When a working relationship breaks down: Action points for employers

Author: Tina Elliott 

Part-time employment judge Tina Elliott looks at how to achieve a fair dismissal when a working relationship breaks down.

Dismissals for a breakdown in a working relationship are rarely straightforward or risk-free. When employers are looking for a potentially fair reason for dismissal under the Employment Rights Act 1996 they fall within the sweep-up category of "some other substantial reason". These cases are usually highly dependent on their specific facts and there is less case law guidance than with the more common categories of conduct, capability or redundancy.

The starting point

The starting point is that the breakdown must be irremediable. To achieve a fair dismissal, the employer should usually seek to improve the relationship before reaching that last resort.

It helps to go back to basics with the statutory provisions. In deciding whether a dismissal is fair or unfair, it is for the employer to show that the reason falls within one of the five potentially fair categories. In these circumstances, reliance will be on s.98(1)(b) of the Employment Rights Act that it is "some other substantial reason of such a kind to justify the dismissal of an employee holding the position which the employee held". A tribunal will look at all the circumstances, including the size and administrative resources of the employer.

Is a breakdown in a working relationship the same as a breakdown in trust and confidence?

When employers are looking at terminating employment in these circumstances, it is common for them to take the view that they no longer have trust or confidence in the employee and therefore the employee has to go. But it is risky to regard it as the flipside of a constructive dismissal, which is when employees say that their employer has fundamentally breached the implied contractual term of trust and confidence and treat themselves as dismissed. 

A fair dismissal requires a little more to satisfy the statutory framework. In A v B 2010 IRLR 844, the EAT said that loss of trust and confidence in this type of case was not "an automatic solvent of obligations", and in McFarlane v Relate Avon [2010] IRLR 196 EAT that it was terminology to be resisted. 

The risk with relying on loss of trust and confidence is that it could be seen as seeking a way round conduct or performance procedures. If there are conduct issues, they should still be investigated and proven in the usual way, and if there are performance issues, steps should be taken to allow an opportunity for performance to improve. Loss of trust and confidence is not a "fix-all" in these circumstances.

When will it apply?

One of the leading cases on a fair dismissal for breakdown in working relationships is Perkin v St George's Healthcare NHS Trust [2005] IRLR 934 CA. Mr Perkin was the finance director at an NHS Trust. There was no difficulty with his technical competence. Rather, the problem lay with his manner and management style which colleagues found "stubborn and intimidating". The dismissal letter pointed to his "disabling and negative approach", which led the employer to find that he was no longer able to discharge his role effectively. The Court of Appeal commented that where the breakdown in the working relationship with a senior executive actually or potentially damages the operation of the organisation, or makes it impossible for senior executives to work together as a team, it may be possible to dismiss fairly. 

The Court of Appeal also said that "personality" of itself cannot be a ground for dismissal, but the way in which that personality manifests itself can amount to a fair reason for dismissal. This means looking at what the employee has actually done and what effect it is having on the running of the organisation and the team. In this case, the employee's unfounded counterattacks on his colleagues' honesty and integrity meant it was no longer possible for them to work together.

The effect on compensation

In Perkin the dismissal was found to be procedurally unfair because the chair of the disciplinary hearing had expressed her view a few days prior to the dismissal that she wanted the claimant "gone". 

Even if a dismissal for breakdown in working relationships is found to be procedurally unfair, it is open to an employment tribunal to find that compensation should be reduced because of the employee's contributory fault or because, had the process been correct, the employee would still have been dismissed (Polkey v AE Dayton Services Ltd (formerly Edmund Walker (Holdings) Ltd) [1987] IRLR 503 HL). This can result in a reduction of compensation by as much as 100%, and means that all may not be lost for employers if there is a procedural glitch when the circumstances are such that dismissal was inevitable.

Meeting the procedural fairness test

While it is never going to be the answer for genuine misconduct or performance issues, the "some other substantial reason" of a breakdown in working relationships can result in a fair dismissal, particularly where the operation of the employer's business is being compromised by that breakdown.

To work towards a fair dismissal when a working relationship breaks down, it may help to consider the following:

• What has been done to seek to repair the relationship? In all but the most extreme cases, a tribunal will want to see that attempts were made to fix the problem. Mediation may be one such option.
• Loss of trust and confidence is not a fix-all and employers need to be specific about what has gone wrong. Vague generalisations are unlikely to satisfy a tribunal.
• Build in some procedural safeguards. This could involve a meeting at which the employee has the right to be accompanied and has an opportunity to state their position before the employer moves to dismissal.