell. John Pannell is retired from the business but continues to be a constant adviser to Roger Pannell on all matters associated with the business. Violet Redpath is the respondent’s financial director.

	(4)	In or about August 2009 the respondent acquired Reflex Mouldings in Markethill which had been in administration. The claimant had day to day responsibility for the manufacturing operation at Reflex Mouldings.

	(5)	In January 2010 Mark Robinson was appointed general manager of Reflex Mouldings which changed its name to Unicorn Mouldings Limited (UML). The claimant returned to the respondent’s base at Lisburn where he became more involved in the financial aspects of UML.

	(6)	UML secured a substantial repeat order with a German company, Puras, for the supply of car mats from May to September 2010. Payment was to be made in November 2010. After negotiation with Puras they agreed to make part payment after the first four containers were delivered.

	(7)	The claimant prepared a cash forecast for UML in relation to the Puras order. It showed that UML needed a cash injection of £200,000 to fund the manufacturing costs. The claimant discussed his forecast in February 2010 at a meeting with Mark Robinson, John Pannell and Roger Pannell, via telephone. John Pannell indicated that the additional funding of £200,000 would be made available.

	(8)	To secure other funding for the respondent business the claimant negotiated a more advantageous arrangement with Barclays than was available with the respondent’s current bank, Bank of Ireland. Under that arrangement the respondent secured a £1.5 million facility on a fixed and floating charge on the assets of three of the subsidiary companies within the respondent supported by a cross guarantee from the respondent. The new funding arrangement became operational in July 2010.

	(9)	As part of the £1.5 million financial arrangement with Barclays UML entered into a sales finance agreement with Barclays. Among the conditions was a prime debtor restriction which put a limit, 20% of the value of all outstanding approved debts, on the amount of money that UML could draw down in relation to the Puras contract. Other conditions included the provision of management accounts monthly, a month end review and a percentage reduction of the draw-down facility where the agreement is breached.
	(10)	The underlying position of each of the companies within the respondent did not improve. On 2 August 2010 at a meeting in Lisburn, attended by the claimant, Roger Pannell, John Pannell, Mark Robinson and Violet Redpath, the claimant indicated that the respondent would need an injection of £200,000 at the end of September 2010 as no further draw-downs would be available from Barclays due to the outstanding balance on the Puras account exceeding the allowed credit terms and the limit of 20% of the respondent’s debtor balances.

	(11)	Roger Pannell indicated that he was not willing to commit any further funding to the respondent particularly in view of the adverse trading position of UML.
	(12)	Subsequently Roger Pannell informed the claimant that in addition to being unwilling to commit further funding to the respondent he did not have funding readily available. His position was that he would look at the September trading results and if there were no obvious indications of improvement then a downsizing of UML was inevitable with closure a possibility.
	(13)	Following a meeting in August 2010 with Roger Pannell, at which the financial position of UML was discussed, the claimant and Mark Robinson had a discussion during which the claimant broached the subject of him and Mark Robinson taking over the business itself. The topic was not developed.
	(14)	In September 2010, when Violet Redpath was on holiday, the claimant drew down £154,000 from the Barclay’s debtor finance facility which was the maximum amount available as indicated on the on line system.

	(15)	The claimant drew the money down to pay weekly wages, salaries, PAYE/NIC, and suppliers that were due. He did not consider whether that draw-down had breached a provision of the agreement with Barclays and was not aware that it had done so. The claimant asserts that he informed Roger Pannell what he was doing. Roger Pannell did not recall a conversation about breaching the agreement although he accepted there were discussions about paying wages and suppliers but stated that the claimant should have considered alternative options like talking to key customers and suppliers.

	(16)	The claimant completed the August month end reconciliation for Barclays in relation to UML. Violet Redpath had completed the month end reconciliations for the other companies within the respondent.

	(17)	When Barclays considered the month end reconciliation the respondent’s position was that the Puras debtor balance exceeded the prime debtor balance maximum of 20% of the total debt of the respondent and that no further draw-downs were permissible.

