BA4 Fundamentals of Ethics, Corporate Governance and Business Law

Module: 10

Dismissal

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1. Notice and dismissal

Most of us have seen or heard of The Apprentice. Contestants are all

competing for the job at the end, but each week one of them hears the

dreaded phrase, “You're fired.” Well, in real life the termination of a contract

is a bit less straight forward than that. There are certain rules and procedures

that have to be followed.

At any time, either party in an employment contract can end (terminate) it. This could be due to dismissal, resignation, redundancy or retirement. For

example, an employer many need to close a company or an employee may

wish to retire.

Employers need to give notice to their employees if they are terminating their contract. For such a notice to be effective it should be in writing and

state the date of termination.

Employees are expected to formally resign, preferably in writing, and give the

correct amount of notice.

Types of dismissal

A contract can be ended in several ways that don't count as a breach of

contract. These include death of employer and employee, by mutual

agreement and when a fixed term of a contract has elapsed.

Termination by notice

A contract may be terminated by notice. In this case the period given must be

reasonable, and no less than the country’s statutory minimum.

Notice by employer

The minimum period of notice depends upon the employee's length of

continuous service in the employer's service (see table below).

An alternative is to give an employee gardening leave, where a payment is

made and the employee leaves immediately but remains under contract

until the end of the termination period. This might be done where a staff

member is moving to a competitor and the employer does not want them

being party to internal information.

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Notice and termination:

Notice period

If there is a written contract it will normally specify the

notice required by an employer or employee to terminate an

employment contract.

Notice period

required by

employer

If not stated in the contract statute will often dictate the

minimum period.

e.g. in the UK for example this is one week for each

complete year of employment (up to a maximum of 12

weeks).

A contract can be terminated in several ways without notice that do not amount

to a breach of contract. Instances where termination does not constitute a

breach of contract include the death of an employer or employee, by mutual

agreement or when a fixed term of a contract has elapsed.

Termination by dismissal

An employee can be dismissed without notice under certain circumstances.

Summary dismissal

Summary dismissal occurs when an employer dismisses the employee

without notice. Usually this is against the law, called wrongful dismissal,

unless:

• The employee accepts payment in lieu of notice or forgoes their

rights.

• The employee has committed a serious breach of contract. If they

committed serious fraud or embezzlement then that would be a

serious breach of contract and could be a cause of dismissal without

notice.

If a person thinks they have been wrongly dismissed they can:

• Sue the employer for damages

• Bring a claim to an employment tribunal: a public body that hears

and judges cases regarding disputes between employees and

employers. It covers issues such as dismissal, discrimination and

redundancy payments.

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Constructive dismissal

Constructive dismissal or constructive termination occurs when an

employee leaves under duress from their employer.

Normally, employees who resign deprive themselves of the right to make

a claim for redundancy or other payments. However, when an employer has

given the employee no other option than to resign they may still be entitled to

compensation.

An example might be when an employer was expected to perform many

duties outside of the terms of his contract, such as working extra hours or

forgoing holiday leave. To sue for a breach of contract, the employee must

prove that the employer has behaved unfairly.

Automatically fair dismissal

There are certain reasons for dismissal held to be automatically fair by an

employment tribunal. The employer must show that his reason related to:

The capability or qualifications of the employee. An employee may

have exaggerated or lied about their abilities and/or qualifications.

This may make them unable to perform their role.

Gross misconduct of the employee. For example, fraud or

embezzlement would in most cases warrant an automatically fair

dismissal.

UK case example: Wilson v Racher (1974)

This case is an example of an employer being found for unfair dismissal and

breach of contract even though the employee behaved badly. A gardener

under a contract of service swore obscenities at his employer and was

dismissed. The court ruled that the employer's own conduct had provoked

the outburst, and that therefore the gardener had been unfairly dismissed.

UK case example: Simmonds v Dowty Seals Ltd (1978)

Simmonds had been employed to work on the night shift. His employer tried

to force him to work on the day shift and he resigned. The court held that he

could treat himself as constructively dismissed because the employer’s

conduct had amounted to attempting to change an express term of his

contract unilaterally.

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Redundancy. Employers can end a contract through redundancy

where they they are financially incapable of continuing to employ

someone or where the nature of the business has changed and the

role they are in is no longer relevant.

Legal prohibition or statutory restrictions affecting the

employee’s lawful right to work. For example, if an accountant had

been struck off the professional register.

Retirement. In some cases employers can force employees to retire

at a certain age. This has become more rare and only really applies

where it is a legal requirement - e.g. in physically demanding jobs

like the fire service.

