Fiduciary duties


Tesco Stores Ltd v Pook and others [2004] IRLR 618



A senior Tesco manager was authorised to approve invoices. He concocted false invoices on behalf of a company that he controlled and approved for payment a sum of more than £500,000. The day before he was dismissed, he applied to exercise options which he held under an executive share option scheme but his employer refused to allow the options to be exercised. He was subsequently sent to prison.


The employer sought to recover sums paid under the false invoices together with a further sum allegedly paid to the employee as a bribe by a company that did business with it. The employee maintained that the latter sum was a loan to help him start up in business, and he brought a counter-claim arising out of his entitlement to exercise options under the employee share scheme.


A High Court judge ruled that the payment was not a loan but a bribe. Accordingly, the employee held the payment in trust for the employer and was obliged to account for it. The employer was entitled to refuse to allow him to exercise options under the scheme after he had been suspended pending investigation into his conduct but before his employment was terminated. It was an implied term of the scheme that the option would not be exercisable so long as the employee was in such a breach of contract as would entitle the employer to terminate the contract of employment. In any event, the manager owed a duty to his employer to disclose the bribes that he had taken.


According to Mr Justice Peter Smith, there is nothing in the authorities suggesting that a fiduciary duty to account should be treated differently to any other fiduciary duty. He would have been obliged to disclose breaches of duty by fellow employees and it would be absurd if he was not also under an obligation to disclose his own breaches.



Reasonable adjustments



Archibald v Fife Council [2004] IRLR 651



In this important case, the House of Lords overturned the Court of Sessions' decision, reported at 2004 [IRLR] 197. That court had ruled that the duty of adjustment under the Disability Discrimination Act 1995 does not extend to affording a disabled person a different job that would involve a fundamental change in the nature of the employment.


The House of Lords pointed out that the 1995 Act is different from the legislation on sex and race discrimination. Employers are required to take steps to help disabled people that they are not required to take for others. The 1995 Act does not regard the differences between disabled people and others as irrelevant. The duty to make reasonable adjustments may require the employer to treat a disabled person more favourably to remove disadvantage attributable to the disability.


Thus, quoting Baroness Hale, the 1995 Act 'entails a measure of positive discrimination'. The duty to take such steps as are reasonable in all the circumstances could include transferring without competitive interview a disabled employee from a post he can no longer undertake to a post that he can. The duty may require moving the disabled person to a post at a slightly higher grade. A transfer can be upwards as well as sideways or downwards.


What steps are reasonable depends on the circumstances of the particular case. Baroness Hale acknowledged that it is 'an extremely important principle' of local government legislation that all staff should be appointed 'on merit'. But the principle that appointments must always be on merit is subject to the duty to make reasonable adjustments. As the editor of the IRLR says, what is remarkable about this ruling is 'its vast potential scope'.



Fairness of dismissal



Strouthos v London Underground Ltd [2004] IRLR 636



The Court of Appeal restored a tribunal's decision that the employer did not act reasonably in treating a London Underground train driver's conduct in using a company vehicle to travel abroad without permission, travelling without appropriate insurance and failing to disclose his destination as gross misconduct justifying summary dismissal.


The Employment Appeal Tribunal erred in deciding that the tribunal had, in effect, found that the applicant had behaved dishonestly and that this, as a matter of law, constituted a breach of trust that obliged the tribunal to conclude that the dismissal was fair. On the facts, the degree of dishonesty and misconduct found by the employer in the course of its disciplinary proceedings was not such that the tribunal was unable to conclude that dismissal was outside the range of reasonable responses. The charge did not allege dishonesty and the disciplinary panel made no finding that the employee was dishonest.


In reaching its decision, the tribunal was entitled to take into account the fact that the employee had been employed for 20 years with no relevant previous warning. Lord Justice Pill said: 'Where care has clearly been taken to frame a charge formally and put it formally to an employee, in my judgement, the normal result must be that it is only matters charged which can form the basis for a dismissal.'



Compromise agreements and tax



Wilson (HM Inspector of Taxes) v Clayton [2004] IRLR 611



A tribunal held that an employee had been unfairly dismissed. He reached a compromise agreement with his employers before a remedy hearing took place. The tribunal's subsequent order referred to payment of 'the applicant's basic awards'.


It was common ground between the parties that the payment made was not an award of compensation for unfair dismissal that, it was accepted, would not ordinarily be taxable.


The Inland Revenue argued that the payment agreed to be made was only referable to the employee's past and continuing employment and was therefore taxable.


A High Court judge ruled in favour of the employee. A payment made under a negotiated settlement of a dispute between a taxpayer and his employer about the termination of his employment is not taxable as an emolument within section 19 of the Income & Corporation Taxes Act 1988. In this case, there was no evidence that the taxpayer received the payment as a reward for services or as an inducement for future performance. The payment was not a profit from the employment but the direct consequence of the earlier dismissal and the tribunal's ruling that this had been unfair. The fact that the tribunal had no jurisdiction to order the payment to be made did not render the payment taxable as a profit. Nor was it taxable as a benefit in kind.



By Martin Edwards, Mace & Jones, Liverpool