	(18)	On 20 September 2010 the claimant received an e-mail from Les Reece, Relationship Manager from Barclay’s Sales Financing. In the e-mail he stated;- “… The processing of the August Month End Reconciliations [MER] has been completed today and there are a number of areas breaching and reserves are being updated accordingly. The reserves will be updated upon receipt of each MER to reflect the up to date ledger[ Re Contras, Prime Debtor level, Export etc].” Mr Reece then set out “the key areas to flag at this stage”, of which there were four. He does not specifically attribute importance to any of these four areas. The debtor balance in relation to the Puras account is the second area mentioned. His comments in relation to the first two matters were;- “ - Recourse (End Column) covenant – one of the facility covenants is that the end column should be no more than 5% of the outstanding notified ledger (Measured on a Group basis) with the Early Payment reduced by 1% for each 1% breach. As at August month end, I calculate the recourse level at 7.1% - a 2% breach – and therefore the Early Payment percentages across the facilities will be reduced in line with the agreement. - Puras Gmbh – this debtor is capped at 20% of the outstanding Approved Debt. As at August MER the debtor balance had increased significantly and stood at c 40% of the ledger. Accordingly, this will result in a significant reserve of c €250k. I will need to mark this reserve in line with the agreement, however perhaps we can chat through the implications of this and also where you believe this debtor will settle as a percentage of the overall ledger. The MER reserves are normally only looked at on a monthly basis as each updated MER is received, however, if a significant payment has been received post August month end, then I am agreeable to recalculate this reserve accordingly.” He then referred to three separate points, one of which showed that another of the terms of the Sales Finance Agreement was broken i.e. that monthly Management Accounts have not been provided for July and August 2010. Mr Reece’s approach was to ask, “… that you forward these directly to me as they are completed”. In relation to all the matters mentioned in the e-mail Mr Reece concluded;- “I am of course happy to discuss any of the above points once you have had the opportunity to review.”

	(19)	Neither in the e-mail nor in a follow-up conversation between the claimant and Les Reece was there any indication that the matter was being regarded as a serious matter. The approach was that it was a technical breach of the agreement which would be resolved either by way of receipt of funds from Puras or from a reduction in the prime debtor percentage to less than 20% of total debt.

	(20) (21) (22)	On 21 September Violet Redpath showed Roger Pannell a copy of Les Reece’s e-mail of 20 September 2010. Roger Pannell then initiated contact with Barclays and had a conversation the same day with Lorcain Egan from Barclays. He also met with him the following morning. Roger Pannell stated that Mr Egan had stated that UML should not have drawn down the money and that such a major breach caused serious concern. Roger Pannell said that he also stated during the conversation that the bank could consider bringing in someone more experienced to run the business i.e. someone to take over Roger Pannell’s role. Roger Pannell stated that he raised with Mr Egan if the bank were considering bringing in administrators to which Mr Egan replied that they may consider that. Roger Pannell only made a note of his discussions with Mr Egan at the request of his father when the latter had heard the claimant’s appeal from dismissal. His note of the discussion sets out about eleven matters that were discussed. Some of the matters were administrative in nature. The notes suggest that there was some discussion about various methods to remedy the breach including, bringing in Unicorn Hygienics to increase the availability for Prime Debtor, increasing the export percentage to 60%, using property as collateral and introducing £100k immediately. As a result of these discussions Roger Pannell submitted further information to Barclays and made a new credit application for which there was a fee of £5,000 or £6,000. Barclays requested a cash injection of £100,000 as evidence that Roger Pannell was committed to the business. Roger Pannell injected a further £100,000 into the business in early or mid-October 2010. Roger Pannell thought that UML’s reputation had been brought into disrepute. Neither Barclay’s business with UML nor the credit facility were interrupted as a consequence of the breach nor was any such suggestion made to UML or the respondent.
	(23)	The only evidence of the seriousness with which the bank viewed the breach is Roger Pannell’s assertion to that effect. There is not any written communication from the bank to the UML or the respondent to state that. There is not any statement to that effect made by anyone from the bank as part of the investigatory process or disciplinary meeting arising from the breach. Indeed the note of the conversation between Roger Pannell and Lorcain Egan was not made by Roger Pannell until 9 November 2010 at the request of John Pannell in the course of hearing the claimant’s appeal against dismissal.

