by Anne Lyne September-04-2015 in Employment Law
A recent record award by the Employment Appeals Tribunal (EAT) has underlined the reality that due process and fair procedures in workplace issues play a key role in business risk management.
In June 2015 the EAT awarded €1.25m to Philip Smith, former CEO of insurance company RSA Ireland, following a constructive dismissal case under the Unfair Dismissals Act 1977-2007. Mr Smith had resigned from RSA after he was suspended following an internal investigation into financial issues at the company. When he left RSA Mr Smith was on a basic salary of €405,000 per annum, along with other benefits including bonus entitlements, pension contributions and share incentives.
The EAT raised a number of concerns regarding the way in which Mr Smith’s former employer conducted the investigations which ultimately led him to resign.
Key issues raised by the EAT were firstly, the involvement of a key executive in the investigation, who was not independent of the process.
Secondly, the EAT heavily criticised RSA’s handling of Mr Smith’s suspension on national television. In the final paragraph of the judgment it stated “suspending the claimant on national television was the equivalent of taking a sledgehammer to his reputation, to his prospects of ever securing employment in this industry again…”
Ultimately the EAT concluded that RSA “went on a fact finding exercise to justify it’s predetermined decision” regarding Mr Smith and upheld his claim of constructive dismissal.
RSA has since confirmed that it will be appealing the EAT’s decision to the Circuit Court.
This landmark decision constitutes a reminder and warning to employers that all employees, are entitled to the benefit of due process and fair treatment, whatever their status or salary level. The EAT accepted the positon put forward by RSA that a process need not be “perfect”, but commented that the nature of the process must not lead the claimant to form the view that he would be prejudiced if he were to move forward with it or that an employer was merely paying “lip service” to a process.
A further key consideration identified in the decision, and which arises especially in respect of senior executives, is the issue of reputational damage and the consequential ability of an employee to obtain future employment. Mr Smith had not secured any meaningful employment since his termination and the high award reflects his losses during this time.
For employers, it is therefore strongly advisable to follow fair procedures where moving to terminate the employment contract of a senior executive employee. It is good practice to regularly update grievance and disciplinary procedures in order to reflect changing legislation and case law and to ensure that such procedures are followed.
In some industries the practice has emerged whereby senior executives are often simply “taken out” with no regard to fair procedures as long as a negotiated settlement is reached. Employers must be mindful that the Unfair Dismissals Acts applies equally to senior executives and that the EAT is prepared to award large sums of money if employment rights are seen to be compromised. Equally for senior executives the recent award demonstrates that the traditional high risk and costly High Court route is not the only option available on termination of employment, particularly where there has been a clear breach of statutory rights.
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About the Author
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Anne Lyne
Anne is a partner in the Employment team at Hayes solicitors. She has considerable experience advising and representing employers and employees on all aspects of the employment relationship from pre-employment matters to termination.