In Dunn v AAH Ltd, the Court of Appeal has upheld a ruling that an employee’s failure to follow instructions and report on a significant risk issue so undermined trust and confidence that the employer was entitled to treat the contract as repudiated and terminate it without notice.
The case concerned the finance director and the managing director of AAH Ltd, who were dismissed summarily (i.e. without notice) for failing to notify the German parent company (Celesio) of an issue that had arisen with one of their suppliers.They had become aware that there was a significant risk that the supplier, introduced by an ex-employee of a sibling company, was perpetrating a fraud that exposed them to around £10.9 million.
Both employees had an obligation under their contracts of employment to comply with all lawful instructions and to account to the board of any matters with which they were entrusted. Further, mandatory risk management guidelines promulgated by Celesio to all its operating subsidiaries specifically required regular and ad hoc reporting of any risk issues.
The employees argued before the High Court that any error was one of judgment rather than something that could be described as wilful neglect of duty or repudiatory conduct. They claimed they had made a decision in good faith to seek resolution without involving higher management. Moreover, they had concerns about confidentiality should they report to Celesio. However, the trial judge ruled that they nonetheless had an obligation to report to the parent company so that it was in a position to judge what should be done. The Court of Appeal agreed with this reasoning and dismissed Mr Dunn’s appeal.
It is often difficult under UK law to determine whether an employee’s actions constitute gross misconduct warranting instant dismissal. This case is helpful for employers in so far as it confirms that failures to follow lawful instructions can amount to gross misconduct, even where the employees concerned say that they were acting in good faith and simply trying to sort matters out themselves without recourse to senior management.
However, the case would have been far less straightforward had there been no risk management guidelines specifically requiring reporting of risk issues – i.e. a clear, lawful instruction which the employees were bound by their contracts of employment to follow. When deciding whether an employer can terminate without notice for gross misconduct, it is not always possible for the employer to point to a specific instruction that should have been followed.
The Court of Appeal helpfully summarised the modern formulation of gross misconduct as action “… so undermining the trust and confidence which is at the heart of a contract of employment that the employer should no longer be required to retain the employee in his employment, but should be entitled to accept that the contract for employment has been repudiated in its essence, permitting him to terminate it.”