Newsletter August 2012


I hope that all readers enjoyed the summer months, including the Olympics. As part of your welcome back to work pack, here is my summary of employment law developments which have occurred since we still wondered whether Mo could win gold, whether the London tube system would grind to a halt and whether it would ever stop raining.

Employment law cases tend to track economic conditions. In this edition you will find some helpful guidance on whether pay/hours cuts can justify redundancy and fair dismissal and some important decisions on how to stop employees competing when they leave. The Government's proposals for
Employment Tribunal claim fees have also been announced.

If any reader has any particular views on the content or format of this newsletter, by the way, I am always pleased to receive them.

Darryl Evans
T: +44 (0)7771 725341

Employee could prepare to compete by chatting up customers

The Court of Appeal has held in Ranson v Customer Systems plc (2012 EWCA Civ 841) that an employee who met his employer's customers to secure work for his own company after his resignation was not in breach of contract. The terms of his contract of employment contained no obligation (express or implied) stopping this and there was no other general duty on him to report such meetings or his intention to set up in competition.

This important finding is a reminder that in the absence of any express terms, a Tribunal will not imply sufficient duties to stop an employee from preparing to compete, even while his employment is continuing. The Court of Appeal was clear that employees are not generally subject to 'fiduciary' level implied obligations which apply to directors. Without those, the way to control the activities of employees was only through appropriate contractual terms in their employment contracts. In this case, those terms were not there.

Non-solicitation clause could protect all customers

The Mercantile Court (making a rare guest appearance in this Newsletter) has upheld a six month post-termination restrictive covenant which prevented a director from soliciting anyone who was a customer or client of his former employer during his employment.

Normally this would be regarded as too broad: the clause should at least be limited to customers the departing employee is aware of, and probably had actual contact with.

In the circumstances of this case, however, that was not necessary for the restriction to be reasonable. The director was senior and held a role integral to the organisation. It was also relevant to consider the size of the employer's client base. (Safetynet Security Ltd v Coppage and another [2012] EWHC B11.)

Tribunal fees - proposals released

The Government has issued proposals for the fees for Employment Tribunal claims which it intends to introduce from the latter part of 2013.

A fee will be due when the claim is issued and then a further one payable prior to the hearing. A system will be operated so that those on low incomes will be excused payment. Tribunals will be able to order the losing party to pay the cost of fees incurred by the successful party.

Two fee levels are envisaged. Level 1 claims - claims for defined sums, such as unauthorised deductions from wages and redundancy payments - would carry a fee of £160 when the claim is issued and a further £230 at the hearing stage. Level 2 claims - more complex ones such as unfair dismissal and discrimination - would carry an issue fee of £250 and a hearing fee of £950. A special fee structure for multiple claims is proposed.

The contractual effect of alternatives

Under a union negotiated three year pay settlement, which was incorporated into employees' contracts of employment, the employer had to award a pay increase of either 2.5% or the NJC settlement plus 1%.

Contractual terms can be unenforceable if they are too uncertain. Was that the case here, especially as the NJC settlement was yet to be determined? An Employment Tribunal thought so, but the Employment Appeals Tribunal (EAT) disagreed. The NJC settlement would be certain at the relevant time and many contracts give parties a choice: so long as one of the permitted choices is made, there is no breach.

The employees' argument that the agreement required the employer to choose the greater of the two possible awards was rejected: provided it applied one of the two it was within the contract terms. (Anderson & others v London Fire and Emergency Planning Authority UKEAT/0505/1.)

Holiday during sick leave - the next episode

The latest development in this soap opera represents a setback for employers.

In NHS Leeds v Larner (2012 EWCA Civ 1034) the Court of Appeal decided that a worker unable to take four weeks' annual leave due to sickness did not have to make a request to carry the untaken leave over into the next leave year in order to receive a payment in lieu of it on termination of employment.

Mrs Larner was absent on sick leave for the whole of the leave year 2009/10, during which she neither took paid leave nor requested her employer to carry it forward to the next year. When she was dismissed, NHS Leeds refused to pay her for the leave not taken in 2009/10.

She claimed a payment in lieu of the untaken leave and the Court of Appeal upheld her claim. It pointed to a recent European Court decision (Georg Neidel v Stadt Frankfurt am Main (Case C 337/10) to the effect that the Working Time Directive does not impose any requirement of prior leave request. This had direct effect against NHS Leeds as an emanation of the State.

