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United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Khan & Anor v Landsker Child Care Ltd (Unfair Dismissal : no sub-topic)  UKEAT 0036_12_2405 (24 May 2012)
Cite as:  UKEAT 0036_12_2405
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EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX
At the Tribunal
MS P TATLOW
Transcript of Proceedings
Hutchinson Thomas Solicitors
119 London Road
Employment Law Advisory Services
UNFAIR DISMISSAL – Reasonableness of dismissal
Employment Tribunal failed to address the question whether the conduct identified by the Respondent as the reason for the dismissal constituted, as a matter of law gross misconduct in the form of a breach of the implied term of trust and confidence.
THE HONOURABLE MR JUSTICE WILKIE
1. This is an appeal by Mr Khan and Mr Hemming against a decision of the Employment Tribunal held at Cardiff sitting on 19 and 20 April 2011, which decided to dismiss each of their claims of unfair dismissal brought against their erstwhile employers, Landsker Child Care Ltd.
2. Landsker is a company which owns and operates five children’s care homes in South Wales. They have one in Margam and one in Maesteg, as well as three in Pembrokeshire. They provide residential care home services for children in social care and their contacts and contracts are with local authorities. Mr Khan had been in employment with Landsker since 30 June 2003 and, ultimately, was promoted to the position of manager of their care home in Maesteg in January 2008. Mr Hemming started in employment with Landsker on 29 July 2002, and, by July 2006, he was promoted to be manager of the care home in Margam.
“By planning to set up in business in competition with Landsker Child Care and using the company resources to do so you have breached the fundamental trust and confidence essential to our contractual relations.”
5. The circumstances giving rise to those allegations of gross misconduct and dismissals occurred on 25 May 2010. On that occasion a Ms Nuala Sharpe was present in Mr Khan’s office. It would appear that there may have been another manager also there, a Mr Thomas. A computer supplied by the Respondent was present in Mr Khan’s office and, opened on that computer was Mr Khan’s private email account. Within the inbox of that account Nuala Sharpe saw an email title that caused her some concern. She opened the email, which came from Mr Hemming from a private email account of Mr Hemming, and, finding it blank, she then opened the attachment. The attachment was a document headed “Genus Care Ltd Business Plan”. There then appears, over a series of pages, what the Respondent concluded was a serious, detailed and worked‑up business plan setting out in very clear and carefully worked‑out terms the fact that Genus Care Ltd was the corporate creature of Mr Khan and Mr Hemming, who had between them 25 years of residential care experience. It was clear that it was a pitch for investment in the business, which they appear to have intended to open, with a view to purchasing and running initially one, later two and ultimately, possibly, three residential care homes for children, taking children referred to them by local authorities in the South Wales area, including local authorities who sent children to the care homes at which they were respectively employed.
6. The seriousness, as the Respondent saw it, of this particular document was reflected in the fact that the figures that they saw seemed broadly parallel to the figures of costings that were approrpaite to the Respondent’s own business. Furthermore, the firmness of those intentions was thought to be reflected in the following passage in the foreword to the document:
“We have in place all personnel and care policies, all paperwork systems and all contacts. We have viewed property across south Wales and are totally confident of finding a suitable home. The figures we have put together are based on 2 properties, one up for sale for £395,000 (although this is under offer) and one priced at £345,000. Bearing in mind the current state of the economy, we fancy our chances of paying less than asking price for the right property.”
7. The Appellants were then, respectively, suspended, and separate disciplinary hearings were held, in respect of Mr Khan on 3 June and in respect of Mr Hemming on 4 June. It is right to say that, when Mr Hemming had initially been asked about the company Genus Care Ltd, he denied all knowledge of it and only accepted knowledge of it when confronted with the business plan. The line that each of them took, albeit perhaps couched in different terms, was that this business plan did not represent any firm intention to set up such a business as would be in competition with Landsker in the near future but was, in effect, a paper exercise not to be taken seriously as representing an imminent threat to the business of Landsker. Following the disciplinary hearings, at which they had every opportunity to give their account and explain the document, they were dismissed in the terms to which we have already referred.
“During your normal hours of work you may not, without the prior written consent of the company, devote any time to any business other than the business of the Company or to any public or charitable duty or endeavour.”
9. It does not appear that this particular clause was relied on, ultimately, by the Respondent as founding the contention of breach of contract. That is so, it seems apparent, from the fact that, in the letter dismissing Mr Khan’s appeal, at sub‑paragraph 3 on the second page of that letter, there is a paragraph that appears to eschew reliance on the use of company time but emphasises that what was in play was use of company resources, which had been described more fully in sub‑paragraph 2 in the following terms:
“That the reference to the existence of policies and procedures in the business shows you have used company information and that this is also true of the costings which were based on Landsker costings and which you were aware of because of your role in setting up a home and that there is no evidence to suggest that what is stated in the plan is not the case.”
