Subjective Conduct

Under the Employment Rights Act (ERA) 1996, a dismissal is potentially fair if the employer can show that it related to the “conduct” of their employee. In JP Morgan Securities plc v Ktorza, the Employment Appeal Tribunal (EAT) held that employers do not have to show that the conduct in question was also culpable or that the person accused was aware that their employer would disapprove of what they were doing. 

Basic facts 

Mr Ktorza, an executive director, worked mainly on the sales side of the company’s foreign exchange desk from 2008. He had twice received final written warnings, the second of which was imposed in February 2014 for 24 months. In August 2014, he attended a training session on a practice known as short-filling which meant only filling part of a client’s order. He was told that, following scrutiny from the US Justice Department, the practice was changing and trading was to have the final say. He was not given a copy of the confidential written document that the company used at the training session. 

In October 2014, Mr Ktorza asked a trader, who had filled a client’s order for 10 million EURUSD to sell back five million to him, indicating that he wanted to engage in short filling. He was suspended and after a disciplinary hearing in May 2015 (where he saw the confidential document for the first time), he was dismissed for misconduct in November 2015. He appealed the decision saying he was unaware that the practice had been embargoed but his appeal was dismissed. 

Relevant law 

Section 98(1) ERA states that when deciding whether a dismissal is fair, the employer has to firstly identify the reason for the dismissal, including conduct under section 98(2)(b). 

Section 98(4) states that, having regard to the reason shown by the employer, tribunals then have to decide in accordance with equity and the substantial merits of the case, whether the employer acted reasonably or unreasonably in all the circumstances of the case. 

Tribunal decision

To qualify as “conduct” within the meaning of section 98(2)(b), the employment judge held that the conduct has to be “culpable”, including negligence or recklessness on the part of the individual. As such, the judge held that culpability could not be established without a subjective element. 

If the change in practice was truly “unambiguous”, it should have been unambiguously stated to everyone concerned.  As Mr Ktorza had “missed the point” of the training, then “reasonably viewed”, his conduct could not be deemed to be “culpable” and the dismissal was therefore fair. 

EAT decision 

Upholding the appeal, the EAT said that it was implicit in the employment judge’s reasoning that the company had to establish not only the reason for dismissal, but also that the conduct in question was culpable, whereas sections 98(1) and (2) only required the employer to establish the reason for dismissal.  This had created an “inappropriate barrier”. 

But the employment judge then made another – more fundamental mistake – when he concluded that it was for the company to establish at the section 98(1) stage that the conduct was culpable; and that the person accused must have subjective awareness that their employer, clients or fellow employees would disapprove of what they were doing. 

As the EAT agreed with the points made by the judge about the defects in the process (there was a long delay in carrying out the investigation and the company failed to interview other sales people who had attended the training), it remitted the claim to the tribunal for another hearing rather than finding that the dismissal was fair.