Abbey Santander share provides Compliance and Risk Lesson

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Published: 04Aug2009
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The significance of compliance (and risk of non-compliance) with regulatory, legal and other standards faced by businesses is demonstrated by the high-profile Chagger v Abbey National plc & Hopkins (2006) UK legal case, where the Employment Tribunal made a finding of race discrimination and subsequently ordered Santander Abbey National to pay the record compensation award of £2.8 million. Abbey National Santander Group (the Spanish-owned UK high street bank to be re-branded as Santander share price, and being part of the gigantic Banco Santander Group) ended Balbinder Chagger's employment in 2006, giving redundancy as the reason. However, Mr Chagger believed that the real reason behind his dismissal was race discrimination. Mr Chagger was of Indian origin. Santander Abbey National Group employed him as a Trading Risk Controller and paid him about £100,000 a year. He reported into Nigel Hopkins.

The UK Financial Services commercial sector is highly regulated. Financial organisations face a plethora of standards to comply with regarding their various stakeholders, such as their customers and the general public, shareholders and investors, regulators and authorities, employees, competitors, suppliers, and so on. Compliance and risk of non-compliance with all of the standards is a necessary part of conducting business in the Financial Services sector; financial organisations must devote adequate resources to compliance risk. Compliance risk and failure that is either picked up by regulators during inspections or reported by an aggravated party to the appropriate legal or regulatory jurisdictions can lead to very high-profile consequences, as demonstrated by Chagger v Abbey Santander & Hopkins (2006); the Employment Tribunal recorded a multitude of compliance failures committed by Mr Hopkins and Santander Abbey National, some of which are outlined below.

Santander Abbey National had failed to comply with the first step required by the statutory dismissal procedure; that is, notifying the employee in writing of the circumstances leading it to consider dismissing him and asking him to a meeting. The Employment Tribunal found that Abbey National had not given Mr Chagger such written notification.

Abbey Santander had failed to comply with the statutory guidance recommended by the Code of Practice on Racial Policy in Employment regarding Equal Opportunity training. Mr Chagger had tried to address the issue of race discrimination surrounding his dismissal directly with Abbey National and Mr Hopkins (through the company's complaints and grievance procedures). The Employment Tribunal found that Santander Abbey National had not provided any Equal Opportunity training to any of the managers it had allocated to hearing and deciding on Mr Chagger's issues. Mr Chagger's issues were dismissed out of hand. Santander Abbey had failed to comply with the guidance recommended by the statutory Code of Practice on Racial Policy in Employment regarding monitoring also. The Employment Tribunal found a multitude of monitoring failures also, including the failures to take allegations of race discrimination seriously and to investigate them promptly.

Abbey National Santander had failed to comply with the Employment Tribunal's order to reinstate Mr Chagger, which it had made in an effort to remedy the wrong of race discrimination committed by Santander Abbey and Mr Hopkins. Reinstatement is regarded as the primary remedy for unfair dismissal, because it permits the employee to continue to enjoy the economic benefits of his role in the future and also restores the mental satisfaction that the employee enjoyed from his role. Abbey Santander had refused to reinstate Mr Chagger; the Employment Tribunal recorded that it was dissatisfied with Abbey National's reasons for refusing to comply with its order.

Santander Abbey had failed to comply with the RR65 race discrimination questionnaire procedure of the Race Relations Act (Questions and Replies) Order 1977. The Employment Tribunal found that Santander Abbey's response to Mr Chagger's race discrimination questionnaire was evasive and that it had failed in answering the RR65 questionnaire.

Both Mr Hopkins and Abbey Santander had failed to comply with UK employment law. The selection of an employee for dismissal in a redundancy must be fair according to the Employment Rights Act 1996. Fair selection requires the fair application of redundancy selection criteria; the criteria must be objective and measurable. However, the Employment Tribunal found that the redundancy selection criteria Santander Abbey had used were un-measurable and very subjective.

Mr Hopkins had failed to comply with the behaviour expected from a reasonable manager. The Employment Tribunal criticised Mr Hopkins highly for the way in which he had applied the selection criteria to Mr Chagger. For example, the Employment Tribunal recorded that Mr Hopkins had marked Mr Chagger down for being self-reliant and getting on with things, a trait it thought that reasonable managers might well consider an asset for an employee in Mr Chagger's highly responsible position, and score him more highly for.

Abbey Santander had failed to comply with reasonable good practice in redundancy procedures; that of involving more than one person in the scoring and assessing of employees in redundancy exercises (as a safety measure to enhance objectivity of the scoring and to reduce the risk of allegations of bias and discrimination). However, the Employment Tribunal found that Santander Abbey National did not practice this safety measure. Along with other factors, Mr Hopkins was single-handedly able to volunteer to Abbey's management to lose one of the two employees he managed (of which Mr Chagger was one), was single-handedly able to approach Mr Chagger with an offer to take up voluntary redundancy, was single-handedly able to carry out the compulsory redundancy scoring exercise, and was single-handedly able to lower Mr Chagger's scores to ensure he was the one that was selected for dismissal.

Mr Hopkins and Abbey National both had failed to comply with the UK law on discrimination; the Employment Tribunal found that both had racially discriminated against Mr Chagger in his dismissal.

Santander Abbey aptly demonstrates the importance of compliance risk and its potential high-profile consequences on an organisation's reputation; the profile did not end at the Employment Tribunal stage. In 2008, Abbey Santander and Mr Hopkins appealed to the Employment Appeal Tribunal (EAT) against the Employment Tribunal's decision of race discrimination and against the award of £2.8 million award. The EAT upheld the original Employment Tribunal's finding that both Santander Abbey and Mr Hopkins had discriminated against Mr Chagger on the grounds of race in respect of his dismissal. However, the EAT accepted Santander Abbey's appeal on the record £2.8 million award and sent it back to the original Employment Tribunal for reconsideration. This year, 2009, the case was appealed to the Court of Appeal (the second highest court in the UK). The Court of Appeal's List of Hearings showed that the appeal was to be heard on 7 and 8 July 2009. The Court's judgement of the hearing and other records were not available at the time of writing this article. The 11KBW set of barristers' chambers, who represented Abbey Santander and Mr Hopkins, had reported that the Court of Appeal hearing was only about compensation (not race discrimination also). That would seem to imply that the wrong of racial discrimination committed by Santander Abbey and Nigel Hopkins has been finalised by the EAT (it upheld the original Employment Tribunal's finding that Mr Hopkins and Abbey Santander Group had discriminated against Mr Chagger on the grounds of race), and that Mr Chagger has appealed against the EAT's ruling to send back the £2.8 million compensation award to the Employment Tribunal stage for reconsideration.

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