UK: re-engagement ordered following unfair dismissal, notwithstanding contributory fault

The recent tribunal case of Fotheringhame v Barclays Services Ltd highlights the risk of an employee obtaining a re-engagement order following a successful unfair dismissal claim, even where there has been some contributory fault on the part of the employee.  It also serves as a reminder that, where a re-engagement order is made, the financial compensation ordered could greatly exceed the usual cap on unfair dismissal compensation, as it will require payment of the original remuneration package from dismissal until the date of ordered re-engagement.

In this case, Barclays’ former head of automated FX flow trading was dismissed following an investigation by the New York State Department of Financial Services (DFS) into a trading practice called “Last Look”.  The DFS had concluded that the practice had been over-used as a general filter to improve profits rather than limited to “toxic” flow, that there had been insufficient systems and controls, and a lack of transparency.  A Consent Order agreed between DFS and Barclays provided that Barclays would pay a $150m civil penalty and “take all steps necessary to dismiss” the claimant in light of his role in the misconduct identified; if termination was not permissible under local law, the claimant would nevertheless not be allowed to carry out any role involving US or US dollar operations.

Dismissal procedurally and substantively unfair

The tribunal rejected the claimant’s contention that Barclays had simply dismissed him because of the DFS Order rather than because they believed he was guilty of misconduct.  It found on the facts that the decision-makers had made their own decisions on the evidence available to them at the time and believed the claimant to be guilty of misconduct, relying on several grounds.

However, one of the grounds, encouraging a lack of transparency, had been established to be a mistaken approach as to where to draw the line on confidentiality and so was not a dismissable offence.  The other grounds were not supported by the evidence and/or based on incomplete evidence. The claimant had made requests for specific documents but been denied.  The decision-makers accepted that they might have reached a different outcome had those documents (which were disclosed as part of the tribunal proceedings) been available.  Further, the fact that the claimant’s performance review gave him the objective of making more money out of Last Look, and that his managers were clearly aware and approved of this, meant that it was not clear to the claimant that this would be misconduct, let alone a dismissable offence.  The tribunal concluded that the dismissal was both procedurally and substantively unfair.

The tribunal found that the claimant was culpable and blameworthy to a limited extent in relation to only one of the allegations, in that he did not have accurate oversight of the way in which his team was using Last Look, for which he was ultimately responsible.  In light of his seniority and the significant civil penalty, it was appropriate to reduce his basic and compensatory awards by 20% for contributory fault.

Remedy

The compensatory award in the vast majority of unfair dismissal cases is subject to a statutory upper limit (at the time just under £80,000) or 52 weeks’ actual gross pay if lower.  Alternatively, a claimant can seek reinstatement or re-engagement. In deciding whether to order this the tribunal must consider the wishes of the employee, whether it is reasonably practicable for the employer to comply with the order, and whether the employee contributed to the dismissal.  Orders for re-instatement or re-engagement are rarely sought and are made in less than 1% of successful unfair dismissal cases.

A re-instatement order was not possible in this case as the claimant’s job had ceased to exist, its responsibilities having been divided up between other roles.  The tribunal ruled that it could not order ‘re-instatement’ to the role into which the claimant would have been reorganised had he not been dismissed.

In relation to re-engagement, the claimant sought a general order on the basis that most senior jobs at the Bank developed organically and were not advertised as vacancies, but the tribunal ruled that it could only order re-engagement into a specific identified vacant role.

The practicability of ordering re-engagement of the claimant into the specific vacant roles identified depended on (i) whether trust and confidence could be said still to exist, (ii) whether the claimant’s appointment was feasible from a regulatory perspective, and (iii) whether re-engagement would be just, taking into account the claimant’s contributory conduct.

