Notwithstanding the current health crisis, the UK’s Courts and Tribunals continue to hear and determine cases brought by and against senior executives. In light of the developing issues facing senior executives and employers, it remains crucial that they are able to understand their rights and protect their positions quickly and smoothly.
In this alert, we summarise six of the most important cases heard by the UK’s Courts and Tribunals so far in 2020, with some tips on how these may affect you and your business.
1. Benyatov v Credit Suisse (Europe) Ltd
Executives may have claims for financial losses arising out of the lawful performance of their duties.
Mr Benyatov worked in Romania as a senior investment banker with Credit Suisse, and was arrested and convicted of various crimes under Romanian law. Mr Beynatov’s employment was subsequently terminated, even though Credit Suisse agreed that Mr Benyatov had done nothing wrong.
Mr Benyatov brought claims for £46m against Credit Suisse for loss of earnings. Credit Suisse sought to have the claims struck out. The High Court ruled that there is a reasonable prospect that some of Mr Benyatov’s claims will succeed at trial, including claims that (i) Credit Suisse owed Mr Benyatov a contractual indemnity to cover his losses resulting from the proper performance of his duties as an employee, and (ii) Credit Suisse owed Mr Benyatov a duty of care to assess risks he would face in Romania.
Employers should conduct adequate risk assessments for executives working overseas and take note of the High Court’s warning that “the liabilities upon institutions such as the Defendant could be enormous”.
Executives who have suffered losses arising from the proper conduct of their duties as an executive may want to consider potential claims against their employer to recover those losses.
2. Rae v Wellhead Electrical Supplies Limited
Executives who resign “in the heat of the moment” should be allowed a “cooling off period”, otherwise the employer may be liable for unfair dismissal.
Mr Rae had a long-standing disagreement with his fellow directors concerning a proposed salary increase for employees. Although a pay increase was eventually agreed, Mr Rae was embarrassed to learn that two employees did not receive the increase that he had assured them they would receive.
Mr Rae confronted the finance director, shouting “I told you what was going to happen…I won’t be back”, before leaving the office. The board convened an emergency meeting and agreed to accept Mr Rae’s resignation. Mr Rae retracted his resignation the following day, but the directors did not accept his retraction.
The Scottish tribunal ruled that Mr Rae’s resignation did not amount to a planned course of conduct and was not consistent with the normal practice expected for the resignation of senior personnel, and that he was unfairly dismissed by the board’s refusal to consider his retraction.
While this case was determined in Scotland, it is consistent with and a good reminder of the position under English law that certain circumstances may affect whether a resignation has been properly given, so that, as a matter of good practice, employers should give executives the opportunity to withdraw words spoken in the heat of the moment.
Employers should ensure that all terminations follow proper procedures, and that executives are given the opportunity to confirm their position in writing.
Executives who resign in a state of high stress or emotion should confirm their position in writing as quickly as possible afterwards to avoid being misconstrued and undermining their position.
3. Allen v Dodd & Co Limited
Employers are entitled to act on the basis that restrictive covenants in the former service agreements of new employees are unenforceable, if they rely on legal advice that those covenants are probably unenforceable.
Mr Pollock, an accountant, joined Dodd & Co from its competitor David Allen. Before Mr Pollock started work, Dodd & Co sought advice on the restrictive covenants in Mr Pollock’s service agreement with David Allen. The legal advice concluded that the restrictive covenants were probably unenforceable. Subsequently, David Allen issued claims against Dodd & Co for inducing a breach of contract.
The Court of Appeal held that Dodd & Co did not have sufficient knowledge to be liable for inducing a breach of contract. Dodd & Co was not required to prove an absolute belief that its conduct would not amount to inducing a breach of contract, and, as a general rule, people should be able to act on legal advice even if the advice turns out to be wrong.
While actions against rival firms to indirectly enforce covenants are uncommon, employers should be aware of this risk and assure themselves that the covenants are unenforceable before proceeding.
Executives looking to join competitors should also take advice on whether any of the covenants are unenforceable.
