On appealOn 26 Mar 2002 in Personnel Today Continuing our regular series on the implications of recent significantcases. Gareth Brahams, senior solicitor at Lewis Silkin, looks at the issuesCancellation of share options “irrational” Mallone v BPB Industries – Court of Appeal, 19 February 2002, unreportedMallone was dismissed from his position as managing director of BPB’sItalian subsidiary in November 1995. At that time, he held a substantial numberof share options in BPB that had been awarded each year from 1990 to 1994 underthe terms of BPB’s senior execution share option scheme. Under the rules of the scheme, options held by an executive who ceased to beemployed by BPB could be exercised during the six months after the thirdanniversary of them being granted. This was subject to an ‘absolute discretion’on the part of BPB directors to allow only a fraction of those options to beexercised. The fraction consisted of a denominator of 36 and a numerator to bechosen by the directors. On the day of Mallone’s dismissal, the directors purported to cancel hisshare options in full by determining the numerator of the fraction to beapplied to any exercise by him of the options, as zero. This decision was notnotified to Mallone. He only became aware of it when his request in September1997 to exercise his options was refused. The High Court upheld Mallone’s claim for breach of contract, ruling thatalthough the contract purported to give the directors an absolute discretion inrelation to the options, they still had to exercise that discretion rationally.In cancelling the options, they had failed to do so. Dismissing BPB’s appeal, the Court of Appeal upheld the High Court’sconclusion that the directors’ exercise of discretion was irrational. Inconsidering the fraction to be applied to the options, the directors wereobliged to bear in mind that they were dealing with vested property rights thathad been awarded because of Mallone’s good service. The court said there wasnothing in the circumstances of his dismissal that warranted him being divestedof those accrued rights. This ruling is significant for two reasons. First, it is the first time theCourt of Appeal has confirmed that there is no such thing as an ‘absolute’discretion. An employer exercising a discretion will be in breach of contractif no reasonable employer would have exercised the discretion in that way.Second, this is the first case in which the principle of ‘irrationality’ hasbeen applied to share options as opposed to discretionary contractual bonuses(for example, Clark v Nomura International  IRLR 766). Withdrawn complaint could be resurrected Rothschild Asset Management v Ako – Court of Appeal, 1 March 2002,unreported Ako brought an employment tribunal claim for unfair dismissal and racediscrimination against Rothschild, which she subsequently withdrew. Thetribunal issued a standard order dismissing the claim on withdrawal by theapplicant. Ako withdrew the claim because she realised she should have claimed not onlyagainst Rothschild but also against another company that was a possibletransferee of the relevant part of the business under Tupe. Within a week, shehad issued a fresh claim naming both companies as respondents. The issue was whether the legal doctrine of res judicata prevented Ako frompursuing the second claim. Res judicata prevents people from re-litigatingcases (or issues in cases) on which there has already been a decision by acourt or tribunal. A previous case suggested that once a tribunal claim is dismissed onwithdrawal by the applicant, it cannot be raised again (Barber v StaffordshireCounty Council  ICR 379). In Ako’s case, however, the Court of Appeal held that she should bepermitted to proceed with her second claim. The key point was that she had notintended to abandon her claim altogether by withdrawing the first application.Rather, she wanted to discontinue the proceedings so she could reframe herapplication correctly. The court said that the position was similar to that in another recent case,Sajid v Sussex Muslim Society  IRLR 113, in which res judicata was heldnot to apply. In that case, the applicant had withdrawn an employment tribunalcomplaint for breach of contract but expressly reserved the right to reissuethe claim in the High Court. The main point to come from these cases is that the reason applicantswithdraw complaints is the critical factor in determining whether they areblocked from issuing fresh proceedings. Employer not liable for racist comment Haringey Council (Haringey Design Partnership Directorate of Technical& Environmental Services) v Al-Azzawi – EAT, IDS Brief 703, p7 Al-Azzawi was an architect of Iraqi Arabic origin employed by HaringeyCouncil. He complained that, at a discussion about an upcoming quiz evening, acolleague had referred to ‘bloody Arabs’ whom he claimed had disrupted theevent the previous year. Having investigated the matter, the council gave thecolleague a written warning for misconduct that stood for two months, and madehim write an apology to Al-Azzawi. Al-Azzawi subsequently brought a complaint of race discrimination alleging,among other things, that the council was liable for the racist remark. Thetribunal upheld this part of the claim and awarded £8,000 compensation. On the council’s appeal, the EAT said the issue was whether the council hadtaken such steps as were reasonably practicable to prevent the discriminatorycomment. The tribunal had wrongly focused on events after the incident – thatis, the disciplinary process and what was thought to be a lenient penalty.According to the EAT, these matters were irrelevant to the question of thecouncil’s liability. The tribunal had in fact found that the council had a comprehensive equalopportunities policy in place and had provided training courses on racial awarenessfor its employees (including the wrongdoer in question). Moreover, the tribunal had expressly stated that the council had done morethan pay lip service to the issue of racial equality. The EAT concluded thatthe council had taken all reasonable steps to prevent the racist remark and socould not be held liable for it. This decision provides a useful reminder of the practical measures thatemployers need to have in place to avoid ‘vicarious’ liability fordiscriminatory acts by their employees under the Race Relations Act 1976. Comments are closed. Previous Article Next Article Related posts:No related photos.