Trust and confidence:  The Bank contended that re-engagement was impracticable because it had lost trust and confidence in the claimant and the claimant had also displayed a lack of confidence in, or distrust of, the Bank as evidenced by numerous criticisms he made of the disciplinary investigation.  The tribunal rejected this: two senior managers had given evidence that they had not lost trust and confidence in him and that he could potentially still be employed, and the Bank could not rely on the unreasonable beliefs of the decision-makers at the time of the disciplinary given they had been based on an unreasonable investigation and incomplete evidence.  It did accept that the Bank had lost trust and confidence in the claimant carrying out an FX role, but this did not make it impracticable to re-engage in another role.  Similarly, the claimant’s criticisms did not evidence a lack of trust and confidence in the Bank generally, only specific individuals, in particular a US lawyer whom he was unlikely to have to deal with again, and the original decision-maker who had left the Bank.

Regulatory concerns: The tribunal decided that it was impracticable to order re-engagement into any role that would have involved a breach of the DFS Order, rejecting the claimant’s argument that the Bank should have sought to renegotiate the terms of the DFS Order as there was no evidence this would necessarily be successful.

Some of the roles would also have required the claimant to be assessed as “fit and proper” for FCA purposes.  The Bank’s Global Head of Employee Compliance contended that the Bank would not be able to certify the claimant as fit and proper for any role requiring certification.  The Tribunal rejected this, finding that it would be the decision of the individual hiring manager based on a specific role.  It could not be said that the DFS Order and misconduct findings, when considered with the ET judgment on unfair dismissal, would necessarily prevent certification for every single certified role.  This had to be considered on a role by role basis.

Justice: The Bank argued that re-engagement would not be just given the size of the civil penalty for which the claimant was partly to blame.  The tribunal considered that these factors were relevant to whether it was just to re-engage, but that it should also take into account the fact that the contribution was assessed at only 20% and that the dismissal was substantively unfair and would not have occurred had the Bank acted fairly.  Whether it was just should be assessed in relation to each specific role;  on the facts it was not just to re-engage the claimant in FX roles given that the claimant had failed to discharge his previous responsibilities in a more than minor way.

The above factors meant that most of the identified vacant roles, being FX roles, were impracticable;  others were roles for which the claimant did not have the appropriate skills.  This left one, that of Director Data Commercialisation, which was a more junior role than the claimant’s previous position and paid substantially less.  The tribunal accepted that the claimant nevertheless wished to apply for it, would have been happy to work at that level, and had the necessary skills.  Although recruitment for the role had started, the role had not yet been filled.  The role did not involve interaction with the DFS, did not come within the prohibition in the Consent Order and did not require certification as fit and proper.  There was no precise parallel between the new role’s requirement to abide by existing data protection controls and the claimant’s failures to properly implement and supervise controls regarding Last Look.  Re-engagement to this role would also be just given the demotion in effect took account of the claimant’s contributory conduct.  A re-engagement order was therefore made to this role at a salary in the middle of the specified range for the job (£150,000), along with an order to pay the claimant his contractual remuneration package for his pre-dismissal role for the period from dismissal to the date of re-engagement.  In the event, the Bank chose not to comply with the re-engagement order and agreed to pay just under £1m compensation pursuant to the order and the failure to re-engage.  A subsequent tribunal decision ruled that it did not have power to award interest on the payment in respect of remuneration from the date of dismissal to ordered re-engagement.

The case highlights the risks for financial services employers who dismiss a claimant from a certified role for misconduct:  although the misconduct may be sufficient to withdraw ‘fit and proper’ certification, it may not be sufficiently serious to dismiss fairly if there are other suitable alternative roles not requiring certification.  That may also not be a bar to re-engaging the employee in another role.  If the employer goes ahead with dismissal and the employee can persuade a tribunal that they are genuinely interested in being re-engaged to a lower level non-certified role, then the employer could be liable to pay compensation much larger than the usual unfair dismissal award, covering contractual remuneration for the pre-dismissal role from the date of dismissal to the date of ordered re-engagement.

Anna Henderson
Anna Henderson
Professional Support Consultant, London
+44 20 7466 2819
Christine Young
Christine Young
Partner, London
+44 20 7466 2845

Hong Kong: The Requirement of Being ‘Fit and Proper’

In many industries, it is a requirement that certain individuals performing regulated activities are, and remain, fit and proper. For example, these requirements will apply to certain individuals who are subject to the oversight of financial services regulators such as the Hong Kong Monetary Authority, the Securities and Futures Commission (SFC) or the Insurance Authority. Assessing whether an individual is fit and proper however, is not always straightforward. Issues which, on their face, may not seem to be compliance risks could in fact be so when viewed through the lens of the fit and proper test.

