In Rawlinson v Brightside Group Ltd, UKEAT 2017, the Employment Appeal Tribunal ('EAT') held that an employer had breached the implied term of trust and confidence when it gave a false reason for an employee's dismissal, with the effect that the employee was entitled to bring a claim for breach of contract for his notice pay.

Background

• There is an implied term that employers must not without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of mutual confidence and trust between employer and employee (Woods v WM Car Services (Peterborough) Ltd [1983] IRLR 413, CA and Malik v BCCI SA (In Liquidation) [1998] AC 20).
• Generally, to establish constructive dismissal, an employee must be able to show that they resigned in response to the relevant breach. However, in Tullett Prebon plc and others v BGC Brokers LP and others [2010] IRLR 648, the High Court accepted that, whilst this approach is correct where the employee is seeking compensation for unfair or wrongful dismissal (because the employee has to show that their loss was caused by the employer's repudiatory breach), the situation is different where an employee is merely relying on their employer's conduct to release themselves from their contractual obligations. In that situation, the court in Tullet felt that an employee may point to an employer's fundamental breach to justify their refusal to perform their contract, regardless of why they left employment or whether they knew of the employer's breach at the time.
• In Johnson v Unisys Ltd [2001] IRLR 279 HL, the House of Lords established that an employee cannot claim common law damages allegedly suffered as a result of the manner of dismissal (commonly referred to as the 'Johnson exclusion zone'), but, instead, must pursue such loss by way of a statutory unfair dismissal claim.

In this case, the EAT had to consider whether a Tribunal had been wrong to reject a claim for damages for wrongful constructive dismissal of an employee who resigned when he was given a false reason for his termination of employment.

Facts

Mr Rawlinson (R) was employed as Group Legal Counsel at an insurance broking business (the Company). His contract of employment provided for a three month notice period. However, the CEO who recruited R was dismissed the day after R started employment. A new CEO started one month later, who, behind the scenes, quickly identified concerns with R's performance. Although R was made aware of some matters that needed to be addressed, the Company did not raise any detailed concerns with him about his performance.

Two months later, the Company decided to dismiss R. The Company wanted R to work through his three month notice period to ensure a smooth handover of work, so decided to tell R that the reason for his dismissal was a decision to outsource legal services (thus 'softening the blow'), rather than highlighting their concerns about his performance with him. However, R resigned with immediate effect on the basis that any outsourcing exercise would constitute a 'relevant transfer' under the Transfer of Undertakings (Protections of Employment) Regulations TUPE 2006 (TUPE) and asserted that the Company had acted in breach of its information and consultation obligations.

R brought claims in the Employment Tribunal for breaches of the duty to inform and consult on a service provision change and for breach of the consultation requirements on a collective redundancy. He also claimed damages for constructive wrongful dismissal, contending that he resigned in response to a fundamental breach of contract, namely the implied term obligation to maintain trust and confidence.

Employment Tribunal decision

The Tribunal rejected R's TUPE claims, finding that there was no relevant transfer. It also rejected his claim for breach of the consultation requirements on a collective redundancy, finding that R had not been dismissed for redundancy but for performance.

In relation to R's breach of contract claim, the Tribunal found that the Company's failure to mention any performance concerns (and, consequently, the potential for his dismissal) did not amount to a breach of the implied term of mutual trust and confidence, on the basis that the Company had no obligation to provide this information to him.

The Tribunal considered that R's complaint was really about the manner of his dismissal which meant that it was precluded by the Johnson exclusion zone (that common law damages for breach of contract cannot be awarded in respect of unfair treatment connected to a dismissal).

R appealed to the EAT.

EAT decision

The EAT allowed R's appeal and held that:

• In all but the most unusual cases, the implied term must import an obligation not to deliberately mislead. Therefore, the Tribunal's finding that the implied term had not been breached was wrong. However, the EAT noted that:
  • This does not mean that employers are necessarily placed under some wider obligation to volunteer information, but where a choice has been made to do so, the implied term must require that it is done in good faith.
  • There will be particular cases where the operation of the implied term would permit some element of deceit (i.e. a "white lie which serves some more benign purpose"), the EAT could not see how that was the case here.
• The Tribunal had failed to establish that R's complaint did not relate to the dismissal, but to the lie that was told to him with a view to keeping the relationship alive for the notice period. Consequently, R's dismissal did not fall within the Johnson exclusion zone.
  • The EAT referred to the case of Eastwood and anor v Magnox Electric plc [2004] IRLR 733 HL, where the House of Lords held that if an employee suffers loss as a result of the employer's breach of the implied term in the steps leading to dismissal, he or she has a common law cause of action that precedes, and is independent of, the subsequent termination of employment.
  • The EAT was satisfied that R had suffered a financial loss as a result of a breach of the implied term, that preceded and stood apart from his dismissal.

The EAT set aside the Tribunal's dismissal of R's claim and substituted a finding that the claim succeeded.

Comment

This case serves as a warning to employers who may be tempted not to be completely honest when providing reasons for dismissing employees. Whilst employers are under no contractual obligation to give reasons for dismissal, if they choose to do so then they must not deliberately mislead employees, or they risk being found to have breached the implied term.

This may be particularly relevant where employees are on substantive contractual packages. A breach of contract claim in these circumstances could prove very costly (even if there is no separate unfair dismissal claim to be concerned about) and may free the employee from contractual post-termination restrictions which the employer would have wished to enforce.

Therefore, it seems that transparency and honesty is key no matter how hard that may be for the employee to hear and for the manager to deliver. However, where employers choose not to be transparent, it is better to say nothing than to mislead (whilst being aware that there is always the risk of further information being exposed in the event of a subject access request).

Rawlinson v Brightside Group Ltd UKEAT/0142/17