Factual background
The facts in East Lancashire Coachbuilders v Hilton were relatively straightforward. H was joint managing director (MD) of ELC. He travelled to Mexico on business with his wife, having agreed with the company chairman that he would personally pay for his wife’s air fare.
In fact, H paid for both his own and his wife’s ticket on his credit card and claimed the whole sum back as a business expense (rather than, as he should have, separately marking his wife’s fare as ‘private’). He was reimbursed the whole sum.
Following on from this, ELC’s chairman asked H to step down as MD, but without telling H that he knew he had inappropriately claimed his wife’s fare as a business expense. He refused to step down.
He was invited to a disciplinary hearing, on charges which included the unauthorised fare issue. H explained why he claimed the sum and claimed he had intended to pay it back to the company. He was dismissed for gross misconduct. His appeal against dismissal was unsuccessful.
Employment tribunal’s findings
H complained to an employment tribunal of unfair dismissal. He alleged that his dismissal was not by reason of the unauthorised expense claim. Rather, he claimed, his dismissal was a pretext designed to facilitate his ‘no cost departure’.
He alleged this because in the months prior to his dismissal, ELC’s chairman and two other directors had started to negotiate a management buy-out (MBO) with the owner and wanted H to resign as MD and instead become development director. H, however, would not agree to this.
The employment tribunal upheld H’s complaint. In its view, whilst H’s unauthorised expense claim could justifiably be interpreted as gross misconduct, ELC had in fact used that matter to justify dismissing him in circumstances when it would not have done so, had there been a normal relationship between directors. It concluded that the principal ground for H’s dismissal was his relationship with his fellow directors.
EAT judgment
ELC appealed, unsuccessfully, to the EAT. The EAT agreed that there had been enough evidence for the employment tribunal to have reached its conclusions on the reason for dismissal (such as the potential MBO, and the chairman of ELC having asked H to step down without telling H he knew about the fare.)
Comment
There are six potentially fair reasons for dismissal – conduct, capability, redundancy, illegality, some other substantial reason and retirement.
Often, the employee disputes that they have been dismissed for a potentially fair reason. If the employee provides evidence that the dismissal is for a different reason, the employer will have to show that the potentially fair reason was, in fact, the principal one for dismissal.
This is the second recent judgment from the EAT which shows the perils of employers relying on misconduct as the reason for dismissal where the real reason is something else. In ASLEF v Brady, another 2006 case, the EAT held that the tribunal had been entitled to hold that the real reason for B’s dismissal was not misconduct, but the employer’s political antipathy towards him.
The important lesson for employers to take from this case is that the onus is on them to prove a potentially fair reason for dismissal (save in very specific circumstances where retirement is ‘presumed’ to be the reason for dismissal). Employment tribunals will carefully scrutinise the employer’s purported reason for dismissal where it appears to be a pretext for something else.