Constructive dismissal – when will performance management be a breach of contract?

This article deals with the 29 December 2024 judgment of the Employment Tribunal in Mr. P Hemmings v Mischon De Reya LLP, and focuses on Mr. Hemmings’ claim for constructive unfair dismissal.

Although this is a first-instance judgment and it therefore does not bind future Tribunals to interpret the law in the same way, it is a useful example of how the commonplace tool of a performance improvement plan (PIP) can in certain circumstances be a breach of the employment contract which allows the employee to resign and treat themselves as having been constructively dismissed by their employer.

Background

Mr. Hemmings was employed by the law firm Mishcon De Reya LLP (MdR) as a Commercial Director from 4 May 2020 until his termination on 4 December 2023. He was hired to work in MdR’s cyber business.

During his employment, the cyber market was difficult and although Mr. Hemmings did have some success, his sales figures were not as MdR had hoped. MdR did not seek to do anything proactively about his performance until early 2023 when he was told that it would adopt a different approach to budgeting and targets in future.

Following a one-to-one meeting with his manager, Mr. Hancock, on 20 July 2023 Mr. Hemmings was invited to a performance management meeting to commence formal performance management proceedings. At the first formal meeting on 24 July 2023 the parties discussed Mr Hemmings’ failure to hit his sales targets. He felt that the performance process was an effort to remove him from the business rather than a legitimate attempt to manage his performance and was therefore unfair. He also felt he had not been supported by the firm in his efforts to hit his sales targets.

During the meeting, Mr. Hancock made various comments to the effect that he felt that the lack of new cyber business was not Mr. Hemmings’ fault, including:

1. “I don’t think this is that in any way lack of effort. I don’t think this is you right? I mean this is absolutely a market problem and genuinely cybersecurity sales right now is not the market to be in. If I’m being really honest”
2. “you are in a situation where, as the commercial director, there’s a mountain to climb and the mountain is getting even bigger and it’s not you growing the mountain, right?”
3. “I genuinely do not think there’s anything else you can do. Right? I think that this is wrong services, wrong market in the wrong way, right?”

Subsequently, Mr. Hemmings was invited to a further performance management meeting. Following this invitation, he raised various concerns about inaccuracies in the minutes of the previous meeting as well as a lack of support from MdR since it had taken place. He repeated his earlier concerns about the fairness of the process.

Mr. Hemmings resigned on 25 September 2023 before the second performance meeting took place, and said he was treating himself as being constructively dismissed. He said that the reasons for his resignation included that he had lost trust and confidence in MdR because he had been subject to a performance process arising from a lack of sales when he had been told that the lack of sales had nothing to do with his performance.

He was then later placed on garden leave until his employment terminated on 4 December 2023.

Mr. Hemmings brought a claim for constructive unfair dismissal, as well as claims for unlawful deductions from his wages in relation to unpaid commission and a professional training course fee that had been deducted from his final salary payment.

Decision

The Tribunal found that MdR’s decision to subject Mr. Hemmings to a performance management process was a breach of the implied term of trust and confidence and that his resignation was therefore a constructive dismissal.

The Tribunal felt that Mr. Hemmings had been put in a position where he was required to improve his sales but had been told that there was no possibility of him doing so, as the issues with MDR’s cyber business were structural.

Mr. Hancock’s comments in the 24 July 2023 meeting were crucial, and the Tribunal commented that “Given the comments Mr Hancock had made to him, Mr Hemmings was doomed to failure. That was certainly likely to destroy or seriously damage trust and confidence.” MdR had argued that Mr. Hancock’s comments were simply made to reassure a distressed employee and did not undermine the fact that Mr. Hemmings’ performance was not up to standard and needed to improve, but the Tribunal was not persuaded by this.

Because MdR did not argue that (if he was found to have been constructively dismissed) Mr. Hemmings’ dismissal was fair, it was found to be unfair.

Mr. Hemmings’ claim for unlawful deduction of commission payments was unsuccessful, but he succeeded in his claim for the unlawful deduction of the training course fee.

Implications for employers and employees

As set out above, this judgment is not binding on future Tribunals, but it demonstrates some of the potential pitfalls with managing employee performance.

Market factors will very often play a part in poor employee performance, but for a PIP to be fair the underlying concerns must be legitimate concerns about the employee’s performance, and it therefore follows that these must be issues which it is possible for the employee to remedy.

Where the employee’s performance cannot be improved for reasons outside their control, then depending on the facts of each case it could well be unfair for a PIP to be put in place. Indeed, where poor performance is due solely to market factors, redundancy is likely to be a more appropriate (and usually less time-consuming) way of dealing with an unproductive employee.

Performance management can be a stressful process for employees, and it can be tempting for a manager or HR professional to want to reassure an employee who is subject to a PIP. On a human level, this is laudable. Recognising that the process is stressful and challenging and offering pastoral support could well be appropriate, but employers should take care not to make comments of the kind that Mr. Hancock made in this case, as doing so could undermine the fairness of the PIP process; in this case with disastrous consequences for MdR’s defence.

For employees, this is a good example of the benefits of making an audio recording of an internal meeting as evidence to be used later. Mr. Hemmings recorded the first performance meeting without MdR’s knowledge and using the transcript of this recording at the final hearing, he was able to refute the company’s written note of the meeting, which differed from the recording.

That said, many employers prohibit recording such meetings (particularly without consent) and disregarding this can be employee misconduct which could itself lead to dismissal (depending on the circumstances) or some other sanction, but the risk of discovery and punishment can in some cases be outweighed by the potential benefits in future litigation.