In this case the High Court decided that a decision by a new Chief Executive Officer (CEO) to divest a Director of some of her responsibilities by transferring them to other employees and from an unidentified date in the future allocate her a new role were not properly taken in the exercise of the Board's powers as required by clause 2.5 of her contract of employment.
Facts
Dr McCormack is a qualified vet. In 2016, five years after qualifying she moved into management joining Medivet as Regional Director. Her role grew as Medivet expanded its operations. She was promoted to the role of Head of Clinical Operations and, ultimately, Director of Clinical Operations. In this role, she reported directly to the CEO, maintaining responsibility for day to day operations and a number of Medivet's central functions, including pricing, laboratory, facilities, procurement, practice development and property.
Under clause 2.5 of Dr McCormack's service agreement, dated 20 March 2019, Medivet was entitled, through its board of directors, to appoint other persons to act jointly with her or to change her executive office or responsibilities.
In October 2021 the share capital of Medivet Holdings was acquired. Following this acquisition a new CEO was appointed. He was unimpressed with Dr McCormack, took the view she was "stretched" and decided, following a video call with her in February 2022, that her role was too broad, she was poorly organised and could not keep up with all the areas she had responsibility for. Two months later, in April 2022, the CEO advised Dr McCormack of his plans to re-organise. He shared with her a new executive organisation chart, which provided, among other things for two new roles: a Chief Clinical Officer (CCO) and a Chief Operating Officer (COO). He decided that Dr McCormack would be appointed to the CCO role at some future date, and her duties for pricing and property and maintenance were reallocated with immediate effect. Dr McCormack felt she could not do the CCO role given her lack of recent clinical practice. In May 2022, Dr McCormack told Medivet that since she was being replaced and being allocated a role she did not believe she was suitable for, she was willing to agree an exit. An impasse was reached and she issued a grievance, which Medivet did not engage with. Three months later Dr McCormack gave notice saying she had been forced out of her role and brought a claim for breach of contract in the High Court.
The High Court upheld her claim. In doing so, it explored whether 1) the immediate decision to divest Dr McCormack of her responsibilities and 2) the decision that from an unidentified date in the future she would be allocated the CCO role were properly taken in the exercise of the Board's powers in clause 2.5. It found they were not and Medivet's actions constituted a repudiatory breach of contract.
In coming to this decision the following factors were important:
- Clause 2.5 conferred discretionary powers and it was implicit Medivet would exercise them honestly, rationally and for the purpose they were given.
- The powers were conferred for good management and so there needed to be good reason to appoint others to work with Dr McCormack or change her responsibilities.
- The CEO’s decision was irrational because it was taken on an ad hoc basis without reference to the Board’s powers and no dates had been given for implementation of the new COO role.
- The proposals were not properly canvassed with Dr McCormack in advance.
- No good reason was given for divesting her of some of her core responsibilities: she was a senior individual who had performed her role without substantial criticism and at the time the decision was made the new CEO could not have properly assessed her competence.
- The nature of Dr McCormack's responsibilities and her seniority were also significant.
- The decision to allocate her a new role at some undetermined point in the future was an anticipatory breach of contract.
- Medivet's behaviour culminating in its failure to engage properly with Dr McCormack's grievance was a repudiatory breach of the implied term of trust and confidence.
The High Court found that by resigning Dr McCormack accepted the breach, or breaches, and terminated the contract. Her claims for loss of salary, accrued holiday pay, the loss of her company car and other benefits went onto be considered by the same judge.
What this means for employers
It is relatively unusual for an employee to sue in the High Court when they have service to bring an unfair dismissal claim. The decision does not make it clear why Dr McCormack brought her claim in the High Court rather than in the Employment Tribunal. It does not appear that an unfair dismissal claim would have been time barred.
This case is a reminder that employers need to be careful when varying an employee's duties even where the employer has a power in the contract of employment to do this. Without proper consultation there will be a risk of a successful constructive dismissal or breach of contract claim.
