Panama v Hackney

The Court of Appeal allowed the appellant's appeal against the Employment Appeal Tribunal's dismissal of her challenges to Employment Tribunal findings. The Employment Tribunal had found the dismissal unfair because of procedural defects but concluded hypothetically that, had disciplinary proceedings continued, the appellant would probably have been found guilty of gross misconduct and summarily dismissed. The Court of Appeal held that the tribunal had erred in law in reaching that hypothetical conclusion because a central allegation of fraud had been first raised in cross-examination and the appellant had not had fair notice or an opportunity properly to answer it.

The court applied section 98 of the Employment Rights Act 1996 and the Burchell guidelines: an employer must have reasonable grounds for belief and carry out reasonable investigation before dismissal for misconduct. Those requirements were not satisfied on the material before the tribunal, and the hearing was procedurally unfair in the light of the late emergence of the fraud allegation.

Background and procedural posture:

• The appellant, Ms Felicia Panama, appealed to the Court of Appeal from an Employment Appeal Tribunal decision dated 12 March 2002 which had dismissed her appeals against two Employment Tribunal decisions (2 June 2000 and 2 November 2000).
• The Employment Tribunal had dismissed discrimination complaints but found her dismissal unfair because proper procedure had not been followed; it nonetheless held that, on a hypothetical basis, she would probably have been summarily dismissed for gross misconduct after disciplinary proceedings which had not occurred.

Nature of the claim / relief sought:

• The appeal concerned whether the Employment Tribunal was entitled to conclude that the appellant would have been dismissed for gross misconduct such that she was not entitled to compensation for the relevant period.

Issues before the court:

• Whether the tribunal lawfully could find, on a hypothetical basis, that the appellant would have been found guilty of gross misconduct and summarily dismissed.
• Whether the appellant had adequate notice and opportunity to answer the allegation of fraud that underpinned the tribunal's hypothetical conclusion.
• Whether the employer had satisfied the Burchell requirements (reasonable belief on reasonable grounds and reasonable investigation) under section 98 Employment Rights Act 1996 when assessing whether dismissal for misconduct would have been fair.

Facts relevant to the issues:

• Letters dated 28 May 1998 sent by a law firm in a housing matter used a reference including "FP", which the respondent associated with the appellant. The appellant had been on maternity leave at the time. The respondent investigated and suspended the appellant in July 1999; suspension was lifted in August 1999 and a disciplinary hearing was set but she was dismissed by notice on 24 September 1999 before the hearing took place.
• A subsequent investigator's report (24 September 1999) recorded that the client, Mrs Daramola, had stated her claim had been fabricated on advice of a solicitor; the tribunal accepted evidence from co-workers that the firm had indicated "FP" referred to the appellant. The fraud allegation appears to have been developed during cross-examination at the tribunal hearing.

Court's reasoning and disposition:

• The Court of Appeal emphasised that an allegation of dishonesty or fraud is a grave matter which must be put formally and at an early stage so the accused can adequately answer it (drawing on Hotson and the practical need for formality when dishonesty is alleged).
• The court held that the fraud allegation effectively emerged for the first time in cross-examination and was not part of the respondent's formal case or pleaded material; the appellant and her counsel therefore did not have a fair opportunity to meet it.
• Applying section 98(4) Employment Rights Act 1996 and the Burchell principles, the court found the employer had not demonstrated reasonable grounds for belief nor that it had carried out as much investigation as was reasonable in the circumstances; the tribunal had not properly considered those tests when answering the hypothetical question.
• For these reasons the Court of Appeal allowed the appeal and remitted the legal position in the appellant's favour; the order was appeal allowed with costs.

Appeal allowed. The Court of Appeal held that the Employment Tribunal had erred in law in finding, on a hypothetical basis, that the appellant would have been summarily dismissed for gross misconduct because the decisive fraud allegation had not been put to the appellant with sufficient formality or notice and the employer had not met the Burchell requirements under section 98 ERA 1996 (reasonable grounds for belief and reasonable investigation). The hearing was therefore procedurally unfair and the hypothetical dismissal would not have been fair.

Employment Tribunal decisions dated 2 June 2000 and 2 November 2000; Employment Appeal Tribunal dismissed the appellant's appeals (12 March 2002); permission to appeal to the Court of Appeal was granted and the Court of Appeal allowed the appeal [2003] EWCA Civ 273.