Newsletter August 2014


This autumn's dominant employment law issue in my view is holiday pay, in light of the Lock decision which I reported in my May newsletter. Can holiday pay be limited to salary or should it include elements of flexible remuneration - particularly commission, but also overtime and bonuses if the 'Lock principle' is extended? Are employers at risk of claims for historic arrears? As you get fully settled in after the summer break, I suggest this should be the legal issue in the forefront of your mind, particularly as we are still awaiting decisions in two cases regarding overtime and holiday pay, which will have a significant impact on this area of the law. In addition, there is shared parental leave to address, meaning maternity and paternity policies will need changing as the new regulations come into effect at the end of the year. I will deal with these in a separate newsletter. Below I summarise some other summer developments - TUPE as usual throws up some interesting cases.

Darryl Evans
T: +44 (0)7771 725341

No service provision change if client changes

On several occasions recently I have faced the question of whether TUPE applies when a property changes hands and the new owner replaces service providers at the property with its own contractors. Can the staff of the outgoing contractors claim TUPE protection? Horizon Security Services Ltd v Ndeze and another (UKEAT/0071/14) is further authority that they cannot.

A security firm was engaged by a company which managed a business centre on behalf of a local authority which owned the site. The authority took the property back, planning to demolish the buildings to make way for a supermarket. It engaged a new security company to look after the site for the interim period until demolition, which was expected to be around nine months.

The Employment Appeals Tribunal (EAT) pointed out that the service provision change definition in TUPE requires the services carried out before and after the change to be on behalf of the same client. Here, the new provider was engaged directly by the local authority, rather than through a subcontractor. There was therefore no relevant transfer.

In addition, TUPE transfers cannot occur under the service provision change rules where the client intends the new contract to relate to an event or task of short term duration. That was the case here - the new contract was of limited duration and for that reason also TUPE did not apply.

Timing of transfer under TUPE

Housing Maintenance Solutions Ltd v McAteer and others (UKEAT/0440/13) concerned a contract for the repair and maintenance of housing association properties in Liverpool. The contract was terminated on 9 June 2011 and the outgoing provider's staff were informed that they were redundant and that their contracts had been terminated on 9 June.

The housing association started setting up a subsidiary company to provide it with repair and maintenance services and reassured the employees that it would employ them. It did not begin service provision until 1 July 2011.

A number of employees brought claims for unfair dismissal, unpaid wages during the interim period and failure to inform and consult under both TUPE and collective redundancy procedures. A key issue for the employment tribunal was the identity of the employer between 9 June and 1 July.

The EAT decided that the transfer had taken place at the point where responsibility was 'assumed' for the employees and the legal assumption of responsibility for the employees occurs on the date of the transfer, and not vice versa. So the time of transfer is decided by the answer to the following question: when (factually, rather than according to the parties' wishes) did responsibility for the business or service transfer from one entity to another?

An interesting case about relocation

In Cetinsoy and others v London United Busways Ltd (UKEAT/0042/14) the claimants were employed by CentreWest, working out of its bus depot at Westbourne Park, near Paddington in West London. The bus route on which they were employed was taken over by London United. TUPE applied.

Staff were required to move their base to Stamford Brook, which is just beyond Hammersmith - about 3.5 miles further west. They resigned claiming constructive and unfair dismissal.

Two questions arose. First, were they constructively dismissed? The employment tribunal considered that whilst it was a contractual term that the employees worked out of Westbourne Park, which meant that requiring them to work at Stamford Brook was a breach of contract, that breach was not a fundamental breach of contract so could not support a constructive dismissal claim.

In addition, the move did not involve a substantial change in working conditions to the employees' material detriment for TUPE purposes. The addition of between 30 minutes and 60 minutes travelling per day was not substantial or to the material detriment of the employees.

This is a factual assessment, and one which the EAT did not overrule on the basis of perversity or the wrong approach having been adopted. But it shows that in the right circumstances an employer may be able to impose changes, even in a TUPE situation.

High Court considers whether assessment of bonus pool involved contractual

We are all now familiar with the principle, particularly in relation to bonuses, that a discretion conferred by an employment contract on an employer to make decisions that affect both parties must be exercised honestly and in good faith and not arbitrarily, capriciously or irrationally. But what constitutes a 'discretion'?

Investec Bank claimed that determining the bonus pool for a group of staff involved questions of judgement about which reasonable people might differ, but did not involve the exercise of discretion, and that therefore they could make their judgements without constraint.

Nice try, said the High Court (although not in those words). The bonus clause in the employment contracts gave the bank a discretion 'in the relevant sense' to determine the bonus pool, in that the determination involved various significant exercises of judgement and was thus subject to the implied requirements of good faith and rationality as referred to above.

Elimination of discretion can be achieved by clear formulae of course, but employers generally prefer to avoid that degree of commitment, preferring to retain flexibility, even if that flexibility if constrained. (Brogden and another v Investec Bank plc 2014 EWHC 2785.)