	(24)	When the claimant made the draw-down of £154,000 on 8 September 2010 he did not know that he was in breach of a term of the Sales Finance Agreement. Nor was there any indication that the draw-down breached the agreement. Nor was any warning raised. UML did not have a system or controls in place to indicate that the permitted percentage draw-down had been breached or was at risk. Information could have been obtained in order to ascertain if the agreement had been breached or not. Though Roger Pannell believed that the claimant should have developed a system of control to flag up a breach or potential breach of a covenant in the Sales Financing Agreement he did not instruct the claimant to do so. Nor did anyone else in the respondent.
	(25)	It was not normal practice to check prime debtor percentages during the course of a month. All the checks followed on from the month end reconciliations when any breaches of the agreement are highlighted and implemented pending completion of the following month’s reconciliation in order to establish if the issues had been resolved. Roger Pannell believed that the required check could easily have been done and that it should have been done where there was a potential breach. He also felt that it was the respondent’s obligation throughout the month to ensure that the covenants in the agreement were not breached.

	(26)	Roger Pannell met with the claimant on 22 September 2010. He informed the claimant that he was concerned about the prime debtor issue and wanted to take some time to reflect on it. He suspended the claimant on full pay. He wrote to the claimant on 24 September 2010 confirming his suspension on full pay to allow an investigation to take place following the allegation of breach of covenants with Barclays, in particular the Prime Debtor and Export percentage.

	(27)	Roger Pannell held an investigatory meeting with the claimant on 30 September 2010. Kim Diver was also in attendance. Of the several breaches of the agreement with Barclays set out in the e-mail of 20 September 2010 only the breach in relation to the draw-down was discussed at the investigatory meeting. At the start of the meeting Roger Pannell told the claimant that he thought the draw-down had put the company in a difficult position with the bank and that he held the claimant responsible. He also stated that the bank was very close to pulling the facility.
		The claimant denied that he was solely responsible for the situation. He stated that the position with Puras was because of lack of sales and that he was not responsible for the order book not growing. He added that he did not know the position that the group was in as he did not have access to all the bank accounts. He further stated that he only had access to the Barclay’s account for UML. The claimant further stated that following Les Reece’s e-mail of 20 September 2010 that he had spoken to Lorcain Egan on 21 September 2010 who stated that he was concerned with the profitability of the group. He continued that he was not responsible for the overall group and did not accept that the issue should be left at his door.
	(28)	The claimant was invited to a disciplinary meeting on 7 October 2010. The letter stated that the matters of concern were;- “Taking part in activities which have caused the company to lose faith in your integrity namely, alleged gross mismanagement of the Invoice Discounting Facility with Barclays, in particular the alleged gross breach of covenants including Prime Debtor and Export percentages on facility draw down. It is alleged that your actions have brought the company’s reputation into disrepute with Barclays, who were on the verge of withdrawing the facility which may have resulted in administrators being appointed and significant job losses in the company. It required significant input from senior management to rectify this situation and restore goodwill with Barclays. It is further alleged that you approached Mark Robinson, with a proposal to acquire Unicorn Mouldings. The company alleges that these matters, if proven, represent a gross breach of trust. If you are unable to provide a satisfactory explanation, your employment may be terminated without notice.”

	(29)	The matter of concern, “you approached Mark Robinson, with a proposal to acquire Unicorn Mouldings”, relates to a conversation that occurred in August between the claimant and Mark Robinson. It was not mentioned at the meeting on 22 September 2010, nor in the suspension letter of 24 September 2010, nor in the investigatory meeting of 30 September 2010. The first reference to the Mark Robinson discussion is in an e-mail from Mark Robinson to Roger Pannell on 5 October 2010. The e-mail does not provide any information about when Mark Robinson reported the conversation or how or why he came to report it on 5 October 2010. It then appeared in the letter of 6 October inviting the claimant to the disciplinary meeting as the last matter that constituted the breach of trust charge.

