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The Cost of Kindness
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August 2009
This month we report on the interesting recent case of Cook v MSHK Limited and Ministry of Sound Recordings (2009), which highlights the risk for employers in failing to take decisive action when considering an allegation of gross misconduct.
The Facts
Mr Cook was employed by KSHK Ltd and was also a de facto director of Ministry of Sound Recordings Limited, a record label owned by MSHK. Mr Cook’s employment contract contained a 6 month notice period and post termination restrictions preventing him from soliciting key artists, suppliers or customers. It did not, however, contain a blanket non-competition clause.
In May 2007, Mr Cook gave notice of his resignation, having accepted a job as Managing Director of a rival music company, Warner Music UK Ltd. MSHK were sceptical about Mr Cook’s claims that he would not be undertaking any competing activities in this role. A dispute arose and, following a heated confrontation, Mr Cook was signed off with stress. During this period, MSHK treated Mr Cook with a lot more consideration, mainly because they were concerned that he might try to claim constructive dismissal, thereby releasing him from his restrictive covenant.
However, when Mr Cook returned to work in July 2007 he was called to a disciplinary hearing and was subsequently dismissed, without notice, in August 2007. MSHK maintained that Mr Cook’s conduct amounted to a breach of the duty of trust and confidence (and also a breach of his fiduciary duties), in two respects:
1. He had deliberately tried to mislead MSHK about his new employment not being competitive
2. He had attempted to secure a significant company loan after tendering his resignation, putting his interests ahead of those of MSHK
Unusually, it was the employer in this case who took legal action. MSHK issued court proceedings, seeking a declaration that the dismissal was lawful and compensation for the alleged breach of fiduciary duties.
When the matter came before the Court of Appeal, the key issue was whether MSHK had affirmed the contract of employment following Mr Cook’s alleged breaches. In other words, had MSHK accepted the breach by the way in which they had treated Mr Cook during his period of ill health, meaning that they could no longer rely upon Mr Cook’s conduct as grounds for dismissal.
MSHK argued that the fact they had treated Mr Cook with “sympathy and thoughtfulness” was not a good reason for finding that the contract had been affirmed. Indeed, they argued, if they had been more zealous about their intention to instigate disciplinary proceedings immediately upon Mr Cook’s return to work, that itself might have undermined trust and confidence.
The Decision
In relation to the first of the grounds for dismissal (the allegedly dishonest statements), the Court ruled that MSHK had given no indication, for a significant period, they intended to bring disciplinary proceedings against Mr Cook. On the contrary, they had tried to “smooth things over” during his period of convalescence with a view to expediting his return to work. Accordingly, MSHK could not subsequently rely on this allegation as grounds for dismissal.
In contrast, in relation to the second allegation (the loan), MSHK had written to Mr Cook to express their concern and had thereby reserved their position. They were, therefore, entitled to pursue this allegation through the disciplinary process.
Comment
The case serves as a word of caution to employers who do not act promptly in response to an alleged act of gross misconduct. If the employer delays too long in taking action, or if they act in a manner which is clearly inconsistent with the employee having allegedly committed a fundamental breach of the employment contract (e.g. by rewarding the employee), then the employer may lose the right to rely on the allegation as grounds for dismissal.
Where there are obstacles to pursuing an allegation promptly, such as an employee’s ill health, the employer must clearly state that they are reserving their position to proceed with the allegations when the employee recovers. Although the employer will need to tread carefully not to exacerbate the situation, this step will prevent the employer being deemed to have affirmed the contact. |
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