Employment Law Update

Issue No.35 / July 2008

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. Equality Bill

The Government has now published details of the proposed Equality Bill.  The Bill will consolidate the current discrimination legislation into one Act and will also allow positive action so that employers can take under-representation into account when selecting between two equally qualified candidates by giving preference, for example, to female or ethnic minority candidates. 

Also, the Bill will outlaw pay secrecy clauses in employment contracts in an attempt to reduce the gender pay gap and introduce powers for employment Tribunals to make recommendations in discrimination claims so that these could apply to the whole workforce and not just the successful Claimant.

It is useful for employers to undertake equality audits from time to time, as this can reveal any ommissions and trends amongst their employees which can then be addressed. 

2. Minimum Wage Increases

The draft Minimum Wage Regulations effective from 1 October 2008 have been laid before Parliament.  The new national minimum hourly wage will be £5.73 for those aged over 22, £4.77 for those aged 18-21 and £3.53 for those aged 16-17.

3. Protective Awards

Haine v Secretary of State for Business Enterprise and Regulatory Form and Robert Day Liquidator 2008 EWCA Civ 626

Mr Haine was employed by a company which went into liquidation.  He tried to enforce protective awards made by the Employment Tribunal for the company’s failure to consult about the 40 proposed dismissals before the company went into liquidation.  Those awards were made by the Tribunal after the liquidator was appointed.  The High Court concluded that the awards were not debts provable in the liquidation of the company and therefore the liquidator was not liable to pay them. 

The Court of Appeal overturned that decision and held that the obligation to consult under s.188 of the TULR(C) Act 1992 arose before the liquidation and at that point the protective award was a debt or liability to which the company may become subject in due course.  Therefore the protective awards in this case were contingent liabilities of the company and the liquidator was liable to pay them not the Secretary of State.

4. Restrictive Covenants and the Compromise Agreement

WRN Limited v Ayris 2008 EWHC 1080

Mr Ayris was initially employed by WRN as a Marketing and Broadcasting Manager and was later appointed to Head of Sales and Marketing.  His employment contract contained 6 month restrictive covenants.  He resigned and entered into a Compromise Agreement which reflected the same post-termination restrictive covenants as were in his employment contract. 

WRN applied for an injunction when Mr Ayris took up employment with a competitor.  The Court held that the restrictions contained in his employment contract were unenforceable as they were too wide although at 6 months they were not too long.  The High Court considered the restrictions by reference to Mr Ayris’ job title at the time of entering into them and not in relation to his subsequent promotion. 

The Court also held that the restrictions in the Termination Agreement were not enforceable as they were not entered into in return for payment or consideration.  WRN argued that his promise to abide by the same restrictive covenants in the Agreement constituted consideration but the Court disagreed as the restrictive covenants replicated those in his employment contract so the promise was not a new one and was not therefore consideration for the purposes of the Agreement.

Key points: If in a compromise an employee is to enter into new restrictive covenants or confirm adherence to current restrictions, HM Revenue & Customs will expect consideration to have been paid to the employee in respect of this and tax will be payable on it.  Employers should review the appropriateness of restrictive covenants when an employee is promoted to a more responsible role where they might have greater exposure to both confidential information and customers. 

Norbrook Laboratories (GB) Limited v (1) Adair and (2) Pfizer Limited 2008 EWHC 978

Ms Adair worked as a Sales Manager for Norbrook, a pharmaceuticals company under a contract of employment which contained a 1 year non-compete in a business whose products competed with Norbrook’s. She resigned from Norbrook and then after a month of garden leave she took up a position with Pfizer. 

The High Court held on Norbrook’s application that the non-competition covenant was too wide and unenforceable but the non-solicitation clause was enforceable.  Ms Adair had claimed that the level of her salary, £25,000 a year was relevant to the reasonableness of the restrictive covenants.  The Court disagreed and held that there was no basis for giving her level of pay any particular significance in determining the reasonableness of the restrictions. 

Key point: Although the Court did not uphold the non-competition restriction, it found that the 12 month duration of the restraint was not unreasonable and the decision reflects the current trend in favour of enforcing non compete restrictions. 