	(29)	The disciplinary meeting was chaired by Roger Pannell, the decision maker, with Kim Diver in attendance as note-taker. The first part of the meeting was dominated by the Mark Robinson discussion. The minute of the meeting states;- “RP [Roger Pannell] stated that he feels that the discussions today, and taking into consideration EL’s [Edward Lockhart] comments at the last meeting, the principle is the MR [Mark Robinson] incident.” To a question from the claimant if the main issue was the breach of contract the minutes state, “RP stated that the issue was the covenant with the bank which was breached.” Througho Throughout the meeting the claimant did not deny that he had drawn down the money which breached the covenant in the agreement. He denied that he alone carried the responsibility for the breach. In support of his denial he made a number of contentions that;- (a) He did not know the situation of the other companies within the respondent. (b) He was unaware if invoicing and cash was up to date when he made the draw-down. (c) The only time the position is clear is at the end of the month. (d) The breach occurred because Puras was more than 20% of the debtor and how could he be responsible for that. (e) The respondent had not anticipated that the Prime Debtor limit would be reached. Sales did not fall in line with the anticipated debt. (f) The finance director should also be involved as all payments/draw-downs are authorised by her. (g) There was not any growth in July 2010 and as Roger Pannell was not putting any more into the business then in order to maintain the trading position of UML the draw down was necessary. (h) When he had spoken to Lorcain Egan on 22 September 2010 the issue with the credit was the profitability of the group and the holding company.
		Roger Pannell stated at the meeting that he needed time to reflect on what had been discussed. He stated that he would be in touch with the claimant to progress it to the next stage.
	(30)	By letter of 15 October 2010 Roger Pannell informed the claimant that his decision would be delayed as there were further investigations to be carried out.

	(31)	Roger Pannell concluded that the claimant had been guilty of gross misconduct by reason of a serious breach of trust and dismissed him with effect from 21 October 2010. The decision was conveyed to the claimant by letter of 21 October 2010. In coming to his conclusion Roger Pannell set out the reasons for his conclusion as follows:- (a) …. I believe by having the role of Strategic Development Director and also your qualification as a chartered Accountant that you should have been more prudent and kept to the Barclays terms and agreements. (b) I believe part of your role was to monitor the situation and draw down monies as needed and set a strategic plan to pay monies to suppliers when necessary to keep trade clients content. (c) I believe that as the person who arranged the facility, you were best placed to know what the pitfalls may be … and also the stringent rules we had to abide by,… (d) … you knowingly ….., within three months of the new relationship with Barclays, you drew down amounts that would cause the company to be in breach of its covenant with Barclays and put many jobs in jeopardy including your own. (e) … you requested to be set up as a user with Barclays Sales Finance on 2^nd September 2010 and later that day she applied to have you put on as a user for the Ledger Master and Barclays Reports. (f) Access to Sage accounts for all companies… was also confirmed by Violet on 6^th October 2010. This gave you full access to all the Barclay Sales Finance accounts…. (g) … we had a serious situation that you failed to inform me about which resulted in the company’s reputation with Barclays almost hitting rock bottom. (h) I believe you have (as per 19.2.1 of your contract of employment) been guilty of gross misconduct in that your behaviour/decisions taken have been detrimental to the company. (i) Also point 19.2.8, namely by your actions, you have brought the name and reputation of the company into disrepute or prejudices the interests of the company in respect of the Barclays covenants. Mr Pannell decided not to take further the Mark Robinson discussion as it was not as important as the other concern.

	(32)	The claimant appealed his dismissal. The appeal was heard by John Pannell on 9 November 2010 with Kim Diver in attendance as note taker. The appeal concerned the breach of covenant and the drawing down in relation to the Puras debt.

	(33)	During the appeal hearing the claimant made a number of points in support of his appeal;- (a) At a meeting on 7 August 2010 he made it clear that if Barclays money was going to be used in September/October and the Puras debt was still there that £200,000 would be required. (b) There were other breaches apart from the draw down. (c) That money continued to go into the Bank of Ireland account instead of the Barclays account. (d) That Roger Pannell was not prepared to put in an additional £200,000. (e) The draw down was not the real issue with the bank. (f) That when he did the draw down he did not have access to FHS Group accounts. (g) If the sales had been higher then the Puras debt as a percentage of the overall debt would have fallen. (h) He had told Roger Pannell that more cash was needed. (i) He had responsibility to pay wages etc and he did not check the group position. (j) It was not normal practice to check all group company debt balances before making a draw down. (k) He doubted whether the bank was aware of the breach of the covenant. Repeatedly the claimant asked to see evidence from the bank of their concern about a breach of the covenant and e-mails from the bank subsequent to Les Reece’s e-mail of 20 September 2010.

