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CEO who “ran for the hills” loses appeal over failed unfair dismissal claim

Peter Watson with Hilary Meredith in happier times

A well-known law firm did not fire its chief executive because he made protected disclosures about financial problems that were discovered at the practice, the Employment Appeal Tribunal (EAT) has ruled.

It upheld the employment tribunal’s decision [1] that Cheshire firm Hilary Meredith Solicitors dismissed Peter Watson because he resigned almost immediately after the problems were found – “running for the hills” as founder and chair Hilary Meredith put it – without staying to see their real extent.

Ms Meredith’s decision was not influenced by the protected disclosure, the original tribunal found.

Mr Justice Cavanagh in the EAT ruled [2] that the tribunal did not err in law or act perversely in reaching this conclusion and that Mr Watson was not unfairly dismissed as a result.

Mr Watson, former chief executive of Simpson Millar, joined the personal injury firm – best known for its work for the armed forces – as CEO on 1 June 2017. He also invested £100,000.

At the start of September, a new finance director, Tim Ritchie, joined on Mr Watson’s recommendation.

Within days, Mr Ritchie discovered financial irregularities in the business, and he and Mr Watson made protected disclosures about them to Ms Meredith.

They related to two matters: first, costs advances had been recorded as profit costs rather than loans, making the firm’s accounts misleading by about £300,000 and putting it in breach of its bank overdraft facility.

Second, there were £1m worth of unpaid disbursements that had not been recognised in the accounts.

Further, the money were put in the firm’s office account, rather than in the relevant client accounts or being used immediately to pay the supplier, in breach of Solicitors Regulation Authority (SRA) rules.

Two days later, Mr Watson gave notice of his resignation, saying the problems meant the business would not be able to execute the strategy he had been brought in to lead. He was on 12 months’ notice and at first placed on garden leave.

He refused Ms Meredith’s attempts to persuade him to return to work and help the business sort out the problems but finally returned in early October after being told it would be considered breach of contract if he did not.

Ms Meredith told him that he had over-reacted by resigning and damaged the business, in part because he had “spooked” non-executive director Zoe Holland into resigning.

In mid-October, Ms Meredith dismissed Mr Watson for gross misconduct. She wrote: “Upon learning about this alleged hole in the accounts you then took no steps whatsoever to seek to protect the position of the company.

“Instead, yourself and Tim insisted on a quorum of directors being formed immediately with Zoe Holland on the phone, so that you could resign from your employment…

“Your actions have destabilised the company significantly and have meant that it has suffered substantial damage way beyond what might reasonably have been expected had these matters been dealt with in a responsible and professional manner and in accordance with your duties to the company.”

Mr Watson claimed that he had been subjected to detriments on the ground of making protected disclosures and that he had been automatically unfairly dismissed as a result.

But the tribunal at first instance found all the evidence was consistent with Ms Meredith not taking issue with him making the disclosures but his behaviour afterwards, and that these actions could be severed from the disclosures.

On appeal, Cavanagh J identified several reasons that provided a “legitimate factual basis” to decide that the dismissal was not materially influenced by the disclosures.

These included that Ms Meredith “did not at any stage” criticise Mr Watson for making them; further, she was not herself at fault for the accounting problems and did not try to cover them up – she “acted immediately to investigate the issues raised and to notify the SRA”.

The pair initially “maintained an amicable relationship” after he resigned, and this only began to change when she started to reflect on events and decided that she was not happy that his reaction was “running for the hills”.

Whether her criticism of Mr Watson’s behaviour was valid or not, Cavanagh J went on, it was “understandable” that Ms Meredith might have felt that his resignation would make the job of dealing with the fall-out of the problems more difficult.

“It was also understandable that the [she] might have felt resentful that she was being left to deal with the problems on her own. This sense of resentment gradually grew on [her].

“Also, by the time that the appellant was dismissed, [Ms Meredith’s] focus was upon ways of arranging for the termination of the appellant’s employment, given the inability to reach a settlement and the recognition that the appellant did not want to stay, and [she] did not want to keep him.

“Dismissal served a perceived business need.”

The EAT dismissed Mr Watson’s appeal.