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Social Friends Don’t Always Make Good Business Partners

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

Personal friendship is sadly not always a good foundation for business relationships. In one case, a falling out between workplace colleagues who had been socially close for almost 20 years ended up being fought out before employment tribunals.

The two men had established a successful company and were its only directors. One of them owned one third of the venture, the other two thirds. Following a row about a website redesign, the minority shareholder claimed that he had been sacked. His former friend, however, argued that he had resigned.

In upholding the minority shareholder’s unfair dismissal claim against the company, an Employment Tribunal (ET) found that the reason for his sacking was a breakdown in trust and confidence between the two men. The ET ruled that correct procedures had not been followed and that dismissal did not fall within the range of responses open to a reasonable employer.

In upholding the company’s challenge to that decision, the Employment Appeal Tribunal noted that the ET had failed to specify the procedural steps that would have been necessary in order to render the dismissal fair. The reasons for its decision were thus inadequate.

The men’s business relationship was either at, or close to, the point of no return, and the minority shareholder had been actively negotiating the terms of his departure when dismissed. The ET’s refusal to reduce his award on the basis that he would have left voluntarily in due course was therefore perverse. In those circumstances, issues relating to the fairness of the dismissal, and the appropriate reduction to any award, were sent back for reconsideration by a fresh ET.

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