“Abuse of company resources without prior consent, eg use of facilities for private gain, (private use of telephones, internet, cars, budgets, fuel cards, credit cards).”
11. The Employment Tribunal, at paragraph 12, in numerous sub‑paragraphs, set out its findings of fact. The Tribunal there rehearsed briefly the disciplinary process which then took place, referring to both being interviewed on 1 June; to Mr Hemming initially indicating he did not know what Genus Care was, but upon being shown the business plan stating it was just an idea and not serious; Mr Khan having taken a position similar to Mr Hemming, saying that Genus Care was just an idea and that he had no settled intention to set up in business on his own; then referring to the disciplinary meetings that took place, summarising in the case of both Claimants that they were guilty of gross misconduct by planning to set up in business in competition by using the Respondent’s resources to assist them and by breaching the implied term of trust and confidence. By expressing itself thus, the Tribunal was expressing itself, effectively, in parallel terms to the terms of the letter of dismissal. There is nothing in the succeeding sub‑paragraphs that goes beyond that assertion, of what came to be the grounds upon which the dismissal was founded; in the succeeding sub‑paragraphs, 12.8 replicates the important part of the dismissal letter, and 12.9 and 12.10 briefly summarise the fact of the appeals and refer to the letters dismissing those appeals.
12. At paragraph 13 of the decision the Tribunal summarised the Claimants’ and Respondent’s contentions. In particular, the Claimants’ contention was that the Respondent’s conclusions regarding their alleged misconduct were fundamentally flawed. It was submitted there was no evidence that the Claimants had used the Respondents’ resources inappropriately. It was submitted that the Respondent was too quick to come to the conclusion that the business plan was a serious document. It was submitted that the Respondent should have accepted the Claimants’ case that the business plan was never intended to be serious and that it should have been made plain to the Respondent that nothing had been done to further the business plan. It was accepted that the document required an explanation from the Claimants but that the Respondent had wrongly rejected the explanations for no good reason. On that basis, it was submitted that the Respondent’s investigation, which went no further than the disciplinary hearings themselves, was unsatisfactory.
13. In paragraph 14 the Respondent’s submissions were summarised. It was submitted it was not unreasonable for the Respondent not to accept the Claimants’ explanations for the business plan and it was open to the Respondent reasonably to conclude that the business plan represented a serious intention on the part of the Claimants to set up a business in direct competition and that the plan had been furthered using the Respondent’s resources.
14. The Tribunal, in paragraph 15, said that it was apparent that the main issues in the case concerned: the reasonableness of the investigation into the alleged gross misconduct; the question whether there were reasonable grounds to believe that the Claimants were guilty of gross misconduct; and whether the decision to dismiss fell outside the band of reasonable responses.
15. In that context, the Tribunal went on to deal with the law. Having cited the relevant sections of the Employment Rights Act, they then rehearsed a passage from the Judgment the well-known authority of British Home Stores Ltd v Burchell [1978[IRLR 379. They reminded themselves of the law concerning the band of reasonable responses and cited a passage from Iceland Frozen Foods Ltd v Jones  ICR 17, another well‑known case. In connection with the Burchell test, they also reminded themselves, in passing, though not citing any passage from the cases, on the rider that now applies in respect of the reasonable investigation stage as established in A v B  IRLR 405, a Judgment of Elias J, as he then was, the then President of the Employment Appeal Tribunal, and the Court of Appeal Judgment of the same Judge in Salford v Roldan  EWCA Civ 522, namely that, where the circumstances of a dismissal would create serious consequences for the future of an employee, particular care must be given to the investigation. At paragraph 22 of the Judgment the Tribunal said as follows:
“Having regard to the legal principles summarised above and the evidence and submissions in the case, the Tribunal was unanimous in its Judgment that the Respondent had established that it had a genuine belief that the Claimants were guilty of gross misconduct and that that was the reason for their dismissals. The gross misconduct which the Respondent genuinely believed the Claimants to be guilty of consisted of planning to set up in business in competition with the Respondent, using company resources to assist in the setting up of a business in competition with the Respondent and breaching the implied term of trust and confidence.”
16. In that paragraph, therefore, what the Tribunal established to its satisfaction was that there was a genuine belief which informed the dismissals for gross misconduct in precisely the same terms as were used in the letters of dismissal. In paragraph 23, the Tribunal went on to consider the question whether there had been a reasonable investigation following the discovery of the business plan on 25 May 2010 and concluded that there had been. The Tribunal was satisfied that the Respondent could not reasonably be criticised for failing to extend the ambit of the investigation to include approaches to the banking organisation referred to in the business plan or to interviews with third parties. It was sufficient, in the judgment of the Tribunal, for the Respondent to give the Claimants an opportunity to explain the business plan and for the Respondent to reach its conclusions based on those explanations.
