The role of employee legitimate expectations in unfair dismissal claims – Lauren Godfrey

A recent EAT ruling JP Morgan v Ktorza continues a line of decisions which limit the role of employee expectations in the determination of unfair dismissals claims further curtailing the extent to which employees can rely on public law notions or human rights principles to challenge their dismissals.

In this case HHJ Richardson re-affirmed the correct approach to dismissal claims: (1) it is the employer’s view objectively judged which falls to be considered not the expectations of the employee; (2) the Employment Tribunal is not to substitute its own view; and (3) the s 98(1)-(2) of the Employment Rights Act 1996, gateway of ‘conduct’ as the reason for a dismissal should not be conflated with the band of reasonable responses test under s 98(4).

Background facts and law

Mr Ktorza was a highly paid sales executive in the trading arm of JP Morgan Securities Plc before his dismissal after an incident of alleged misconduct triggering an earlier (unrelated) final written warning. The more recent incident which resulted in JP Morgan deciding to dismiss Mr Ktorza was a practice known as ‘short-filling’ in respect of trades; a practice which carried financial and regulatory risk for JP Morgan.

Before the ET it was common ground that Mr Ktorza was not aware the ‘short-filling’ practice had been banned by JP Morgan.  JP Morgan relied on the fact that Mr Ktorza had been trained – without adequately evidencing the training – and argued Mr Ktorza should have been aware that the practice carried significant risk for JP Morgan.

In course of the ET’s reasons, (which HHJ Richardson, on appeal, found to be both poorly structured and lacking in key detail), the judge found that Mr Ktorza’s dismissal was unfair in essence because Mr Ktorza’s conduct relied upon by JP Morgan was not culpable. Their decision on these grounds to dismiss him was so significantly procedurally deficient as to amount to substantive unfairness (that is no finding adverse to Mr Ktorza was appropriate under the Polkey principle, that procedural fairness was an integral part of the statutory test for assessing the reasonableness of the dismissal.)

The Employment Appeal Tribunal’s decision

Along with the criticism of the sufficiency of the ET’s reasons, HHJ Richardson was critical of the judge’s ‘substitution mind-set’; disapproved by the Court of Appeal in Fuller v LBC Brent.

Perhaps the true ratio of the decision lies in HHJ Richardson’s finding that in eliding s 98(1)-(2) with s 98(4), the employment judge had imported a requirement of ‘employee culpability’ before an employer could rely on conduct as the reason for dismissal pursuant to s 98(1).  Linked with the evidence of a substitution mind-set, HHJ Richardson found the judge had focused on Mr Ktorza’s expectations rather than JP Morgan’s decision, despite his finding that:

It must be culpable and not innocent unwitting conduct. That is how the tribunal considers the claimant’s conduct should reasonably have been viewed by the respondent.  (cited at §20)

The case was remitted for rehearing before a freshly constituted Tribunal.

Comment

Employment lawyers will be familiar with the controversy over the band of “reasonable responses” and the debate about whether it imports in truth a test of perversity, from public law, into dismissal law contrary to the clear wording of s 98(4).

As Sedley LJ observed in Orr v Milton Keynes, the meaning of these provisions is “both problematical and contentious”. A very similar formula has been on the statute book since the Industrial Relations Act 1972, which introduced the concept of unfair dismissal. But the shift from the concept of an employer’s ‘reasonableness’ to a public law Wednesbury rationality test has been controversial, not least, as Sedley said,

because it seems to have originated in a note in the Industrial Cases Reports of an EAT decision, British Home Stores v Burchell [1980] ICR 303, in which the employer was represented by counsel of great distinction, the employee did not appear at all and was not represented, and the single authority cited by the court had to do with the standard of proof. Burchell has nevertheless acquired authoritative status, initially through its approval (as an unreported case) by this court in Weddel and Co v Tepper [1980] ICR 286, and more recently by its endorsement in the judgment of Mummery LJ in Foley v Post Office [2000] ICR 1283.

… we cannot resolve the textbook problem of the fairness of a properly conducted dismissal for a theft of which the accuser has himself been subsequently convicted… But it is relevant to the question we do have to resolve that both problems, like the present problem, take the court back to the words of s.98(4)(b).

In considering whether the ET had to consider the employee’s legitimate expectations, when deciding ‘reasonableness’  Sedley LJ wondered whether this ‘elephant in the room’ was capable of playing a positive role.

If … to dismiss a man for misconduct which his manager privately knows was of the manager’s own making seems contrary to equity and merits, there are two possible ways in which s.98(4)(b) might come to the employee’s aid. One is to treat the provision as a filter or fallback, a requirement for a final look. But Lord Justice Atkins’ conclusion on this limb of the case highlights the near-impossibility, at least in the present state of authority, of doing anything about it if a final look shows the result to be unjust. The other is to read the provision back into the antecedent provisions of s.98, so as to enquire, for example, whether the decision to dismiss was not only procedurally but substantively fair. But to do this is likewise to challenge the body of authority which now binds us at this level.

This is why, in the reasoning which has brought me to my conclusion at §25 above, I have not sought to domesticate the beast but have done what is proverbially done when there is an elephant in the room, namely ignore it. Only a higher court can say now whether there is more to s.98(4)(b) than Lord Simon of Glaisdale felt able to see in it in Devis v Atkins[1977] AC 931, which was a wide construction of “reasonably” (a formula which, with great respect, could be used to justify a band of possible decisions broad enough to encompass what a tribunal views as substantively inequitable and unmeritorious dismissals).

Sedley LJ  was concerned not only about the effective importation of a test of perversity into the employment context but also why that public law concept apparently could be applied without reference to countervailing public law principles such legitimate expectations (of employees) or indeed human rights principles more generally.  To this end, lawyers representing claimants are very familiar with the authorities such as X v Y which greatly limit the scope for human rights arguments in the dismissal context.

Arguably, the effect on claimants of the band of reasonable responses test has been ameliorated by decisions such as Newbound v Thames Water Utilities Ltd relying on s 98(4)(b) to emphasis the test’s practical limits: 

The “band of reasonable responses” has been a stock phrase in employment law for over thirty years, but the band is not infinitely wide. It is important not to overlook s 98(4)(b) of the 1996 Act, which directs employment tribunals to decide the question of whether the employer has acted reasonably or unreasonably in deciding to dismiss “in accordance with equity and the substantial merits of the case”. This provision, originally contained in s 24(6) of the Industrial Relations Act 1971, indicates that in creating the statutory cause of action of unfair dismissal Parliament did not intend the tribunal’s consideration of a case of this kind to be a matter of procedural box-ticking. …An employment tribunal is entitled to find that dismissal was outside the band of reasonable responses without being accused of placing itself in the position of the employer.

An authority for this proposition was Bowater v NW London Hospitals NHS Trust [2011] IRLR 331, where Stanley Burnton LJ said:

The appellant’s conduct was rightly made the subject of disciplinary action. It is right that the ET, the EAT and this court should respect the opinions of the experienced professionals who decided that summary dismissal was appropriate. However, having done so, it was for the ET to decide whether their views represented a reasonable response to the appellant’s conduct. It did so. In agreement with the majority of the ET, I consider that summary dismissal was wholly unreasonable in the circumstances of this case.

Although it has to be said that Newbound can be explained principally as a case defending the fact-finding role of the Tribunal. However, it remains to be seen whether the future progress of Mr Ktorza’s claim (whether on further appeal or remission) provides a further opportunity to consider the s 98(4) question from the perspective of employee expectations; and indeed whether it is reasonable to dismiss for conduct for which the employee did not expect in advance to be culpable.

 Lauren Godfrey, 1 Crown Office Row