It could lead to one of the most significant disciplinary sanctions in English football history, but what can small businesses learn from Manchester City’s breach of financial rules?
In late September, the Premier League confirmed that an independent commission had found City guilty of all charges related to serious breaches of its financial rules over a nine-season period.
The commission found that between the 2009/10 and 2017/18 seasons, ‘sham contracts’ with commercial partners had artificially inflated City’s revenues and reduced its costs by more than £900 million.
City have lodged an appeal and maintain their innocence, claiming that the commission’s ruling contained ‘clear material errors, of law, principle and fact’, and describing it as ‘unsafe’.
However, the findings have sparked debate over whether Man City players could have grounds to terminate their contracts. They have also raised questions about the wider rights and responsibilities of employers and employees.
WHN Solicitors’ Head of Employment Law, Rudy Fendlen, assesses the potential employment law implications and the lessons small businesses can learn about constructive dismissal, along with workplace trust and confidence.
What is constructive dismissal?
Despite its name, constructive dismissal does not involve an employer dismissing an employee.
Constructive dismissal occurs when an employee resigns because their employer has fundamentally breached their employment contract. This can include where an employer seriously damages the relationship of mutual trust and confidence with the employee.
The duty of mutual trust and confidence is implied into all employment contracts and requires employers not to act in ways likely to seriously damage the employment relationship without reasonable and proper cause.
Situations that may give rise to claims include unpaid wages, unauthorised pay cuts, unaddressed bullying or harassment and sudden major changes to an employee’s role or work location.
A fundamental breach can arise from one serious incident, or, in some circumstances, a series of incidents leading to a ‘last straw’.
Man City’s case raises questions about whether an employer’s serious wrongdoing could damage employees’ trust and confidence in the organisation.
If City were to face relegation because of a substantial points deduction, players could question whether they have contractual grounds to leave – though relegation alone would not necessarily amount to a fundamental breach of contract.
The legal position of professional footballers is complicated by specialist contracts and sporting regulations, so players cannot necessarily walk away because their club has breached financial rules.
What can SMEs learn?
The Manchester City case provides a useful reminder that issues of trust and confidence are not confined to the football pitch.
Employers can still open themselves up to constructive dismissal claims even if they haven’t deliberately forced an employee out. Trust and confidence can be undermined by poor management decisions or serious workplace misconduct, even where the conduct is not directed at the individual employee.
Possible examples include repeatedly ignoring complaints about a manager, making substantial changes to an employee’s role without agreement, or failing to address serious misconduct.
While employment relationships can be affected by wider organisational wrongdoing, employees are still required to establish a fundamental breach of an obligation owed to them.
As the Manchester City case highlights, allegations of dishonest or misleading conduct can raise serious questions of trust and confidence. In the workplace, this could contribute to a constructive dismissal claim.
The consequences can go beyond constructive dismissal. If an employer fundamentally breaches an employee’s contract and the employee resigns as a result, the business may lose the right to enforce restrictive covenants, which limit what the employee can do after leaving. This could include restrictions on joining competitors or approaching former clients.
How can employers protect themselves?
The first steps are to ensure that employment contracts are clear, management practices are consistent and obligations are thoroughly understood. Managers should understand their responsibilities around handling complaints, proposed contractual changes or performance concerns.
To prevent a breakdown of trust and confidence, employers should communicate carefully, particularly around significant changes to business operations or working practices.
They should also take workplace concerns seriously, respond to complaints promptly and, where necessary, investigate them properly and address them through a fair process.
SMEs should also review their restrictive covenants regularly to ensure they are reasonable and protect legitimate business interests, while maintaining an accurate record of management decisions.
For employers, the lesson is clear: trust and confidence matter. As for City’s players, walking away is unlikely to be as straightforward as under a standard employment contract, and much may depend on what happens next.
Above all, good management is key, and businesses should consider legal advice before making significant employment decisions to avoid disputes and protect working relationships.
Rudy Fendlen is a Director and Head of Employment Law at WHN Solicitors. A Chartered Legal Executive Litigator, Rudy specialises in employment law and advises both employers and employees on a wide range of sensitive workplace issues and disputes.
If you’re looking for an employment law solicitor for business matters, WHN Solicitors advises employers across Lancashire, Greater Manchester and throughout England and Wales on the full range of contentious and non-contentious employment law issues.
Contact Rudy Fendlen on 0161 761 8067 or rudy.fendlen@whnsolicitors.co.uk.
