UK: Human Capital (Employment) - Have I got News For You

Last Updated: 6 February 2008
Article by David Whincup

In RDF Media Group plc & Another –v- Clements last month, the High Court mercifully confirmed that "it is not yet the law that an employer is prohibited from thinking even negative and unworthy thoughts about an employee on his payroll". However, what happens if those thoughts are expressed out loud, whether to other colleagues or third parties? Here the High Court considered whether disclosures made by the employer could constitute a repudiatory breach of the employee's contract of employment.

Mr Clements was a shareholder of IWC Media Limited,which was bought by RDF in December 2005. The sale terms included a payment of about £2million to Clements, his entering a non-competition agreement with RDF for the three years after the sale, and his agreeing that his employment with IWC post-sale would be subject to six months' notice by either party.

In March 2007 Clements gave a press interview in which he confirmed his full commitment to RDF and IWC, but later the same month to their considerable dismay, he accepted a job with a competitor, and resigned.

Clements was told he was going to be on garden leave for the whole of the six month notice period. However,only a week later the matter got into the hands ofthe press and then became the subject of some rather unattractive reciprocal sniping between Clements and his new employer on the one hand, and IWC/RDF on the other. In the course of that sniping a number of remarks were made to the press by the Managing Director of IWC which Clements regarded as "poisonous" and intended to damage him. As a result he took steps to terminate his employment with it before the expiry of the six month notice period he had given, and claimed that he had been constructively dismissed. RDF brought proceedings in the High Court to enforce the restrictive covenant in the sale agreement for the remainder of its three year term.

During the discovery process, Clements discovered that a number of fairly critical and very abusive remarks about him had been made in the internal email correspondence between RDF/IWC directors which had followed his resignation. He also found out that RDF had contacted its external brokers about his resignation, describing his conduct to them as "pretty dishonourable". IWC used similar language when speaking to the press. Its disclosure included the fact that Clements had received£2million under the share sale agreement, even though that agreement was expressed to be confidential. He wa accused of "reneging on his deal" by IWC's Managing Director, and that comment was reported. It was found that IWC had told him that Clements' reputation as the architect of the success of IWC was false, that Clements'work included "probably the worst documentary ever produced", that he was a "phenomenal egomaniac", and that he had been "just very dishonourable".

The Judge considered these comments, internal and external, against the terms of the implied obligation of mutual trust and confidence in employment contracts,ie that the employer shall not without "reasonable and proper cause conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee".For an employee to become entitled to claim that he has been constructively dismissed it was not enough for him to prove that the employer had done something which was merely in breach of contract or "out of order", or that it has caused some damage to the relationship.There was a need instead to prove that the conduct of the employer is sufficiently serious and calculated or likely to cause such damage that it can fairly be regarded as repudiatory of the contract of employment.

In considering whether the comments made amounted to a fundamental breach of that implied term of Clements' contract, the Court looked first at the personally abusive comments made within the board of the RDF/IWC Group. It thought that it would be difficult for the employee to complain of a repudiatory breachas a result of those comments because the board of directors is the controlling mind of a company and representations between individuals on the board were merely equivalent to the company "thinking out loud to itself". This is an attractive proposition for employers,but must surely have its limits. Some of the comments made about Clements were rude and abusive, but might be said to have been justified by the shock and anger caused by his determination to work for a competitor in breach of the restrictive covenants for which he had only recently received very substantial consideration. It is probable, however, that if the abuse or "out loud" thinking were entirely gratuitous, unrelated to the dispute between the employee and the company or obviously unfounded, the position would be different, even if kept within the boardroom. The High Court also found that communications between the executive members of a company and/or with HR staff would generally fall within the "reasonable and proper cause" exemption, again unless the employee could show that the comments were without such cause.

In the end, the existence or otherwise of reasonable and proper cause had to be assessed objectively – in other words, was there actually such a cause for the disclosure,rather than whether the employer thought there was.

Even if the comments were beyond what was reasonable and proper, they still had to be serious enough to constitute a fundamental breach of contract. The"dishonourable" reference to the brokers was seen as over the top and "peevish", for example, but still insufficient to be a repudiation of the contract. This maybe a function of the relationship between the manager"thinking out loud" and the employee being spoken of.See, for example, the perennial law student favourite of Isle of Wight Tourist Board –v- Coombes in 1976 where a director said to another employee about Mrs Coombes(not realising that she was within earshot) that she was an "intolerable bitch on a Monday morning". This might also be seen as the employer "thinking out loud", but the Employment Appeal Tribunal held that it did constitute a repudiatory breach of contract because "the relationship between a director and his personal secretary must be one of complete confidence. They must trust and respect each other". Where the relationship is less proximate, the same remark might not be seen as so serious.

The Judge took the view that the reasonable and proper cause defence would usually be available to an employer making a briefing to the press which was designed solely to correct a material misrepresentation already in the press, whether that misrepresentation came from the employee, someone briefing on his behalf or simply sloppy journalism. However, IWC was found to have gone beyond that in some of the comments which it made,in particular the reference to Clements being "just so dishonourable". On the face of it, therefore, there was no reasonable and proper cause for that remark, and it constituted a fundamental breach of the duty of trust and confidence.

Normally that would have been the end of the matter but in fact this was not enough to help Clements. The reason for this was the Judge's finding that Clements had himself earlier already terminally breached the duty of trust and confidence by discussions he had had before resigning from IWC about taking ongoing IWC projects to his new employer. This was clearly a breach of his then on going obligations to IWC. As he had himself already destroyed or damaged that relationship, he could not then argue that it was IWC's conduct which had done so.

Despite the outcome, however, it is not recommended that the decision be taken as carte blanche for an employer to say what it wants about a current employee.Practical tips arising from the decision include:

  • However irritated they may be by a particularemployee's conduct (whether or not it is a decision to resign) Board members and HR staff must note that their internal written reaction to it will be discoverable in proceedings.
  • While anger and distaste for an employee's actions may properly be exhibited, it is unwise to take this into the realm of overt obscenity and personal abuse,whether written or not.
  • Communications with external third parties, even to correct misapprehensions which they may have,should be as bland and straight-bat as possible.
  • Where a disclosure about an employee is made to a third party, there needs to be some decent reason for involving that third party in the first place.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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