Legal

Dishonest employees and constructive dismissal

21 Jun 2018 By Claire Brook

Can a senior employee have been constructively dismissed even if they were found to have acted dishonestly? Claire Brook reports in light of a recent High Court ruling

In Signia Wealth Ltd v Vector Trustees Ltd, Ms Dauriac was a director and 49 per cent shareholder of the wealth management company Signia. In July 2014, a whistleblower reported several concerns involving Ms Dauriac, including her expenses, management style and conflict of interests in investments. The allegations were not dealt with immediately.

An investigation began in November 2014 into allegations that she had improperly and dishonestly claimed expenses totalling almost £30,000 and deliberately sought to conceal her actions.

In early December 2014, an offer was made to Ms Dauriac for her to remain employed, subject to a number of conditions, including the requirements for her to:

  • relinquish responsibility for day-to-day management, focusing instead on growing and retaining the existing client base; 
  • admit that she had wrongly claimed expenses of a personal and inappropriate nature and had taken steps to conceal this;
  • repay the personal expenses in full; and
  • underwrite the shortfall in business profits in 2014, via a loan.

After consideration, Ms Dauriac did not accept the offer and was suspended on 18 December 2014. On 15 January 2015, she was invited to attend a disciplinary hearing to be held four days later.

On 21 January, Ms Dauriac alleged that her employers had conspired against her through baseless accusations, threats and intimidation amounting to a repudiatory breach, and wrote to them accepting that breach, which she claimed amounted to constructive dismissal. Ms Dauriac was subsequently treated as a ‘bad leaver’, and was only paid a nominal £2 for her 49 per cent stake in the business.

Ms Dauriac argued against this, stating that if she had been constructively unfairly dismissed she should be paid the market value for her shares, as she would be classed as a ‘good leaver’. She brought court proceedings in the High Court, claiming £20m.

The employer argued that the real reason for Ms Dauriac’s resignation was her desire to avoid the disciplinary hearing.

The High Court held that the offer of onerous terms to Ms Dauriac in advance of any disciplinary finding was a clear breach of the implied term of trust and confidence.

The court accepted that if the reason Ms Dauriac resigned was to avoid the disciplinary hearing, this would not be a case of constructive dismissal. However, as the repudiatory breach (the offer by the company in December 2014) and the disciplinary hearing happened so close together, and as the suspension, repudiatory breach and disciplinary hearing would be clearly linked in Ms Dauriac’s mind, it was held to be constructive unfair dismissal.

Despite a successful claim for constructive dismissal, the High Court found that Ms Dauriac should be classified as a ‘bad leaver’ in this context. Ms Dauriac had “deliberately made expense claims that she knew were not proper claims”, giving Signia the right to summarily dismiss her, even though it had not exercised that right.

The shareholders agreement clearly cited good leavers as being within Limb A (where the employee terminates the employment) or Limb B (where Signia terminates the employment). Limb A required, among other things, that the employee must not be in breach of the terms of employment, and as Signia had the right to summarily dismiss Ms Dauriac, she was not a good leaver under Limb A.

Limb B dealt with cases where Signia unjustly summarily dismisses an employee. As Limb A and Limb B dealt clearly with the two different scenarios, the court saw no reason to extend the meaning of Limb B to include constructive dismissal, as situations where the employee terminates the employment relationship were already clearly covered in Limb A. As a result of this, Ms Dauriac’s claim for £20m failed, but due to the wording of the shareholder agreement, she was awarded just over £500,000.

Tips for employers

As well as highlighting the need to closely monitor employees’ use of expenses at every level of the organisation, this case reinforces some key messages to employers:

  • Make sure you have well drafted service agreements and that disciplinary policies are clearly communicated;
  • Shareholders agreements should be carefully drafted;
  • Where disciplinary action is warranted, act promptly and follow the disciplinary policy;
  • Carefully consider whether any offers should be made to an employee (especially prior to the termination of employment), taking steps to ensure that any such offers do not suggest any pre-determination of an outcome of any subsequent disciplinary process.

Claire Brook is a partner in employment law at Aaron & Partners

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