When things go wrong in a family business

 

The recent case of Feltham Management Ltd & Ors v. Feltham & Ors [2017], is a pitiable demonstration of how friction within a family owned business can cause immense problems, if left unresolved for prolonged periods.

The family dispute

The key persons central to the dispute are siblings, Jane, David, Martin and Stephen and (the adult child of David) Hazel and Mr Eckersall, (Jane’s husband). The siblings were all directors of the family business Feltham Management Ltd.

Jane’s husband provided joinery services to the business on a self-employed basis and her brother David held the role of Managing Director. David’s daughter Hazel also worked in the business as a clerical assistant.  

On 15 August 2013, Jane’s husband told her he was leaving her because he had feelings for her niece, Hazel.  Jane was naturally upset by this news, and confronted Hazel, about the affair she suspected was taking place. Hazel denied the accusation but as can be expected a ruckus occurred between the two. This then attracted the attention of other family members and they quickly became embroiled in the argument.

In particular, Hazel’s father targeted a number of harsh remarks at his sister which inflamed the situation. He told Jane words to the effect that, perhaps your husband wants to be with Hazel because, you never took his surname when you got married, you don’t respect him as head of the house, you undermine him and don’t welcome him when he comes home.

Unsurprisingly, Jane took umbrage with his remarks and decided to leave the workplace, on her way out David asked where she was going and she swore at him before leaving. Jane and her husband were then absent for a short spell on the basis that they were both unwell. During their absence a Company decision was made to stop Jane’s pay but to make compassionate payments to Jane’s husband despite the fact that as a self-employed person, he was not entitled to receive such payments.

Jane made attempts to mend fences and told one of her brothers she would like to return to work but her brother advised her not to return. However, he did not say she had been sacked nor was she issued with a P45.  So Jane was left in limbo, not knowing when she could resume her employment with the family business. This continued until 19 June 2014, when at which time Jane decided to write to her brothers and propose a period of mediation. Her brothers did not respond to that letter until 30 October 2014. In their letter they advised Jane that they had presumed she had resigned on 15 August 2013 and they were not prepared for her to return to work or to pay her salary from that date till present.

She challenged the presumption that she had resigned, but her brothers simply re-iterated their position and in a letter dated 15 December 2014, they sent her a P45 and advised she had removed from the payroll.  Unhappy with that decision and overall treatment by her brothers Jane sought redress in at an Employment Tribunal (ET).

What happened at the ET?

After hearing evidence from Jane and her brothers the Tribunal found in favour of Jane and made the following findings:

  • Jane’s effective date of termination was 15 December 2014.
  • Jane’s dismissal on that date was unfair.
  • There should be no Polkey reduction made from the award.
  • There should be no reduction of the award for contributory fault.
  • Jane should receive unpaid wages from September 2013 up to the effective date of termination.
  • Jane should receive accrued untaken holiday pay up to the effective date of termination.
  • Withholding Jane’s salary was direct discrimination by the Company and individually by David, Stephen and Martin.
  • The remarks which David made on 15 August 2013 amounted to sex discrimination, for which David and the Company were liable.

The majority of these findings were challenged by the brothers and the Company and they lodged an appeal with the Employment Appeal Tribunal (EAT) on the following grounds:

  • The ET incorrectly rejected a contention that the date of dismissal, or the effective date of dismissal, was about 30 October 2014;
  • The ET incorrectly declined to make a Polkey deduction;
  • The ET incorrectly declined to make a deduction for contributory fault; and
  • The ET erred in law in making findings of sex discrimination.

What did the EAT say about the effective date of termination?

The EAT agreed with the ET’s finding that the letter of 15 December 2014 resulted in the termination of Jane’s employment and not the letter of 30 October 2014.  The timing of this letter was crucial to Jane’s case, as it follows that if this was the “effective date of termination” her complaint that she was unfairly dismissed would fall within the time limits prescribed to bring such claims before a tribunal.

Why was the dismissal unfair?

Because the brothers had erroneously presumed that Jane had resigned they failed to take Jane through any fair procedure to bring her employment to an end.

Why was a Polkey reduction not made?

Where a tribunal makes a finding that a dismissal is unfair, it is open to the employer to argue that there was a chance that the dismissal would have been fair if it had adopted a fair procedure. If the tribunal agrees that there is a real likelihood that this would have occurred then the compensatory award can be reduced according to the percentage of that likelihood occurring. The EAT agreed with the ET’s decision not to make a Polkey award on the basis that had a fair investigation of the 15 August incident taken place, it did not necessarily follow that Jane would have been asked to leave by the Company.

Was Jane the author of her own misfortune?

Where a finding of unfair dismissal is made employers sometimes have an opportunity to reduce the basic and/or compensatory award, if the can persuade a judge to make a percentage reduction to the award based on the employees own contributory fault (actions or conduct). The EAT found in favour of Jane on this point and said that she genuinely believed Hazel having an affair with her husband and sending her husband inappropriate messages and Hazel did not show her the messages to dispel that belief. The context in which she swore at the Managing Director was after he had made a series of wounding and harsh remarks. And her failure to return to work from September 2013 was because her brother Stephen had instructed her not to do so. In the circumstances it was held there was no contributory fault.

What did the EAT say about the findings of sex discrimination?

After careful consideration of the arguments the EAT decided that the ET’s findings of sex discrimination should, be remitted back to the tribunal for reconsideration. The fundamental question for the ET to consider was whether the non-payment of Jane’s salary by the Company amounted to breach of a protected characteristic (i.e. sex discrimination). With regard to David’s “rant” at his sister the EAT held that this was undoubtedly direct sex discrimination and both David and the Company were held accountable for this. However, whether or not the incident complained of was submitted in time needed to be reconsidered by the ET. With exception of the sex discrimination complaints all the other grounds of appeal were dismissed for the reasons mentioned above.

Conclusion

As you can see there are no real victors in this case but what we can take away from this case is that resignations should never be presumed. If, relationships breakdown in the family business it’s always better to resolve the issues at the earliest opportunity. Seeking legal advice early is likely to result in having a fresh pair of eyes look at the situation from an emotionally detached stance. This in turn is more likely to help all the parties arrive at an amicable solution to the situation quickly.