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Ignorance is a defence?

Docherty and another Ignorance is a defence? InDocherty & Another v S W Global Resourcing Ltd,the Scottish Court of Appeal (the Court of Session) considered whether, given an employer’s ignorance of the legal effect of its actions, the dismissal of employees had been fair. There are five potentially fair reasons for dismissal: conduct, capability, redundancy, breach of a statutory restriction andsome other substantial reason (SOSR) of a kind as to justify the dismissal of an employee holding the position which the employee held. The statutory test for unfair dismissal has two stages. In the context of an SOSR dismissal: the employee has the burden of showing that the SOSR was the sole or principal reason for the dismissal. The Tribunal must find that the decision to dismiss for that reason was reasonable in all the circumstances. In this case, the Court of Session considered the effect of an employer’s ignorance of the legal consequences of its actions, when it varied employees’ terms and conditions of employment, on the reasonableness of those dismissals. Mr Docherty and several colleagues were employed by the business. In July 2010, in order to avoid redundancies, reduce labour costs and offer more competitive tenders, the company gave the employees 12 weeks’ notice that they would no longer receive a guaranteed weekly salary and of their intention to engage them on zero-hours contracts. In other words, the employer would no longer be obliged to provide the employees with work. In the event that the employees were given no work for 2 months, the employer reserved the rights to give them their P45s. Perhaps unsurprisingly, the employees claimed constructive dismissal. The Employment Tribunal which heard the case at first instance found that the employees had been unfairly dismissed. The Tribunal did not agree that the employer had relied upon a legitimate ‘substantial reason’ justifying dismissal. It accepted the reasons for removing guaranteed salaries but did not accept its justification for removing employment status. The employer had failed to understand the ramifications of placing its employees on zero-hours contracts and as such there had been no thought behind it and no reason for doing it. The Tribunal found in the alternative that even if the employees had been dismissed for some other substantial reason, the dismissals would have been unfair. The employer had not appreciated the effect on employment status of placing the employees on zero-hours contracts and so had failed to consult on the issue. The EAT overturned the Employment Tribunal’s decision holding that the company had dismissed the employees for a substantial reason of a kind as to justify the dismissal and that the dismissals for this reason had been fair. The employees appealed against the finding of the EAT to the Court of Session. The Court of Session held that where an employer takes action against an employee which amounts to a dismissal, and does so either without having considered the legal consequences, or on a mistaken view of what those consequences would be, that dismissal may still be fair. The Court gave examples of where a Tribunal had been entitled to find a dismissal fair even though it was based on a mistaken belief. An employer may for example be mistaken that an employee’s conduct constituted a breach of contract or, that an employee’s indication that he intended to leave his employer amounted to a resignation. Having arrived at that decision, the Court of Session was careful to remind itself that the same result would not necessarily follow in every case. The Employment Tribunal should still consider the substantial merits of each case and its task is to reach a view on fairness having considered all relevant evidence. This would necessarily involve an assessment of both parties’ interests. The Court of Session has now sent the case back to an Employment Tribunal to consider whether the dismissals were fair on the following basis:

  • The employer’s lack of awareness of the legal consequences of its actions was only one relevant factor in determining whether the employer should have taken professional advice. That could depend upon several factors including its size and administrative resources. Alternatively the Court raised the question of whether the employer ought to have been put on notice of the possibility of there being a legal problem because of the radical nature of the change that it implemented, namely, requiring the employees to work on zero-hours contracts. This was a matter that only an Employment Tribunal could decide.
  • The overall fairness of the contractual changes was also relevant. The Tribunal’s main concern had been the destructive effect that the change had on the employees’ statutory rights. In this case, the imposition of zero-hours contracts would have meant that the employees stood to lose their accrued statutory rights, such as the right to redundancy payments.
  • Even if the employer had been ignorant about the effect that the removal of employment status would have upon the employees, it could still retain the employees for up to two months without paying them and then subsequently dismiss them. This was of itself, destructive of their rights.

The decision confirms that while an employer’s ignorance, or mistaken understanding of the effect of the law may mean that a dismissal is fair, this is not automatically the case. Each case will turn on its merits. The lesson for employers is to seek advice when considering the implementation of contractual changes particularly radical ones.