Employers in the financial services sector will be familiar with the regulatory requirement that certain roles should only be carried out by employees who are fit and proper to do so.  Financial soundness is a key consideration in making that assessment, as is the need for honesty and integrity.

The Employment Appeal Tribunal (EAT) has recently held that the dismissal of an adviser was fair after he failed to disclose that he had been declared bankrupt – even though there was no requirement to disclose this in his employment contract, nor his employer's policies nor the FCA handbook.

It was reasonable for his employer to expect him to disclose this in the context of his role and the regulated industry in which he worked, and to set standards of conduct for its employees which went beyond the core regulatory requirements.

Employee fails to declare bankruptcy and is dismissed

An employee (KP) was employed as an adviser for an estate agency, Your-Move, which also offered mortgages and other insurance products. Your-Move was an appointed representative for First Complete Limited (FC Limited), and FC Limited were authorised by the FCA. 

KP applied for bankruptcy in January 2018 whilst absent on unpaid sick leave.  He did not inform his employer of this.

Following an internet search, Your-Move discovered the bankruptcy and KP’s employment was terminated for gross misconduct.  Your-Move found that the KP was not a “fit and proper person” as he had entered into a bankruptcy order.  The fact the KP had failed to disclose the bankruptcy also called into question his “honesty and integrity". 

Employee brings claim for unfair dismissal

KP claimed he had been unfairly dismissed. 

In the first instance, the Employment Tribunal dismissed the claim and held that the decision to dismiss KP was fair.  The case was then appealed to the EAT.

There was no contractual provision, nor any company policy, which stated that KP had to declare his bankruptcy to their employer, nor was there a provision of the FCA Handbook which required KP to do so.  However, the EAT accepted that it was reasonable for Your-Move to apply a higher standard of conduct to its advisers and expect them to comply with the FCA rules even if they had not been expressly referred to any contractual or policy requirement.

Your-Move had dismissed him because it believed that in the circumstances, KP knew, or should have known, that his employer would regard his bankruptcy as a serious matter, and therefore want to know about it.  Your-Move had decided that KP’s decision to keep this information private was a deliberate act of misconduct.

The EAT considered that Your-Move was able to come to the decision that, notwithstanding the absence of an express requirement to do so, KP should have appreciated that he would be expected to disclose information of this kind to his employer.

Written policy is always best approach

Employees in the financial services sector will be held to a high standard of integrity and their personal conduct must reflect those high standards.  In that context, it could be reasonable for an employer to set standards which go beyond basic contractual, policy and regulatory requirements.  That principle was helpful in this case where the employer considered that it had fair grounds for dismissal, even when it could not point to an express breach of its written requirements.

However, an employer’s position will be significantly stronger if it has express provisions in employment contracts and policy documents that deal with situations like these.  Many contracts require employees in the financial services sector to comply with the requirements of the FCA Handbook, but employers should think about whether they want to impose a higher bar, such as imposing standards of fitness and propriety across a wider range of employees.  If so, then express wording in contracts and policies should be put in place requiring employees to disclose relevant information to avoid any dispute as to whether there is an obligation to disclose.  This is particularly important given the regulator’s interest in conduct outside the workplace, where an employer may be reliant on issues being voluntarily brought to its attention.