Don’t just do something….

If you are ever faced with a serious regulatory issue, employment law considerations may be the least of your concerns. However, knowing what the risks are and taking account of them when deciding on what course of action to take is vital as part of the overall assessment of how to respond most effectively. Rushing in and firing the alleged miscreant, while being a perfectly natural response, is rarely the best course of action. As Ronald Reagan is supposed to have said when faced with over-excited White House staff dealing with the latest crisis; “Don’t just do something, stand there” – i.e. step back and take stock.

What do you need to think about?

Whilst employees remain in employment they are under a general duty to co-operate with their employer. You are likely to want to carry out a thorough and detailed investigation which uncovers as much as possible and roots out all the employees who have been involved in wrongdoing. Once an employee is no longer in employment, you will have little, if any, power to persuade that ex-employee to co-operate and to provide the help you need. You may find that employees who are suspended can also be reluctant to co-operate, but at least, as they are still in employment, they are under a duty to comply with any lawful and reasonable request of their employer.

Regulators are likely to expect that employers will carry out a proper and robust disciplinary process where appropriate – for example in order to demonstrate that the company has adequate procedures to prevent bribery for the purposes of the UK Bribery Act 2010.

Under UK employment law, for a dismissal not to be judged unfair, an employer has not only to have a fair reason for the dismissal but also to have followed a fair procedure. Essentially this involves taking the employee through a fair disciplinary process. While the sums of money involved are not huge (the maximum compensatory award for an “ordinary” unfair dismissal is capped, the cap currently standing at the lower of £76,574 or annual gross salary) any financial settlement or award to an employee who has potentially caused significant damage to the company would be galling to say the least. Additionally, the financial implications could be more than first thought if, for example, the payment of a benefit depends on a fair dismissal under good leaver/bad leaver provisions.

In certain cases, the employee could allege that there has been some form of discrimination or that he or she has been subject to a detriment for having “blown the whistle”. In discrimination and whistle blowing cases, damages are uncapped. While an employer would hope to be able to demonstrate that the dismissal was because of the misconduct, this will be more difficult to do if there isn’t a robust paper trail showing the investigatory and disciplinary process has been carried out properly.

If you are about to be rocked by a scandal which has the potential to cause significant damage to the business, possibly the last thing you want to be seen to be doing is being in breach of yet more legal obligations. How employees are treated when they have done something very damaging to the business sets the bench mark for how employees will be treated generally. If employees are treated fairly and in accordance with best practice, then the employees left behind (assuming the employee is ultimately fired) are likely to have more confidence that employee issues generally will be dealt with fairly and transparently.

Complications and competing considerations

However, that is not to say that fitting in your employment obligations with all of the other competing considerations is easy.

Confidentiality and Privilege

As indicated above, in order for a dismissal to be fair, the employer has to carry out a fair process. One of the trickiest areas to deal with is privilege and confidentiality. In certain cases, employers may wish any general investigation to be carried out by their legal advisers so as to maximise the potential for claiming legal advice privilege over the documents created in the course of that investigation. Therefore in order to comply with the requirements for a fair procedure, the employer would either have to:

  • carry out a separate, open investigation into the employee’s conduct, which would inevitably result in some duplication of effort; or
  • waive privilege on those parts of the general investigation/conclusions which it wishes to use for the disciplinary process. The problem with doing this is that it can be quite difficult to limit the waiver of privilege to just those documents and information the employer needs for the purposes of the disciplinary process. Any waiver of privilege may also result in documents becoming disclosable to a regulator in the context of enforcement proceedings.

Employees have the right to be accompanied at any disciplinary hearing by a fellow employee or trade union official (who may be an employee of the trade union). Confidentiality should be relatively straight forward to enforce on a fellow employee as part of their general duties of confidentiality. However, an external trade union official has no such obligations to the employer and separate confidentiality agreements may be appropriate (but not always easy to obtain).

In cases where the outcome of the disciplinary process could potentially end someone’s career (e.g. if it could lead to the person being considered not fit and proper to perform a controlled function as an approved person under the financial services regulatory regime), an employer has a higher degree of responsibility to the employee and should take extra care. There has also been a suggestion that in such cases the employee has the right to be accompanied by legal counsel (rather than just a colleague or trade union official). This may not be ideal as the employer may then also feel obliged to have a legal representative at what is supposed to be an internal process. In addition, if very sensitive issues are being discussed, the legal representative has a duty of confidentiality to his or her client and not the company, so the employer may wish to ask the advisor to enter into separate confidentiality undertakings, which they may decline to do.
However, it is important to bear in mind that in practice, confidentiality undertakings are difficult to enforce (and, in any event, it can be a case of shutting the stable door after the horse has bolted) and can, in some cases, be void. Employers should therefore bear this in mind when disclosing information to employees and their companions/advisers.

