knowledge | 23 June 2015 |
€1.25m - Record Award under the Unfair Dismissals Acts
The Employment Appeals Tribunal (the “EAT”) has made a record award of €1.25m under the Unfair Dismissals Acts in a claim for constructive dismissal brought by the former CEO of RSA Insurance Ireland Ltd. (“RSA”), Mr Philip Smith.
The case arose from a dispute between the parties arising from an investigation by RSA in late-2013 and Mr Smith’s suspension in the course of that investigation, during the course of which Mr Smith resigned. The EAT was very critical of the treatment of Mr Smith and, in particular, the public announcement of his suspension on television.
Investigations of high-profile and unexpected issues in regulated entities can be highly complex and time-consuming. However, employers must take great care in dealing with employees involved in the matters under investigation since, as this case demonstrates, significant awards can arise for failing to do so.
Legal Test for Constructive Dismissal
This decision is all the more significant given the burden of proof in a constructive dismissal case such as this is on the employee (unlike in an ordinary Unfair Dismissal case, where it is on the employer) and, as noted by the EAT in this case, the burden of proof is a very high one. The EAT highlighted that the test for constructive dismissal is an “and/or” one, ie:
- Was there a significant breach of the employee’s contract of employment, going to the root of the contract; and/or
- Having considered all of the circumstances, was it reasonable for the claimant to terminate his contract of employment.
In particular, the EAT rejected arguments, based on UK case law, that facts which came to light after the resignation might be relevant in the analysis of reasonableness (ie if it would have been reasonable for the employer to dismiss the employee based on knowledge gained after the resignation). However, such facts may be relevant in assessing the level of compensation.
The EAT accepted that the execution of procedures in relation to investigations or disciplinary matters does not need to be perfect. However, the EAT held that it must consider whether any failings in the process led the claimant to form the view that he would be prejudiced if he moved forward with the process or if the failings led him to the conclusion that the employer was simply paying lip-service to procedures in order to disguise a pre-determined result.
In considering this, the EAT looked at some of the questions that were put to him during the course of the investigation and found that there was inherent predetermination in how some questions were put. The EAT further held that while the claimant would not be entitled to all the information that he had requested during the investigation, he would be entitled to receive the “precise nature of the matters being investigated and how they pertained to him”.
The EAT was critical of findings in the investigation report which, it held, one “might expect to see following the conclusion of a disciplinary process but most definitely not at the beginning of it and especially in circumstances when the final investigation report was not yet completed.” The EAT also expressed concern at the “trawling” nature of the investigation and the timing of the discovery of matters. The EAT also rejected a suggestion that Mr Smith had bullied other senior employees into silence about some of the matters that ultimately came to light in the course of the investigation.
The EAT also found that one of the investigators, the Chief Risk Officer, should not have been a member of the investigation committee, given his involvement with prior related matters. In circumstances where he was such a member, the EAT held that it was reasonable for Mr Smith to have a reasonable apprehension that he would not receive a fair hearing.
The EAT placed particular focus on the circumstances of Mr Smith’s suspension on 8 November 2013. It reviewed relevant case law and, while it acknowledged that there was a distinction between two types of suspension, holding and punitive, it highlighted the judgment of Noonan J in the recent case of Bank of Ireland v. Reilly (2015), where the Court noted that “even a holding suspension ought not to be undertaken lightly”.
In this regard, the EAT considered not only the fact that Mr Smith was suspended, but how the suspension was implemented. It described his decision being announced on television as “the equivalent of taking a sledge hammer to his reputation, to his prospect of ever securing employment in the industry again in Ireland, in Europe and very possibly beyond and it sealed his fate with the respondent”. It held that this was a point of no return, because even if the investigation showed up nothing, there was no way Mr Smith could have continued in employment. It found that the suspension was a “dismissal, disguised as a suspension”.
Having heard all of the evidence, the EAT made an award of €1.25m. The maximum jurisdiction of the EAT in Unfair Dismissals Acts cases is two years’ remuneration, which in this case we understand would have been €1.27m, so this award is almost the maximum that the EAT could have awarded.
The EAT placed significant emphasis on the damage to Mr Smith’s reputation and while awards can be mitigated for claimants’ contribution to their own loss, the EAT held that the issues involved were known by too many senior people to “lay the blame solely at the feet of the claimant”. The EAT also had regard to his future prospects of securing future employment elsewhere.
While the functions of the EAT are being transferred to the Workplace Relations Commission following the commencement of the Workplace Relations Act 2015 (anticipated in October 2015), this case is illustrative of the potential high value, and high risk, involved in Unfair Dismissals Acts cases, which will continue following the transfer of functions to the Workplace Relations Commission.
It is also significant that the jurisdiction of the EAT in this case was two years’ remuneration as it was a claim under the Unfair Dismissals Acts, whereas claims brought under the recently enacted Protected Disclosures Act 2014 will have the potential for awards of up to five years’ remuneration. Given claims under the Protected Disclosures Act are very likely to arise in the context of investigations not dissimilar to this one, it underlines the importance of careful management of investigation procedures to avoid significant awards.
It is reported that this award is very likely to be appealed or reviewed. In the ordinary course, such an appeal would go for full rehearing before the Circuit Court. However, in any event, it is clearly a landmark decision, both in terms of its quantum and in respect of the attitude of the EAT towards the protection of employees (and their reputations) during investigations.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.