Failure to Mention Bankruptcy Was a Fair Reason to Dismiss For Gross Misconduct

by | Jul 22, 2022 | Blog

A mortgage broker / financial consultant was fairly dismissed for failing to report a bankruptcy to his employers.

In May 2015, Mr Pubbi was employed as a financial consultant by Your Move. He was on sick leave from December 2016 to April 2017 and, following his appraisal in December 2017 (in relation to which he made a complaint), he was signed off sick from 23 January 2018.

On 26 January 2018, as the result of financial difficulties arising from time spent on unpaid sick leave, Mr Pubbi applied to enter into bankruptcy. He was made bankrupt on 29 January 2018 but did not inform Your Move. On 1 February 2018, he raised a grievance about aspects of his treatment by Your Move.

On 8 February 2018, a member of Your Move’s HR team discovered Mr Pubbi’s bankruptcy through a Google search. As a result, his authorisation with First Complete was terminated because First Complete would not consider anyone who had entered into bankruptcy to be a “fit and proper person” (as provided by the FCA Handbook) and he could no longer act as an adviser on its behalf. Your Move considered the failure to disclose his bankruptcy raised issues about Mr Pubbi’s honesty and integrity since it considered that if someone was working as a financial adviser, where financial soundness was of paramount importance, it would be a dereliction of duty not to report bankruptcy.

The Employee represented himself at employment tribunal which he lost and then appealed to the Employment Appeals Tribunal, where he also lost.

He sought to argue, supported by a case called Basildon Academies v Amadi UKEAT/0343/14, in which the Tribunal held it was unfair to dismiss a teacher for failing to disclose allegations of sex abuse from a previous school, because the tribunal in that case said there was no express term of the contract which required such disclosure, and it could not be implied as a term that such disclosure was necessary.

However, in this case, the EAT took a different route – while not departing from Amadi.

The tribunal held that Mr Pubbi’s dismissal was fair. It accepted Your Move’s evidence on the importance it placed on the financial soundness of its sales consultants, and of its concern that any financial distress suffered by an employee selling financial products on commission could adversely affect the objectivity of their advice.

It found that Your Move was entitled to expect a high standard of conduct from its financial advisers and that they would comply with FCA rules even if these were not expressly referred to in any policy or contractual document. It found that Your Move’s expectation of a high standard of propriety had been communicated to Mr Pubbi both at the start of, and at points during, his employment. The tribunal held that Mr Pubbi had been aware of the obligation to disclose bankruptcy and did not need a written procedure or a policy to inform him of the importance of doing so.

The tribunal concluded that Your Move had been entitled to treat Mr Pubbi’s failure to disclose his bankruptcy as a matter of gross misconduct given the role he performed, the sector in which he worked and the standards Your Move expected of its advisers.

Lessons to Learn

The employment contracts and self-employed consultancy contracts I’ve drafted for FCA regulated financial services firms have always included a requirement or condition that the employee is a fit and proper person and not bankrupt, and so if your contract does not have these terms in then you may wish to look at upgrading your contracts.

Fundamentally, if a term is so important to you as an employer, then make it a term or warranty in the contract of employment. In the Amadi case it wasn’t and so the School lost at tribunal. If they’d have included something in the contract on it, then the outcome may have been different.

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