Employment Law Update

Welcome to the first issue of the Steptoe & Johnson Employment Law Update of 2008.

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. Annual Increase in Compensation Limits 2008

This year’s compensation limit increases are:

• A week’s pay for the purpose of the basic award and redundancy payment calculation rises from £310 to £330; and
• The maximum compensatory award rises from £60,600 to £63,000

The new limits apply to dismissals occurring on or after 1 February 2008.

2. EU

Belgium 

Employers in Belgium who terminate the employment contracts of employees aged 45+ for any reason other than serious cause must now offer them outplacement assistance within 15 days of the termination. To qualify for such support an employee must have at least 12 months’ service, work at least half of the normal full-time hours and not be subject to pre-pension arrangements or retirement. 

France 

From 1 January 2008 employers terminating the contracts of employment aged 50 or over in France will no longer be required to pay a Contribution Delalande unemployment insurance penalty to the Assedic agency.

The French Supreme Court has ruled that if a company relocates to another country in order to benefit from tax and other incentives the move itself cannot be used as justification for redundancies.  This is because it does amount to action necessary to protect the competitiveness of the group’s business, especially if it could be established from shareholder reports that the overall business is healthy.  For this reason any consequent dismissals on economic or redundancy grounds will be invalid. 

Netherlands 

The Dutch Cabinet has decided that independent female entrepreneurs should enjoy the right to 16 weeks’ paid maternity leave. This change will principally benefit wives who are employed in their husband’s business, because no employment relationship exists between spouses under Dutch law. The planned implementation date is 1 July 2008. 

Cyprusand Maltahave adopted the Euro with effect from 1 January 2008.

9 new countries have joined the EU’s border-free zone although controls at airports will remain in place until 30 March 2008. The Schengen zone within which people may travel without showing passports has been extended to the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. 

Germany 

In Germany if a new employee has a contractual right to a bonus for achieving certain goals over a 12 month period but they do not remain in employment for the period the German Federal Labour Court has ruled that in such circumstances a part bonus would be payable but this must be calculated on the performance achieved within the months that have been worked and not calculated by reference to the months worked or the bonus paid in the previous year. 

3. Compensation Cap

Ros and Angel (t/a Cherry Tree Day Nursery) v Fanstone UKEAT/0273/07

Ms Fanstone was employed by the Nursery and gave notice to terminate her employment. However the Nursery dismissed her summarily at 4.50pm on 15 May 2006, 10 minutes before her employment would have terminated as a result of her resignation.  Ms Fanstone made a number of claims, including the unfair dismissal. The Tribunal awarded her £4,000 for loss of earnings to the date of the hearing and in the future and this was increased by 25% to reflect the Nursery’s failure to follow the statutory dispute resolution procedures. 

The Nursery successfully appealed and the award was set aside. The losses she suffered did not stem from her dismissal as they would have occurred in any event given her resignation. Although the Nursery was not willing to give Ms Fanstone a clean reference this was not a breach of any obligation owed to her and so no compensation was due. 

4. Breach of Mutual Trust and Confidence

RDF Media Group v Clements 2007 EWHC 2892 QB

In December 2005 RDF entered into a sale and purchase agreement for the purchase of IWC Media for a consideration of approximately £10m - £14m.  The Defendant Mr Clements was one of the shareholders of IWC and entered into a service agreement with RML to work as a director of Content at IWC for an indeterminate period terminable on 6 months’ notice. In exchange for almost £2m in cash and shares, Mr Clements entered into a number of restrictive covenants with RDF. On 30 March 2007, just 16 months into the 3 year agreement Mr Clements gave notice in termination and indicated that he intended to take up employment with a competing organisation. 

The case involved the implied term of mutual trust and confidence arising in the context of a restrictive covenant dispute. The case is authority for the following propositions. 

• A board of directors is entitled to discuss an employee in a negative manner without breaching the term of trust and confidence as it is merely the brain of the company thinking aloud and the obligation of trust and confidence does not go so far as to control thoughts. 
• Engaging in a campaign of vilification against an employee in the press even on a non-attributed basis will amount to a prima facie breach of trust and confidence but there may be a rebuttal if the employee has himself first acted in breach of trust and confidence. 
• There may be reason or proper cause to put out a press release and even release confidential information to the press when an employee resigns and is on garden leave. 
• An employee is not entitled to accept a repudiatory breach of trust and confidence term in circumstances where he himself is in repudiatory breach of the same term. 

