The new financial regulator’s plans to publish misconduct allegations could wreck disciplinary procedures and lead to claims, employment lawyers have warned
Anyone who works with UK employment law knows the importance of ‘process’ in dealing with employee misconduct, and that if an employer imposes sanctions, such as dismissal, on an employee without following a fair procedure then the organisation will suffer in any subsequent litigation.
Regulator
In April this year, a new regulatory framework for the financial services sector came into force under the Financial Services Act 2012. Among other measures, the Act replaces the Financial Services Authority with a new regulator, the Financial Conduct Authority (FCA). The FCA has the power to publish warning notices, identifying individual employees whom it is investigating, before those investigations are concluded.
The regulator has made it clear in a recent consultation that it intends to use this power, but that it will weigh the benefit of making regulation more transparent against any likely harm arising from publishing warning notices. If it does not impose a sancton on an individual it is investigating when the process is complete, it expects any harm done will be remedied by publishing that outcome.
Impact
The Employment Lawyers’ Association has lobbied the FCA, urging it to exercise these powers more sparingly, taking account of the likely impact on individuals, their employers, and the public. It has urged the FCA to take a broader view of ‘fairness’, suggesting it takes account of the severity of the allegations and the strength of the evidence against an individual. Its concerns stem partly from the potential impact on employers’ internal disciplinary processes.
The FCA assumes employers will support employees who are subject to a warning notice. But publication of a warning notice could impede an employer’s own misconduct investigations, or force an organisation to take disciplinary decisions against a backdrop of enforcement proceedings which are already in the public domain. Clients may lose confidence both in the named individual and the company, causing in turn a loss of business. The employer may then look to dismiss the employee not for misconduct or capability but for ‘some other substantial reason’. Entire units or teams may be lost, not just the named individual. This is a particular risk in investigations involving a number of employees, some of whom may not be the subject of warning notices.
Allegations
Misconduct allegations against employees or firms could be published when neither has actually breached relevant regulations. Evidence suggests that around 20 per cent of cases where warning notices are issued end with no sanction against those concerned. The impact on individuals subsequently ‘cleared’ could be harsh indeed. The lawyers’ association has suggested the regulator should strengthen its proposal to “probably” not publish where there is evidence that the physical or mental health of the individual concerned would “seriously deteriorate” as a result. There is
the potential for employment tribunal claims and even High Court litigation.
HR has often in the past had to balance external procedures – from regulators, perhaps even the police – with the needs of the organisation and the requirements of employment law. The ELA’s concern is that the FCA’s proposed exercise of its sweeping powers to publish warning notices will have a major impact on internal disciplinary procedures, and on ‘fairness’ as HR and employment lawyers have always understood it, making that balancing exercise very difficult indeed.
Jonathan Chamberlain is an employment partner at law firm Wragge & Co, and joint chair of the ELA working party which responded to the FCA’s consultation ‘Publishing information about enforcement warning notices’.
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