“Based on its investigation, which the Tribunal finds to have been reasonably conducted, the Respondent reasonably concluded that there were grounds to believe that the Claimants were guilty of gross misconduct in planning to set up in business in competition with the Respondent using company resources to assist in the setting up of a business in competition with the Respondent and breaching the implied term of trust and confidence.”
18. Once again, the Tribunal’s Reasons do no more than replicate what was said in the dismissal letter and accept that there was a reasonable investigation on the basis of which it was reasonable to conclude that the Claimants were guilty of gross misconduct in that respect. The Tribunal briefly considered whether the question of dismissal was inside or outside the band of reasonable responses open to a reasonable employer and concluded that it was within the band of reasonable responses.
19. In our judgment, the Tribunal cannot be criticised for having found that the Respondent had a genuine belief in the Appellants’ gross misconduct as described briefly in the letter of dismissal; nor is the Tribunal to be criticised for concluding that in all the circumstances of the case the investigation conducted by the Respondent was reasonable. However, it is apparent, and not in dispute, that there was before the Tribunal a further dimension to the legal argument. That was to the effect that what the Respondent believed, namely (i) that the Claimants were guilty of planning to set up in business in competition with the Respondent, and (ii) using company resources to assist in doing so was not, as to (i) capable of amounting as a matter of law to gross misconduct, and as to (ii) was not supported by any evidence or analysis by the Tribunal as to what those resources might have been and whether, if it was no more than the kind of information used in the business plan, it was capable of being confidential information the unauthorised use of which would amount to a breach of contract and gross misconduct so as to support the Tribunal’s conclusions in paragraph 24.
20. That dimension was referred to in argument before the Tribunal by Mr Morris, counsel for the Appellants. It was based on the decision of the EAT in Laughton and Anor v Bapp Industrial Supplies Ltd  ICR 634. In that case, the applicants were warehousemen employed by a company that supplied nuts and bolts. They had written to ten of their employer’s suppliers informing them that they intended to start up in business on their own, trading in nuts and bolts, and asking for details of their products. The employer learnt of those letters and summarily dismissed the employees for gross misconduct. An Industrial Tribunal, as it then was, found that the employer was justified in its decision that the employees were in breach of the implied term in their contracts of employment that they should be loyal to their employer and that the dismissals were not unfair. The employees’ appeal before the EAT was upheld. It was held that the Industrial Tribunal had erred in law in holding that an intention to compete in the future with their employer, expressed by the employees in letters to their employer’s suppliers, was itself a breach of the duty of loyalty owed by the employees to the employers, and that, accordingly, the employer was not justified in dismissing the employees and their dismissals were unfair. In particular, in that Judgment, there is a passage that we read in its entirety, as we think it is important that the Tribunal subsequently dealing with this case should have it before them:
“The crucial question on this appeal is whether it is a breach of the term of loyalty for an employee whilst still in the employment of his employer to indicate an intention to set up in competition with the employer in the future. The employers and the Industrial Tribunal have assumed that it is. In our view, the Tribunal fell into error in accepting that the indication of such intention was in itself sufficient. In Harris & Russell Ltd v Slingsby  ICR 454, Sir Hugh Griffith giving the Judgment of the National Industrial Relations Court, said at page 457:
‘This court […] would regard as a wholly insufficient reason to dismiss a man that he was merely seeking employment with a competitor unless it could be shown that there were reasonably solid grounds for supposing that he was doing so in order to abuse his confidential position and information with his present employers. In the nature of things, when a man changes employment it is more than likely that he will be seeking fresh employment with someone in the same line of business and, therefore, a competitor of his present employers.’
