Dismissed for running a side business: employer's failure to follow any procedure leads to £23,674 award

When a side business becomes a problem

The claimant had worked for Intumescent Systems Ltd for over 11 years as a technical fire consultant and sales representative. In 2014, he asked his boss, Derek Ward, if he could run a side business installing the company's products at weekends and evenings. Ward agreed, and the business thrived—so much so that the claimant employed others to help. The side business was actually beneficial to the employer, as it sold more of its products.

The employer's response: stop paying him

In January 2022, Ward wrote to the claimant saying he must do his work through his own companies in future. Then in August 2022, Ward told the claimant he would stop paying him from the end of October. The employer later claimed the role was redundant, but the tribunal found the real reason was the side business. No dismissal procedure was followed, and no appeal was offered. The claimant received a £10,000 ex gratia payment, but did not sign a settlement agreement.

What the tribunal decided

The tribunal found the claimant was an employee and was unfairly dismissed. The employer's reason—'some other substantial reason' based on the side business—was not fair because the employer had encouraged the business and never raised any concerns. The complete lack of procedure meant the dismissal was outside the range of reasonable responses. The tribunal awarded £23,673.75, including a 20% uplift for failing to follow the ACAS code. The £10,000 ex gratia payment was deducted from the total.

What went wrong for the employer

Intumescent Systems Ltd could have avoided this outcome by having a proper conversation with the claimant about any concerns, following a fair procedure, and offering a right of appeal. Instead, they simply stopped paying him. The tribunal noted that the employer's conduct was 'high-handed' and that the claimant had been a loyal employee for many years.

Why this matters for similar cases

This case shows that employers cannot unilaterally decide to stop paying an employee because they have a successful side business, especially if they originally approved it. It also highlights the importance of following a proper dismissal procedure—even if the employer thinks the employee is not really an employee. For employees, the case demonstrates that accepting an ex gratia payment without a settlement agreement does not prevent you from bringing an unfair dismissal claim.