The Court of Appeal has issued a welcome decision for employers in the case of Shrestha v Genesis Housing Association Ltd  EWCA Civ 94. The case involved an employee who had fraudulently over-claimed mileage expenses and was dismissed on grounds of gross misconduct. The employee raised various lines of defence at the disciplinary hearing and argued that these had not properly been investigated by the Respondent Housing Association. The Court of Appeal upheld the decision to dismiss the claims and confirmed that the reasonableness of an employer’s investigation should be assessed as a whole. It was not necessary to consider each line of defence raised by the employee and to assess the reasonableness of an employer’s investigation in respect of each of those defences.
The assessment of whether a dismissal is fair involves a two stage approach. Firstly, the employer has to demonstrate that it had a fair reason for dismissal. Secondly, the employer must show that it acted reasonably in treating that reason as sufficient to dismiss the employee.
In determining reasonableness, it has been long established since BHS v Burchell ( IRLR 379) that a Tribunal must be satisfied that:
- The employer had a genuine belief in the employee’s guilt
- That belief was reasonable for the employer to hold
- That belief was reached after the employer had carried out as much investigation as was reasonable in the circumstances
Mr Shrestha was employed as a floating support worker by Genesis Housing Association. As part of his role he was required to visit the Housing Association’s clients at their home addresses. Mr Shrestha was entitled to reimbursement of his expenses for doing so.
Suspicions were raised regarding Mr Shrestha’s expense claims and the Housing Association conducted an audit of claims submitted over a three month period. The audit compared the mileages claimed against AA route-finder information relating to journey distances. The audit revealed that the mileages claimed by Mr Shrestha were consistently higher than the AA figures.
The Housing Association arranged a disciplinary hearing and referred to the AA recommended routes for the journeys undertaken by Mr Shrestha. At the hearing, Mr Shrestha argued that the higher mileage could be explained by a number of things, including parking difficulties, roadworks, road closures and one-way streets, which had resulted in his journeys being longer.
The Disciplining Manager adjourned the hearing to consider these points. He reviewed the AA and RAC mileages and compared these with Mr Shrestha’s mileage. He also conducted a comparison of the claims submitted by Mr Shrestha in comparison to the same journeys the previous year. The Disciplining Manager did not seek to investigate the journeys further and concluded that Mr Shrestha’s explanations were simply not plausible.
Despite Mr Shrestha’s explanations, he was dismissed on grounds of gross misconduct.
Employment Tribunal Decision
Mr Shrestha brought claims in the Employment Tribunal in respect of unfair dismissal and wrongful dismissal. He advanced a number of arguments, including that the Housing Association had failed to carry out a reasonable investigation into his conduct. He argued that the Housing Association had not properly investigated his defence regarding the length of his journeys.
In cross-examination, the Disciplining Manager was asked why he had not sought to investigate Mr Shrestha’s explanation further, perhaps by carrying out some of the journeys in question. He explained that it would not have been possible to recreate the same conditions faced by Mr Shrestha so as to make the exercise a reasonable one. He felt that the circumstances on the day could not be replicated and he had personal experience of the accuracy of the AA figures. For various reasons, the Disciplining Manager had concluded that Mr Shrestha’s explanation was not plausible to explain why every single journey he had made was greater than the recommended mileage.
The Appeal Manager gave similar evidence, stating that it would not have been reasonable to recreate the journeys and adding that it would not have been possible to recreate road closures which had occurred on particular days.
The Employment Tribunal accepted the Housing Association’s evidence and concluded that they had reached a genuine belief in Mr Shrestha’s misconduct based on a reasonable investigation. Accordingly the claims were dismissed.
Mr Shrestha appealed against the Employment Tribunal’s findings to the EAT. The EAT dismissed that appeal.
Court of Appeal Decision
Mr Shrestha appealed to the Court of Appeal. It was argued on appeal that the Housing Association’s investigation was not reasonable. Mr Shrestha accepted that the initial investigation into the allegations was sufficient, but argued that the investigation into his response to the allegations was not reasonable.
Mr Shrestha argued that if an employee raises several lines of defence, the employer must investigate each of them, unless are manifestly false or unarguable, in order to pass the reasonableness threshold. In this case, Mr Shrestha had put forward a number of interrelated explanations for the higher mileage claimed. He argued that the fact the Housing Association did not carry out an investigation into those defences took the investigation outside of the range of reasonable responses open to a reasonable employer.
The Court of Appeal rejected Mr Shrestha’s argument holding that “to say that each line of defence must be investigated unless it is manifestly false or inarguable is too narrow an approach to adopt and would add unwarranted gloss to the well-established Burchell test”. The Court of Appeal concluded that the investigation should be looked at as a whole when assessing the question of reasonableness. Although an employer must consider any defences advanced by the employee, the nature and extent of the specific inquiry required into those defences will depend on the circumstances as a whole.
The Court of Appeal further noted that it was misleading to talk in terms of specific lines of defence. The issue in Mr Shrestha’s case was that he had over-claimed mileage expenses. His explanations had to be assessed as an integral part of the determination of that issue, and what mattered was the reasonableness of the overall investigation into the allegations of misconduct.
The Court of Appeal’s decision in this case will no doubt be welcomed by employers. It confirms that an employer will not be required to conduct a forensic investigation into each separate line of defence advanced by an employee before it can say that it has conducted a reasonable investigation.
However, this case does not change the need for an employer to investigate allegations of misconduct. Sufficient investigation to satisfy the Burchell test will still always be necessary, i.e. that the employer had a genuine belief in the employee’s guilt; that that belief was reasonable for the employer to hold; and that the belief was reached after the employer had carried out as much investigation as was reasonable in the circumstances.