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Employment law ramifications of Olympus CEO dismissal

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The recent dismissal of Michael Woodford, former CEO of Olympus, highlights a number of issues relating to UK employment law.

The dismissal comes only two weeks after Woodford was announced as CEO and after 30 years service with the company. According to Olympus the dismissal was due to a clash of management styles, however there may be more to it than a simple falling out.

Leaving jurisdictional issues aside, a clash of management styles and cultures supplemented by the letters Woodford sent to the Board (calling for the chairman to resign) could be grounds for a fair dismissal in the UK under the Employment Rights Act 1996. Dismissals due to personality clashes may fall under the fifth fair reason justifying dismissal "some other substantial reason" and provided a fair process is followed be held fair. For this, the clash would have to be more than trivial and would in all likelihood have to be causing substantial disruption to the business.

However, with the allegations by Woodford that Olympus dismissed him because he raised concerns over questionable acquisitions and accounting at the company, issues of unfair dismissal and whistleblowing arise.

The dismissal would not be fair if the real reason for dismissal fell outside of the five categories listed in the ERA or if the process was unfair. If Woodford's allegations he was not permitted to speak at the Board meeting which led to his dismissal, was then told to catch a bus to the airport and the keys to his home were taken from him are true, question marks would be raised over fairness of the procedure adopted.

In the UK, the Public Interest Disclosure Act 1998 (PIDA) protects employees who blow the whistle by disclosing wrongdoing, typically at their employer. If an employee is dismissed following a protected disclosure and the principal reason for dismissal is the fact the employee made the disclosure, the dismissal will be automatically unfair.

For the protection to arise the employee must make a qualifying protected disclosure, which involves disclosing facts that, in the reasonable belief of the employee, show one or more of the six specified types of wrongdoing has or is likely to take place. These types of wrongdoing include criminal offences, breaches of legal obligations and danger to health and safety amongst others. It is important to remember the employee does not have to prove the truth of the facts disclosed or that they would amount to one of the categories of wrongdoing if they were true. The employee merely has to show a reasonable belief the facts show one of the categories of wrongdoing. Given that KPMG and PricewaterhouseCoopers raised doubts as to the efficacy of the transactions at the heart of the dispute, Woodford is likely to have useful evidence to support a belief that the facts show criminal offences or breaches of legal obligations.

If the disclosure is made internally it must be made in good faith. Since the dismissal, Olympus has claimed the disclosures were made to remove the Olympus chairman for personal gain. Mixed motives often present problems in determining whether the disclosure was made in good faith, with an ulterior "bad faith" motive only negating good faith if it is the predominant motive.

The post dismissal disclosures by Woodford to the media and government departments such as the Serious Fraud Office raise issues of confidentiality. A confidentiality obligation is void insofar as it restricts protected disclosures under PIDA. Therefore, a disclosure to a "prescribed person", for example the Serious Fraud Office, may not breach confidentiality as it may be protected under PIDA. Whereas, disclosure to the media would be more problematic as such disclosures are rarely caught by the protection of PIDA, particularly where a legitimate disclosure (e.g. to the SFO) is sufficient.

Woodford's short lived appointment highlights the practical importance of ensuring promotions and selections to senior positions are carried out after careful consideration. Olympus accumulated knowledge of Woodford's management style over the course of his considerable service and there should have therefore been no surprises. Although it can be difficult to get the choice right in the first instance, it is usually more difficult to remedy the situation afterwards if the choice turns out to be the wrong one.

Shaun Hogan, assistant solicitor at law firm Blandy & Blandy