The Court also said that it would have reached the same conclusion in the case of a private sector employer as the Working Time Regulations needed to be interpreted to give effect to the intent of the Directive.

In my view this decision does not affect other recent decisions which suggest that there is a limit on the period of long-term sickness absence during which holiday accrues, but it does mean that an employer cannot knock out a claim simply because the absent employee does not request carry forward.

Another soap opera - are casual workers employees?

Never mind the accrual of holiday during sick pay - the Daddy of all employment law soaps is the fundamental one of: what constitutes an employment contract? In the manner of all good pot boilers, there's always a surprising twist just around the corner.

Mr Drake worked on an 'assignment by assignment' basis for Ipsos Mori, the market research firm, from 2 February 2005 until 5 November 2010. He claimed that each individual assignment was a contract of employment with an umbrella contract linking the assignments, meaning that he had sufficient continuity of service to bring a claim for unfair dismissal. Ipsos Mori said he was not an employee because there was no 'mutuality of obligation', a requisite for an employment contract to exist, either during an assignment or between them.

The Employment Tribunal held that the assignments did not amount to separate contracts of employment because any assignment could be terminated by either side at any time, without being completed. This meant there was no 'mutuality of obligation' and hence no employment contract. It should also be noted that there was no obligation on Ipsos Mori to give Mr Drake work or on him to accept it if offered.

The EAT overruled the Tribunal and decided that there was sufficient mutuality whilst Mr Drake was actually undertaking each assignment, irrespective of whether the assignment could be brought to an end at any time. The EAT was, it is fair to say, influenced by Ipsos Mori's handbook which referred to the assignments as being contracts.

The case was sent back to the Tribunal to decide if there was in fact an employment in all of the circumstances, given that this particular element of the test was met. (Drake v Ipsos Mori UK Ltd [2012] UKEAT/0604/11.)

So when will there not be mutuality of obligation?

The Drake case referred to in the previous item might lead you to think that there will be rare circumstances in which a person who is working for someone else, even ad hoc and casually, will not meet the mutuality of obligation test. If that's right, one of those rare circumstances is identified by Knight v Fairway & Kenwood Car Service (UKEAT/0075/12).

A minicab driver's written terms provided that he was allowed to work as and when he pleased, and he was not expected to provide a minimum or reasonable amount of work. He paid his own tax and national insurance and, if registered for VAT, had to account for VAT to HMRC. He stopped working for F & K after a disagreement and claimed damages for wrongful dismissal.

The Employment Tribunal and the EAT found there was no contract of employment as there was no mutuality of obligation between the parties.

The EAT said that although it was 'likely' that the Mr Knight was employed either throughout a particular shift or from the beginning to end of an individual job, and there was an overarching umbrella contract, that umbrella contract was not an employment contract.

As someone who often explains the difference between an employee and contractor by reference to the difference between a chauffeur and a taxi driver, this outcome is something of a relief. That said, the comment that the driver may be an employee (albeit of the cab firm, not the actual hirer) at least during a shift or job is food for thought.

Restructuring - does redundancy require a reduction in headcount?

There has been recent case law activity about whether a redundancy must be supported by a reduction in actual staff numbers.

Two of the cases were based on the same (and quite common) commercial imperative: the need to reduce an employee's hours of work (and therefore pay) because of a fall-off in business.

In Packman v Fauchon (UKEAT/0017/12) the EAT decided that there can be a redundancy even though there is no reduction in the workforce headcount. Unfortunately that view was contradicted by the Scottish EAT in Welch v The Taxi Owners Association (Grangemouth) Ltd (EATS/0001/12), where the view was that although the employer no longer needed to have the claimant (and another employee) work as many hours as before, it still needed the same number of people doing that job.

This uncertainty is unhelpful, although SW Global Resource Limited v Docherty (2012 IRLR 727) is a reminder that terminating existing employment contracts and issuing new ones with reduced hours and/or wages need not result in unfair dismissal if the proposal to lower pay is for sound business reasons (and a fair procedure is followed). So even if there is no 'redundancy' the employer may be able to rely on 'some other substantial reason' to support a cost saving restructuring.

Must you always consider the selection pool when making a redundancy?