4. Square Global Limited v Leonard
Executives who resign in ignorance of any contractual breaches by their employer may, in certain circumstances, rely on those breaches in defence to claims brought against them by the employer.
Mr Leonard was employed as a broker of Square Global before resigning summarily. Square Global brought a claim in the High Court seeking declarations and orders requiring Mr Leonard to observe his notice period and restrictive covenants.
In reply, Mr Leonard claimed that Square Global was in breach of his service agreement and so he was entitled to resign without notice. The Court found nothing on the facts relied upon by Mr Leonard as amounting to breaches by Square Global and so rejected Mr Leonard’s defence on this basis.
However, the judge observed that in these circumstances, Mr Leonard was correct to argue that he would have been able to rely on his employer’s breaches in defending its claim against him, commenting that “…if an employer asserts that the employee should not have left, the employee may show that he was entitled to leave because of the employer’s conduct, regardless of why he in fact left.”
Executives considering a quick exit or facing post-termination claims by former employers should consider whether any conduct during their employment may give rise to a right to resign summarily.
5. Ferguson & Ors. v Astrea Asset Management Ltd
Executives may not improve the terms of their service agreements in anticipation of a TUPE transfer if the principal reason for the variation is the transfer itself.
The four claimants were directors of an estate management company, the sole client of which was a single estate in central London and were also directors and shareholders of the holding company that owned the estate management company.
The estate owners gave notice of termination of the management contract, which would pass to Astrea Asset Management. This change of service amounted to a TUPE transfer. Before the transfer, the claimants updated their terms to include a termination payment calculated by reference to their length of service as directors.
Following the transfer Astrea dismissed the claimants, who brought proceedings against Astrea for the termination payments. The Employment Appeal Tribunal held that the pre-transfer variations were void and invalidated, as the sole reason for the variations was the anticipated transfer.
Employers that are TUPE transferees should be alert to any efforts by TUPE transferors to take advantage of the TUPE transfer, particularly if the transferors appear unhelpful or uncooperative.
Executives should ensure that any variations to their service agreements have a proper basis and should not seek to exploit incoming TUPE transferees.
6. Rihan v Ernst & Young Global Limited & Ors.
Look out for our forthcoming detailed article on this case in the context of whistleblowing in professional services firms.
Executives who work overseas, and are unable to show that they have a sufficiently strong connection with the UK to benefit from UK statutory whistleblowing protections, may instead bring a negligence claim in the UK against their employer where the employer has failed to perform an audit in an ethical and professional manner.
Mr Rihan was a partner of Ernst & Young in Dubai who found serious irregularities during the audit of a precious metals dealer, which he reported and escalated within Ernst & Young.
Mr Rihan left Dubai and went on sick leave following pressure from the local regulator to cover-up the irregularities. Senior officers within Ernst & Young eventually issued misleading audit reports, and Mr Rihan resigned and publicly disclosed his concerns. Mr Rihan claimed $11m in damages from Ernst & Young for loss of earnings.
The Court held that, in these circumstances, in which Mr Rihan could not rely on the statutory whistleblowing protection in the Employment Rights Act, Ernst & Young was under a duty to protect Mr Rihan from economic loss suffered as a result of its failure to perform an audit ethically and without professional misconduct.
Employers should note this exception allowing executives to bring claims for economic losses in particular circumstances.
Executives who are unable to rely on statutory protections (for example, where there are issues of jurisdiction) may, in particular circumstances, be able to bring claims against their employer arising from the employer’s breach of duty.
We have a particular reputation advising senior executives on a wide range of issues, including allegations of wrongdoing, whistle-blowing, harassment and discrimination claims, restrictive covenant issues, and bonus and wrongful dismissal claims, frequently with a cross-border element. If you would like to discuss any issues you may be facing, or for guidance on your specific rights, responsibilities and potential liabilities, please contact Partners Merrill April, Beth Hale or Clare Murray who specialise in advising and representing senior executives and multi-national employers.
This alert was co-authored by Merrill April, Clare Murray and George Pizzey.