The Court held Mr Clements had been was dismissed and the Company was entitled to dismiss him without notice by relying on his earlier breach and the restrictions imposed under the share purchase agreement remained valid for a period of 3 years. 

5. What to expect in 2008?

• The Employment Bill is expected to receive Royal Assent by the Summer of 2008 but will come into force at a later date. 
• From 6 April 2008 the Information and Consultation of Employees Regulations 2004 will apply to employers with at least 50 employees.  In addition, under separate Regulations there will be a requirement for employers with 50 or more employees to undertake consultation before making changes to occupational and personal pension schemes. 
• Amendments to the Sex Discrimination Act 1975
• The Corporate Manslaughter and Corporate Homicide Act 2007 will come into force on 6 April 2008 and will apply to the whole of the UK .  It creates a new offence of corporate manslaughter which replaces the common law offence of manslaughter by gross negligence committed by companies and other organisations.  The offence applies to an organisation which has been defined as corporations including companies, partnerships, government departments and other public bodies, police forces and trade unions or employers association.

6. TUPE: Overseas applications

Hollis Metal Industries Limited v GMB and Newell Ltd UKEAT/0171/07

In this case the EAT considered whether TUPE 2006 applied to a transfer of part of the business from UK to Israel .  The EAT took the view that TUPE had the potential to apply to a transfer from the UK to a non-EU entity where the undertaking in question did not remain in the UK after the transfer had taken place.  Here part of a curtain making business was transferred from a factory in England to a new “employer” in Israel . None of the employees were taken on.  Although the enforcement of any tribunal awards might prove difficult this did not affect whether or not TUPE should apply even though it would normally be held to have offended the principle of extra territorial jurisdiction.  It would be a question of fact in each case whether TUPE did apply in this type of situation. 

7. Unfair Dismissal: Ill-health retirement

First West Yorkshire Limited  v Haigh UKEAT/0246/07

The EAT held that the reasonable employer should have given proper consideration to an ill health retirement scheme before it dismissed an employee from his long-term sickness.  In this case the question of whether the employee’s condition was permanent and thereby fulfilled the necessary requirements for an ill-health pension had not been answered before the employee was dismissed.  Therefore the Tribunal had been entitled to find that the employer should have taken advice on this question before deciding whether to dismiss. Mr Haigh had worked has a bus driver but had suffered a suspected stroke. He was successful in his claim for unfair dismissal which First appealed but they lost their appeal. 

The case is a reminder to employers to ensure that when dealing with employees on long-term sick leave they should ensure appropriate medical advice is received on relevant issues which should include qualification for ill-health retirement if it is available. 

8. Sex Discrimination and Flexible Working

Shaw v CCL Ltd UKEAT/0512/06

The EAT held in this case that direct and indirect sex discrimination lead to a fundamental breach of an employee’s employment contract entitling her to resign and claim constructive unfair dismissal. The rejection by her employer of her request to work flexibly was direct and indirect sex discrimination. 

Mrs Shaw was employed by CCL as an area sales executive.  In April 2004 she commenced maternity leave and in November 2004 she sent an email to CCL stating that she would like to return to work but only on a part-time basis and that she did not want to work more than 100 miles from home and that she would no longer be able to stay out overnight. Her application for flexible working and subsequent appeal were refused. 

She resigned claiming that the refusal of her request was unreasonable and that she had no option but to resign. She lodged claims for a range of discriminatory acts and constructive dismissal. The Tribunal rejected her claim for constructive unfair dismissal but her appeal was allowed by the EAT.  She argued successfully that the reason for her resignation was not simply because her request to work flexibly had been refused but more generally because of the way in which she had been treated which had been found by the Tribunal to be discriminatory and detrimental to her. Since any act of discrimination is a breach of the implied terms of trust and confidence she was entitled to resign and treat herself as dismissed because she had suffered a fundamental breach of contract which went to the root of her relationship with CCL. Employers should bear in mind the risk of a constructive unfair dismissal claim when rejecting a request to work flexibly. 

9. Modified Disciplinary Procedure

O’Neil v Wooldridge Ecotec Ltd UKEAT/0282/07

The EAT held in this case that the modified dismissal procedure (“MDP”) did not apply to the summary dismissal of an employee for gross misconduct because the employer had waited until the day after it became aware of the misconduct before dismissing the employee and had not therefore dismissed him immediately after becoming aware of the misconduct. In any event the employer had not complied with Step 1 of the MDP as the letter it gave to the employee following the dismissal did not set out what it was the employee was alleged to have done that constituted gross misconduct. 

