Cobley v Forward Technology Industries Plc

The Court of Appeal dismissed the appellant's appeal against findings that his termination following removal as a director after a take‑over was a dismissal for "some other substantial reason" under section 98(1)(b) of the Employment Rights Act 1996 and that, on the facts, the dismissal was fair under section 98(4). The court held that where cessation of directorship automatically terminates a service contract it is legitimate for a tribunal to treat the new owners' desire to appoint a new board as the set of facts or beliefs constituting the reason for dismissal of a managing director. The tribunal's identification of that reason as falling within the residual category in section 98(1)(b) and its assessment of fairness under section 98(4) were open to it on the evidence.

Background and parties:

• The claimant, Mr Kenneth Cobley, had been chief executive and a director of Forward Technology Industries PLC (FTI) for about 20 years. His written service contract provided that his employment would terminate automatically if he ceased to be a director.
• Following a hostile takeover by Crest Group, new shareholders and directors obtained control and an extraordinary general meeting on 8 February 2000 removed Mr Cobley as a director, which under the contract terminated his employment.

Nature of the claim and procedural posture:

• Mr Cobley brought proceedings for unfair dismissal under the Employment Rights Act 1996. He lost at the employment tribunal (extended reasons issued 6 March 2001) and at the Employment Appeal Tribunal (judgment 9 July 2002). He appealed to the Court of Appeal with permission.

Issues framed by the court:

1. Whether the tribunal's finding that the dismissal arose from the acquisition and consequent removal as director could properly be characterised as "some other substantial reason" under section 98(1)(b) of the Employment Rights Act 1996 rather than a conduct reason under section 98(2).
2. Whether, having found that reason, the tribunal was entitled to conclude the dismissal was fair under section 98(4), including consideration of the "manner of dismissal" and whether prejudicial conduct allegations were a sham or pretext.

Court's reasoning and outcome:

• The Court of Appeal held that the tribunal properly investigated the factual set of beliefs and facts which caused FTI to dismiss Mr Cobley and was entitled to treat the new shareholders' wish to install a new board as the principal reason for dismissal of a chief executive who was also a director. The court observed that the Employment Rights Act protects the employment relationship, not the office of director, but where termination of office automatically terminates employment the two are linked and the underlying reason for removal is relevant.
• The court accepted that the residual category "some other substantial reason" is broad and need not mirror the listed conduct or capability grounds. It rejected the submission that an element of harm to the employer's interests is a prerequisite to a potentially fair reason under section 98(1)(b).
• On fairness under section 98(4) the tribunal was entitled to conclude that dismissal was within the range of reasonable responses given the change of control, the contractual mechanism terminating employment on cessation of directorship, and commercial realities; the appellant's long service and his expectation of possible removal did not render the dismissal unfair on these facts. Allegations about the manner of dismissal and stigma were considered but did not alter the tribunal's conclusion since the effective date of dismissal was the EGM on 8 February 2000 and there was no finding of sham or unfair procedure on that date.

Appeal dismissed. The Court held that the tribunal was entitled on the facts to characterise the reason for dismissal as "some other substantial reason" under section 98(1)(b) of the Employment Rights Act 1996 where a change of control led to lawful removal as a director and consequent automatic termination of employment, and that the dismissal was fair under section 98(4) given the commercial realities and the contractual term.

Appeal to the Court of Appeal from the Employment Appeal Tribunal (judgment dated 9 July 2002) following an Employment Tribunal decision with extended reasons notified 6 March 2001. Permission to appeal to the Court of Appeal was granted by Mance LJ.