Cobley v Forward Technology Industries Plc

In an unfair dismissal claim following a takeover, the wish of new shareholders to establish a new board may constitute some other substantial reason for dismissing an incumbent chief executive whose directorship and employment are contractually linked. The reason must be identified by examining the facts and beliefs that caused the dismissal, not merely the legal mechanism by which employment ended. The tribunal must then assess fairness under Employment Rights Act 1996, section 98(4), by asking whether dismissal fell within the range of reasonable responses and accorded with equity and the substantial merits of the case. The employee’s awareness of the commercial likelihood of departure does not itself make unfair treatment fair, but it may be relevant to the fairness assessment. Long service does not require consideration of alternative employment where that would be impracticable.

Kenneth Cobley had been Forward Technology Industries Plc’s chief executive and a director for nearly 20 years. His written service contract provided that his employment would terminate automatically if he ceased to be a director, subject to an exception for voluntary resignation. After Crest Group acquired the company, its shareholders removed Mr Cobley as a director at an extraordinary general meeting, thereby terminating his employment.

The employment tribunal found that the takeover and resulting removal from the board were the reason for dismissal, that this was some other substantial reason under section 98(1)(b) of the Employment Rights Act 1996, and that the dismissal was fair under section 98(4). The Employment Appeal Tribunal upheld that decision. The Court of Appeal considered the proper reason for dismissal, the scope of some other substantial reason, and the fairness of the dismissal.

1. Appeal dismissed unanimously. The tribunal made no error of law in finding that the principal reason for dismissal was the acquisition by Crest and the new shareholders’ desire for a new board, resulting in Mr Cobley’s lawful removal as a director and the automatic termination of his employment.
2. The reason for dismissal is the set of facts known to the employer, or beliefs held by it, which caused the dismissal. Where removal from the board automatically terminates employment, the reason for the removal resolution may be relevant, but the contractual termination mechanism is not necessarily the reason itself.
3. The statutory protection against unfair dismissal applies to employment, not to the office of director. There is no general right not to be removed from a company board. A change in share ownership does not generally affect employment relationships, but the particular circumstances and the employee’s position must be examined.
4. Under section 98(1)(b) of the Employment Rights Act 1996, some other substantial reason is a broad residual category. It is not confined to reasons analogous to those specified in section 98(2), and actual or potential harm to the employer’s interests is not an express or implicit requirement.
5. Under section 98(4), the tribunal must decide whether the employer acted reasonably or unreasonably in treating the reason as sufficient, in accordance with equity and the substantial merits of the case. Dismissal was within the range of reasonable responses after the takeover. Mr Cobley’s knowledge that he risked removal was relevant commercial context, but knowledge of impending treatment could not itself turn unfair treatment into fair treatment. His long service did not require consideration of alternative employment where that was impracticable.
6. The complaint about the manner of dismissal failed on the facts. The dismissal occurred at the later shareholders’ meeting, and there was no finding that its manner was unfair. The alternative conduct-related reason was genuinely held but was not the principal reason for dismissal.
7. The order was: appeal dismissed; judgment for the respondent; the appellant to pay £5,958.40 in full and final settlement of the respondent’s costs, inclusive of disbursements and interest.

• Court of Appeal (Civil Division): dismissed the appeal from the Employment Appeal Tribunal and upheld the finding that the dismissal was fair.
• Employment Appeal Tribunal: upheld the employment tribunal’s decision and found no legal ground for interference.
• Employment Tribunal: found that the dismissal was for some other substantial reason and was fair.