Mr O’Neil worked as a driver for Wooldridge, a demolition and haulage firm.  He was dismissed for gross insubordination and therefore gross misconduct.  The Appeal Tribunal held that it was not open for the Tribunal to conclude that the dismissal occurred at the time the employer became aware of the conduct or immediately after it. Accordingly the standard disciplinary dismissal procedure (“SDDP”) should apply and as the employer had not complied with the SDDP the dismissal must therefore automatically unfair. 

The case serves as a stiff warning that the scope of the MDP will be interpreted narrowly and is to be used by employers at their peril. An employer who decides to sleep on the matter and leaves dismissal until the next day must use the SDDP rather than the MDP. However even the Appeal Tribunal seems to be expressing doubts as to whether a dismissal the same day would have been sufficiently immediate if the person who has the authority to dismiss takes took time to go and seek the views of his superiors before taking his decision to dismiss. 

10. Age Discrimination

Thomas v Eight Members Club and Killip ET/2202603/2007

In this case the Tribunal awarded Ms Thomas £1,500 in damages for injury to feelings as she had been discriminated against on the grounds of her age. Ms Thomas had been told that she was too young to perform her job and was dismissed in breach of contract. The Tribunal also applied a 10% uplift to the award for injury to feelings and breach of contract on account of her employers’ failure to follow the statutory dismissal and disciplinary procedure. 

She was only 19 when she commenced employment at the club and she gave evidence that she felt humiliated when she was told by Mr Killip she was too young to do the job. She was given notice on a Friday and started with a new job at a higher salary on the following Tuesday so there was no monetary loss arising from her discriminatory dismissal. Nevertheless the Tribunal proceeded to make an award of £1,500 on the basis that Ms Thomas had been upset by the comments about her youth. 

The case is a useful reminder that even a one-off comment can lead to a significant award of damages. 

11. Equal Pay

West Midlands Police v Blackburn UKEAT/0007/07 MAA

The Claimant Police Officers had received less pay than their male comparators doing like work because the men worked shifts involving night work and received a special payment, effectively a bonus for this. The women did not work those hours because they were incompatible with their childcare responsibilities. The Tribunal held that it was a legitimate objective to reward night work but that the Chief Constable could have paid the Claimants as though they had done night work even though they had not. It would not have been a significant expenditure and would have eliminated a discrimination. 

The EAT upheld the Chief Constable’s appeal finding that the Tribunal had misunderstood the nature of the justification defence.  The payment of money to compensate for the economic disadvantages suffered by those who have childcare responsibility is not what the equal pay law requires. 

12. Permission to work and leave to remain. 

Kelly v University of Southampton UKEAT/0295/07

In this case the EAT considered a claim for unfair dismissal by an employee who was dismissed because she no longer had leave to remain in the UK .  Her work permit however still subsisted. The EAT held that it was not automatically reasonable to dismiss an employee where continued employment would breach a statutory enactment. It also held that whilst it is reasonable to expect employers to ensure that their employees continue to have permission to work in the UK Parliament could not have intended them to police the continued existence of their employees leave to remain in the UK . 

The employee, a US citizen, had permission to work for the employer for 60 months, but her leave to remain expired after only 48 months. She was dismissed as the employer took the view that it could not continue to employ her as doing so would be committing a criminal offence. It was held that the employee was permitted to work under the immigration rules even though her leave to remain had expired.  In those circumstances her dismissal was automatically unfair. 

13. Jurisdiction

Durate v Black and Decker Corporate and another [2007] All ER 378

This case concerned the law governing the enforceability and validity of restrictive covenants in employment contracts. The Claimant in this case resigned from employment to take up a position with a competitor. His employer maintained that he was bound by two post-termination restrictive covenants for two years. The Claimant brought proceedings seeking a declaration that the restrictive covenants were void and unenforceable. 

The covenants were given in a letter which was referred to as a long-term incentive plan. This agreement was governed by the laws of the state of Maryland in the US . The Claimant argued that the agreement was governed by English law by reason of the Rome Convention. The Court ruled that the covenants would not be held enforceable against the Claimant as a matter of Maryland law nor would they have been enforceable under English law. Mr Durate was entitled to a declaration, therefore, that the covenants were unenforceable against him. 

Those employers who are multinational organisations and businesses should heed the effect of such a decision and consider local jurisdiction clauses.