Theft

If an employer believes an employee has committed theft, the employer

can dismiss them, even without proof. Employers do not have to have proof

of the theft: suspicion is enough. The employer can rely on evidence that is

only found after the dismissal.

UK case example: Stevenson v Golden Wonder Ltd (1977)

An employee took part in an unprovoked assault on another employee in

the company canteen outside working hours. The court held that this was a

case of serious misconduct and thus a fair reason for the dismissal.

UK case example: Wise v Leicester City (2002)

Dennis Wise was sacked by the club for serious misconduct after breaking

the nose and jaw of team-mate Callum Davidson during an argument. Wise

appealed against the decision to the English Football League whose

disciplinary commission ruled that Wise had been harshly treated by

Leicester and ordered that he be reinstated and given the maximum

punishment of two weeks' wages (about £70,000). However the club

launched an appeal against the decision, which they won – the final ruling

was that this was indeed serious misconduct.

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Redundancy

Redundancy occurs when a business can no longer sustain the workforce

it has. This may be because the business is struggling financially or it could

be that certain roles are no longer necessary (for example, a manual

labourer whose job is now done entirely by a machine/computer).

As with dismissal, no action can take place without a fair procedure in which

all employees at the risk of redundancy are consulted. Redundancy may be

unfair if:

No consultation is given.

Employees in similar positions/roles not all considered equally.

For example, employees A, B and C all do the exact same job, but A

is made redundant. For this to be fair B and C must also have been

considered. If they were not it will be unfair on employee A.

Employee chosen for reason not relating to job/role within the

organisation. For example, they were a member of a trade union or

they were about to go on maternity leave.

Redundancy should only really be offered as a last resort, and before making

a decision the company should consider the possibility of other measures

such as:

Part–time work

Reduce future recruitment for that role

Job sharing

Moving employees to other departments.

To make a redundancy claim the employee must prove that (a) they were an

employee and (b) they have served two years' of continuous employment.

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2. Wrongful dismissal

Wrongful dismissal is when an employee's contract of employment has been terminated by the employer and the termination breaches one or more

terms of the contract of employment.

The absence of a formal contract of employment does not preclude wrongful

dismissal in jurisdictions in which a de facto contract is taken to exist by

virtue of the employment relationship. Terms of such a contract may include

obligations and rights outlined in an employee handbook.

The most common form of breach is where the employee is dismissed

without notice or the notice given is too short.

Employment tribunals have jurisdiction to deal with wrongful dismissal, which

can be compared in many ways to an ordinary breach of contract.

All employees can claim for wrongful dismissal, regardless of length

of employment. There are time limitations on how long someone can take

to make a claim. In the UK, for example, the claim must be made within six

years of dismissal.

Remedies for wrongful dismissal

The only effective remedy available for a wrongful dismissal is generally a claim for damages based on the loss of earnings.

In a case where a breach of contract leaves the employer as the injured party,

he may dismiss the employee without wages.

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3. Unfair dismissal

Unfair dismissal is an act of employment termination, which is an

infringement of employment law. It can lead to a statutory claim made by

employees who have been ‘unfairly dismissed’.

Whereas wrongful dismissal is part of contract law, unfair dismissal is part of

employment law. So wrongful dismissal breaches a contract and unfair

dismissal breaches the law. Remedies for unfair dismissal go beyond the

damages afforded for wrongful dismissal.

Like wrongful dismissal, cases regarding an unfair dismissal are decided

by an employment tribunal who will adjudicate on whether a party has

been unfairly dismissed and what remedies should be applied.

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Questions to establish fair or unfair dismissal

Redundancy

Does the employer have a fair procedure for selecting

who is going to be made redundant? E.g. choosing

someone based on gender or membership of a trade

union would be unfair.

Conduct

Has the employee conducted themselves

inappropriately? E.g. arriving late repeatedly.

Any other reason

This could include many situations. E.g if an employee

is trained to use a computer but refuses to use it at

work.

Causes of unfair dismissal

Rules for unfair dismissal vary by jurisdiction depending on each country's

own employment laws.

Example UK law

Remember you do not need to learn the rules and any specific jurisdiction.

However, as an example, dismissal is deemed automatically unfair in the United

Kingdom under the following circumstances:

• Health and safety has been infringed. For instance, if an employee

refused to work in unsafe conditions and was fired because of that, then it would be an unfair dismissal.

• The employee is being denied a statutory right. For example, an

unlawful deduction from wages.

