Employment Law Update

Issue No. 24.  June 2007

Welcome to the latest issue of the Steptoe & Johnson Employment Law Update.

The Employment Law Updates are aimed at providing information on recent developments in UK employment law.  It is our desire to provide you with not only an update of the law, but also a practical insight in managing workplace issues on a proactive basis.

To achieve our objectives and to continuously improve the Updates, it is important that we receive feedback from you.  With a view to this, please e-mail any comments or suggestions which you may have relating to the Updates to employmentgroup@steptoe.com.  We look forward to hearing from you.

1.        Compromise Agreements

Collidge v Freeport plc [2007] EWHC 1216 (QB)

The High Court held in this case that the employer did not have to make a payment due under the Compromise Agreement, including £445,680 gross compensation because the employee, the former Chief Executive, was in breach of a warranty he had given as part of the Compromise Agreement, namely that he was not aware of anything which would constitute a repudiatory breach of the employment contract by him, which would have entitled his employer to dismiss him summarily.  The employer subsequently discovered, among other things, that he had submitted fraudulent expense claims.  The Court found that he had acted dishonestly and he was not therefore entitled to the payments under the Compromise Agreement. 

As it is not always possible for employers to complete an investigation of possible misconduct issues before completing a Compromise Agreement, the Agreement should contain a warranty so that it effectively becomes a pre-condition to payment under the Agreement that there are no circumstances of which the employee is aware, or ought to be aware, which would entitle the employer to dismiss him or her summarily.

2.        'Without Prejudice' Communications

Brunel University v Webster & Vaseghi [2007] EWCA Civ 482

This case involved a publication by the University stating that the employees had demanded unreasonable amounts of compensation in an ongoing discrimination claim.  The employees claimed victimisation asserting they had been subjected to a detriment, i.e. effectively ridiculed, because they had brought a discrimination claim in good faith.  The University sought to argue that the employees could not rely on the 'without prejudice' communications to progress their victimisation claims. 

The Employment Appeal Tribunal and Court of Appeal both held that there had been a waiver of privilege in respect of the 'without prejudice' negotiations.  Both parties had referred to the ‘without prejudice communications’ in the Tribunal pleadings and the University had set up an impartial enquiry into what happened at the 'without prejudice' meeting.

Framlington Group Limited & Axa Framlington Group Limited v Barnetson [2007] EWCA Civ 502

The Court of Appeal in this case considered the question that was without authority, namely, how proximate (if at all) did unsuccessful negotiations leading to litigation have to be to the start of that litigation, to attract the ‘without prejudice’ rule.  The Court held that in cases where litigation had not started the ambit of the ‘without prejudice’ rule should not be extended any further than is necessary to encourage parties to a dispute to settle their differences without recourse to litigation. 

In this case, between March and October 2005, Mr Barnetson, Chief Operating Officer, and the Company discussed their differing recollections of terms of employment they had understood to be agreed.  At the end of October 2005 when Framlington indicated its intention to dismiss Mr Barnetson at the end of the year, this intention was in both parties' minds when they entered into discussions aimed at resolving matters between them.  A large amount of money was in issue and the manner and content of negotiations were such that both parties were clearly conscious of the potential for litigation.  The discussions that followed at the end of October 2005 had therefore been ‘without prejudice’. 

However, Mr Barnetson served a witness statement in support of his claim containing privileged material relating to the discussions between the end of October and December 2005, when he was given notice that his employment would terminate.  He was ordered to re-serve his witness statement omitting reference to the negotiations that had taken place post October 2005.

It is for the Court or Tribunal to assess what the parties understood the purpose of the discussions to be rather than simply to consider how close in time they were to the litigation in determining whether they were a genuine attempt to resolve a dispute, but the issue as to ‘without prejudice’ status does remain fact sensitive.  Where there is no real risk of termination and a consequent claim, it is unlikely that communications will fall under the ‘without prejudice’ banner.

3.        Managed Service Companies

HM Revenue & Customs have published a series of questions and answers for employers relating to prospective employees who work through managed service companies. 

Complimentary copies are available on request.

4.        Job Seekers

From 1 June, Job Seekers Allowance claimants aged between 50 and 59 who fail without good reason to participate in the New Deal Intensive Activity Period (IAP) employment programme will have their benefit reduced or ended.  Previously only Job Seekers Allowance claimants aged 25 to 49 were covered.