	(34)	John Pannell stated that he wanted time to reflect on what the claimant had said. He met Violet Redpath and asked her, would it have been easy to check the Puras debt and she replied extremely easy. He also asked her how it would be done and she explained the process. None of this was reported back to the claimant for his comments. He also met with Roger Pannell and talked through with him all the conversations he had with the bank. Again this was not told to the claimant for his comments. Following his meeting with Roger he asked Roger to prepare a note of the conversation.

	(35)	John Pannell notified the claimant by letter of 11 November 2010 that his appeal had been unsuccessful. In the letter he stated that it would have been easy to check the balance of each company in the group and to do a calculation on whether the draw down would exceed the prime debtor covenant. During the conversation with Roger Pannell he reiterated that the bank was concerned by the breach and that he had to go to considerable lengths to restore the bank’s confidence in the respondent.
	(36)	The claimant has become self employed from 3 June 2011 and there is not any loss from that date. From 23 March 2011 he obtained temporary work which paid him the same rate as with the respondent. He claimed Jobseeker’s Allowance from 5 or 6 January 2011. He had not claimed benefit before that date as he had been offered another position which then fell through.

The Law

5. (1) To establish that the dismissal is not unfair the employer must establish the reason for the dismissal and that it was one of the statutory reasons that can render a dismissal not unfair. If an employer satisfies both of these requirements then whether the dismissal was unfair or not depends on whether in the circumstances the employer acted fairly and reasonably in treating the reason as a sufficient reason for dismissing the employee.

(2) Where an employer dismisses an employee for misconduct he must have a reasonable belief that the employee has committed an act of misconduct after having carried out a reasonable investigation (to include a reasonable disciplinary hearing and appeal) and dismissal must be within the range of reasonable responses.

(3) Whether or not it is unfair for a witness to sit in judgment will depend on all the circumstances. It may be unfair where it is entirely unnecessary for them to play this dual role and impossible for them to disassociate the two roles. (Harvey on Industrial Relations and Employment Law D1 paragraph [1516])

(4) In Slater v Leicestershire Health Authority [1989] IRLR16 the Court of Appeal held that it was not unfair for the same individual to carry out the investigation and conduct the disciplinary hearing. Purchas LJ commented in the Court of Appeal in Sartor v P and O European Ferries (Felixstowe) Ltd [1992] IRLR 271, ‘there is nothing strange in the employer making his own enquiries and then reaching the decision whether he should or should not dismiss the employee’. In Slater Parker LJ commented that it was ill advised in the circumstances of that case, but in the light of these two Court of Appeal decisions, it will be extremely difficult to challenge a decision as unfair merely because the investigator is also the judge. (Harvey on Industrial Relations and Employment Law D1 paragraph [1517])

(5) Procedural defects in the initial disciplinary hearing may be remedied on appeal provided that in all the circumstances the later stages of the procedure are sufficient to cure any earlier unfairness, according to the decision of the Court of Appeal in Taylor v OCS Group Ltd [2006] EWCA Civ 702, [2006] IRLR613. (Harvey on Industrial Relations and Employment Law D1 paragraph [1528])

In that case it was stated that ultimately a tribunal must look at the overall fairness of the procedure, in particular the “thoroughness and the open mindedness of the decision maker” and not just consider whether an appeal had taken the form of a rehearing rather than a review as had been the earlier received wisdom following the decision of the EAT in Whitbread & Co Plc v Mills [1988] IRLR 501.

(6) In certain circumstances an otherwise unfair dismissal may be rendered fair if the unfairness is merely procedural and the employer can show that the decision would have been the same even had fair procedures been adopted. (Employment Rights (Northern Ireland) Order 1996 Article 130A(2))

(7) When determining whether or not dismissal is a fair sanction, it is not for the tribunal to substitute its own view of the appropriate penalty for that of the employer. (Harvey on Industrial Relations and Employment Law D1 paragraph [1534]).

(8) In the decision of Rogan v South Eastern Health & Social Care Trust [2009] NICA 47 the Northern Ireland Court of Appeal stated:-

“21. … It is for the employer to establish the belief in the particular misconduct. The tribunal must then consider whether the employer had reasonable grounds upon which to sustain the belief and thirdly whether the employer had carried out as much investigation into the matter as was reasonable in all the circumstances. The tribunal must also, of course, consider whether the misconduct was a sufficient reason for dismissing the employee.”

