Clarification on application of Acas Code

Two recent rulings of the Employment Appeal Tribunal (EAT) have clarified the application of the Acas Code of Practice on Disciplinary and Grievance Procedures, by confirming it does not apply to genuine ill-health dismissals or dismissals for “some other substantial reason” (SOSR) due to a breakdown in the working relationship.

The Acas Code provides practical guidance for employers and employees on handling disciplinary and grievance issues in the workplace. Its significance is enhanced by the fact that, although a failure to follow the Code will not make someone liable to proceedings, it will be taken into account by an Employment Tribunal when determining liability if proceedings are brought. In addition, tribunals can increase the compensation awarded by up to 25 per cent in a relevant case where the Code applied but was not followed.

Because of this potential for a compensation uplift, confusion surrounding whether the Code should apply in cases that do not neatly fall into “disciplinary” or “grievance” categories is problematic for employers. Whereas the Code states that it does not apply to redundancy dismissals or failure to renew a fixed-term contract, it does not say whether or not it applies to dismissals for ill health or SOSR

Ill-health dismissals

The first of the recent EAT cases (Holmes v Qinetiq Ltd) was about a dismissal for ill health where no issues of misconduct were involved. Mr Holmes had numerous absences from work with back and leg problems. His employer, Qinetiq, eventually dismissed him, saying he was unable to do his job. Qinetiq conceded that the dismissal was unfair because it had not obtained an up-to-date medical report.

Mr Holmes then argued that his compensation should be increased on the basis that Qinetiq had not followed the Acas Code. The Employment Tribunal disagreed, finding that the Code did not apply, and Mr Holmes appealed to the EAT.

The EAT dismissed the appeal, pointing out that the Code applies when an individual is alleged to have committed “culpable conduct or performance” - in other words, when there has been misconduct or poor performance needing correction or punishment. Mr Holmes had been absent due to ill health and therefore incapable of doing his job. Disciplinary action should not normally be used in such circumstances, so the Code did not apply.

The EAT distinguished the situation where an employee might be sick but there is an element of “culpable conduct”, such as an allegation that the illness is not genuine or where the individual has not complied with the employer’s absence management policies. In these cases, the Code should be applied if disciplinary procedures are invoked to deal with the conduct in question.

SOSR dismissals

In the second case, (Phoenix House Ltd v Stockman), the claimant Ms Stockman lost her post at Phoenix House Ltd in an internal restructure and eventually applied for and was given a more junior role. She felt she had been unfairly treated by the company’s finance director in this process and raised a grievance against him. After a confrontation with him, when she interrupted a meeting he was holding, she was subjected to disciplinary proceedings.

Ms Stockman then went off sick and the grievance and disciplinary proceedings were held in her absence. The grievance was not upheld and the disciplinary proceedings resulted in Ms Stockman receiving a 12-month written warning for misconduct. She appealed unsuccessfully against both findings and an attempt at mediation failed.

Following this, a meeting was held to consider whether the working relationship had broken down. Ms Stockman indicated that she would like to return to work and said she believed she could work with the finance director despite not having withdrawn her allegations about him. Following the meeting, she was told that her employment would be terminated because the working relationship had irretrievably broken down. Ms Stockman claimed unfair dismissal.

The Employment Tribunal found the dismissal unfair, giving four reasons:

• The Acas Code applied and had not been followed.
• Phoenix House had started from the proposition that the relationship had broken down and asked Ms Stockman to prove it had not.
• Ms Stockman was not given an adequate opportunity to put her case.
• The decision that there had been an irretrievable relationship breakdown was outside the range of reasonable responses for an employer in this situation.

Phoenix House’s appealed to the EAT, which upheld the finding of unfair dismissal. The EAT supported the tribunal’s decision that a reasonable employer would not have concluded that the relationship had irretrievably broken down nor would it have put the burden on Ms Stockman to prove otherwise.

The EAT went on to rule, however, that the Code did not apply. This was on the basis that Parliament had laid down a sanction for a failure to comply with the Code (the damages uplift) and clear words in the Code must be necessary for that sanction to apply. Without such clear words, an employer would be at risk of being unfairly punished.

As the Code does not state that it applies to SOSR dismissals, the EAT concluded that the uplift could not be imposed. This did not mean that certain elements of the Code should not be applied to determine fairness where relevant, but merely that to impose an additional sanction for a failure to follow the Code would go further than Parliament intended.

Implications for employers

Taken together, these two cases indicate that in deciding whether or not the Acas Code applies the focus should be on what the dismissal is for. If the reason for dismissal is ill health – rather than some sort of culpable conduct which should be the subject of disciplinary sanction (e.g. poor performance) – the Code and the uplift to compensation do not apply. Similarly, if the reason for the dismissal is SOSR because of a breakdown in the working relationship, the Code and associated uplift are not relevant. The Code does not expressly say that it should apply to either of these types of dismissal, so normal unfair dismissal principles apply in determining whether the dismissal falls within the range of reasonable responses.

Employers should be particularly cautious in the SOSR scenario, because there is a previous EAT judgment (Lund v St Edmund’s School Canterbury) which suggested that the Acas Code would apply to a SOSR dismissal if the employer either did invoke or ought to have invoked disciplinary proceedings. Despite the ruling in Phoenix House v Stockman, tribunals may still decide to take this approach if they take the view that the employer is asserting the dismissal to be for SOSR when the true reason was alleged misconduct.

Finally, employers should take note that the EAT in Holmes made the additional point that if an employer does adopt a disciplinary procedure, even if it was inappropriate to do so, the Code and potential uplift will apply.