Newsletter January / February 2016


January was a quiet month for employment law news, so I decided to delay my first Newsletter of the year and issue a joint January/February edition. In the second half of February, though, things have really kicked off so I have ended up sending you something which is probably longer than usual. Stick with it – there’s some good stuff in here!

Highlights include a selection of cases related to age discrimination (they really are starting to flow through now). I am also indebted again to my former colleague and data protection expert Olivia Whitcroft for an update on the EU/US safe harbour rules.

For larger employers, unquestionably the most significant development is the publishing of draft legislation, potentially to come into force in October this year, which will oblige employers of more than 250 employees to provide a gender based report on the pay of their employees. These draft rules are subject to a consultation process, so further information will follow in subsequent newsletters.

And could I ignore the Boris factor? His decision to back ‘Leave’ has clearly ignited the membership discussion, which in an employment law context results in the question: could our world be blown wide open if ‘Leave’ wins? Certainly many of our employment laws derive from the EU, but would the terms upon which we trade with the EU, or simply government policy, mean that current laws would continue anyway? It is hard to see us backtracking on discrimination laws for example. This is another interesting aspect of a hugely significant debate.

Darryl Evans
T: +44 (0)7771 725341

Personal messages on work systems

I shall start this month with the case of Bărbulescu v Romania (61496/08 2016 ECHR 61) because it achieved notoriety in the press, although (as is the case so often) inaccuracies abounded.

The case has not changed the law in any way. It does not create an unfettered right for an employer to ‘snoop’ on an employee’s emails. Neither does it give an employee an absolute right of privacy. Rather, it simply confirms the position that proportionate interference in an employee’s privacy is permissible. Provided the employer has a robust set of email, internet and social media policies, giving the employee a reasonable expectation that usage may be monitored, it will be able to monitor any messages sent through the employer’s system and not breach the employee’s right to privacy under Article 8 of the European Convention of Human Rights.

In this case the employee had been dismissed for using the internet at work for personal purposes and he tried to argue, without any success, that the employer had no right to monitor this activity.

Gender based pay reporting

The government has published in draft The Equality Act (Gender Pay Gap Information) Regulations 2016, with the expectation of bringing them into force in October 2016. They are the subject of a consultation which will close on 11 March 2016.

They set out the framework for new pay reporting requirements under which employers will be required to publish mean and median pay information for their whole workforce. They will also have to publish how many men and women appear in each quartile of pay in the workforce.

The information will have to be published on the employer's website every year and left there for at least three years. It will also have to be uploaded to the government. Initial non-compliers will be 'named and shamed', although the question of whether civil or criminal penalties for non-compliance should be introduced in due course will be considered.

Exercise of discretion in bonus award

To what extent would a court interfere with the decisions taken by an employer when awarding a discretionary bonus? This is a subject which arises quite often in practice so any guidance is useful.

In the circumstances of Paturel v DB Services (UK) Ltd (2015 EWHC 3659), the answer was: it normally won’t. Mr Paturel was a financial trader who claimed breach of contract in relation to a discretionary bonus award. He argued that, in awarding him a significantly smaller bonus than two of his colleagues, his employer breached an express contractual term to treat him consistently with his ‘peers’ and the implied term to act in good faith and rationally.

The High Court felt that the employer had sound reasons for awarding the two colleagues a bonus based on a formula as opposed to a discretionary bonus like Mr Paturel. It breached neither its express nor implied obligations. As a technical matter, Mr Paturel’s (or, realistically, his lawyers’) attempt to rely on what are known as ‘Wednesbury’ principles of unreasonableness (which have their origins in public, not employment, law) did not succeed in this situation.

Instruction not to speak in Russian was not discriminatory

In Kelly v Covance Laboratories Ltd (UKEAT/0186/15) the Employment Appeals Tribunal (EAT) held that an instruction to a non-native English speaker not to speak in her mother language at work was not discriminatory (sorry about all the negatives).

Covance Laboratories was involved in animal testing. Ms Kelly’s first language was Russian, but she had been instructed not to speak Russian in the workplace. This was apparently so that managers could understand, for security reasons, what staff were saying. Ms Kelly was seen leaving her workstation and talking on her phone in Russian, which raised a suspicion at the employer that she might be an animal rights infiltrator.

Covance maintained that its policy of only English in the workplace was necessary for security reasons and the employment tribunal found that this policy was not applied because of Ms Kelly’s race or national origin, but due to concerns regarding her behaviour and potential breaches of security. The EAT agreed.

