06 Feb 2014

A “RANGE OF REASONABLE RESPONSES”?

Authored by: Jamie Liddington

A RANGE OF REASONABLE RESPONSES

Jamie Liddington, Senior Associate at Hadef & Partners (Dubai) and Akash Nawbatt of Devereux Chambers (London), consider the application of Article 59A of DIFC Employment Law No 3 of 2012 relating to “Termination for Cause” and specifically whether, when applying Article 59A, Judges will subjectively determine what is reasonable in each case or whether a more objective approach will be adopted (as is the case in other jurisdictions such as England & Wales).
 

When DIFC Employment Law (Amendment Law) No 3 of 2012 (“DIFC Employment Law 2012”) came into force on 23 December 2012, it introduced a new provision (“Article 59A”) relating to “Termination for Cause”. Given its brevity, it is worth setting out Article 59A in full:
 
“An employer or an employee may terminate an employee’s employment for cause in circumstances where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment.” (our emphasis)
 
Article 59A is not entirely new. It is an amendment and repositioning of Article 60(4) of DIFC Employment Law No 4 of 2005 (“DIFC Employment Law 2005”). Article 60(4) of DIFC Employment Law 2005 stated that:
 
“termination for such cause (misbehaviour) exists in circumstances where the employee’s conduct warrants termination and where a reasonable employer would have terminated the employee.” (our emphasis)
 
The Context
 
Before addressing the construction and interpretation of Article 59A, it is important to note the context in which Article 59A applies and the consequences for employees who are dismissed “for cause”. An employee will forfeit the right to receive an end of service gratuity (“ESG”) payment in circumstances where the employer decides to terminate the employment as a result of the employee’s serious misconduct. This is commonly referred to (and now enshrined in DIFC Employment Law 2012) as termination for cause.
 
For employees it is not just ESG entitlements which are at risk. By its very nature the DIFC is home to internationally recognised employers in the banking & finance and insurance sectors where some employees and senior executives may lose any unvested deferred benefits if their employment is terminated “for cause”. Such deferred benefit schemes often reference “good” and “bad” leavers with the key distinction being (superficially) that “good” leavers go unpunished whereas “bad” leavers lose some, if not all, of the unvested deferred benefit. Where the employment has been terminated “for cause” this usually results in the employee being categorised as a “bad leaver”.
 
“Reasonableness”
 
Successive legislation governing employment law in the DIFC has included the concept of “reasonableness” in relation to the employer’s decision to summarily dismiss an employee because of alleged misconduct (or “misbehaviour”).
 
But who is this “reasonable employer”? And how do the DIFC Court Judges determine what this “reasonable employer” would have done in the circumstances which exist in each case? It is instructive to review the approach to “reasonableness” in relation to the termination of employment in England & Wales where section 98(4) of the Employment Rights Act 1996 provides that “the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) depends on whether in the circumstances…the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee”. The DIFC law and legal procedures were modelled on the English legal system and, as a common law jurisdiction, the case law which exists from English courts and tribunals will almost certainly be considered by DIFC Judges as demonstrated by the recent cases of ABC v XYZ LLP* (applying DIFC Employment Law 2005) and the CFI decision in Mr Raul Silva v United Investment Bank Limited (which referred to DIFC Employment Law 2012).
 
Range of reasonable responses test
 
In England & Wales, a body of case law has developed since the early 1980s which has led to the now well defined and frequently applied “range of reasonable responses” (“RoRR”) test.
 
The RoRR test falls to be considered as part of the overall process of deciding whether an employee has been unfairly dismissed under section 98 Employment Rights Act 1996. The concept of unfair dismissal (and therefore the full range of legal tests applied in unfair dismissal cases) falls outside of the scope of this article. However, in summary, Employment Tribunals in England and Wales (in applying section 98(4) in conduct cases) apply the following four stage test:
 
1.    Did the employer have a genuine belief that the employee was guilty of the alleged misconduct?
2.    Did the employer have reasonable grounds for that belief?
3.    Did the employer carry out a reasonable investigation?
4.    Was dismissal within the band or range of reasonable responses of a reasonable employer?
 
The first three stages are based on the judgment of the Employment Appeal Tribunal (“EAT”) in British Homes Stores v Burchell. The fourth stage - the RoRR test – can be traced back to 1980 and the EAT decision in Rolls Royce v Walpole in which Hughes J said:
 
“Frequently there is a range of reasonable responses to the conduct or capacity of an employee on the part of the employer, from and including summary dismissal downwards to a mere informal warning, which can be said to have been reasonable. It is precisely because this range of possible reasonable responses does exist in many cases that it is neither for us on appeal, nor for an Industrial Tribunal on the original hearing, to substitute our views or its respective views for those of the particular employer concerned.”
 
Though the decision in Walpole was not appealed, the RoRR test received approval from Lord Denning sitting in the Court of Appeal in British Leyland UK Ltd v Swift. In his judgment, Lord Denning said:
 
“If no reasonable employer would have dismissed him, then the dismissal was unfair. But if a reasonable employer might have reasonably have dismissed him, then the dismissal was fair. It must be remembered that in these cases there is a band of reasonableness, within which one employer might reasonably take one view: another quite reasonably take a different view.”