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Australia: Whistleblower protection regime

On 7 December 2017, the Australian Government took a further step towards whistleblower reform by introducing the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 into the Senate (‘Whistleblower Bill’).

The Whistleblower Bill seeks to consolidate whistleblower protections in the corporate, financial and credit sectors into a single regime under the Corporations Act 2001 (Cth) (Act).

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Australia: Whistleblower protection laws – proposed amendments to the Corporations Act

The Government has released draft legislation significantly amending whistleblower laws: Treasury Laws Amendment (Whistleblowers) Bill 2017 (the Bill).

Through a series of interlocking amendments to various Acts, the Bill seeks to consolidate whistleblower protections in the corporate, financial and credit sectors into a single regime under the Corporations Act 2001 (Cth) (the Act).1

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Australia: Banking and Finance Bargaining Update

Issue #1 2017

In this edition we will discuss the Senate Committee Inquiry into corporate avoidance of the Fair Work Act 2009 (Cth), the progress of the Fair Work Amendment (Corrupting Benefits) Bill 2017 (Cth) as well as trends in enterprise agreements in the banking and finance industry.

Please find a copy here: Banking and Finance Bargaining Update – June 2017

For more information on this topic please contact:

Kirsty Faichen
Kirsty Faichen
Partner, Brisbane
+61 7 3258 6492

Nicole Brennan
Nicole Brennan
Senior Associate, Brisbane
+61 7 3258 6522

UK: Whistleblowing – new rules for UK branches of foreign banks and insurers

The FCA and PRA have recently published new rules on whistleblowing procedures for UK branches of foreign banks and insurers, which will apply from 7 September 2017. UK branches will need to ensure their staff are informed of the option of reporting to the regulators, and given access to the internal whistleblowing arrangements of any UK group company. Staff handbooks or policies will also need to be updated. See our briefing here for further details.

UK: FCA/PRA publish whistleblowing rules for UK branches

The FCA and PRA have recently published new rules on whistleblowing procedures for UK branches which will apply from 7 September 2017.

In October 2015 the FCA and PRA introduced new rules requiring relevant deposit-takers and firms to introduce internal whistleblowing arrangements, but decided to consult first in relation to which aspects of the regime should apply to UK branches of overseas firms. That consultation took place in the autumn of 2016, and the responses and final rules have now been confirmed. These rules supplement the statutory protections all employees and workers have under employment legislation.

UK branches will need to ensure their staff are informed of the option of reporting to the regulators, and given access to the internal whistleblowing arrangements of any UK group company. Staff handbooks or policies will need to be updated by 7 September 2017.  See our briefing here for further details.

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On 16 December 2016, the Securities and Futures Commission (SFC) issued a circular which introduces new measures to heighten the individual accountability of senior management of licensed corporations (LCs), through the designation of one or more Managers in Charge (MIC) of certain Core Functions. Our briefing on the new MIC Regime, including implementation deadlines, can be located here.

As senior management, legal and compliance should work towards appointing MICs ahead of the 17 July 2017 deadline, it is important that HR teams are engaged early on so that any consequential changes to HR processes can be implemented in parallel.

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UK: ESMA publishes final versions of UCITS V and updated AIFMD remuneration guidance – where are we now?

ESMA has published the final version of its guidance on the remuneration provisions of UCITS V, available here, and the updated guidance on the AIFMD remuneration provisions, available here. These final versions are the same as those included in in the final report published by ESMA in April 2016. 

Publication of these guidelines is a timely point for UCITS management companies to check that the workstreams required to become compliant with the UCITS Remuneration Code are underway.  Detailed below is the status of the various guidance documents that have been published to date and what further guidance is expected, and an update on the key question of whether UCITS management companies can rely on the "proportionality principle".

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