Age discrimination comparators

In Donkor v Royal Bank of Scotland (UKEAT/0162/15) an employee aged over 50 was refused the opportunity of applying for voluntary redundancy. Employees over 50 were more expensive to release through voluntary redundancy, hence the employer drawing the dividing line.

However, the EAT held that this was not a ‘relevant circumstance’ which could render the comparison invalid. By treating him differently to his colleagues under 50 the bank was discriminating against him directly and he was able to compare his treatment with two employees who were under 50 and who had successfully applied for voluntary redundancy.

The case is not over for the bank though. Normally liability for direct discrimination cannot be avoided on the grounds that the treatment was justified, but there is an exception when the protected characteristic is age. The case has therefore been remitted to an employment tribunal to determine whether the employer was objectively justified in treating that employee differently.

Excluding employees entitled to pension from severance allowance likely to be unlawful

The Advocate General (the European Court of Justice’s legal adviser) has given his opinion that a Danish law giving a severance allowance to someone dismissed from employment after long service, but excluding anyone entitled to an occupational pension, is discriminatory on grounds of age. A previous ECJ decision relating to a similar issue against a public sector employer could apply to a private sector employer as well.

This, as I have pointed out before in relation to A-G opinions, does not decide the case but the ECJ normally follows what the A-G says. (Dansk Industri, acting on behalf of Ajos A/S v Estate of Karsten Eigil Rasmussen C‑441/14.)

Share schemes and good leaver status – age discrimination

Cockram v Air Products plc (UKEAT/0038/14) may become a very significant case in relation to the difficult area of whether giving retirement good leaver status in a share incentive plan is age discriminatory. But not quite yet.

Mr Cockram was denied good leaver status where he left employment at age 50 and therefore lost valuable unvested share options. Given his age he was eligible to take an immediate pension from his employer’s scheme, which he did. He maintained he was ‘retiring’, but at only 50 he did not meet the share plan’s criteria for good leaver status, which was leaving at ‘customary retirement age’ which Air Products said was 55.

Air Products admitted that this was directly age discriminatory, but persuaded the employment tribunal that the treatment Mr Cockram experienced compared with that of an older retiree could be justified.

The EAT, however, held that the tribunal had failed to explain sufficiently either why it had accepted the legitimate aims put forward by Air Products or its reasoning on proportionality. The case has been remitted to another Tribunal to decide whether the discrimination can be justified. So justification is in theory possible, but in practice what would sufficient justification look like?

Tax on injury to feelings awards

The Upper Tribunal has held that a settlement payment for injury to feelings made in connection with a termination of employment was taxable as a termination payment. It was made to settle all claims against the employer including claims for age discrimination arising during a redundancy selection process.

The decision confirms that the tax treatment of compensation for discrimination depends on whether or not the discrimination is connected with the termination. Here, it was so the compensation was taxable. Compensation for discrimination that occurs before termination, on the other hand, is not connected with the termination and therefore is not taxable. (Moorthy v HMRC 2016 UKUT 13 TCC.)

The latest on Lock

For the first time I have relegated a development in the holiday pay saga well down the running order. That is because the latest decision in the ongoing case of Lock v British Gas (EAT/189/15) is essentially a technical one which is unlikely to change what employers are doing presently and does not answer any of the significant uncertainties which remain, such as what period to use to calculate variable elements of pay.

In effect, the EAT has decided that private employers are subject to the finding of the European Court of Justice (ECJ) that holiday pay must include a sum for results-based commission because the UK Working Time Regulations must be interpreted to achieve that result (despite the fact that they do not actually say that).

As a reminder, Mr Lock was paid basic salary and results-based commission but only basic pay during holiday. The ECJ determined that that was unlawful under EU law, so the question went back to the tribunal to determine if UK law could be read to allow the EU rules to be applied. The tribunal held that the necessary words could be read into the Regulations.

British Gas appealed, but the EAT dismissed the appeal. It is permissible - and indeed necessary - to imply words into the Regulations to comply with EU law. That must have been Parliament's intention. Expect a further appeal and other decisions to clarify the law on this. Hopefully they will be worthy of a higher billing than this one.

Duty on employer to look after an employee’s economic well-being

It is clear that employers should not give financial advice to employees, but I have heard references to a decision of the Pension Ombudsman which suggests that employers do have a duty of care to provide their employees with information about the implications of a decision that an employee might be about to take.

The situation apparently concerned a policeman leaving the force and re-joining after a brief break, which led to a significant tax liability in relation to his pension benefits. What he should have done in order to avoid this liability was to delay returning to the police by a further short period of time.