5.        New October Bank Holiday

The TUC has joined forces with a number of voluntary bodies to call for a new October Bank Holiday to promote community activity and involvement.  Britain currently has fewer bank holidays than the EU average.  Those voluntary bodies who have joined with the TUC have suggested the best time for a day's holiday to be used in a constructive way would be the end of October coinciding with the normal half term break and in the middle of the longest current gap between Bank Holidays.  The day could be used to encourage people to volunteer and become involved with community groups and activities. 

6.        Disclosure of Confidential Witness Statements

Arqiva Ltd v Sagoo EAT 0135/07

In this case the EAT considered whether an employment tribunal had erred in ordering the disclosure of a witness statement given in confidence during an employer's investigation of a grievance.  The case is a useful reminder that documents are not protected from disclosure by reason of confidentiality alone, although this may be one factor that a tribunal takes into account.  Ultimately, the question is a matter for a tribunal having regard to whether the disclosure is necessary for the fair disposal of the proceedings.

Mr Sagoo raised a grievance against Arqiva Limited and accused his colleagues of race discrimination.  The HR Director interviewed the staff and A provided evidence that Arqiva Limited relied on in dismissing Mr Sagoo's grievance.  Mr Sagoo resigned and in his claim for unfair dismissal the issue of the disclosure of A's statement arose.  A had requested anonymity owing to a fear of reprisal by Mr Sagoo.  Arqiva Limited appealed against an order for disclosure and the EAT remitted the case to the same Tribunal to consider the matter afresh.

It follows from this that employers carrying out internal investigations cannot give employees requiring anonymity an absolute guarantee that any statement they provide will remain confidential.

7.        Racism & the Workplace - Statistics

After 30 years of race relations and legislation protecting ethnic minorities at work, the Commission for Racial Equality states that racism is still widespread in workplaces across the United Kingdom.  The CRE have received over 5,000 complaints over the last 6 months and have found that 43% of all complaints were linked to employment.  The most common complaints cited by ethnic minority people were workplace bullying, lack of career promotion and being unable to secure interviews. 

Recent analysis from the Employment Tribunal Service revealed that in 2005/06 there has been a 23.7% increase in the number of race discrimination cases submitted to employment tribunals since last year.  In 2005/06 the average award for race discrimination was £30,361.

8.        Restrictive Covenants

Extec Screens and Crushers v Rice [2007] EWHC 1043 (QB)

Extec obtained an injunction against Mr Rice, a former Extec Sales Manager, to enforce an 8 month non-compete clause.  There was no provision in the contract for the 3 month garden leave period to be offset against the period of restriction and so the overall period of 8 + 3 months was held not to be excessive.  The tactics used by Mr Rice to claim constructive dismissal on the basis that mutual trust and confidence had broken down was not sufficient to support his claim that the restrictive covenants were therefore no longer binding.  Further, the sending of a letter by Extec's solicitor reminding him of his contractual obligations did not amount to duress or undue influence, as he alleged.

9.        Immigration & the Right to Work

The Border and Immigration Agency has launched a consultation on measures designed to prevent illegal working.  Under proposed Regulations which were provided for by the Immigration Nationality and Asylum Act 2006, an employer who employs an illegal migrant worker as a result of negligent employment or recruitment practices will face civil penalties, while an employer who knowingly, employs an illegal migrant workers will commit a criminal offence punishable by up to 2 years' imprisonment.  The consultation closes on 14 August.

If the proposals become law, all UK employers will be required from next year to check the birth certificate and/or passport of all new hires even if they claim they are UK nationals.  If a successful job applicant is from outside the EU/EEA permit free zone, employers will, as at present, be required to ensure they possess the correct endorsement in their passport.  Failure to apply uniform hiring procedures could result in prosecution for discrimination on racial ethnic or nationality grounds. 

The new workplace regime will be policed by 1200 compliance officers but it will be a defence for employers to produce copies of identity documents and permits, even if the original documents prove to be false.

