Regulatory investigations and employment challenges

Louise Skinner
Conflicting priorities

In this blog, the first of a series regarding regulatory investigations and employment challenges, I discuss the need to balance competing priorities – how can firms meet global regulators’ expectations in terms of assertively addressing employee misconduct while also following the very employee-friendly, process-driven, employment law framework.conflict

Employee conduct will be at the heart of every investigation, whether it involves an accusation of market manipulation, a rogue trader, rigging of markets or mis-selling. An employer needs to identify as early as possible which employees are implicated and how their conduct will be investigated and managed. In a regulatory environment where claims for unfair dismissal, discrimination and whistleblowing are increasingly prevalent, firms cannot afford to be reactive – a clear strategy is needed from the outset.

Can a clear line be drawn?

No. From a regulatory perspective it can seem black and white – regulatory compliance is high up on the list of internal priorities and so the expectations of the regulator must be met. Although regulator expectations differ depending on the jurisdiction, if a regulator expects a zero tolerance approach, employee dismissals may be the only realistic option. Conversely, if a regulator expects the firm to hold off taking any action against employees while an investigation is pending, individuals may need to remain employed even where the firm’s preference is to take steps to terminate their employment.

Despite the potential for regulatory pressure, it isn’t black and white from a UK employment law perspective either. A fair disciplinary process needs to be followed (without undue delay) and a reasonable investigation needs to be conducted into both the employee’s conduct and any issues/allegations they raise.

An Employment Tribunal may well expect investigations into the wider regulatory context to be undertaken and firms will need to balance the risks of waiving privilege with the need to establish a fair disciplinary procedure. Firms will need to demonstrate the independence of the decision making and thoroughness of the investigation, while not risking prejudice to the wider regulatory investigation. We will address in more detail the issue of legal privilege in a subsequent blog in this series.

Striking a balance

Although regulatory compliance is likely to be the priority, firms should be forewarned that if they are sued at an Employment Tribunal by a disgruntled employee, the proceedings will be public. Control is lost and there are no limits on what aggrieved employees may say on the stand – what allegations they may raise or whose names they will drag through the mud. News of financial misconduct by highly paid executives is a magnet to the press as it makes great copy, exposing the firm to both reputational risk and to further scrutiny from regulators.

The moral of the story is simple. Strategic planning is required at the outset of an investigation. Balancing regulatory and employment priorities is never black and white. It is far more nuanced than that. A better outcome is achieved when the two workstreams are not siloed. Early consideration of the impact of potential employment proceedings can help mitigate future liability, avoid any further reputational risk and/or regulatory scrutiny, and could mean the difference between or a win or a loss at an Employment Tribunal.

Comments published on Employment Talk do not necessarily reflect the views of Allen & Overy.

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