The Pension Ombudsman ruled, I understand, that this was not really about giving financial advice, but about giving the employee appropriate information to enable him to take an informed decision.

The implication is that employers should try to find the balance between providing the employee with the necessary information to enable them to make the decision in question, while not going as far as giving them advice. Recommending that the employee seeks appropriate expert advice would often be a good idea.

Summary dismissal for disclosure of confidential information was wrongful and unfair

An employment tribunal has held that a bank involved in the LIBOR manipulation scandal wrongly and unfairly dismissed a foreign exchange trader for disclosure of confidential client information to traders from different banks in an online chat room.

It was insufficient for the bank to rely on the strict letter of its policies and codes of practice without fully considering how the policies were actually applied in the relevant part of its business and the extent to which the information was already in the public domain. In fact there was a culture of information-sharing between traders at different banks (a fact highlighted by the FCA in a regulatory investigation into the bank). The bank made matters worse by neither recognising the relevance of that investigation to the disciplinary process nor interviewing some relevant witnesses.

The tribunal decided that that the trader was not in repudiatory breach of contract as the breach of confidentiality was not deliberate (he believed his conduct was permitted, given the similar conduct of others including his immediate managers). In fact, when dismissed he had not shared confidential information in chat rooms for three years following a specific instruction on the use of chat rooms.

So rules and policies are important, but so is context and practice. (Stimpson v Citibank N.A./ET/3200437/15.)

Meanwhile, at Sunderland Football Club…

By way of interesting contrast to that decision, let’s go off to Sunderland FC.

Mr Farnan was the Club's International and National Marketing Director. The Club discovered that he had been sending confidential information to his wife’s private email account, in reality to keep evidence he could use against the Club if he ever ended up in dispute with it (which, as it turned out, he did!). He had also used confidential documents for his own purposes in seeking employment, briefed a journalist against clear Club policy and wrongly disclosed a sponsorship agreement outside the Club. These actions were serious breaches of his employment contract which justified instant dismissal without notice.

The decision, although an interesting contrast to the Citibank case above, is not remarkable in itself bearing in mind Mr Farnan’s actions, but given that Mr Adam Johnson, a recent player at the Club, is in the news at the moment I thought readers would like to get a further insight into the functioning of this highly visible employer.

Not conduct allowing instant dismissal, but salacious nonetheless, was Mr Farnan sending of a lewd Christmas card email, which depicted 10 topless women. The reason this did not amount to gross misconduct: because of other incidents which the Club had tolerated, such as a co-director sending Mr Farnan’s wife a birthday card saying 'Happy Birthday all the breast'. What a fine role model the Club is. (Farnan v Sunderland Association Football Club (2015 EWHC 3759)).

EU-US privacy shield

On 2 February 2016 the EU Commission announced that it had reached political agreement with the US Department of Commerce on new EU-US data transfer arrangements. The new framework is called the EU-US Privacy Shield and is a substitute for the previous Safe Harbour scheme which was declared invalid on 6 October 2015 (as reported in the October 2015 Newsletter).

This is a step towards a new solution for employers who transfer employee data to the US, in order to overcome restrictions on international transfers of data under EU data protection law. However, the arrangements are not yet set in stone and there still a way to go before they become a definitive solution. The US has work to do to put in place the new framework and EU bodies need to assess the Privacy Shield, and, if found appropriate, issue a formal ‘adequacy decision’.

As we ‘go to press’ the EU Commission has just published the legal texts that will put the Shield in place. We have not been able to digest these yet but they are understood to include strong obligations on data processing and individuals' rights, robust enforcement mechanisms, clear safeguards and transparency on US government access to data, and redress possibilities for individuals. More detail will be provided in later Newsletters.

In updated guidance on 10 February 2016, the UK Information Commissioner's Office indicated that it will not be rushing into enforcement action, but advised businesses to take stock. This means employers should be reviewing what personal data they are transferring outside the EU, where it is going to, and what arrangements are in place to make sure it is adequately protected (in the US or elsewhere).

Alternative solutions such as standard contractual clauses and binding corporate rules are still valid, but these are also under review at EU level. In the UK, employers have the option of making their own assessment of adequacy based on the context and associated risks. This may therefore be an appropriate course of action for UK employers whilst there are ongoing uncertainties over the new Privacy Shield and other previously approved transfer mechanisms.

Olivia Whitcroft, Principal of OBEP
Tel: 07887 423429
Twitter: @ObepOlivia

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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