It feels like we are back in the swing of things this month with a range of legal developments covering familiar topics such as employment/worker status, discrimination and working time.
Please note also my item at the end of this Newsletter about changes to how IR35 will operate in the private sector from next April. Many of my corporate readers will fall below the size threshold of businesses who will be covered by these new rules, and those who think they may be affected are no doubt taking tax advice. But this change may well affect how independent consultants set themselves up in business and that could impact any organisation which uses the services of such staff.
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First, a reminder that the annual increase in a week’s pay (used amongst other things for determining statutory redundancy pay) and the unfair dismissal compensatory award limit is upon us. For dismissals taking place on or after 6 April 2019, a week's pay becomes £525 and the compensatory award limit will be £86,444.
In Exmoor Ales Ltd & another v Herriot (UKEAT/0075/18) Ms Herriot had provided accountancy services to Exmoor for 27 years in the name of her partnership with her husband. Originally, she was paid on submission of regular invoices. From 2011 onwards, however, Exmoor made her a quarterly payment of £1,000 and required her to work exclusively for them, with no right to appoint a substitute in her absence.
When it later ended the relationship with her, she claimed unfair dismissal and discrimination, maintaining that she was in reality an employee.
The Employment Appeal Tribunal (EAT) held that the Employment Tribunal was correct to find that she was an independent contractor until 2011, but at that point had become an employee. They declined to follow Exmoor’s argument, that the Tribunal had not looked at all the relevant factors on employment status, including her tax arrangements, that she had prepared employment contracts for other staff but not herself, and that she was not a member of the employee share scheme.
The EAT said that Tribunal had been aware of these factors but they had been overridden by other considerations including mutuality of obligation, control and substitution, which were decisively in Ms Herriot's favour.
This case does not change the law, but does emphasise that each case of employment status turns very much on its own facts. It is also a reminder to lawmakers as to how hard it would be to draft specific statutory rules aimed at making it any easier to determine whether an individual is self-employed, a worker or an employee.
Under Regulation 12 of the Working Time Regulations 1998, workers are entitled to an uninterrupted 20-minute break after 6 hours of work. However, there are certain special cases where employers are allowed to provide “compensatory rest” under Regulation 24.
In Network Rail Infrastructure Ltd v Crawford (2019 EWCA Civ 269) the Court of Appeal has held that in such cases the equivalent period of compensatory rest that the employer must give need not be an uninterrupted 20-minute break.
In this case the employee, a railway signal controller, was entitled to take a number of breaks of less than 20 minutes throughout his eight-hour shift, but which amounted overall to significantly more than 20 minutes.
Whilst we are on this subject, it is worth pointing out the EAT’s recent decision that compensation for personal injury is available for a failure to provide rest breaks. (Grange v Abellio London Ltd EAT/0304/17).
Consider the situation in which an employer establishes that an employee is intoxicated when at work, starts a disciplinary process and then discovers that the employee has an alcohol dependency. It then has a dilemma: does it carry on with the process, or should it focus on providing support to the employee in order to help them overcome their addiction (something encouraged as a matter of good HR practice)?
In Glassford v Royal Mail Group Ltd (UKEATS/0012/18) Mr Glassford had twice attended work under the influence of alcohol, for which he received a sanction of "suspended dismissal", lasting for two years, effectively a final written warning.
He was then dismissed for unauthorised absence, but at the appeal hearing he admitted that he had been under the influence of alcohol that day and that he had an alcohol dependency.
The decision to dismiss was upheld and an Employment Tribunal found that the dismissal was fair. The EAT agreed, finding that the appeal manager had reasonably concluded that Mr Glassford's admission was "too little, too late". He had not sought help to address the dependency, either from his GP or the employer's occupational health service, and this cast doubt on his willingness to tackle his problem, which was relevant to the overall reasonableness of the decision to dismiss.
Again, this is no game-changer, but it illustrates that an employer is entitled to take all the circumstances into consideration. Just because an employee admits to a dependency, that does not mean automatically that dismissal will not be within the range of reasonable responses.
Jolly v Royal Berkshire Hospital (ET 3324869/2017) has attracted some publicity, despite it being a lowly Employment Tribunal level case. Perhaps the reason for the publicity is that Ms Jolly was 86 when the claim arose – apparently the oldest ever claimant to win an age discrimination case - and suffered from arthritis and a heart condition.