Subsequently, the 1982 Court of Appeal decision in Iceland Frozen Foods v Jones has become the leading authority on the RoRR test in English law.

The principle that can be derived from this line of cases is that the RoRR test exists to ensure that, in judging the reasonableness of an employer’s conduct, the Tribunal should undertake an objective assessment of the employer’s decision and should not substitute its own decision as to what was the single correct or reasonable decision in the same circumstances. The RoRR exists to give recognition to the fact that there are, in most cases, a number of reasonable actions which employers could take in any given misconduct scenario – some might dismiss where as others might impose a lesser sanction short of dismissal. The RoRR test is most often the ally of the employer who is, as a result of the RoRR test, left with the comparatively straightforward task of convincing the Judge that the action which was taken (i.e. dismissal) was within the range of reasonable responses irrespective of what the Judge might have done if he or she was the employer. By contrast the employee has to persuade the Tribunal that no reasonable employer would have dismissed him or her – a very high threshold.
 
Despite the fact that the RoRR test has now existed for thirty years, Tribunals are still occasionally drawn into proffering their own subjective views. Where a Tribunal incorrectly applies the RoRR test by substituting its own view as to what action would have been reasonable in the circumstances, this will give rise to a basis upon which an appeal could be made to the EAT (or from the EAT to Court of Appeal).
 
DIFC Precedents

Before examining recent decisions from the DIFC, there are two preliminary background points to consider:

  • Firstly, there is now, following the decisions of Deputy Chief Justice Sir Anthony Colman in Hana Al Herz v Dubai International Finance Centre Authority, and Marwan Ahmed Lutfi v Dubai International Finance Centre Authority, no doubt that the principle of unfair dismissal does not exist – as a free-standing cause of action - under the DIFC Employment Law. The absence of unfair dismissal as a cause of action limits the potential application of the RoRR test to Article 59A which itself expressly imports the concept of the reasonable employer.
  • Secondly, unlike the wider UAE jurisdiction outside of the DIFC, the common law system of judicial precedence (or stare decisis) exists in the DIFC so that the DIFC Small Claims Tribunal (“SCT”) is bound to follow and apply the decisions of the DIFC Court of First Instance (“CFI”) which itself is bound to follow DIFC Court of Appeal (“CA”) decisions. Another noteworthy feature of the DIFC Courts is that legal representation is prohibited in the SCT. One would not therefore necessarily expect a SCT Judge to be in a position to consider foreign case law without the direction and assistance of qualified advocates. In the CFI, parties (unless appearing in person) must be represented by a qualified advocate and Judges are frequently referred to case law (both DIFC and other common law jurisdictions) during the parties’ submissions.

The leading decisions on the application of “reasonableness” under DIFC Employment Law are the SCT decision in ABC v XYZ LLP* (applying DIFC Employment Law 2005) and the CFI decision in Mr Raul Silva v United Investment Bank Limited (which applied DIFC Employment Law 2012).
 
ABC v XYZ LLP

Despite the absence of legal representation in the SCT, H.E. Justice Al-Sawelehi’s Judgment cites a long list of English and Scottish cases which were considered when reaching his decision (including Iceland Frozen Foods and Burchell). 
 
ABC is a case decided under DIFC Employment Law 2005. It concerned a lawyer who was dismissed after four years’ service for (i) unreasonable absences (ii) disrespect of working hours and (iii) performance. The employer, XYZ, argued that these reasons constituted “misbehaviour”, that a fair procedure was followed and that any reasonable employer would have terminated ABC’s employment in the same circumstances.
 
Interestingly, Justice Al-Sawelehi – who did not have the benefit of the judgments of Sir Anthony Colman in Hana Al-Herz and Marwan Ahmad Lufti which were decided the following year in 2013 – concluded that there was no reason why a Judge or Judicial Officer of the DIFC Courts and Tribunals should be hesitant to consider a claim of unfair dismissal even when such a claim is not explicitly provided for in the relevant law. He stated:

“Addressing this matter signifies judicial activism which is the benchmark and a recognised phenomenon in all common law courts and tribunals”.

Such “judicial activism” was roundly rejected by Sir Anthony Colman who said in Hana al Herz:

“If any such principle of unfair dismissal is to be introduced, it should therefore be by legislation and not by judicial innovation”.

However, as noted above, notwithstanding the absence of a free-standing principle of unfair dismissal, the concept of reasonableness is expressly imported in Article 59A of DIFC Employment No.3 of 2012 and previously in Article 60(4) of DIFC Employment Law No 4 of 2005 which was the relevant provision in ABC.
 