In a redundancy situation I always advise employers that the biggest risk is failing to apply your mind to all possibilities, be it in relation to pooling, selection, or alternative employment. Wrexham Golf Club Co Ltd v Ingham (UKEAT/0190/12) establishes that even if that guidance is not followed, all is not lost.

The Golf Club dismissed its one bar steward as redundant without considering any sort of selection pool. The EAT reversed the Tribunal's finding of unfair dismissal on the basis that it had not applied the 'range of reasonable responses' test to the question of whether the Club could focus on Mr Ingham only as the person at risk of redundancy. Was it reasonable for the Tribunal to jump to the conclusion that a 'pool of one' was appropriate? Answer - in these particular circumstances - yes it was.

However, it is still wise to consider all options in every case, as employers will come under particular scrutiny whenever the pool is restricted to a single employee.

Sorry seems to be the hardest word

We are all brought up to understand that a little bit of politeness goes a long way. In a recent case an employer's refusal to say sorry led to an employee resignation and a Tribunal claim, albeit won by the employer.

Mr Assamoi was the victim of rushed and inappropriate allegations by his manager. An investigation revealed that Mr Assamoi's version of events was correct. He requested an apology from the manager. The manager refused.

Mr Assamoi resigned, claiming a breach of trust and confidence, but he lost his claim. Although the manager's conduct may have damaged trust and confidence, the employer's investigation and prompt decision in the employee's favour had prevented a breach. An apology was not required (but it would have avoided the employee from resigning and making a claim, and so would have been a good idea). (Assamoi -v-Spirit Pub Company (Services) Limited UK EAT/0050/11/LA).

TUPE - organised grouping of employees

I have mentioned in previous newsletters that I see a chipping away at the general principle of 'if you think he might transfer under TUPE, he will'. Edinburgh Home-Link Partnership and other v The City of Edinburgh Council (UKEATS/0061/11) is another example.

Two of the claimants were directors of EHLP, which provided outreach services and support to vulnerable people on behalf of The City of Edinburgh Council - its one and only client. The Council decided to take these services back in house. This move clearly represented a service provision change under TUPE as there was an organised grouping of approximately 40 employees in HL whose principal purpose was carrying out the services. TUPE tests were met, but were the claimant directors part of that organised grouping?

The answer was that they were not. As directors, their roles were mainly strategic and primarily involved running the organisation, dealing with the Care Commission and liaising with EHLP's trustees. They spent little time on actual service delivery. For them to have been part of the organised grouping transferring under TUPE it would not have been necessary for them to work exclusively on the services, but in this case the actual provision of the services to the Council was too small a part of their jobs.

This is a helpful reminder that even where a service organisation is set up to support one client and the service ends, some of its staff, such as those with strategic, support or back office jobs, may be left behind (and need to be made redundant).

Harassment by Facebook comments

Finally, there has been an addition to the growing list of cases involving social media. In the case of Otomewo v Carphone Warehouse Ltd (ET/2330554/2011) the Employment Tribunal found that the employer was liable for the actions of its employees on Facebook, as they occurred 'in the course of their employment'.

Mr Otomewo was a Carphone Warehouse manager. Two of his staff used his phone, without his consent, to post an update on his Facebook page saying 'Finally came out of the closet. I am gay and proud'. It was common ground that Mr Otomewo was not gay, but the Tribunal accepted that he was embarrassed and distressed by the status update because the comments were in public view and could be seen by friends and family.

The Tribunal decided that this amounted to harassment on the grounds of sexual orientation, for which Carphone Warehouse were liable. The entries were made in the course of employment in that the employees' actions took place at work during working hours and involved dealings between staff and their manager.

A defence to allegations of harassment is that the employer took all reasonable steps to prevent the employee from doing the discriminatory act. A clear social media policy, highlighting that disciplinary action may be taken in the event of a breach of the policy, coupled with documented management training, may assist an employer in defending this type of claim. This case is also a reminder that sexual orientation discrimination can occur even where an employee is not gay and his harassers do not believe him to be gay.

The information and any commentary contained in this newsletter are for general information purposes only and do not constitute legal or any other type of professional advice. Darryl Evans and Evans Employment Law Limited do not accept any and, to the extent permitted by law, exclude all, liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this newsletter. If you have a particular query or issue you are strongly advised to obtain specific, personal advice and not to rely on the information or comments in this newsletter.

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