Later it added:-

“26. … The judgment as to the weight to be given to evidence was for the Disciplinary Panel and not for the tribunal.”

(9) In the decision of Salford Royal NHS Foundation Trust v Roldan [2010] IRLR 721 the English Court of Appeal reiterated that in a misconduct case British Home Stores Ltd v Burchell [1978] IRLR 379 EAT remains the cornerstone of misconduct dismissals. The head note states:-

“According to British Home Stores Ltd v Burchell, cases of dismissal on the ground of misconduct, the tribunal has to decide whether the employer entertained a reasonable belief in the guilt of the employee. The employer must establish the fact of that belief; that there were reasonable grounds in his mind to sustain that belief; and that he had carried out as much investigation into the matter as was reasonable in all the circumstances of the case.”

It further approved the principle in A v B [2003] IRLR 405 EAT that when considering reasonableness under Article 130(4) of the Employment Rights (Northern Ireland) Order 1996, relevant circumstances include the gravity of the charges and their potential effect on the employee.

In Roldan Elias LJ stated at 724 paragraph 13;-

“So it is particularly important that employers take seriously their responsibilities to conduct a fair investigation where …. the employee’s reputation or ability to work in his or her chosen field of employment is potentially apposite.”

He further observed, as recorded in the head note:-

“(2) In cases of alleged misconduct, where the evidence consists of diametrically conflicting accounts of an alleged incident with no, or very little, other evidence to provide corroboration one way or the other, employers should remember that they must form a genuine belief on reasonable grounds that the misconduct has occurred. But they are not obliged to believe one employee and to disbelieve another. Sometimes the apparent conflict may not be as fundamental as it seems; it may be that each party is genuinely seeking to tell the truth but is perceiving events from his or her own vantage point. Even where that does not appear to be so, there will be cases where it is perfectly proper for the employers to say that they are not satisfied that they can resolve the conflict of evidence and accordingly do not find the case proved. This is not the same as saying that they disbelieve the complainant. For example, they may tend to believe that a complainant is giving an accurate account of an incident but at the same time it may be wholly out of character for an employee who has given years of good service to have acted in the way alleged. It would be perfectly proper in such a case for the employer to give the alleged wrongdoer the benefit of the doubt without feeling compelled to have to come down in favour of one side or the other.”

(10) Longmore LJ in the English Court of Appeal decision in Bowater v Northwest London Hospitals NHS Trust [2011] IRLR 331 at paragraph 18 gave some helpful advice in a misconduct dismissal;-

“… But the employer cannot be the final arbiter of its own conduct in dismissing an employee. It is for the ET to make its judgement always bearing in mind that the test is whether dismissal is within the range of reasonable options open to a reasonable employer.

He later added at paragraph 19;-

“… It is the ET to whom Parliament has entrusted the responsibility of making what are, no doubt sometimes, difficult and borderline decisions in relation to the fairness of dismissal.”

(11) Further helpful advice is set out on a misconduct dismissal in the English Court of Appeal’s decision in Fuller v The London Borough of Brent [2011] IRLR 414 at 54 where Moore-Bick LJ commented;-

“The precise nature and extent of the misconduct in question will obviously play a large part in determining whether the employer’s decision to dismiss the employee is within the range of reasonable responses.”

Application of the law and the findings of fact to the issues

(1)

(2)

The tribunal is satisfied that the respondent has identified the reason for the claimant’s dismissal namely that he breached a covenant in an agreement with Barclays by drawing down money in excess of what was permissible.

The tribunal is further satisfied that that reason is a conduct issue and is one of the statutory reasons that can render a dismissal fair.

Investigation

(3)

The majority of the tribunal is not persuaded that the investigatory process was fair. It was flawed procedurally and substantively in a number of respects:-

(a) There was not any objective documentary evidence that the bank regarded the breach of the covenant a serious matter or were close to terminating the facility. There was not any correspondence to that effect at the time or obtained since to confirm that the bank regarded the matter a serious matter.

