As more SMEs and owner-managed businesses turn to external HR consultants for support with complex employee matters, the question of legal responsibility has become increasingly important. Can consultants be held liable for decisions they help facilitate? A recent Employment Appeal Tribunal (EAT) case offers valuable guidance for employers. In this “Ask the Expert,” we explore what the ruling means for your business, and how to protect yourself when outsourcing HR processes.

Q: Can external HR consultants be legally responsible for employment decisions such as dismissals?

A: This question was recently addressed in the case Handa v The Station Hotel (Newcastle) Ltd and others. The case provides a useful reminder for employers who use outsourced HR support.

Mr Handa (H) was a director of The Station Hotel (TSH). He made various whistleblowing allegations concerning financial mismanagement. Following this, a number of staff raised grievances against H, complaining of bullying and harassment by him.

TSH appointed an external HR consultant (D) to investigate the grievances, who recommended that a disciplinary hearing be arranged for H. TSH then engaged another external HR Consultant (M) to conduct the disciplinary hearing, which led to H’s dismissal for gross misconduct. In deciding whether to dismiss H, the employer relied on a report prepared by M in which she stated that TSH would be justified in dismissing H, without explicitly recommending this.

H brought claims in the employment tribunal against multiple respondents, including TSH, D and M. The question was whether D and M could be liable as agents for the employer’s decision to dismiss H in relation to his whistleblowing detriment claims.

The tribunal struck out the claims against D and M on the basis that there was no reasonable prospect of success. H appealed to the EAT.

The first consideration was whether D & M could be agents of the employer. The key question was whether their services related to a significant aspect of the employment relationship. The EAT found that there was no reason why, having been retained to carry out grievance and disciplinary processes on behalf of TSH, the external HR Consultants could not be agents of TSH.

The EAT then considered the scope of D & M’s liability as agents. H had brought claims against both as individual respondents but did not actually allege that they made the decision to dismiss him. Both HR Consultants had made it clear that a decision to dismiss H was not in their remit and had not been taken by them. The fact that TSH had relied on the processes D and M had carried out in support of dismissing H did not make them liable as agents in this case. It was clear that they had not made the decision to dismiss and the dismissal letter sent to H was signed by TSH.

This decision highlights that external HR Consultants could potentially be liable as agents for an employer depending on their involvement in decision making. The key point for employers is to ensure that any external consultants are selected carefully and that the remit of their engagement and authority is very clear. Roles should be set out clearly in writing and distinguished between “advisers” and “decision makers”.

One of the key deciding factors in the case lay in the fact that the HR Consultants made recommendations rather than decisions. The decision making was left to TSH and the dismissal letter was signed by them. Had the HR Consultants been part of the decision making and/or had M signed the letter then it’s certainly possible that the HR Consultants would have been co-liable along with the employer.

If employers don’t intend to delegate important decision making to external parties this should be made clear and any documentation should be transparent so it’s clear where responsibility lies.