ACAS Code does not apply to dismissals for a breakdown in working relationship

In the case of Phoenix House Ltd v Stockman and another, the Employment Appeal Tribunal (EAT) considered whether the 25% compensation uplift for non-compliance with the ACAS Code should apply in relation to a dismissal on the grounds of a breakdown in the employment relationship.  The dismissal was for a potentially fair reason under the Employment Rights Act 1996, namely ‘some other substantial reason’ (SOSR) which justifies dismissal.  However, the EAT held that although the employee’s dismissal was both procedurally and substantively unfair, the ACAS Code did not apply to dismissals for SOSR in these circumstances so no uplift was awarded.

Facts
In April 2013, Phoenix House Ltd (the Company) announced the restructuring of its Finance Department. As a result, one of its employees, Ms Stockman, applied for a new role.  Ms Stockman had previously been involved in an incident with another employee, against whom she raised a formal grievance.  Her grievance was rejected on the basis that a private apology had already been made.  Ms Stockman had also previously behaved in a manner which Mr Lambis, the Finance Director, found discourteous.
 
Ms Stockman was offered, and accepted, the role of Payroll Officer but proceeded to claim that she had been treated differently by Mr Lambis because he disliked her.  Ms Stockman claimed a junior employee agreed with her.  When Mr Lambis discussed this with the junior employee in his office, Ms Stockman entered Mr Lambis’ office, of the belief that the junior employee was being reprimanded for supporting her, and did not leave on Mr Lambis’ request. 

Following an informal investigation for misconduct, and a period of paid leave, Ms Stockman submitted a grievance, which was to be heard alongside a disciplinary hearing for misconduct.  Both were heard whilst Ms Stockman was on sick leave.  Her grievance was dismissed and she was given a written warning for misconduct. Ms Stockman appealed both decisions, but the appeals were rejected.

Ms Stockman had stated that she was no longer able to work with Mr Lambis and remained on sick leave.  However, after an unsuccessful mediation, during a formal meeting to consider whether the working relationship had irretrievably broken down, Ms Stockman said that she did wish to return to work.  The Company, however, concluded that the employment relationship had ‘broken down irretrievably’ and she was dismissed, in their view, on the basis of SOSR justifying dismissal.

Ms Stockman brought a claim for unfair dismissal to the Employment Tribunal (Tribunal) which was upheld.  Amongst other findings, the Tribunal held that the procedure adopted by the Company had been unfair and did not comply with the ACAS Code, allowing any compensation awarded to be increased by up to 25%.  The Company appealed.

Decision
The EAT decided that although Ms Stockman’s dismissal was both procedurally and substantively unfair, the 25% uplift for non-compliance with the ACAS Code does not apply to dismissals for SOSR, such as a breakdown in the employment relationship.  The EAT held that clear words would be required in the Code to give effect to the sanction for non-compliance, which is set out in legislation, in the circumstances of a SOSR dismissal.  An employer would otherwise be at risk of a punitive sanction where there has been no clear forewarning from Parliament or ACAS that that would be the effect of failing to adhere to the Code in such circumstances.  This did not appear to be what Parliament had intended.

The EAT did find however that elements of the ACAS Code are capable of being, and should be, applied in the case of a breakdown in a working relationship, including giving the employee an opportunity to demonstrate that he/she can return to work without undue disruption.

Comment
The application of the ACAS Code is, to a certain degree, restricted by this decision to dismissals for misconduct or poor performance.  This serves to protect employers to some extent from a punitive award being made against them for procedural irregularities when dismissing for SOSR, such as a breakdown in the employment relationship.  However, it is worth noting that the EAT did uphold the finding of an unfair dismissal.  Whilst it is possible for an employer to fairly dismiss an employee for SOSR justifying dismissal, it can be difficult for employers to ensure such a dismissal is fair in practice. 

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Kerry Garcia

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