(b) Neither was there any oral evidence by any witness from the bank that they regarded the breach as serious.

(c) The only evidence to support the contention that the bank regarded the breach as serious was the oral evidence of Roger Pannell in summarising conversations he had with personnel from the bank.

(d) The only objective evidence from the bank about the breach was in an e-mail of 20 September 2010 which showed;-

(i) that the bank was approaching this matter in a low key way, suggesting a chat about the implications of the breach and asking at what percentage the debtor will settle as a percentage of the overall ledger,

(ii) that the business arrangement between the bank and the respondent would continue, albeit with some adjustments,

(iii) that the bank raised four breaches of the agreement though the instant breach is the only one that led to an investigation according to the evidence before the tribunal,

(e) The agreement itself provides for breaches in its terms by a percentage reduction in the draw-down available to the respondent commensurate with the percentage of the breach.

(f) As part of the investigation neither Violet Redpath nor anyone from the bank was spoken to.

(g) It appears from the documentary record of a formal meeting with the claimant on 22 September 2010, following the e-mail of 20 September 2010, that he was not even asked about the e-mail much less to comment on the same.

The Disciplinary Process

(3) The majority of the tribunal is not persuaded that the disciplinary hearing was fair. It also was flawed in a number of respects;-

(a) The only evidence before the disciplinary hearing about how serious a view the bank took of the breach of the covenant was the contentions to that effect by Roger Pannell. No attempt had been made to ask the bank to commit to writing their views or concerns.

(b) At the disciplinary hearing the claimant asserted that the issue with the bank about credit related to the profitability of the group. No attempt was made to investigate that contention.

(c) The only evidence against the claimant was the assertion by Roger Pannell that the bank viewed the breach as a serious matter.

(d) The investigator of the alleged gross misconduct was Roger Pannell.

(e) The decision maker was also Roger Pannell.

(f) There was not any objective evidence from the bank that they regarded the breach as a serious matter.

(g) The only objective evidence before the tribunal from the bank suggested that the bank did not view the breach as a serious matter.

(h) Roger Pannell conducted further investigations following the disciplinary hearing but did not reveal what they were or their outcome or give the claimant an opportunity to comment on them.

(i) In the letter of outcome to the disciplinary hearing the claimant was found to have failed to inform Roger Pannell about the breach of covenant but the claimant was not charged with that.

(j) Similarly the respondent relied on factors to justify the dismissal with which the claimant was not charged;-

(i) not monitoring draw-downs and having a strategic plan to pay suppliers (paragraph 4(31)(b) above),

(ii) knowingly drawing down money in breach of the covenant and putting jobs in jeopardy (paragraph 4(31)(d) above),

(iii) failing to inform Roger Pannell of the draw-down (paragraph 4(31)(g) above),

(iv) breaching 19.2.1 of his contract of employment (paragraph 4(31)(h) above),

(k) The respondent did not have in place any system of controls to show the covenant was breached or at risk of being breached. Nor was the claimant directed to install such controls.

(l) The breach of the covenant was not just a matter of drawing down an excessive amount of money. The amount of money that could be drawn down could fluctuate from day to day or even hour to hour and was dependent on other variables outside the claimant’s control e.g. the submission of invoices from each of the constituent companies, the quantity of sales from the constituent companies, the debts of other constituent companies and the monies lodged from each company.

(m) The agreed time to monitor the implementation of the agreement was at the end of the month by the device of month end reconciliations.

(n) When the claimant challenged the respondent that the bank was interested in the profitability of the respondent and not the breach of this covenant the respondent did not take any steps to investigate this or to indicate how it dealt with this piece of evidence in coming to its decision.

(o) In the context of the claimant challenging the central plank of the respondent’s case against him that the bank regarded the breach of the covenant as a very serious matter then the fact that Roger Pannell is sole witness against the claimant, investigator and decision maker is important. It is indicative of his inability to separate his role as decision maker from investigator and witness against the claimant.

A further indication of Roger Pannell’s inability to distinguish his role of decision maker from his other functions in this process can be gleaned from his declaration to the claimant at the start of the investigatory meeting that he held the claimant responsible for putting the company in a difficult situation.