• Dismissed for becoming pregnant.

• Discrimination is proved. Whether it's due to sexual orientation,

gender, race, etc.

• Dismissal due to membership of a trade union, or refusal to be

a member.

• Where applying for flexible arrangements. If an employee asks for

flexible working hours – i.e. to work night shifts then they can't be fired. Although, the employer has the right to refuse the application.

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In the UK, an employee must have been employed for one year’s continuous

service, full-time or part-time before unfair dismissal can be applied.

Reasons for dismissal

An employer must know the date of dismissal to rely on it as a reason for

dismissal.

Some people are unable to claim for unfair dismissal. In the UK, for

example, this includes people who are ordinarily employed outside the

country in which the infringement occurred, members of the police or

members of the armed forces.

Remedies for unfair dismissal

There are actions an employee can take if they think they have been unfairly

dismissed. In many jurisdictions a dismissed employee must bring a claim to an Employment Tribunal (ET). An appeal may later be heard by an

Employment Appeals Tribunal (EAT).

An Unfair Dismissal claim has to go through a 2 stage test:

• Was the dismissal for a fair

reason? And if so,

• Was the dismissal dealt with fairly?

Often employers have a written Grievance and Disciplinary Policy to be

followed when disciplinary action is taken against an employee, and so one

element of 'fair' will be whether that policy was followed in full.

UK case example: Devis W & Sons Ltd v Atkins (1977)

After an employee was dismissed the employer discovered that he had

been dishonest. The court held that the dishonesty was not the reason for

dismissal so it could not be relied on as justified reason for dismissal.

UK case example: Western Excavating (ECC) Ltd v Sharp (1978)

In this case Sharp was suspended without pay for five days due to his

absences. This placed him in financial difficulty, and he quit in order to

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The three remedies

The Employment Tribunal has the power to offer three remedies for unfair

dismissal:

Reinstatement

Reinstatement is when an employee is returned to the same job without

any break of continuity. So if someone is unfairly dismissed and then

reinstated, they are returned to their job and the period of unemployment

does not count as a gap in employment.

Re-engagement

In re-engagement the employee is given a new role that is comparable with

the previous one e.g. a similar role with similar pay. It might, for instance, be

that the original role is no longer available, or relations with colleagues in the

original role were poor so that reinstatement would not be suitable.

Compensatory award

This is an award given on law principles of damages for breach of contract

so that loss may be compensated.

The compensation will vary by jurisdiction, but as an example, in the UK

there are three stages of compensation:

• basic award

• compensatory award

• punitive additional.

collect his holiday pay. Sharp later claimed constructive unfair dismissal.

The case went to the employment tribunal, and later the Court of Appeal.

Lord Denning, who was the judge, noted that there was a dispute about

what constructive dismissal was. He said: ‘If the employer is guilty of

conduct which is a significant breach going to the root of the contract of

employment, or which shows that the employer no longer intends to be

bound by one or more of the essential terms of the contract, then the

employee is entitled to treat himself as discharged from any further

performance.' In this case the employee left of his own accord.

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Basic award: linked to age and length of service

18- 21 years of age: ½ weeks pay for each year of service.

22- 40 years of age: 1 weeks pay for each year of service.

41 years old and above: 1½ weeks pay for each year of service.

Maximum (20 years’ service): £464 a week.

Compensatory award: covers loss of wages made in addition to the

basic award at the discretion of the tribunal

Discretionary award of up to £76,574, based on employee’s losses and

expenses.

Punitive additional award

In cases of sex or race discrimination between 26 to 52 weeks' pay may be

granted.

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4. Money laundering

Money laundering sounds a little like putting money into a washing machine

and giving it a good clean! Well, it has nothing to do with washing clothes, it is

to do with 'washing money' - making ‘dirty’ money seem clean!

Money laundering means exchanging money or assets that were obtained

criminally for money or other assets that are legitimate, or ‘clean’. The

clean money or assets do not have an obvious link with any criminal activity.

It also includes money that used to fund terrorism. The

process of money laundering comprises:

• Placement: disposing of the proceeds of crime into an apparently

legitimate business property or activity - e.g. a shop.

• Layering: transferring money from place to place to to conceal its

criminal origins - e.g. from business to business or various bank accounts.

• Integration: giving the money back to criminal with the appearance

of being from a legitimate source - e.g. from the sale of

assets/property.

Local legislation

Each country is likely to have it's own laws in relation to money laundering.

