Philip Smith, former Chief Executive of Royal Sun Alliance Insurance, was awarded €1.25 million, just under two years’ salary, by the Employment Appeals Tribunal in a constructive unfair dismissal case. RSA has confirmed publically that it intends to appeal the decision.

Key Outcome

This case reinforces the importance for employers to avoid predetermined decisions in an internal process. This is particularly important where it is a stretch for an employer to pin the blame for a particular series of events on one person in particular, when many others within the organisation were aware of the issues involved and did little or in this case, nothing, to prevent them.

In its published decision, the EAT says that “the Respondent went on a fact-finding exercise to justify its predetermined decision. The decision was probably made to appease the concerns of third parties i.e.: shareholders and the Central Bank”.

An employee, regardless of their seniority, must be given the chance to respond to accusations made and to have a meaningful hearing particularly where their position may be undermined to the extent that it is untenable, or if their reputation is at stake.

In a rare commentary on the question of a Claimant’s reputation, the EAT said that suspending Mr Smith on national television, without prior notice to him, was “the equivalent of taking a sledgehammer to his reputation as well as to his prospects of ever securing employment in the industry again in Ireland, Europe or possibly beyond that.”

Facts

Mr Smith was suspended by RSA in November 2013 in relation to alleged financial discrepancies in the company. Later that month, Mr Smith resigned following these allegations. RSA argued that Mr Smith resigned when he realised that the company’s financial irregularities would be exposed. Mr Smith claimed that he has been made the “fall guy” by RSA for the issues.

EAT Rationale

The Employment Appeals Tribunal was satisfied that Mr Smith’s fate had been predetermined from an early stage of the investigation or even perhaps before and that RSA attempted to justify its predetermined decision by carrying out a fact-finding exercise.

Among its criticisms of the manner in which RSA dealt with the issue, the Tribunal noted the manner by which Mr Smith was suspended without prior notice to Mr Smith and the effect that this had on Mr Smith personally and on his future employment prospects. The EAT also commented on RSA’s refusal to advise Mr Smith of the seriousness of the issues and how they related to him specifically.

The EAT was critical of the fact that a draft report issued prior to Mr Smith being offered an opportunity to respond to the allegations made against him in it, the fact that there was no board sanction or terms of reference for the secondary investigation, the fact that the disciplinary hearing was commenced prior to the completion of the investigation. The EAT was also critical of the involvement of one particular individual in the process. The Tribunal concluded that based on these factors, Mr Smith was justified in terminating his employment with RSA.

Interestingly, the regulatory obligations on Mr Smith as CEO were only considered by the EAT insofar as the regulatory obligations related to the fairness of the process. In this regard, the EAT noted that while Mr Smith did have responsibilities to ensure that practices which could attract Central Bank criticism did not develop or continue, the risk in relation to certain financial practices was known and was known for a very protracted period of time “by too many high-ranking company employees to lay the blame solely at the feet of the claimant.”

The amount of this award is notable given that according to the most recent Employment Appeals Tribunal Annual Report, the average award for unfair dismissals cases by the Employment Appeals Tribunal in 2013 was €16,686.65. Mr Smith’s award was based on the fact that he had been earning a remuneration package of approximately €635,000 per annum, giving rise to an award of just under two years’ salary.

This case represents a rarely used discretion by the EAT to make an award in an employee’s favour which is close to its maximum jurisdiction to award.

A full copy of the decision is expected to be made available on the Workplace Relations website in the coming days. The full case reference is Philip Smith v RSA Insurance Ireland Limited, Case No UD1673/2013.