RSA to appeal €1.25m award to former CEO Philip Smith

Ireland's biggest insurance company RSA plans to appeal the €1.25 million award by the Employment Appeals Tribunal (EAT) to its former chief executive Philip Smith.

In a statement RSA Insurance Ireland said: "We are extremely disappointed by the Tribunal's decision and fundamentally disagree with it. We are considering our options but intend to appeal the judgement."

Mr Smith had brought a case for constructive dismissal against RSA to the tribunal which began last March.

Legal sources said the award represented the highest ever made by the EAT.

In November 2013 Mr Smith and two other senior managers were suspended for what RSA described as issues in the Irish claims and finance functions. These related to how large loss claims were reserved, and the overall reserving position of the company, which was found to be inadequate.

As a result, the London-based FTSE-100 company was forced to inject €262million of emergency capital into its Irish subsidiary. Later that month Mr Smith resigned without severance, claiming that he had been made the “fall guy” by RSA for the issues.

In its finding issued on Monday, the Employment Appeals Tribunal said it was satisfied that from a very early stage of a investigation carried out by RSA - or even before it - Mr Smith’s fate had been determined.

"The respondent then went on a fact finding exercise to justify its predetermined decision. The decision was probably made to appease the concerns of third parties - shareholders and the Central Bank. "

“Even if the tribunal is wrong in concluding that, the events leading up to and the manner in which the claimant’s suspension was announced on national television, the catastrophic consequences for the claimant personally, the annihilation of his future employment prospects, coupled with the respondents’ refusal to inform him of the ‘serious issues’ and how they pertained to him,the sending of the draft report without first giving him the opportunity to refute the allegations against him, the secondary investigation for which there was no board sanction or terms of reference, the commencement of a disciplinary hearing prior to the completion of the investigation and the involvement of (one individual identified as) PK in the process were all factors that led to the tribunal concluding that the claimant (Mr Smith) was justified in terminating his employment with the respondent.”

The tribunal in its findings said it accepted that Mr Smith did have responsibilities for the day-to-day running of the Irish business of RSA and had obligations not only to the board of management of the company but also to shareholders and the regulator.

“There is no doubt that the not only the Irish business but the group as a whole ran into ‘capital problems’ in 2013. Those group capital problems were extraneous to the Irish CEO position. The potential breach of Central Bank regulations in relation to reserving practices with the Irish business was not.”

“The tribunal is satisfied that the claimant was aware of the practice, as were at least two dozen other employees, most of whom were in Ireland but some of whom were in the UK group. The tribunal is not satisfied that this practice was allowed to continue for so long due to a fear of the claimant.”

The tribunal said that while Mr Smith as CEO did have responsibilities to ensure that practices which could attract Central Bank criticism did not not develop or continue, this was one that was known -- and known for a very protracted period of time - “by too many high ranking company employees to lay the blame solely at the feet of the claimant”.

The tribunal said that suspending Mr Smith on national television "was the equivalent of taking a sledge hammer to his reputation as well as to his prospects of ever securing employment in the industry again in Ireland, Europe or possibly beyond that.

“Accordingly the tribunal makes an award of €1.25 million.”

Meanwhile, the trade union Unite, which represents staff at RSA, said the events that had led to the departure of Mr Smith from the company had also triggered a severe programme of job losses and cuts in earnings. It said on that basis its members in RSA would be surprised at the scale of the award to the former chief executive.

Unite regional officer Colm Quinlan said: “RSA staff will be particularly disturbed to learn that at least two dozen members of the senior management team were aware of the reserving practices which ultimately resulted in the departure of the former chief executive.”

“The financial consequences triggered by those practices will ultimately result in over 200 job losses and cuts in earnings of around 10 per cent. The losses suffered by our members stand in marked contrast with the scale of today’s award.”

Mr Quinlan said RSA management was continuing to pursue a cost-cutting agenda at the company.

“Unite members remaining in the organisation are deeply disappointed at the deterioration of what had once been a good employer, but have been determined to continue cooperating with the company to repair the damage that has been done and to ensure that the RSA Group is once again a good place to work.”

“Today’s development, and the revelations surrounding the events which resulted in Mr Smith’s departure, will undoubtedly make that task more difficult - and will certainly heighten our members’ determination to resist any further cuts”, he said.