(p) In coming to his decision to dismiss the claimant there is no indication on how the decision-maker considered, if at all, “the employee’s reputation or ability to work in his or her chosen field of employment” (paragraph 5(9) above), given that the claimant is an accountant of 60 years of age who was regarded as a good employee of the respondent and in drawing down money was doing so to pay the wages and tax of the respondent’s employees and also the respondent’s suppliers.

Nor is there any indication of how, if at all, “the precise nature and extent of the misconduct in question played a large part in the employer’s decision to dismiss the employee in considering whether the dismissal is within the range of reasonable responses.”(paragraph 5(11) above)

The Appeal Process

(4) The majority finds that the appeal process was also flawed in a number of respects;-

(a) It did not cure the defects of the investigatory process or the disciplinary hearing.

(b) The appeal decision maker, John Pannell, met with Violet Redpath and Roger Pannell to discuss the events further. He failed to declare that to the claimant, inform him of the outcome of his further inquiries or give him a chance to comment on the further enquiries.

(c) There is no record of these further meetings and investigations. As a result of the meeting Violet Redpath and Roger Pannell were asked to provide certain comments in writing which were not declared to the claimant or shown to him nor was he given an opportunity to comment on them.

The Sanction

(5) The majority also finds that the decision to dismiss was not within the range of reasonable responses. In so concluding the majority had regard to the following matters;-

(a) The claimant was a good employee, in good standing and well thought of by the respondent.

(b) The dismissal related to a single event, i.e. the draw-down of money in breach of the agreement.

(d) There were not any systems or controls in place to warn the claimant that the agreement was breached or at risk of being breached, nor had the respondent been directed to establish such systems or controls.

(e) There was no gain to the claimant in making the draw-down. In addition he had made the draw-down to pay the respondent’s debts to employees, HMRC and suppliers.

(f) The claimant’s ability to continue to work in his chosen field is now at risk.

(6) The minority was of the view that the consideration of this claim must be done in the light of the Northern Ireland Court of Appeal’s decision in Rogan v South Eastern Health & Social Care Trust [2009] NICA 47 where the Court of Appeal stated:-

Later it added:-

“26. … The judgment as to the weight to be given to evidence was for the Disciplinary Panel and not for the tribunal.”

(7) The minority finds that the dismissal of the claimant was not unfair. In so concluding the minority had regard to the following matters;-

(a) The employer had a belief that the claimant had committed an act of misconduct by breaching the Sales Finance Agreement between the respondent and Barclays.

(b) The claimant does not dispute that it was breached by him.

(d) He had a basis for that belief in that the bank’s view was made clear during his discussions with Lorcain Egan from Barclays.

(e) While documentary evidence from the bank stating their view was not before the disciplinary panel it is not hard to accept that the bank would take a serious view of a breach of its agreement drawing down £154,000 that should not have been drawn down.

(f) While there may have been shortcomings in the disciplinary process they were not such as to render the process unfair in that the claimant knew the case against him and was offered the right of representation and could make his defence of the charge.

(g) Given the claimant’s position within the respondent and the nature of the breach of the Sales Finance Agreement it cannot be said that the decision to dismiss was not within the range of reasonable responses.

(7) The unanimous view of the tribunal is that the claimant mitigated his loss.

(8) The majority is not persuaded that there was contributory fault on the part of the claimant. Accordingly he is awarded compensation as set out below;-

Basic Award

£380 X 1.5 = £ 570.00

Compensatory Award

From 22 October 2010 to 23 March 2011

£513.71 X 22 = £11301.62

Loss of Statutory Rights = £ 250.00

Total Compensation = £12121.62

Prescribed period is 22 October 2010 to 23 March 2011

Prescribed amount is £12121.62 - £11301.62 = £ 820.00

(9) This is a relevant decision for the purposes of the Industrial Tribunals (Interest) Order (Northern Ireland) 1990.

Chairman:

Date and place of hearing: 1 July and 4 August 2011, Belfast

Date decision recorded in register and issued to parties:

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	Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Lockhart v FHS Group Limited [2011] NIIT 00342_11IT (03 October 2011) URL: http://www.bailii.org/nie/cases/NIIT/2011/00342_11IT.html Cite as: [2011] NIIT 00342_11IT, [2011] NIIT 342_11IT

Industrial Tribunals Northern Ireland Decisions