Employment law

All That Glitters is Not Gold

It’s a common workplace problem: one ‘incident’, two employees, no witnesses but one killer piece of evidence providing proof of what happened. “It’s an open and shut case of gross misconduct, surely?” said the employer who recently sought our advice on how to dismiss the guilty party. “The other guy had a black eye”.

Most employers would consider fighting or assault to be an act of gross misconduct. However, it does not always follow that dismissal for gross misconduct would be a sanction automatically falling within the band of reasonable responses. (By way of explanation, there is a range of responses to the employee’s misconduct available to an employer, and if by choosing to dismiss the employer has acted as no other reasonable employer would, the dismissal will be unfair. If the area is a grey one where some employers would dismiss but others would not, the dismissal will be fair.) Whilst there may be a seemingly obvious explanation as to why one employee is now sporting a black eye, things are not always what they appear to be. Simply accepting things at face value and failing to make proper enquiries into all the circumstances of the case, including mitigation, may result in a finding of unfair dismissal by an Employment Tribunal.

Take for example this case of the black eye. The complainant alleges that he was minding his own business when the accused punched him. The accused claims that the complainant was winding him up and went to take a swing at him. There are no witnesses and the complainant is not known to the employer as a troublemaker although the accused does have a reputation for having a bit of a temper and ranting. On the face of it, there appears to be no reason to doubt the complainant’s version of events.

However, the truth often lies somewhere in the middle. There may not be any witnesses but an employer should consider interviewing their supervisor or colleagues to get a first-hand account of their behaviour immediately before and after this particular incident – did the complainant appear smug rather than upset having just been punched, or was the accused overheard saying the complainant never saw that coming?  What is the relationship like between, or have there been any previous incidents involving, the two employees – could there be a history of bad blood where one is just as culpable as the other? Is there anything else to explain what has happened for example, does the complainant have motive to lie or a stake in the outcome? Or could the accused’s personal circumstances explain why he’s progressed from shooting his mouth off to raising his fist?

The process of considering all the mitigating circumstances (and, in turn, alternative sanctions) really is worth its weight in gold because it may prevent an employer from falling into the trap of assuming that a decision to dismiss will always be fair just because the act of gross misconduct can be proven. In addition and perhaps more importantly, if the dismissed employee then brings a claim of unfair dismissal, the employer’s reasoning will be clear and well documented therefore greatly improving the employer’s prospects of demonstrating to the Employment Tribunal that the dismissal falls within the band of reasonable responses.

If you would like to discuss this further please contact Donna Reynolds.


corporate & business strategies

Directors: ‘not’ in name only

Many limited companies have struggled to stay afloat with the decline in the economy, and ultimately have gone under. It is not only creditors who have cause for concern when this happens.

When a limited company goes into administration or is wound up, the administrator or insolvency practitioner makes a report on the directors’ conduct in the three years prior to the insolvency to the Department for Business, Innovation and Skills. Their behaviour will be scrutinised to see if it is in the public interest to seek a disqualification order under the Company Directors Disqualification Act 1986 (“CDDA”).

Directors are also vulnerable under ss 212-214 of the Insolvency Act 1986, which enables liquidators, creditors and others to bring an action against a director for breach of duties.

However, it is not only those officially appointed as directors by the company who are vulnerable to scrutiny. Shadow and <de facto> directors are caught as well. These terms are often used, but it is not always clear what they mean.

Definitions, or not

CDDA defines a shadow director as “a person in accordance with whose directions or instructions the directors of the company are accustomed to act (but so that a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity)”.

The literal meaning of <“de facto”> is exercising power or serving a function without being legally or officially established. How that applies to ascertaining whether someone who has not been appointed as a director, is in reality a director of a limited company, is not set out in any statute. However, the recent English decision in <Re UKLI Ltd, Secretary of State for Business, Innovation and Skills v Balinder Chohan> [2013] EWHC 680 (Ch) is very helpful in summarising criteria to be applied in determining <de facto> directorship.

Ten Characteristics

Under CDDA, s 6 a defendant may be disqualified by the court if they are a director of a company that became insolvent and their conduct as director makes them unfit to be concerned in the management of a company. The court in this case was satisfied that both of these tests applied to Mr Chohan. However, he was not a formally appointed director of the company in the time frame in question. Section 6 expressly extends to shadow directors, and case law has also applied it to <de facto> directors. So, the question here was whether Mr Chohan was a shadow director, <de facto> director or both.

The court ultimately decided he was a shadow director or <de facto> director, and disqualified him for 12 years. What makes this decision useful is that the court summarised the criteria for determining <de facto> directorship. The court said that each of the following characteristics is relevant in determining whether someone is a <de facto> director, but not all need to be established:

  1. they must act as if they were a director;
  2. they must be part of the corporate governing structure and participate in directing the affairs of the company in relation to the acts or conduct complained of;
  3. they must be either the sole person directing the affairs of the company, or a substantial or predominant influence and force in doing so relating to the matters complained of – having influence is not enough;
  4. they must undertake acts or functions which suggest that their remit to act is the same as if they were a director;
  5. the functions they perform and the acts complained of must only be capable of being performed by a director;
  6. it is relevant whether they are held out as a director or claim to be one;
  7. their role may relate to part of the affairs of the company only, so long as that part is the one complained about;
  8. their lack of accountability to others and involvement in major decisions point towards <de facto> directorship;
  9. if they have the power to intervene to prevent some act on behalf of the company, that might be sufficient; and
  10. they must be more than a mere agent, employee or adviser.

Advice for Solicitors

Solicitors advising directors of limited companies who are in financial difficulties should remind them that the spotlight will be firmly upon their actions in the run-up to insolvency.

Solicitors should also be vigilant when advising those who could be deemed to be shadow or <de facto> directors. To avoid any comeback against themselves, solicitors should flag to such individuals that they could be held to be acting in that capacity and what their duties are, and highlight the potential consequences of non-compliance with those obligations.