In his judgment, H.E. Justice Al-Sawelehi considered the English tests which apply in unfair dismissal cases where the employment was terminated due to alleged misconduct. Specifically, the Burchell and RoRR tests were considered by Justice Al-Sawelehi. It is not clear whether these tests were considered in the context of (i) the claim under Article 60(4) of DIFC Employment Law No.4 of 2005 or (ii) the claim of unfair dismissal that the Judge considered he had jurisdiction to consider or (iii) to both claims. However, having cited the Burchell and RoRR test, the Justice concluded “that the evidence submitted by the Defendant is neither sufficient nor reasonable to establish that the Claimant’s conduct warranted her termination for misbehaviour”. This conclusion appears to have been addressing the first limb of Article 60(4) (which is also present in Article 59A of DIFC Employment Law 2013) which provides that “termination for such cause (misbehaviour) exists in circumstances where the employee’s conduct warrants termination and where a reasonable employer would have terminated the employee”. Although, the reference to “reasonable” would suggest that the Justice considered that the Burchell tests were relevant to the first limb of Article 60(4).
 
Raul Silva v United Investment Bank Limited
 
Unlike ABC, the parties in the case of Raul Silva before H.E. Justice Ali Al Madhani in the CFI were legally represented (by English advocates). Mr Silva was dismissed without notice by United Investment Bank (“UIB”) on 25 January 2012 but the case was heard in February 2013 after the implementation of DIFC Employment Law 2012 on 23 December 2012. Normally this would mean that the new law (DIFC Employment Law 2012) would not be considered as legislation rarely applies retrospectively. However, it appears from paragraph 18 of the Judgment that UIB argued that Mr Silva’s conduct amounted to a breach of Article 59A of DIFC Employment Law 2012. Given that Article 59A and its predecessor Article 60(4) are materially the same, this is unlikely to have affected the outcome.
 
However, it is also clear from paragraph 18 of the Judgment that UIB relied on its contractual right to summarily dismiss Mr Silva for gross misconduct as well as its right to terminate for just cause in Article 59A. There were therefore two issues before the Court: (1) whether Mr Silva was in breach of Article 59A (or its predecessor Article 60(4)); and (2) whether Mr Silva had been wrongfully dismissed in breach of contract.
 
At paragraph 27 of his judgment, H.E Justice Ali Al Madhani states:
 
“In order to resolve the dispute between the Claimant and the Defendant, namely whether the termination was based on justifiable grounds [i.e. the wrongful dismissal claim] or effected with cause [i.e. Article 59A issue], the Court shall take into consideration the reasons provided by the Defendant in the termination letter dated 25 January 2013 and will then question whether or not they are capable of justifying summary dismissal in light of the test of fairness and reasonableness”.
 
Justice Ali Al Madhani in this paragraph identifies the two different issues, i.e. wrongful dismissal and termination for cause under Article 59A. However, it appears that he considered that both issues were to be considered “in light of the test of fairness and reasonableness”. It is clear from paragraph 57 of the Judgment that the “test of fairness and reasonableness” referred to is the Burchell test. The Justice does not refer to the RoRR test in his judgment. Further, although the Burchell and RoRR tests apply in determining a claim of unfair dismissal, they have no application in a claim for wrongful dismissal where the employer has to establish on the balance of probabilities that the employee was in fact guilty of gross misconduct justifying summary dismissal.
 
After hearing submissions from the parties’ advocates, H.E. Justice Ali Al Madhani found in favour of UIB. He concluded that at the time of dismissal, UIB had a genuine belief on reasonable grounds of Mr Silva’s “accountability” which justified the action taken by the employer in dismissing him without notice. He found that what Mr Silva had done was gross misconduct and found “therefore” that the termination was “fair” and in accordance with the terms of the contract entitling the employer to terminate without notice.
 
Though H.E. Justice Ali Al Madhani’s Judgment is clear and comprehensive in relation to the factual background, his conclusions on the question of “reasonableness” (as required under either Article 60 of DIFC Employment Law 2005 or Article 59A of DIFC Employment Law 2012) set out in paragraphs 57 and 58 of the Judgment are less clear. The Judgment does not reflect any consideration of the RoRR test. Further, the reference to the dismissal as being “fair” is surprising given “fairness” forms no part of the relevant provision in either DIFC Employment Law 2005 or DIFC Employment Law 2012.
 
In an Order issued on 25 December 2013, H.E Justice Omar Al Muhairi stayed enforcement of the judgment of Justice Ali Al Madhani following the submission of a Notice of Appeal by Mr Silva. As a result, the DIFC Court of Appeal now has the opportunity to clarify the relevant tests when considering termination for cause under Article 59A and breach of contract claims for wrongful dismissal.
 
Is that the end of the road for the RoRR test?
 
Unfortunately, it is not clear what tests will be applied in Article 59A cases heard by the DIFC Courts (including the SCT). Although in both ABC and Raul Silva the English authorities on unfair dismissal were cited, they were not applied clearly or consistently by the SCT and CFI in those cases.
 
The English authorities would suggest that, correctly construed, the second limb of Article 59A requires the application of the objective RoRR test, whereas a breach of contract wrongful dismissal claim requires the Court itself to determine whether, on the balance of probabilities, the employee was guilty of gross misconduct justifying dismissal.
 
The DIFC Court of Appeal now has the opportunity in Raul Silva to clarify the position.

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the develop jurisdiction of the UAE.