Did the High Court make an error of law in striking out part of a wrongful dismissal claim, when the employer could have simply dismissed the employee with pay in lieu of his basic salary, rather than various alternative (and more expensive) courses of action? This was the question that the Court of Appeal dealt with in MacKenzie v AA Ltd.
Bob MacKenzie was the Chairman and Chief Executive of the AA – the motoring and road breakdown association – until his dismissal on August 1, 2017. On Monday July 24, 2017, he had attended a strategy awayday for senior managers and directors of one of the AA’s subsidiary companies. The awayday took place at the Pennyhill Park Hotel in Bagshot, Surrey. In the evening there was a dinner in the hotel restaurant, and – in the words of the case report – Mr MacKenzie ‘drank heavily’.
Following the dinner, Mr MacKenzie and many of the other attendees moved to the public bar in the hotel. At 00.50am, he committed an ‘unprovoked assault on a subordinate colleague’. The incident lasted for some two minutes and was captured on CCTV. Mr MacKenzie was placed on paid leave, and the AA commenced an investigation.
Despite obtaining a report from a consultant clinical psychiatrist, which advised that Mr MacKenzie was suffering from symptoms possibly caused by ‘extremely high stress levels…exhaustion from sleep deprivation…excessive alcohol consumption…and poorly controlled diabetes’, the AA dismissed him with immediate effect for gross misconduct.
Mr MacKenzie sued the AA for wrongful dismissal (in other words – a breach of contract). The basis of his claim was that the incident that led to his dismissal was not sufficiently serious as to amount to gross misconduct, and that he had lost control of his actions as he was physically and/or mentally unwell. He claimed for:
- 12 months’ salary
- Loss of contractual benefits including entitlement to participate in the annual discretionary bonus scheme and
- Loss of shares under a performance incentive scheme.
Mr MacKenzie’s contract of employment contained three routes to termination by the AA, which were 12 months written notice; pay in lieu of notice (basic pay); or summary dismissal for gross misconduct.
Before the case reached trial, the AA were successful in having the claim for benefits and bonus struck out by the High Court. Mr MacKenzie appealed to the Court of Appeal. The basis of his appeal was that the High Court had found that if Mr MacKenzie was successful at trial (in other words that summary dismissal was not available to the AA) his damages should be limited to the ‘least burdensome’ way of terminating his contract – in other words that the compensation should be limited to the cheapest way that the AA could have terminated his contract. On his behalf, it was argued that the least burdensome method of terminating a contract does not necessarily equate to the cheapest method of terminating the contract.
The Court of Appeal dismissed Mr MacKenzie’s appeal against the strike out of his claim for benefits and bonus. The Court rejected as ‘wholly implausible’ the suggestion that the correct approach for the AA would have been to give Mr MacKenzie 12 months’ notice of termination of employment, place him on medical leave for six months, appoint an acting CEO, and await Mr MacKenzie’s return from medical leave to work out the balance of his notice period.