Khan & Anor v Landsker Child Care Ltd

An Employment Tribunal must determine whether the conduct which an employer reasonably believed had occurred was, as a matter of law, capable of constituting gross misconduct. A genuine belief, reasonable investigation and a dismissal within the range of reasonable responses do not answer that prior question.

Preparation by an employee for a business that will compete after employment ends is not, without more, a breach of the implied duty of loyalty. It may justify dismissal only where a valid contractual restriction applies or there are proper grounds to find intended misuse of the employer’s confidential information. The tribunal must distinguish protected confidential information from an employee’s own accumulated skill, knowledge and experience.

The claimants were managers of children’s care homes operated by the respondent. They were summarily dismissed after the respondent discovered a business plan for a proposed competing care-home business. The dismissal letters alleged planning to compete, use of company resources, and breach of the implied term of trust and confidence.

The Cardiff Employment Tribunal dismissed their unfair-dismissal claims. It found that the respondent genuinely believed the allegations, had investigated reasonably, and had acted within the range of reasonable responses. The claimants appealed, contending that the conduct found was not legally capable of amounting to gross misconduct and that the tribunal had failed to identify any confidential company information or improper use of resources.

1. Appeal allowed. The Employment Tribunal’s findings that the respondent genuinely believed the alleged misconduct and had conducted a reasonable investigation were not open to criticism. Those findings did not, however, determine the separate legal question whether the conduct which the respondent believed had occurred amounted to gross misconduct.

2. The Tribunal had failed to address the authority of Laughton and Anor v Bapp Industrial Supplies Ltd [1986] ICR 634. That authority established that an employee does not commit a breach of the implied duty of loyalty merely by preparing to establish a competing business after the employment has ended. Such conduct may breach contract where a valid express restriction applies, or where the employee intends to misuse the employer’s confidential information.

3. The Tribunal also failed to decide whether the alleged use of company resources concerned information which was confidential as a matter of law. It had to consider whether the business-plan material was protected confidential information, rather than knowledge, experience and expertise acquired by the claimants during their employment. Not every item an employer regards as confidential has that legal character.

4. Those omitted issues went to the heart of whether the employer could fairly dismiss for gross misconduct. The Tribunal’s decision was therefore infected by an error of law. Its findings rejecting the claimants’ account of the business plan were not set aside, but the dismissals of the unfair-dismissal claims were quashed.

5. The matter was remitted to the same Employment Tribunal, if practicable, to complete its deliberations on the identified legal issues, with any further evidence or argument it considered appropriate.

• Employment Appeal Tribunal: allowed the claimants’ appeal, quashed the dismissal of their unfair-dismissal claims, and remitted the matter to the same Employment Tribunal.
• Employment Tribunal (Cardiff): following a hearing on 19 and 20 April 2011, dismissed both unfair-dismissal claims.