We all know that employers can dismiss employees when they discover serious misconduct justifying a termination of employment. But can the dismissing employer go further and recover monies (e.g. salaries or bonuses) paid to the employee before discovery of the misconduct?
The recent case of Milanese v Leyton Orient Football Club Ltd  EWHC 1161 (QB) dealt with this question, providing yet another glimpse into the fascinating world of professional football.
The case involved a former senior employee of Leyton Orient Football Club who was dismissed without notice for gross misconduct. He brought a claim for his unpaid notice (i.e. a wrongful dismissal claim). Relying on the legal principle that (unlike in an unfair dismissal case) an employer can justify a wrongful dismissal using misconduct discovered in retrospect, the Club made six allegations of serious misconduct in an attempt to justify the summary dismissal.
These referred to alleged errors in relation to the transfers of three players which led to an overspending of the Club’s money, but which also put the Club and the employee himself in breach of the Football Association Regulations. Mr Milanese was also accused of setting up a rival company and receiving secret commissions.
The Court accepted one of these allegations as amounting to gross misconduct, and therefore upheld the dismissal and dismissed the claim for notice pay.
The Club counterclaimed for breach of fiduciary duties by Mr Milanese, seeking recovery of substantial salary, benefits and bonuses paid to him by the Club. It also claimed recovery from Mr Milanese of sums paid by the Club to a player signed by Mr Milanese allegedly in breach of protocol.
The Club argued that, as its former Director of Football, Mr Milanese held a position of trust and confidence with duties including advising the Club’s Board and owner as to the terms of player transactions. He therefore owed the Club fiduciary duties. Fiduciary duties are some of the strongest duties that an employee can owe to an employer and apply only to the most senior individuals. The list of fiduciary duties includes the duty to report one’s own wrongdoings. It was argued by the Club that, by breaching those duties, Mr Milanese had forfeited his right to be paid for carrying out duties that were inconsistent with his contractual obligations.
The Court examined the application of fiduciary duties to Mr Milanese’s employment relationship with the Club. It found that fiduciary duties result from the specific duties and facts of individual employment relationships: in other words, you have to look at each individual employment relationship to work out whether it is of a fiduciary nature. The case confirms that fiduciary duties will be owed only if the contract of employment requires the employee to disregard his own interests and act solely in the interests of his employer.
The Judge found that the terms of Mr Milanese’s contract did not impose fiduciary duties. This meant that Mr Milanese did not have a duty to report his own wrongdoings. The Judge added that even if he owed fiduciary duties, the Court would not have ordered him to pay back his salary since he had provided appropriate consideration for the salary he was paid. In other words, he had worked for the relevant period and his employer did not have the right to recover his pay just because he had done something wrong. The imposition of fiduciary duties allows a wronged party to recover “profits” earned by the wrongdoer from the breach of duty – payment for work done did not count as profit in the eyes of the Court.
Milanese is a good Illustration of the principle that contracts of employment are the source of both contractual and fiduciary duties. In order for employers successfully to impose fiduciary duties upon their employees (and be able to exercise greater control over them), contracts of employment should be drafted in such a way as to mention specifically that the employer has entrusted the employee with a high degree of trust and responsibility. The employee must also, of course, be required to perform his or her duties in that way.
So, whilst employers may well want to recover sums paid to employees for doing a bad job, it will not always be so easy in practice.
Article written by James Baker and Yankel Berrebi