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Financial Services and Markets Appendices to the Minutes of Evidence


Note by HM Treasury on the protection of employees

See minutes of evidence Q 113

  Lord Poole enquired about the protection of the individual when disciplinary action is being taken. He expressed concern that while the FSA and the firm might agree on the most rapid course of action, the individual employee could be disadvantaged as a result.

  1. Where the FSA is proposing to take disciplinary action against an employee who is an approved person, clause 51 of the draft Bill requires it to issue him with a warning notice. This allows the individual concerned to make representations. If a decision notice is subsequently issued he can then have the matter reconsidered by the independent Tribunal established under the Bill.

  2. The employee has equivalent protection where the FSA proposes, under Clause 47 of the Bill, to withdraw its approval for the employment of a person where he is not considered fit and proper to carry out the function in question. The process of withdrawal is again subject to the employee's full right to make representations to the FSA against the warning notice and, if an adverse decision is nonetheless taken, to appeal to the Tribunal.

  3. If such an appeal were unsuccessful and the withdrawal of approval were confirmed by the Tribunal, we recognise that this could be likely to lead to the dismissal of the employee. Moreover, if the employee claimed unfair dismissal, the reason for the dismissal would appear to be potentially fair because continuing to employ him in a regulated function would result in contravention of a duty or restriction imposed by or under statute (see section 98(2)(d) of the Employment Rights Act 1996). However it would still be necessary as a matter of general employment law for the employer to show that they had followed fair procedures and had acted reasonably in treating the reason as a sufficient reason for dismissing the employee.

  4. For example it would remain open to the employee to argue, before the Employment Tribunal, that the dismissal was unfair on the grounds that it had taken place prior to the outcome of the hearing before the Tribunal established under the Bill, or without making proper attempts to find suitable alternative work (for example work not involving a regulated function) for the employee within the firm.

  5. In other circumstances the FSA may be proposing to take action against the firm and not against the individual, but nevertheless the reasons given in the warning notice issued to the firm may identify an individual employee in prejudicial terms. In those circumstances also the employee generally has a right, under Clause 210, to be given a copy of the warning notice and to make representations to the FSA. If the FSA nonetheless comes to an adverse decision, then again if the reasons identified in the decision notice identify the employee in prejudicial terms he will have a right under Clause 211 of the Bill to have the matter reconsidered by the Tribunal. The employee may use this right to challenge the substance of the decision itself, or to challenge any opinion expressed by the Authority in relation to him.

  6. Criticism of an individual employee might, if confirmed by the Tribunal established by the Bill, lead to internal disciplinary action against him by his employer which might ultimately include the sanction of dismissal. However, such action would be subject to the usual avenues of recourse to the Employment Tribunal, and it would remain open to the employee to argue that, notwithstanding the criticism made of him, it was not reasonable in all the circumstances for him to be dismissed. The employee would be able to make a claim of unfair dismissal to the Employment Tribunal where he has the necessary period of qualifying service (currently two years, but soon to be reduced to one year under the Fairness at Work Bill).

  7. Finally there may be circumstances where the employee is not mentioned in any notice issued by the FSA but where the individual is nonetheless implicated in some way. In particular it is possible that a case may be settled between the firm and the FSA before the formal stage of the disciplinary procedure is reached, and that action may be taken against the employee by the employer, including dismissal. As already mentioned, the Employment Tribunal would consider whether or not the employer acted reasonably in treating the reason as a sufficient one for dismissing the employee in accordance with the requirements of employment legislation.

12 April 1999

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