When deciding whether an employee has been unfairly dismissed, is it necessary first to determine whether the employer established that the employee’s conduct was culpable? No, according to the Employment Appeal Tribunal (EAT), which decided that an employer need not confirm an employee’s culpability when deciding on the reason for dismissal.

Mr Ktorza was employed in JP Morgan’s sales team. His salary was £270,000, but bonus payments could take his remuneration into the millions. In November 2014, he was suspended for having engaged in “short-filling” – an activity in which only part of a client’s order was carried out – which was viewed as being improper. At that time, JP Morgan had just changed its practices around short-filling following scrutiny by the US authorities. Short-filling became the domain of the trading team, but sales staff were forbidden from carrying it out.  When Mr Ktorza was asked to account for his actions at a disciplinary hearing in May 2015, he stated that he was unaware that the bank had changed its practices regarding short-filling.  The bank did not accept his explanation as it felt that he should have been aware of the change of practice and in June 2015 he was dismissed with notice.

Mr Ktorza subsequently brought a claim of unfair dismissal against JP Morgan.  He succeeded in his claim after the Employment Tribunal decided that the bank had failed to show that his conduct had been culpable, which it interpreted to mean “negligent, with guilty knowledge, dishonest, or just reckless”.  The bank appealed to the EAT.

The EAT allowed the appeal after finding that the employment judge had substituted his own conclusions for those of the bank.  The EAT found that the key mistake made by the Tribunal judge had been to mix the various stages of the test for unfair dismissal from section 98 of the Employment Rights Act 1996:

“In effect, therefore, the Employment Judge has elided two different aspects of section 98: section 98(1), where it is for the Respondent to show the reason; and section 98(4), where the decision as to whether the Respondent acted reasonably in treating the reason as sufficient is one for the Employment Tribunal taking into account of all the circumstances and keeping carefully in mind that there may be a range of different ways in which an employer may act reasonably.” Employment Appeal Tribunal

The Tribunal  judge had erred by holding that for a dismissal to be fair the employee should have a “subjective awareness” that their misconduct would incur “the disapproval of employer, clients or fellow employees”. That approach was wrong at law and imported a criminal concept of dishonesty into the realm of employment law. The EAT concluded that it was not for JP Morgan to establish that Mr Ktorza knew what he was doing was wrong; the bank merely had to establish the reason for which Mr Ktorza was dismissed.  The Tribunal’s job, in deciding whether the dismissal was fair, was to consider whether the bank had acted reasonably in treating the reason as sufficient to dismiss.

The case was remitted to a different Tribunal to be reconsidered.