East Lancashire Coachbuilders Limited v Hilton

Establishing a principal reason for a dismissal

East Lancashire Coachbuilders Limited v Hilton, EAT, 24 August 2006

BACKGROUND

Mr Hilton was a director and joint managing director (MD) of East Lancashire Coachbuilders, having worked there for more than 40 years. He had a poor relationship with the other three directors, who were in the process of acquiring 50% of the shares in a management buyout. Hilton was not part of this and the directors wanted him to cease being the MD and become the development director instead. Hilton had a three-year rolling contract at £90,000 a year, so an agreed termination would have been costly.

A problem arose about his expense claim relating to an airline ticket for his wife. He paid for it, but marked it as a business expense. A cheque for reimbursement was paid to his wife, who also worked at the company. Hilton was subsequently dismissed for gross misconduct. His internal appeal (heard by the other joint MD) was unsuccessful.

Hilton’s claim for unfair dismissal was successful. The tribunal found the dismissal was “opportunistic”. The principal reason for dismissal was not Hilton’s conduct. Rather, it was that the other directors did not want him to stay and that it would be expensive to dismiss him without cause. There was unfairness too in the way the appeal was conducted, but the tribunal ordered a 40% reduction in both the basic and compensatory award because Hilton had exposed himself to disciplinary proceedings through his own actions. The company appealed.

DECISION

The Employment Appeal Tribunal (EAT) upheld the decision and found there was evidence that the dismissal was opportunistic. Had the relationship between the directors been normal, Hilton would not have been dismissed. It was also inappropriate for a director with a vested interest in the internal appeal to have responsibility for hearing it.

COMMENT

For a dismissal to be fair, an employer must establish that the reason for dismissal is one of the five potentially fair reasons under section 98(1) Employment Rights Act 1996.

If the dismissal was caused by some reason other than the statutory reason, the employer needs to show the statutory reason was the principal one.

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