That was said in the context of a case where the employee had given notice, which was accepted, and when he had been given time off to look for alternative employment, but as a general proposition not confined to those special circumstances it is correct this was not disputed by Mr Robinson, and we would adopt it. Mr Robinson submitted that it did not apply where the employee sought to set up in competition on his own account, but we do not see why in principle that should make a difference. An employee with experience in a particular industry who is intending to leave, whether to join a competitor as an employee or to set up in competition on his own account, commits no breach of contract in doing so, unless either there is a specific term of his contract to that effect which does not fall foul of the doctrine against restraint of trade or he is intending to use the confidential information of his employer otherwise than for the benefit of the employer. In general, an employer is not entitled to protect himself against competition on the part of a former employee. The employee may, in the course of his employment, have acquired additional skills and knowledge of the trade in which he had been employed, with the result that he is a more formidable competitor upon the termination of his service, but that additional skill and knowledge belonging to him and their exercise cannot be lawfully restrained by the employer. It is only the trade secrets and other confidential information of the employer that the employee is not entitled to use or disclose. Not every piece of information which the employer regards as confidential will be protected by the court. The limits on the scope of confidential information have recently been expanded by the Court of Appeal in Faccenda Chicken Ltd v Fowler  ICR 297. Where there are reasonably solid grounds for the employers to suppose that the employees intended to set up in competition in order to abuse their confidential position and information with the employers. We accept that if there were, then the employers would be justified in dismissing the employees for a breach of the duty of fidelity or loyalty. Thus if at the time of dismissal the employers knew or genuinely believed on reasonable grounds that they were compiling confidential information such as by making lists of customers or even memorising such lists for use after their employment had ceased, then the employers could dismiss them for breaches of the implied term, but there is no evidence that the employers had any such knowledge or belief at the relevant time.”
21. Mr Morris referred the Employment Tribunal to that case, and yet there is no mention of it anywhere in the Employment Tribunal’s decision, notwithstanding the fact that it carried out a fairly comprehensive survey of what they regarded as the relevant law. In our judgment, that omission is stark and significant. Leaving aside for the moment the fact that the Appellants’ defence was along the lines that the business plan was not to be regarded as evidence of a serious intent, which the Respondent rejected and which, as we have indicated, they were entitled to reject, having conducted reasonable investigations, the question of law nonetheless remained: whether, in the circumstances, there was, as a matter of law, any breach of contract at all by either of these Appellants, let alone something that could be described as gross misconduct.
22. As can be seen from the Laughton case, it is not in itself gross misconduct for an employee to make preparations for a future business to be conducted after his employment with his current employer has terminated, nor is it necessarily the case that every piece of information that the employer has, and that the employee may be aware of, and which the employer might regard as important or confidential, is properly to be regarded, as a matter of law, as confidential information. Both of these issues were placed foursquare before this Employment Tribunal by the reference made to Laughton; that is to say, whether, on the basis of what they regarded to be a serious business plan evidencing a future intention to compete, that, in itself, constituted gross misconduct, and/or whether the matters that appear to have been referred to by the employer in sub‑paragraph 2 of the second page of the letter to Mr Khan, rejecting his appeal, could properly, as a matter of law, be described as confidential information or was simply the kind of knowledge and expertise that a person in Mr Khan and Mr Hemming’s positions would have accumulated over the number of years they had been employed by the Respondent, in particular in the positions that they latterly occupied. There is nowhere in the Employment Tribunal’s decision any evidence of them addressing either or both of those questions which would be necessary, in our judgment, to inform a decision by the Tribunal as to whether what the Respondent genuinely believed, after the reasonable investigation they had undertaken, did, as a matter of law, constitute gross misconduct on the part of either or both of Mr Hemming and Mr Khan so as to entitle the respondent fairly to dismiss them as a response to such gross misconduct as was alleged and recorded in the letters of dismissal.
23. Unfortunately, that did not happen and, accordingly, in our judgment, the decision of the Tribunal, as presently comprised, is infected by an error of law, namely their failure to address both of these important issues of law, which went to the heart of what they had to decide. Therefore, this appeal must succeed, to the extent that the finding of unfair dismissal against both Mr Hemming and Mr Khan must be quashed.
24. We have been addressed by both Mr Morris and Mr Isherwood on the question of what should follow. Mr Isherwood, in our judgment, sensibly and properly submits that we are not in a position to substitute our Judgment for that of the Tribunal. Plainly, these matters are very fact‑sensitive and, whilst we have a lot of the evidence in the form of notes of hearings and so on, we are not remotely in a position to take a decision. Mr Morris has submitted that this matter should not go back to the same Tribunal. He says that they have made a fundamental error and there is always the danger of giving them a second bite at the cherry. Mr Isherwood, in fairness to him, has not indicated one way or another any wish that the matter should be remitted either to the same or to a differently constituted Tribunal.
25. In our judgment, however, the just and proportionate result must be to send this matter back to the same Tribunal for them to complete their deliberations by addressing the issues that, by our judgment, we have concluded they have omitted to address. This was a two‑day hearing. There was plainly quite a lot of evidence. The Employment Tribunal has made its findings of fact, and, in so far as they have done, they have come to conclusions that, in our judgment are eminently proper. Their error has been to fail to address the additional issues of law that we have sought to identify, and illuminate, by referring at length to Laughton. In our judgment it would be just and proportionate, if it were now practicable, for this case to go back to the same Tribunal for them to complete their deliberations on this case, having heard any further evidence and/or argument that either side wishes to place before them. Accordingly, we will remit this case to the same Tribunal for that purpose.