5. Constructive Dismissal

Abbycars ( West Horndon ) Limited v Ford UKEAT/0472/07

Mr Ford was signed off work on 20 March 2006.  On 31 March 2006 his employer asked to collect his car as it was a pool car and needed for its business.  Mr Ford disputed the car was a pool car but agreed to its return.  At the end of his period of absence he resigned.  He claimed that Abbycars had fundamentally breached the term of mutual trust and confidence and he referred to a series of breaches by Abbycars including taking his company car back.  The Tribunal upheld his claim for constructive unfair dismissal. 

The Tribunal identified two repudiatory breaches of contract namely, the failure to pay his telephone allowance and requiring him to return his car in an unacceptable manner.  These breaches entitled him to resign without notice and claim constructive dismissal.  It did not matter that there were other reasons for leaving which were not breaches. 

Abbycars appealed on the basis that the Tribunal had erred in finding either of the identified breaches to be repudiatory breaches of contract or that Mr Ford had resigned in response to them.  The EAT upheld the appeal but remitted the case to a fresh Tribunal for consideration whether these 2 breaches separately or together were rupudiatory breaches.  If either of these were then Mr Ford’s claim would succeed.  If they were not it would fail. 

Key point: The crucial question in this type of situation is whether the repudiatory breach played a part in the decision to leave.  There must be a causal connection between the repudiation and the resignation.

6. Religious Discrimination: Genuine Occupational Requirement Defence

Sheridan v Prospects for People with Learning Disabilities Case No: 2901366/06

The Respondents were a Christian charity which required employees to commit to a specified basis of faith but non-Christians could be recruited to certain roles provided they acknowledged sympathy with the basis of faith.  Over time the workforce ceased to be exclusively Christian.  Prospects decided to review their employment policy when the religious discrimination Regulations were to be implemented and decided that to justify a genuine occupational requirement it needed to employ only Christians.  Prospects decided not to dismiss existing non-Christian employees but told them they would not be promoted.  One of Prospects Manager’s Mr Sheridan was pessimistic about his future with Prospects and resigned when he was required only to employ Christians and not to promote non-Christians. 

He issued proceedings against Prospects for discrimination on the grounds of religion or belief.  He also brought a claim for constructive dismissal.  The Tribunal held that Prospects had directly discriminated against Mr Sheridan and had not made out its “genuine occupational reason” (GOR) defence.  It had not carried out a job evaluation for every post and it was not proportionate to require all its employees to be Christians.

Key point: If an organisation wishes to rely on a GOR it must consider if the GOR can be justified in each case.

7. Disability Discrimination

London Borough of Lewisham v Malcolm 2008 UK HL 43

This very recent House of Lords case concerns a disabled tenant who was being evicted from his council flat by his landlord Lewisham.  Although not an employment case, the opinions expressed in the case are likely to have a significant impact on disability discrimination claims in employment matters. 

Mr Malcolm suffered from schizophrenia and he had sub-let his council flat which was in breach of his tenancy agreement.  When Lewisham found out, they brought proceedings against Mr Malcolm for possession as a result of which Mr Malcolm argued that such action by Lewisham amounted to disability discrimination. 

The question was whether he had been treated less favourably for a reason relating to his disability.  The answer was no.  The appropriate comparator was a non-disabled tenant of a Lewisham flat who had sub-let and gone to live elsewhere.  Given that the correct comparator and Mr Malcolm would then have been treated the same, Mr Malcolm had not been treated less favourably for a disability related reason. 

The Lordships were referred to the employment case of Clark v Novacold and the majority concluded that the well established comparator test in Clarkwas incorrect.  Their Lordships also held that knowledge, or at least imputed knowledge of the disability by the alleged discriminator was necessary before a finding of disability discrimination could be made.  Lewisham had been unaware of Mr Malcolm’s disability when the process of claiming possession was initiated. 

Key point: This case is likely to impact on the number of Claimants succeeding in their claims for disability if the correct comparator is someone to whom the underlying reason does apply and not a person who is not disabled. 

