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The principles
  • In England and Wales, most employers are likely to have a non-contractual disciplinary procedure which they will be expected to follow when disciplining an employee. In addition, Acas (the Advisory, Conciliation and Arbitration Service) has produced a statutory Code of Practice on Disciplinary and Grievance Procedures (Acas Code) and a supporting non-statutory guide, Discipline and grievances at work, which set out the general principles of fairness that apply when disciplining an employee.

    Failure to follow any part of the Acas Code does not of itself make an employer liable to proceedings. However, employment tribunals must take the Acas Code into account, where relevant, when considering whether an employer has acted reasonably or not in an unfair dismissal claim. Furthermore, if the employee wins an unfair dismissal case (or certain other types of case), the tribunal can adjust the amount of compensation by up to 25% either way, if either the employer or employee has unreasonably failed to comply with the Acas Code.

    In the regulated sector, if an employer takes disciplinary action against an employee, this can trigger obligations to:

    • consider the individual’s fitness and propriety
    • notify the relevant regulator(s) (the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA))
    • make (or consider) adjustments to compensation, and
    • make reference to the disciplinary action in references given.

      For more information on the general employment rules on discipline, see Workplace discipline in England & Wales.

Recent developments
    • On 07 March 2016, the PRA and FCA introduced the Senior Managers and Certification Regime (SMCR) which applies to banks, building societies, credit unions, PRA-approved investment firms and UK branches of foreign banks. The regime includes new requirements in relation to disciplinary action, notification obligations, remuneration consequences and reference requirements. Further details in relation to the SMCR are available on our microsite “Senior managers and certification regime for banks”.

    • The FCA has published its “near final” rules on extending the SMCR, which includes the statutory duty of responsibility in respect of senior managers under the Financial Services and Markets Act 2000, to all FCA solo-regulated firms and insurers. SMCR will apply to FCA solo-regulated firms from 09 December 2019. The rules are subject to commencement regulations to be made by HM Treasury (and may be subject to change in connection with subsequent handbook amendments, Brexit developments and/or “SMCR optimisation”) but the FCA does not expect to make any significant changes. Further details are available on our microsite “SMCR extension”.

    • The recent case of FM Capital Partners Ltd v Marino & ors re-emphasises the importance of taking care in how employers use privileged documents, such as regulatory investigation reports, in the context of a disciplinary process. The High Court held that the defendant’s disclosure of an investigatory report commissioned by the claimant, which had been provided to the defendant in connection with disciplinary proceedings, constituted a waiver of privilege in that document against the other defendants who were named in the civil action.
Practical tips in an investigation
    • Legal, Compliance, HR and investigators should work together, from an early stage of any investigation, and consider how to manage regulatory and employment expectations. For example, in a regulated context, parts of an investigation might be conducted under privilege. If so it's important to be mindful how claims of privilege will need to be squared with the provision of information about allegations to an employee during a disciplinary process; for example, the disclosure of witness interview notes to an employee.

    • Similarly, Compliance and HR should ensure that the compliance outcome and the employment outcome are consistent. For example, it will not be helpful to an organisation if regulators have been given one indication as to what might happen to employees and this is not the result of the subsequent disciplinary process.

    • In the regulated sector, where an allegation potentially relates to an individual’s fitness and propriety, consider who will make the determination on fitness and propriety and how this will fit into the disciplinary process.

    • Finally, in the regulated sector, when considering disciplinary action, consider whether this affects the individual’s fitness and propriety, triggers notification requirements, has remuneration implications or needs to be recorded and included in future references given.
International perspective
    • Employment and labour laws significantly vary across different jurisdictions. Local legal advice should be obtained when handling disciplinary action overseas as inadvertent breaches of employee rights can result in serious reputational, as well as financial, damage to employers.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.