If the matter ends up in an Employment Tribunal – hearings are held in public unless you can persuade the Tribunal to make a restricted reporting order. These are quite rare, and historically have usually only ever been made in cases relating to sexual misconduct or disability where potentially very personal information about an employee’s state of health would be revealed. The Tribunal lists of cases are a frequent hunting ground for local newspaper journalists who often pick up on household names when deciding whether it is worth attending a hearing or not.

Should you pay for the employee to have legal advice?

It can often make sense for the employer to arrange and even to pay for independent legal advice for employees, particularly where criminal and/or regulatory offences are involved. However, if you do so it is worth considering:

  1. Making the payment for advice conditional upon the employee co-operating with the investigation.
  2. Only agreeing to pay if the employee is found “not guilty” of any misconduct.
  3. Being very clear about what kind of advice is covered – you are unlikely, for instance, to want to pay for employment law advice!
  4. That there are particular rules and limitations set out in the Companies Act 2006 on indemnification for legal costs if the person involved is a director.

Competing processes

If an external agency such at the Serious Fraud Office, the police or a regulator starts their own investigation, this can cause problems for you in trying to deal with the employees involved. In many cases an employer will not want to wait until the conclusion of any regulatory or criminal investigation and trial, not least because this could take months or even years. You are unlikely to want to bear the cost of continuing to employ someone who has been suspended from work for that length of time, particularly if the employee is subsequently found guilty or censured by a regulator. In addition, the ACAS Code of practice recommends that any disciplinary process should be carried out promptly. However, there have been cases where the tribunal has held that the employer should have delayed its process until the external investigation had been completed – each case will turn on its own facts.

If an employer tries to carry out its own investigation, the employee may refuse to co-operate with the employer, often on legal advice. Employees may be concerned that in co-operating they may incriminate themselves or otherwise prejudice their position in any separate criminal or regulatory process. In such a case, the employer can still go ahead and should give the employee every opportunity to participate in the process – without putting undue pressure on him or her to do so. However, if the employee flatly refuses to co-operate, the employer should be able to move forward, provided the employer has first of all warned the employee about what it is going to do. The employer must, however, act reasonably and fairly in weighing up the information it does have available without the employee’s co-operation and determining whether that information is sufficient grounds in itself for dismissal or other disciplinary action.

It is worth remembering though that even where criminal conduct is involved, the criminal burden of proof does not apply to an employer’s disciplinary process. In order for a dismissal on the grounds of misconduct not to be unfair, the employer must have a reasonable belief in the employee's guilt, based on a reasonable investigation. The employer’s response to the outcome of that investigation must be within the "band of reasonable responses". That is not to say that the employer does not have an extra responsibility to proceed carefully where there are criminal charges – it does, particularly if the issues involved are potentially career ending. However, if the employer satisfies this test and the employee is subsequently found not guilty, this does not mean that the employer will have acted unfairly as the burden of proof in a criminal case is much higher than when dealing with an internal employee process.

Everyone’s in on it!

There can be cases where large numbers or entire departments of employees have colluded in some form of misconduct. While one option might be to dismiss them all, this can lead to obvious practical difficulties if this means that there is no one to run that part of the business! In such cases, you may decide that you need to retain some employees. In doing so, you should be careful not to leave yourself open to allegations of disparate treatment (which could form the basis of an unfair dismissal or discrimination claim). To deal with this issue, you could consider, for example, having a matrix of factors such as length of service, degree of involvement or knowledge or seniority which are taken into account when deciding how to treat a particular employee in the group.

Let’s just settle….

There may, of course, be cases in which it is in your best interests to settle with the employee. While there are, of course, a number of considerations, it is worth bearing in mind that:

  1. This course of action might be criticised by a regulator, other employees or in the press.
  2. While it is possible to include a confidentiality undertaking in the agreement, any agreement not to “blow the whistle” under the Public Interest Disclosure Act will be void and have no effect – so in effect, confidentiality cannot be guaranteed in respect of potentially the most damaging allegations against a company.
  3. While such a settlement will inevitably involve the employee waiving all potential claims against the employer, employees in such a case often asks the employer to waive potential claims against them – usually on the basis of a quid pro quo. This is standard practice in some European jurisdictions, though not in the UK. The dangers of agreeing to this are obvious, for example the employer may be heavily criticised for doing so, particularly if it finds out after the event that things are more serious than it first thought. Indeed, a better option would be to require the employees to warrant that they have made “full disclosure” of all facts known to them.
  4. If there are issues or lingering suspicions about an employee, an employer should also be wary about agreeing a form of reference. If one is given, an employer should always reserve the right to amend or refuse to give a reference if additional information subsequently comes to light which would change the employer’s assessment of the employee.