8. Tips and the Minimum Wage

Commissioners for Her Majesty’s Revenue and Customs v Annabel’s (Berkeley Square) Limited and ors UKEAT/0562/07

The EAT in this case held that tips and service charges distributed between the workers had not been paid by their employer when they had been paid from troncmasters’ bank account.  A tronc is an arrangement for pooling and distributing services charges, tips and gratuities to workers in the hotel and catering trade.  The troncmasters distribute monies from the tronc and may be responsible for operating PAYE on the distribution rather than the employer.  When the employer paid the basic wages which were less than the minimum wage HM Revenue & Customs then issued enforcement notices in respect of arrears. 

In this case the tips and service charges could not be included in calculations to determine whether the workers had been paid the minimum wage.  Following the case HM Revenue & Customs has issued advice confirming that employers will have to ensure that they pay workers at least the minimum wage regardless of any tips and gratuities if these are not paid by the employer directly through the employer’s payroll.

9. Garden Leave and there Implied Term of the Right to Work

SG&R Valuation Service v Boudrais 2008 EWHC 1340 QB

In this case two directors resigned with the intention of joining a competitor.  There was strong evidence of their intention to misappropriate confidential information.  Their employer therefore insisted on a period of garden leave so as to delay the date when they joined their new employer and sought an injunction enforcing this.  The employees resisted this on the grounds that there was no garden leave clause in their contracts, claiming they had the right to work and that by not providing work their employer was in breach of contract, entitling them to leave and go elsewhere. 

The Court held that the implied right to provide work was subject to the qualification that the employees had not, as a result of some prior breach of contract or other duty, rendered it impossible or reasonably impracticable for the employer to provide them with work. 

As there was evidence that the directors had done just that the Court held that they had no right to be provided with work by their employer so he could insist on a period of garden leave and an injunction was granted. 

Key point: The absence of a contractual garden leave clause may not be fatal to the parties’ intentions where there is an implied right to work.

10. Consultation on an employee’s right to request time off to undertake training

On 18 June 2008 the Government launched a consultation on how granting employees the new right to request time away from their duties to undertake relevant training, once they have worked for their employer for not less than 26 weeks, may work in practice.  It is proposed that the procedure for making and responding to such request will follow the one currently used for flexible working requests. 

Training can take the form of accredited programmes leading to a qualification or uncredited training to develop specific job related skills.  The only requirement would be that the training should improve business performance and productivity and employers can only refuse requests for defined business reasons.  The consultation closes on 10 September 2008.  The Government expects to implement the right in 2010. 

11. TUPE: Liability for employees on the service provision change

Kimberley Group Housing Ltd v (1) Hambley and Ors (2) Leena Homes Ltd (3) Angel Services UK Ltd UK EAT 10488/07

This case concerned a service provision change relating to only part of the activities previously carried out by a contractor Leena Homes Ltd (“Leena”) on a client’s behalf.  Leena provided accommodation services for asylum seekers under an agreement with the Home Office.  Leena lost the contract which was awarded to Kimberley and Angel.  Leena’s employees lost their jobs and 6 brought claims in the employment Tribunal.  The Tribunal held that there was a service provision change under TUPE 2006.  The question was therefore to which of the two transferees did each Claimant transfer.  The Tribunal allocated liabilities for the employees between Kimberley and Angel on the basis of the percentage of the employees’ work each were to adopt.

The EAT held that the Tribunal should have adopted the approach in Botzen and Duncan Webb namely which employees were assigned to the relevant part of the activities transferred and that liability therefore for all the employees would pass to Kimberley alone. 

12. Damages on withdrawal of an offer of employment

cScape Strategic Internet Services Limited v Toon UK EAT/0087/08

Mr Toon entered into a contract entitling him to a week’s notice if he was dismissed during the first three months’ of employment, but otherwise to one month’s notice.  cScape withdrew its offer of employment before Mr Toon started and paid him one week’s gross pay.  He claimed breach of contract and arguing that he was not dismissed during the first three months of his employment, he was entitled to one month’s notice.  The Tribunal agreed but this was rejected by the EAT.  He was entitled only to one week’s gross pay as the employer could have chosen to give him one week’s notice on the first day of the contract would not have been in breach of contract. 