She worked in administrative roles until she was dismissed for capability reasons, including “due to a third serious incident in two years” regarding the administration of the hospital waiting list.
However, the Employment Tribunal found that Mrs Jolly had no idea what the first two incidents referred to were, as no serious incidents had been raised with her previously, and that "none of the Respondent's witnesses were able to identify the first two serious incidents...".
As part of the investigation, the investigating manager spoke to a number of Mrs Jolly's colleagues, who made remarks including: she was too old to walk the length of the building; she was frail because of her age; she had difficulty with walking and arthritis; comments about her health; and concerns regarding her working overtime because of her age. The investigating manager himself referred to Mrs Jolly being `stuck in old secretarial ways'.
There were also significant shortcomings in the procedure, so it is no surprise that the dismissal was found to be both unfair and discriminatory due to her age.
Under the Equality Act 2010, an employee is disabled if they have a physical or mental impairment which has an adverse effect on their ability to carry out normal day-to-day activities, and the effect is substantial and long-term. If the employee is disabled, the employer must consider reasonable adjustments.
However, this duty only arises where the employer has actual or constructive knowledge of the employee’s disability. Constructive knowledge arises where the employer could reasonably be expected to know of the physical or mental impairment; that it is long-standing or likely to last at least 12 months; and that it had a sufficiently adverse effect on the employee’s normal day-to-day activities to amount to a disability.
In the case of Lamb v The Garrard Academy (UKEAT/0042/18), the EAT held that the school did have a duty to make reasonable adjustments in its handling of Ms Lamb’s grievance because it did have constructive knowledge that she was disabled.
Ms Lamb, a teacher at the school, went off sick in February 2012 due to depression and raised a grievance about her treatment by the school.
At a meeting with the Chief Executive, Ms Lamb told him that she was suffering from post-traumatic stress disorder (PTSD) arising from abuse suffered as a child, which could be triggered by difficult situations. She was subsequently assessed by Occupational Health, which concluded in November 2012 that her symptoms of reactive depression probably began in September 2011 and that she was likely to recover fully once any outstanding issues relating to her grievance were resolved.
The school argued that they did not have knowledge of her disability until they received the Occupational Health report, but the EAT decided that the school had constructive knowledge of her disability when she told the Chief Executive about her PTSD. The duty to make reasonable adjustments arose at that point.
As a general rule I advise clients to pause if they have any concerns that an employee may be disabled, rather than press on with, for example, a dismissal with their fingers placed loosely or firmly in their ears. I think this case bears out that approach.
In iForce Ltd v Wood (UKEAT/0167/18), Ms Wood worked in a warehouse and suffered from osteoarthritis, which worsened in cold damp conditions. The employer wanted to change working practices, which would result in her having to work in different parts of the warehouse, which she mistakenly believed would exacerbate her arthritis.
The employer commissioned a report, which found that the conditions she would have to work under were not significantly different to her current conditions, but she refused to comply with the requirement to change her working practices and so was given a warning.
As a result, she lodged a disability discrimination claim, which the EAT rejected, on the basis that a mistaken belief by the employee that she would suffer a detriment did not amount to unfavourable treatment because of something arising in consequence of her disability.
Mr Harvey was employed by Oxford Bus Company as a bus driver. He was a Seventh Day Adventist and, so he could observe the Sabbath, he asked not to work between sunset on Friday and sunset on Saturday.
He was allocated to a service that accommodated this, but not permanently. The company was worried about the risk of industrial unrest if other drivers asked for time off for other religious events or festivals.
Mr Harvey claimed indirect discrimination on the grounds of religion or belief and the Tribunal upheld the claim. It ruled that the 'provision, criterion or practice' of requiring bus drivers to work five days out of seven put Mr Harvey at a particular disadvantage and was not justified. There was insufficient evidence to support the legitimate aims of maintaining a 'harmonious workforce' which the company advanced.
The EAT overruled the tribunal, saying it had wrongly focussed on the particular application of the rule on Mr Harvey rather than the justification for the rule in general. The focus should have been on the impact of granting many requests, not just one. The matter was sent back to the tribunal to reconsider the issue of justification on this basis. (The City of Oxford Bus Services Limited t/a Oxford Bus Company v Harvey (UKEAT/0171/18).