For example, in the UK it is regulated by the Proceeds of Crime Act 2002 and

the UK Money Laundering Regulations 2007.

The following sections explain the UK legislation. It is worth noting that you

will not be tested on your knowledge of the specific sections of each

act. However, their use fulfils a purpose here as they explain the various

crimes relating to money laundering – many jurisdictions will have similar

laws in place.

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UK example: The Proceeds of Crime Act 2002 (POCA)

The Proceeds of Crime Act 2002 created a single set of money laundering

offences which apply throughout the UK. The act created three categories

of criminal offence: laundering, failure to report and tipping off.

Laundering: Under this act it is an offence to conceal, disguise, convert,

transfer or remove criminal property from England, Wales, Scotland or

Northern Ireland. The maximum penalty for the offence of money laundering

is 14 years’ imprisonment.

Failure to report: It is an offence not to disclose knowledge or suspicion of

money laundering. This only applies to individuals carrying on a relevant

business - e.g. accountancy. The offence should be disclosed to to a

nominated money laundering reporting officer within their organisation or to

the National Crime Agency.

Tipping off: It is an offence to disclose information to a party which could

influence the investigation. For example: pre-warning the offender about a report

to the National Crime Agency. .

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UK example: Money Laundering Regulations 2007

The 2007 regulations apply to a number of different business sectors,

including financial and credit businesses, accountants and estate agents. The obligations require such professionals to report money laundering

to the authorities and to have systems in place to train staff and keep

records.

The CCAB (the Consultative Committee of Accountancy Bodies) has issued

guidance on anti-money laundering procedures. It states that:

‘Businesses must establish adequate and appropriate policies and

procedures relating to risk assessment and management in order to prevent

operations related to money laundering or terrorist financing.’

In addition, the Financial Services Authority supervises all financial firms

covered by the regulations, while the Office of Fair Trading supervises all

consumer credit firms and estate agents.

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5. Bribery

The World Bank estimates more than £1,000bn is paid annually in bribes

worldwide. For example, Rolls Royce fired over 100 employees in China as a

result of investigating bribery accusations.

Definition

Bribery is the act of giving money, goods or other forms of recompense

to a recipient in exchange for an alteration of their behaviour (to the

benefit/interest of the giver) that the recipient would otherwise not get.

e.g. paying a sum of money to an official to speed through an application

process.

Local legislation

Like with money laundering, each country has it's own rules as to what is deemed

bribery or not.

We will again review the UK legislation as an example to demonstrate the

key points often found in legislation, and indeed what is deemed bribery. We

will also cover some real life examples of bribery in action.

UK example: Bribery Act 2010

The act introduced new offences covering the ‘briber’ and the ‘bribed’ as

well as bribery of a foreign public official. The Act also introduced a new

corporate offence of failing to prevent such bribery taking place. The

sentence can be up to ten years imprisonment for an individual and/or

unlimited fine.

The Act has four different offences. Under the act it is an offence to:

• Bribe a person to perform a relevant function improperly.

• Request, accept or receive a bribe as a reward for performing a

relevant function improperly.

• Offer a bribe to influence a foreign official to gain a business advantage.

• Fail to prevent bribery on behalf of a commercial organisation. This is a corporate liability.

• Bribing another person.

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Example: Bribery

The UK's Serious Fraud Office (SFO) obtained its very first conviction under

the Bribery Act 2010 on 5th December 2014. A group was found to have been

involved in a pension investor scam where people were encouraged to invest

in a scheme that was supposed to yield huge returns. The scheme was a

sham and investors were defrauded of around £23 million. Investors were

duped into investing in green biofuel tree plantations in Cambodia.

The case was uncovered after an SFO investigation into suspicious

accounting. False representations were made to investors and false invoices

were issued. False email addresses, foreign bank accounts and companies

were used to hide the tracks of the fraudsters. So what's this to do with

bribery? Well, one of the defendants Gary West received bribes for his role

in the false invoices submitted. West got a sentence of 13 years in prison for

accepting these bribes.

If anyone offers you payments for favours don't do it! If you're a UK

accountant at least! Oh okay, wherever you live you shouldn't do it – it's

unethical, even if it's not illegal where you reside!

Example: Bribery of a Foreign Public Official (FPO)

On 22 December 2014, the UK's Serious Fraud Office (SFO) announced their

first successful conviction of a company on the count of corrupt payments

made to foreign public officials.

