The role of a Financial Director – a life in the spotlight
A recent Employment Appeal Tribunal (EAT) case has highlighted that if a court or tribunal criticises the credibility of witness evidence from a regulated financial services executive, then they are at risk of failing the fit and proper test, and being dismissed. With the employer’s assessment of their lack of honesty and integrity then a matter of record under the FCA’s regulatory references rules, securing new employment in the financial services sector will be very hard, if not impossible.
We recently looked at the FCA’s fit and proper test, and highlighted the increasing significance of non-financial misconduct. The case of Radia v Jefferies International Limited is a timely reminder that giving misleading evidence to an employment tribunal (or in any other legal proceedings) is incompatible with the core requirements of honesty, integrity and reputation under the FCA’s fit and proper test. Provided the employer carries out a fair disciplinary procedure, there will be no basis for any legal challenge to the employee’s dismissal for gross misconduct.
The claimant was a senior regulated employee at an investment bank. During his employment, he brought a disability discrimination claim against his employer. This was unsuccessful, and the employment tribunal criticised his credibility as a witness, finding that his evidence was ‘not credible in many respects’ and ‘on lots of occasions evasive’, and that he had not told the truth or had misled the tribunal in a number of respects. By contrast, the bank’s witnesses were found to have been credible and honest.
The bank then suspended the claimant pending disciplinary investigation, and notified the FCA of the suspension, as required. The allegation against the claimant was that he had ‘materially and fundamentally breached’ his employment contract ‘by acting dishonestly’.
Without further investigation, the relevant manager proceeded straight to a disciplinary hearing. There he told the claimant that the tribunal's credibility findings were the starting point, but he should make such representations as he wished. On hearing the claimant’s representations he concluded that on three out of four specific examples cited in the tribunal judgement, the tribunal’s criticisms of the credibility of the claimant’s evidence were justified.
The disciplinary manager had to decide whether the claimant’s conduct was consistent with his continued employment at managing director level as an analyst: a regulated position that required a high degree of honesty and probity. In making his decision, he took into account the relevant section of the FCA handbook which states that when assessing a person’s honesty, integrity and reputation, all relevant matters should be taken into account, including whether a person has been criticised by a court or tribunal. The disciplinary manager concluded that the claimant’s behaviour ‘was not compatible with his being a fit and proper person’. He was dismissed for gross misconduct.
The claimant then unsuccessfully brought various claims against the bank, and subsequently appealed to the EAT.
The EAT agreed that it had not been unfair for the bank to rely on the tribunal’s credibility findings against the claimant without carrying out further investigation before the disciplinary hearing. Whilst it was true that the first tribunal had not used the words ‘dishonest’ or ‘lie’, the fact remained that the claimant’s evidence was found not to be have been credible in many respects, and this was very damaging for him, whether or not the first tribunal’s findings amounted to findings of deliberate dishonesty. There was no need for the employer to prove deliberate dishonesty on the part of the claimant.
At EAT the claimant succeeded, however, with his appeal in relation to the fact that although the bank allowed him a right of internal appeal against dismissal, the relevant manager considered it on the papers, without holding an appeal hearing.
This case is a reminder to regulated financial services professionals that it is not only the way that they conduct themselves in the office and when dealing with clients and the market that counts. If and when they are involved in litigation, even purely as a witness, how they conduct themselves and the credibility of their evidence will be relevant factors for their employer in assessing their honesty and integrity under the fit and proper test. Therefore the stakes will always be high, and extend beyond the issues in dispute in the litigation itself.
This case had some echoes of the high profile case of Anthony Verrier who received an FCA regulatory ban after the High Court found that he had been involved in an unlawful team move. The court found that in his evidence he ‘stuck to the truth where he was able to, but departed from it… where the truth was inconvenient’, and ‘orchestrated the “disappearance” of a number of mobile phones [likely to contain damaging evidence]’. His case, however, was an FCA regulatory case, prior to the introduction of the SMCR. Employment disputes such as the current case regarding internal assessments of failure to meet the fit and proper test are only likely to gain further prominence once the SMCR is extended across the financial services industry to FCA solo-regulated firms in December 2019.
Andreas White’s areas of specialism include employment litigation, senior executive contracts and severance arrangements, employee competition (confidentiality, restrictive covenants, garden leave and team moves), boardroom and partnership issues, redundancies and restructurings, bonuses, internal investigations, discrimination claims, whistleblowing, TUPE and business transfers.
With a keen interest in the overlap between employment law and financial services regulation, he advises clients from the financial sector on remuneration arrangements and sensitive issues relating to whistleblowing, regulatory investigations and criminal proceedings. Andreas is equally experienced in acting for employers and senior executives, allowing him to understand the issues and tactics on both sides of the table.
Clodagh Hogan advises both companies and individuals in relation to a variety of contentious and non-contentious employment law issues, including employment contracts and settlement agreements, the conduct of disciplinary and grievance procedures and unfair dismissal, discrimination and whistleblowing claims.
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