Case update (3): Unfair dismissal – protected conversations

Summary:  Does a short timescale for acceptance and misrepresentation of facts amount to ‘improper behaviour’ and therefore render a ‘protected conversation’ and without prejudice offer admissible for the purposes of a constructive dismissal claim?

Yes, says the EAT in Lenlyn UK Ltd v Kular, available here.

Background:  In July 2013 the concept of “protected conversations” was introduced under section 111A of the Employment Rights Act 1996.  This followed case law which narrowed the scope for employers to rely on “without prejudice” conversations. This new framework was intended to make it easier for employers to initiate settlement conversations with employees with less risk of those conversations being admissible in subsequent Tribunal proceedings.

The general framework for pre termination negotiations includes the following:-

• “Protected conversations” may be protected from admissibility in unfair dismissal proceedings unless there has been “improper behaviour”;
• “Improper behaviour” by the employer can include harassment and bullying, for example, but can also include putting undue pressure on the employee in relation to:
  • not providing the employee with a reasonable time to consider the offer (the ACAS Code suggests at least 10 days should be provided); and
  • the employer telling the employee that, if they do not agree to the settlement, they will be dismissed (although a neutral comment that a formal process will be commenced is unlikely to amount to improper behaviour).

Facts:   The employer, Lenlyn UK Ltd, which runs retail foreign exchange bureaux, found that £1.9m cash had disappeared over a six month period as a result of fraud by a newly appointed contractor responsible for collecting cash from the retail outlets. The money was irrecoverable as the contractor had gone into administration. The employee, Mr Kular, was the financial controller at the time.

A report commissioned from an external forensic accountant concluded that, although there was no internal dishonesty, Mr Kular’s conduct in failing to monitor the contractor “could be considered negligent” and recommended that Lenlyn UK Ltd “consider the need for a full disciplinary investigation” into Mr Kular’s apparent lack of care.

Lenlyn UK Ltd decided that instead of starting disciplinary proceedings they would  make Mr Kular an offer by way of a “protected conversation” (see Background).

Mr Kular was called into a meeting with the HR manager at the end of the working day on 16 December 2014. Mr Kular was told that the forensic accountant’s view was that he had been “grossly negligent”; Lenlyn UK Ltd was considering taking disciplinary action against him; no decision had been made but Lenlyn UK Ltd wanted to make him a “without prejudice” offer to leave. The manager gave him an envelope she said contained a settlement agreement and told to think about it and let her know by Monday (22 December 2014) if he was interested. He was not required to come to work in the meantime.

When he got home Mr Kular remembered that he had forgotten to set an out-of-office reply. He tried to do that remotely, and discovered that he had been cut off from access to Lenlyn UK Ltd’s system. He did not accept the offer but instead resigned on 22 December 2014 and brought a Tribunal claim of constructive unfair dismissal.

The Tribunal upheld Mr Kular’s claim and decided that details of the 16 December 2014 meeting were admissible because the ‘improper behaviour’ exception to the general rule of protected conversations applied.  In particular the Tribunal’s view was that Mr Kular had not been given a reasonable time to consider the offer and that the forensic accountant’s report had been misrepresented (particularly when the HR Manager represented that the report concluded he had been grossly negligent when in fact the report only indicated that there needed to be an investigation).

Lenlyn UK Ltd appealed against the Tribunal’s decision.  The EAT dismissed the appeal. The Tribunal was entitled to reach the conclusion that Lenlyn UK Ltd’s conduct on 16 December 2014 in pre-judging the issue showed that it no longer intended to be bound by the employment contract – a breach of its duty of trust and confidence, entitling Mr Kular to resign. The EAT added that it thought that Lenlyn UK Ltd’s misrepresentation of the accountant’s report to Mr Kular was also, in itself, a breach of the trust and confidence duty.

Implications:  The facts of this case are a good example of ‘improper behaviour’, illustrating the exemption from the usual rules of ‘protected conversations’ in pre-termination negotiations. To ensure that employers are protected by any pre-termination negotiations, this case highlights that seemingly simple parts of the negotiation (such as how long an employee has to consider the offer) can render a conversation admissible in evidence in any subsequent proceedings. The guidelines regarding pre-termination conversations are likely to be interpreted quite strictly and therefore it is worth employers keeping these guidelines in mind when starting these types of conversations.  Such guidelines can be found in the ACAS Code of Practice on settlement agreements, available here.