Between November 2006 and December 2010, Smith and Ouzman Limited, a

printing company based in Eastbourne, Sussex, England, made corrupt

payments of almost £400,000 to public officials in Kenya and Mauritania in order

to acquire business contracts for printing.

The company, Smith and Ouzman Ltd, convicted of making corrupt

payments, was ordered to pay a total of £2.2 million. A poor return on their

£400,000 investment!

Example: Corporate offence - failure to prevent bribery

In 2016 construction and professional services company Sweett Group PLC

ordered to pay £2.25 million as a result of a conviction under the UK's

bribery act. The company pleaded guilty to a charge of failing to prevent an

act of bribery intended to secure a contract with Al Ain Ahlia Insurance

Company for the building of the Rotana Hotel in Abu Dhabi.

So, as you can see, under the Act a UK commercial organisation can be

found guilty of bribery where someone associated with the organisation is

found to have bribed another person with the intention of obtaining or

retaining business or an advantage in the conduct of business. Such persons

‘associated’ with the organisation could include employees, agents, sub-

contractors and joint-venture arrangements (amongst others). The bribery

could take place anywhere in the world – Abu Dhabi in this case – but the

organisation can still be convicted in the UK.

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6. Whistleblowing, discipline and data protection

Whistle-blowing

Many scandals are revealed through a whistle-blower an insider who

reveals what the know to the authorities. Watergate, possibly the greatest

political scandal in living memory which brought down US President Richard

Nixon, was brought to light by the shadowy figure known as Deep Throat

who 'blew the whistle' on an illegal break-in at the Democratic National

Committee headquarters at the Watergate office complex in Washington,

D.C. in 1972.

In some jurisdictions whistle-blowers are protected by law (their

statement is called a 'protected disclosure'). This aims to encourage

people to come forward without fear of punishment. To do so they must:

(1) Have a qualifying disclosure i.e. reveal the right type of problem.

These include:

• Criminal offences such as fraud.

• Violations of health and safety.

• Environmental hazards which have potential to cause or have caused

damage.

• A miscarriage of justice, if someone had been unjustly punished.

• The organisation is breaking the law - e.g. not paying the correct

amount of tax.

• You believe someone is hiding wrongdoing.

(2) Make a qualified disclosure i.e. reveal the information to the right

person in the right way

Discipline

How should companies discipline their staff? There can be various

approaches to from reprimand to dismissal.

Disciplinary procedures

Importantly organisations should have a formal set of disciplinary

procedures in place which make it clear what process to go through should

anyone be deemed to be misbehaving.

The Procedure should typically:

• set out what is deemed an offence e.g. not working properly, being

late, failing to do work according to company procedures, and so on.

• follow a clear set of steps – for example:

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• rules for disciplinary meetings e.g. rules over non-attendance,

having witnesses present, having representation at the meeting, how

conclusions will be made

• rules for appeals e.g. time available to appeal, who will attend and

who will make the decision and how.

Gross misconduct

Gross misconduct is where an offence is so serious that it can result in

immediate dismissal. Examples might include:

• Being drunk or under the influence of any drug while on duty

• Illegal drug use or alcohol at work

• Fighting

• Sexual harassment at workplace

• Stealing

• Subjecting people to discrimination

• Falsifying time records

• Falsification of accounts

• Negligence

• Bribery

• Gross insubordination/ disobedience / misappropriation

• Conviction of a crime

• Financial Misconduct.

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Data protection

Nowadays, companies need more and more information from

us and it's easier than ever to share lots of information quickly.

So how do we know our information isn't spreading around as fast as it can

be sent?

Companies have to follow data protection legislation. These laws make sure

information is:

• Only used fairly and lawfully.

• Used for limited purposes that are specifically stated.

• Used properly and appropriately.

• Accurate.

• Only kept for as long as it's needed.

• Handled according to people’s data protection rights.

• Kept safe and secure.

Certain types of information may have stricter rules such as ethnic

background, political opinions and health.

Social Media

Social media is one thing that has increased the ability to share information.

Most companies have taken advantage of this to build closer relationships

with customers. But companies need to be careful, social media can destroy a

company’s reputation as much as it can build it.

Many companies have a social media policy where they:

• Outline the extent to which employees represent the company

when they use its social media accounts.

• Explain acceptable content to share on the company's behalf. e.g.

not in breach of copyright, not sharing confidential information, not

being discriminatory.

• Provide rules for people using their own social media accounts

e.g. are people allowed to on their personal facebook accounts during working hours?

• Show how personal use of social media will be monitored.

• Explain consequences of breaching the policy and how it will be

dealt with.