Conduct Dismissals and “Culpability”

JP Morgan V Ktorza

Q./ Can the dismissal of an employee, for (mis)conduct, be fair if the employee has not behaved culpably?

A./ Potentially yes, and the below explains why!

Executive Summary

This issue has recently cropped up again, in the Employment Appeal Tribunal (EAT) decision of JP Morgan V Ktorza.  Normally misconduct and culpability will go hand in hand but there will be rare occasions when it may not.  Conduct being a potentially fair reason for dismissal, in terms of unfair dismissal law. This case was one occasion where culpability was not clear cut but (mis)conduct was still used as the reason for dismissal.

The facts of the case are quite distinct and, although little has perhaps changed as a result, the EAT’s decision has provided a valuable reminder of the case law in this area. The decision has effectively confirmed that, misconduct dismissals do not necessarily require culpable behaviour, and has also re-affirmed the following;

  • The employer need only have a genuine belief that misconduct (including negligence or recklessness) has taken place.
  • The question of culpability is more relevant at a later stage, when assessing whether or not it was reasonable for the employer to dismiss.
  • When considering the reasonableness of any dismissal, it is not the Tribunal’s view that is important but whether dismissal was a reasonable response open to an employer.

While the Tribunal agreed with the EAT that dismissal, by reason of misconduct, could include negligent or reckless behaviour, it also indicated there was a requirement for culpability. The EAT felt this was the wrong approach and the relevant test to be applied was whether the employer had a genuine belief that misconduct had occurred.  That belief could (for example) have been incorrectly held.  The EAT found that culpability was therefore not necessarily required, in order for conduct to be used as the reason for dismissal, but this issue would become relevant at a later stage.  That being, whether or not dismissal was ultimately a reasonable response, open to an employer, following on from a reasonable investigation.

The EAT also considered that the Tribunal had effectively substituted its own view, both as to whether conduct was a potentially fair reason and also whether dismissal was a reasonable response open to an employer.

Analysis & Comment        

 While this case does not necessarily break any new ground it does provide a useful reinforcement of the law in this area. Those who have even a passing knowledge of unfair dismissal law will be aware that dismissal, for a reason “relating to (mis)conduct”, is potentially fair.  The fact that only a genuine belief is necessary, that misconduct has taken place, may be less well known.

The EAT has helpfully re-confirmed some established law in this area. In particular, that in addition to establishing a potentially fair reason, the employer must also act reasonably in treating such reason as sufficient to justify dismissal.  This will include (i) having reasonable grounds for considering the employee guilty of misconduct and (ii) at the point of holding such belief, having carried out as much investigation as was reasonable (British Home Stores Ltd V Burchell).  An employer is then required to consider what would be an appropriate sanction open to them, following the carrying out of such investigation.  That would likely involve some consideration of whether or not the alleged conduct was culpable in any way.

We do not consider the EAT’s decision has really extended the circumstances where misconduct, as the reason for dismissal, can be relied upon. There may still be occasions where, either because of potential lack of culpability or otherwise, some other substantial reason may offer a different/alternative reason for dismissal.  If you have any doubt as to the appropriateness of the reason for dismissal being relied upon you should let us know.  Likewise, if any doubts exist as to what constitutes a reasonable investigation, and what response may ultimately be appropriate (following such investigation), you should also let us know.

Graham and Euan act in all areas of employment law, for both employers and employees. They can be contacted at any time by telephone or email on; 01463239393 or employment@macandmac.co.uk .

 For those interested, a brief summary of the facts of the case is contained below.

 Case Facts

 Mr Ktorza was a highly paid Securities Executive who worked on the “sales side” of the securities desk. This desk also had a “trader side”.  A practice had developed known as “short-filling”, where those on sales side would only carry out a client’s order in part (rather than in full).  This practice posed financial and regulatory risk to JP Morgan.  Mr Ktorza was subject to a live final written warning, for an unrelated act of misconduct.

 In mid 2014, JP Morgan produced a document called “Project January”, which stated that only the trader side had the right to decide, if/when/how client orders were to be filled out. It seems clear that Mr Ktorza attended training relevant to such proposed new guidelines.  However, what is less clear is whether he was then made aware (or otherwise knew) that such guidelines had been strictly implemented.  Mr Ktorza was subsequently involved in the practice of short selling and was dismissed (following suspension).

 As indicated, Mr Ktorza initially succeeded in his claim for unfair dismissal, on the basis that culpability was said to be required for conduct to be a potentially fair reason for dismissal. It appeared to also be find that, absent any culpability being effectively demonstrated, dismissal could not be considered an appropriate response – in spite of the live final written warning.  For the reasons given, the EAT allowed the appeal and has directed that a fresh Tribunal take place.   

 

July 6, 2017