13. Delay in completing the statutory dismissal procedure

Yorkshire Housing v Swanson UKEAT 0057/07

This case was concerned with whether the Claimant housing officer had been automatically unfairly dismissed under section 98A of the Employment Rights Act 1996 because the Respondent failed to comply with the general requirement not to delay with any step and there was a delay in notifying her of the reason to dismiss her for gross misconduct. 

In this case the step 2 meeting was held on 17 February 2005 but the notification of the outcome was only given to the Claimant on 14 July 2005.  The question was whether the Claimant could be regarded as unfairly dismissed if the standard procedure had not been completed in a timely fashion.  The EAT reluctantly found that unreasonable delay could constitute non-completion.

Key point: Although the statutory procedures are to be repealed they are still in place and lengthy delays at any stage of the dismissal procedure should be avoided at all costs.

14. Redundancy and failure to offer appeal

Hope v Jordan Engineering Limited 2008 AER 370

Ms Hope had been employed since 1995 as a payroll accounts supervisor.  Her employer carried out a redundancy exercise in late 2006 when it was decided that only one part-time administrator post was required.  Another employee also worked part-time in that role.  Ms Hope was put in a selection pool consisting of herself, a full-time employee and the part-time employee.  During consultation she made it clear that she did not want to accept the part-time role.   As a result the post was offered to the part-time employee who accepted it.  No alternative position was made available to Ms Hope and further consultation did not take place as she was then absent for sickness. 

As she had confirmed that she did not want the part-time role the management decided to dismiss her.  She was not required to work her notice but received her entitlement of 10 weeks’ pay in lieu of notice together with a redundancy payment.  She was not advised of any right to appeal. 

She commenced proceedings for an unfair dismissal.  The Tribunal decided that the reason for the dismissal had been redundancy and her dismissal for that reason has been both procedurally and substantially fair.  However the Tribunal took the view that by failing to offer Ms Hope an appeal against the decision to dismiss the company had breached the statutory dismissal and discipline procedure rendering the dismissal automatically unfair but did not award any compensation. 

Ms Hope appealed but the appeal was dismissed.  She had been dismissed with 10 weeks’ pay in lieu of notice.  If an appeal had taken place then it would have inevitably failed.  There was no suggestion that the contract of employment had allowed for the dismissal to be suspended pending the outcome of the appeal.  In those circumstances the absence of an appeal opportunity caused no loss to the employee.  No compensation was awarded and consequently there could not be an uplift.

Key points: Although the statutory procedures are to be repealed they are still in place and failure to comply with them can still result in claims being made by employees even if there is a nil compensation  award.

15. ACAS Guidance on new Code of Practice on discipline and grievances

ACAS has published for consultation draft Guidance to accompany the new Code of Practice on discipline and grievances. 

The Code issued in draft in May 2008 was revised to take into account the proposed repeal of the statutory dispute resolution procedures in the Employment Bill. See commentary in Issue 34 on which we cooperated with Herbert Smith. See http://www.herbertsmith.com/Services/PracticeAreas/Employmentpensionsandemployeeincentives/Employment.htm?tab=Publications

The guide is purely advisory and will have no status in the Tribunal.  It simply sets out good practice for handling discipline and grievance procedures.  There is also an appendix providing guidance on dealing with all types of absence including how to handle persistent short term absence, long term absence due to specific health problems, and failure by an employee to return from extended leave on an agreed date. 

Complimentary copies of the draft guidance are available on request.

16. EU – France

France takes up its presidency of the European Union on 1st July 2008.  Nicolas Sarkozy, will launch a new EU immigration pact.  This will commit EU member states to strengthen border controls at crossing points with non-EU countries, to create a common procedure for repatriation of illegal immigrants and to refrain from issuing wide-ranging amnesties for those without work or residence permits.  In the interim........................

        – Blue Card

The draft Directive on the European Blue Card will be debated on 14-15th July 2008, by the European Parliament’s Civil Liberties Committee.  The European blue card is designed to permit highly skilled staff from outside the EU to move freely across national borders and work in any of the EU’s 27 member states.