10.       Resignation or Dismissal?

 Sandhu v Jan de Rijk Transport Ltd

The Court of Appeal held in this case that Mr Sandhu was dismissed and had not resigned from his employment.  Mr Sandhu had been summoned to a meeting with the Company's Managing Director and the Senior Director of Operations.  They opened the meeting by telling him he was to be dismissed but by the end of the meeting he agreed he would remain employed for 4 months and he would retain the use of his company car for 2 months and he would keep his mobile phone for a short period.  On the day of the meeting the parties signed a letter that began as follows:  "We hereby agree that we terminate your contract as per 1.4.2003". 

The Tribunal held that although the situation started off as a dismissal, in fact Mr Sandhu left because of the favourable terms he negotiated.  They therefore rejected his claim for unfair dismissal.  The Court of Appeal held that this was wrong.  A resignation implies a genuine choice by the employee.  In this case there was no such free negotiation or discussion.  Mr Sandhu had not been warned of the purpose of the meeting to dismiss him and he had neither had advice nor time to reflect.  What he had done was to do his best on his own to salvage what he could from the inevitable fact that he was going to be dismissed and the letter he had signed was consistent with a dismissal rather than a resignation.

11.       Agency Workers

Consistent Group Limited v Kalwak & Others and Welsh Country Foods Limited UK EAT/0535/06/DM

In this case the EAT held that a tribunal had been entitled to hold that an agency employed the workers it supplied.  Notwithstanding the particular facts of the case, the EAT held while the lack of detailed control over the work carried out by an agency worker will usually be decisive against inferring an employment relationship between an employment business and the worker, it would not always be the case.  In this case the Tribunal was entitled to find that the workers were heavily reliant on the agency irrespective of the lack of detailed control it had over them when they were actually at work.  When added to the findings that the agency workers were under a duty of personal service and that there were mutual obligations between the workers and agency, the Tribunal had been entitled to hold that the workers were employees of the agency. 

The case is a good reminder that ultimately the issue of whether someone is an employee or not does not simply involve a mechanical assessment of the individual details of the case but rather an examination of the whole picture.  Finding that these Polish workers were employees on a preliminary issue point was the best the judicial system could do to provide them with protection.  The agency workers had been dismissed when they asked to join the Transport and General Workers' Union. 

12.       Health & Safety

The Institute of Directors has published a draft set of guidelines for consultation.  The draft guidelines set out a number of actions for planning the direction of health and safety policy and for the delivery, monitoring and review of health and safety in organisations of all sizes.  They also include a checklist of key questions, a summary of the legal liability of directors for health and safety failures and a list of resources and references for implementing the guidelines in detail.  The closing date for consultation is 22 June 2007.  Complimentary copies of the guidelines are available on request.

13.       National Minimum Wage

The new national minimum wage rates have been announced.  These will take effect on 1 October 2007.  The new rates will be £5.52 per hour as the principal rate.  Workers aged between 18 and 21 will be entitled to an increased rate of £4.60 per hour and the rate to be paid to workers below age 18 who have ceased to be of compulsory school age, rises from £3.30 to £3.40 per hour.  The per day value of accommodation amount, which is applicable when an employer provides a worker with living accommodation, will also increase from £4.15 to £4.30 for each day that accommodation is provided.

14.       Wrongful Dismissal

Annis v Eclipse Energy [2007] AER 73 QB Div

Mr Annis was employed as an Executive Director of Finance.  Following complaints by another director regarding his failure to consult before disseminating his views, Mr Annis was asked to change his behaviour by the Managing Director.  He subsequently arranged a meeting with another company and circulated details of this at 10 pm the night before to his co-Directors.  The other Directors considered the meeting was premature and the Managing Director telephoned him to make it clear that he should cancel the meeting.

On the following day Mr Annis did not attend work and went straight to the meeting.  The following day he was suspended and then summarily dismissed after an unsuccessful appeal.  He claimed wrongful dismissal. 

The issue arose as to whether his failure to comply with the Managing Director's instructions amounted to a repudiatory breach of contract entitling Eclipse to summarily dismiss him.  It was held that it did.  The degree of misconduct necessary to amount to a repudiatory breach is a matter of fact.  There is an implied obligation on every employee to obey the reasonable and lawful instructions of the employer as well as an implied obligation of trust and confidence.  On the evidence, he had been told he should not attend the meeting and his instructions were unambiguous.  He decided to go ahead with the meeting in any event and that struck with gravity at the relationship of trust and confidence.  His claim for damages therefore failed.

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