I generally do not report Employment Tribunal decisions because they are not binding on other tribunals, but I have made an exception twice in this Newsletter.
An employment judge had to consider the employment status of art experts who worked as educators for the National Gallery. They were trained and observed talks and gallery debriefs and then undertook two tours themselves to secure appointment to the team of educators. Work was allocated essentially according to need and availability. However, it was not guaranteed and there was no penalty for declining an offer of work. On the other hand, sending along an alternative expert, even if from the existing team, was not permitted. The Gallery issued quite strict guidelines and policies which the educators had to follow. They were paid through payroll.
The Judge held that they were workers when undertaking individual assignments, although not between assignments (when they were neither employees nor workers). The Gallery argued that they were independent contractors in business on their own account but the Judge said that that was an unsustainable argument. (Braine and others v The National Gallery ET/2201625/18).
The EAT, probably to the relief of many employers, has agreed with an employment tribunal's decision that "bad leaver" provisions in a company's Articles of Association, that provided for forfeiture of deferred earn-out shares and loan notes if an employee resigned, should not be set aside as unconscionable. Neither were they an unenforceable penalty clause in law, because the provisions in the Articles applied to bad leavers regardless of whether there had been a breach of any contract.
In addition, the company's remuneration committee, which had a discretion to reclassify the claimant as a good leaver, had not failed to exercise that discretion in good faith. The bad leaver provisions were clear as to the consequences of voluntary resignation, and there were no exceptional circumstances to call into question the tribunal's decision that the company had acted in good faith. (Nosworthy v Instinctif Partners Ltd UKEAT/0100/18).
The question facing the court in Mayor and Burgesses of the London Borough of Lambeth v Agoreyo (2019 EWCA Civ 322) was whether the suspension of Ms Agoreyo, a primary school teacher, breached the implied duty of maintaining trust and confidence in the employment relationship.
Two teaching assistants accused Ms Agoreyo of using excessive force against two young pupils who had special educational needs. Ms Agoreyo maintained that the suspension was 'kneejerk' and therefore in breach of the implied term of trust and confidence, in consequence of which she resigned and brought a claim.
The Court of Appeal concluded that it had been legitimate for the County Court to decide that the school had reasonable and proper cause for suspending her so there was no breach of contract. The legal question was indeed whether the school had reasonable and proper cause to suspend, and the County Court judge was entitled to hold that it did. The test was not whether it was ‘necessary’ to do so.
The case is nonetheless a reminder that an automatic decision to suspend could be challenged. The question of whether there are reasonable grounds for doing so must first be considered.
HMRC’s latest consultation on off-payroll working confirms its plan that new IR35 rules will apply to private sector employers from April 2020. The rules already apply in the public sector.
IR35 applies where an individual personally provides their labour to a client via their own personal service company or partnership and would otherwise be an employee of the client.
Assuming the rules are implemented, with effect from 6th April 2020 the (private sector) client rather than the personal service company will be responsible for determining whether the IR35 rules apply. If it decides that they do it will have to account for and pay tax and NICs (and the apprenticeship levy as if the worker was an employee).
However, ‘small’ private sector clients will be exempt from the new rules and, subject to anti-avoidance provisions, will not be required to determine whether IR35 applies.
A corporate client will be treated as ‘small’ for a tax year if it satisfies at least two of the following conditions:
annual turnover is not more than GBP 10.2 million;
- its balance sheet total is not more than GBP 5.1 million;
- its number of employees is not more than 50.
A non-corporate client will be obliged to apply the new rules if either:
- it has both 50 or more employees and turnover exceeding GBP 10.2 million; or
- it satisfies either one of those tests.
These new rules could cause a considerable shake up in how interim, contractor and consulting staff are engaged. Many businesses now insist that such workers contract through their own personal service companies, shielding the service user from employment law responsibilities and placing the tax risk with the worker under IR35. Faced with that tax risk, those businesses may adopt a very cautious approach (and avoid the time and cost of making a full status assessment) by simply making tax and national insurance deductions from the fees it pays. Faced with this, workers could challenge the assessment and may have rights under the new rules to assist them. However, that would mean challenging their client, so will they in practice do that? Rather, they might start wondering why they are bothering to incur the cost and administrative burden of setting up company, and indeed why they should not just ask to be made an employee so at least they can get the additional benefits and protections which come with that.