Court will not rewrite covenant after all

In my March newsletter I reported, in a tone of some surprise, that in the case of Prophet plc v Huggett (2014 EWCA Civ 1013) the High Court had been willing to correct the error in a badly drafted restrictive covenant - in effect, to re-write it. Well, if I can put it in this arrogant way, the Court of Appeal has agreed with me. Legal order has been restored.

As a reminder, the covenant stopped Mr Huggett from selling Prophet's software after he left, but the problem with the wording was that when he joined a competitor he was not selling Prophet software but competing software of the rival. So by the wording of the clause there was no meaningful restriction.

The Court of Appeal overturned the High Court's decision. This was not a case of purposive interpretation to make commercial sense of ambiguous wording. It was a clear restriction, just badly drafted.

Protection when employee resigns without giving notice

Many employers complain about how powerless they are when an employee walks out in complete disregard of his obligation to give notice. What's the point of a notice period at all? You cannot force the employee to work.

There is no point in claiming damages because how can you prove loss?

At least, it seems, the High Court will help you when it comes to stopping damaging activity in the notice period. In Sunrise Brokers LLP v Rodgers (2014 EWHC 2633) the Court made a declaration that the employee who tried to resign without giving contractual notice so he could join a competitor immediately was still employed as his employer had not accepted his breach. His contract contained a 12 months' notice provision, a garden leave provision for up to six months (at Sunrise's discretion but which was not exercised) and enforceable non-compete provisions.

An injunction was granted, and the employee was required to observe the terms of his employment contract until an agreed date of 10 months from when he left - so less than his full 12 month notice period, but valuable protection nonetheless. The employer did not have to pay him either, as he was not ready and willing to work.

Illegal worker can still claim discrimination

The Supreme Court has unanimously overturned an earlier Court of Appeal decision and decided that a person who dishonestly entered UK and had no right to work here could pursue a race discrimination claim against her UK employer. The illegality of the employment contract did not bar the claim as that illegality and the discrimination suffered were not inextricably linked. Public policy considerations, and the UK's international obligations to protect the victims of human trafficking, meant that the claim should proceed. (Hounga v Allen (née Aboyade-Cole) 2014 UKSC 47.)

Treatment of disabled employees in redundancy process

Two cases have been reported this month each finding employers liable for disability discrimination for failing to make reasonable adjustments for a disabled employee in a redundancy exercise.

In London Borough of Southwark v Charles (UKEAT/0008/14), Mr Charles could not attend redundancy meetings, which included interviews for alternative posts, owing to his disability. The Council failed to consider alternative ways of assessing his suitability for the roles. The employee identified other ways he could have been assessed, such as an interview at home.

In Dominique v Toll Global Forwarding Ltd (UKEAT/0308/13) Toll applied redundancy selection criteria which placed a disabled employee at a substantial disadvantage. It argued that removing the discriminatory elements would have made no difference to the outcome, so it did not discriminate.

In each case, discrimination occurred and the employer was liable. However, the level of compensation would be restricted to awards for injury to feelings if the employee would have been dismissed anyway, had the discrimination not occurred.

Workers on call away from workplace were 'working'

Truslove and another v Scottish Ambulance Service (UKEAT/0053/13) concerned ambulance paramedics who were contractually required to stay within a three-mile radius of the ambulance station and to respond within three minutes. The Employment Appeals Tribunal (EAT) decided that they were working during these on-call periods, not on a rest period, for the purposes of the Working Time Regulations 1998. The key point was that they were obliged to be present and remain available at a place determined by the Ambulance Service.

Case law has already established that a worker required to be in the workplace and ready for work (even if sleeping) was working. This case extends that to certain employees who are on call away from the workplace, where there are limitations on how far away they may be.

Is a change to the £30,000 tax relief on the horizon?

The Office of Tax Simplification (OTS) published a report in which it includes recommendation in two important areas affecting employment.

Most significantly, it proposes that the £30,000 exemption for termination payments should be replaced with an income tax relief that is available in the case of statutory redundancy. This would result in certain termination payments no longer benefitting from the exemption - unfair dismissal awards, damages payments for wrongful dismissal for example - so it suggests that consideration be given to whether these types of payments should be exempt from tax and, if so, whether they should be subject to the limit of the exemption.

Other exemptions, such as that for legal costs, should be subject to a consultation with a view to determining whether they should be revised or abolished, says the report.

The report also recommends that existing exemptions should be revised to exclude basic accommodation from being a taxable benefit and to more clearly distinguish when accommodation is a "perk". The way in which the taxable benefit is calculated should be changed so that it is based on the market value of the property and a general rule that certain ancillary services (other than council tax, water and sewage) should be exempt if the accommodation is exempt.

Review of employment status rules

The OTS has also announced that it will undertake a review of the current rules determining the divide between employment and self-employment. It will look at the extent to which the existing rules create uncertainty and, if (!) they do, whether they impact specific areas of the workforce. The review will consider how other countries deal with employment status for tax purposes. The review will not include IR35. The OTS aims to produce a report in time for the 2015 Budget.

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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