Member Article

How banks might let bankers ‘go’

Following the recent LIBOR scandal, Dennis Cooper and Varun Zaiwalla of Zaiwalla & Co. Solicitors talk about how banks might let bankers go, if they are found guilty of serious breach of duty and gross misconduct.

One might be forgiven for wondering whether a number of bankers may soon be “let go” by their employers as the banks’ trials and tribulations following the LIBOR fixing scandal unfold. Given the rates of remuneration they tend to enjoy, making most of us appear by comparison to be journeyman labourers, this could be an expensive time.

In some cases their employers will be well aware of their employee’s transgressions and will act with appropriate ruthlessness. In other cases the truth may yet to have fully unfolded. Given that the LIBOR scandal is some 5 years old and has only recently come to light it may well be that there are many more horrors to come. So what happens when a bank decides that the time has come to cut the Gordian Knot and let its thrusting trader venture out to pastures new i.e. sack him?

Given that it is neither normal nor wise to require or permit a trader to serve out his notice an employer has really two options. The simpler is to activate the payment in lieu clause in his contract of employment. The messier is summarily to dismiss him on a pretext (probably unsubstantiated) and let the employment lawyers deal with the fall out with a generous payment. In the past experience suggests that the former option is preferred. After all if he was subsequently found to be guilty of a sackable offence the payment in lieu could be withheld on the well established principle set out in Boston Deep Sea Fishing and Ice Co v Ansell ((1888) 39 Ch D 339), that an employer may rely upon an after discovered act of gross misconduct in defence of a claim for wrongful dismissal and the lost remuneration and benefits which result. The same would apply if he went through the other route i.e. summary dismissal on a trumped up allegation, but why would anyone in the City want to behave so badly?

Sadly, following the Court of Appeal’s decision in Cavenagh v William Evans ([2012] EWCA Civ 697) the answer is that it would be a very unwise employer who now opted for the neater option i.e. the payment in lieu. The reason is simple – the Court of Appeal has decided that the well known principle enshrined in Boston Deep Sea Fishing does not apply if the employer was entitled to sack the employee under a payment in lieu provision. It would only apply if he summarily dismissed him with no explanation or on a trumped up allegation. As a consequence, if the employer has indicated that he will make the payment in lieu when he terminates the employment then he is bound to pay him even if he then discovers he has had
his hand in the till or, perish the thought, been manipulating the odd LIBOR.

It may be possible in future to get around this problem with a suitably worded clause in the contract of employment, though that needs to be tested. There is of course the practical hurdle that it will be necessary either to agree fresh contracts of employment or amend the existing ones. Was this really what the Court of Appeal intended? The fact that the banks themselves are often based in Europe and further afield makes no difference: if the employment contract is governed by English law, then this ruling affects it.

It seems to offend a sense of justice and decency that an employer should be seriously prejudiced for behaving well. The well known cynic’s maxim “no good deed goes unpunished” comes to mind. Even more puzzling is the proposition that an employee should be rewarded for his misconduct. In Cavenagh v William Evans the dismissed employee was managing director of the company from which he had appropriated £10,000 for his personal pension fund by writing out two £5,000 cheques which he got a junior employee to
countersign on the false basis that he had been awarded the payment by the board. He had concealed his wrongdoing and therefore his employer did not know that it could and probably should summarily have dismissed him. Notwithstanding the fact that he was also in breach of his clear duty to the company to report his own wrongdoing the Court of Appeal decided that it was just for him to retain his right to his payment in lieu – about £60,000 – and therefore should have judgment against his innocent employer.

In many senses there could not be a more serious case of breach of duty and gross misconduct. If therefore the Court of Appeal could side with an employee and director in such a clear case it is unlikely that our errant banker will need to be concerned should he walk away with a large wad of notes from his ignorant and innocent employer.

This was posted in Bdaily's Members' News section by Dennis Cooper .