UK: Employment Briefing - January 2011

Last Updated: 14 January 2011
Article by Brian Gegg, Jesper Christensen and Marc Meryon

Pay In Lieu Of Notice Did Not Include Guaranteed Bonus

The Court of Appeal in Locke v Candy & Candy Ltd considered whether a clause providing that an employee had to be employed to receive a guaranteed bonus was sufficient to exclude that employee's right to compensation for that bonus when he was summarily dismissed.

Mr Locke was employed by Candy & Candy Ltd as a development director. Under the terms of his contract Mr Locke was entitled to a salary of £200,000, a guaranteed bonus of £40,000 after six months' employment and a further guaranteed bonus of £160,000 gross after 12 months' employment. Clause 4.2 provided 'You must be employed by the company in order to receive the bonus'. At clause 7.5, the contract provided 'the Company reserves the right to make a payment in lieu of notice'. Mr Locke was entitled to six months' notice.

Mr Locke fell out with Candy & Candy Ltd over proposed changes to his contractual terms. Candy & Candy Ltd summarily terminated Mr Locke's employment and proposed to pay him six months' salary in monthly instalments. However it did not pay him the second bonus payment of £160,000. Mr Locke brought proceedings to recover the bonus.

The High Court held that Mr Locke had no entitlement to a bonus by virtue of clause 4.2. Mr Locke appealed. The Court of Appeal by a majority of 2:1 upheld the High Court's decision. Arden LJ noted that this case underlined the care that is needed in drafting clauses in service contracts for the payment of bonuses. In her view, the issue was the meaning of the expression 'a payment in lieu of notice', as that expression was used in clause 7.5. As clause 7.5 was in itself unhelpful, the amount payable had to be found elsewhere in the contract. The contract needed to be interpreted 'holistically'. It was open to contracting parties to agree that a payment in lieu of notice should be calculated differently from that in which the employee would have been remunerated had he continued to be an employee during the period of notice. Pill LJ noted that the contract was an agreement between experienced parties involving substantial sums of money. The terms of clause 4.2 were integral to the contract.

This case, as Arden LJ noted, illustrates the importance of careful drafting of bonus and PILON clauses. The two should never be drafted in isolation. An employee should always scrutinise the contract to spot any such pitfalls where what appears to be 'guaranteed' ceases to be so.

Burden of proof test in whistleblowing cases

In Fecitt and others v NHS Manchester, the EAT disagreed with the EAT decisions in London Borough of Harrow v Knight and Aspinall v MSI Mech Forge Limited when determining whether a detriment had been suffered as a result of a whistleblowing disclosure. In Knight and Aspinall, the EAT had held that there had to be a causative link between the protected disclosure and the detriment (in other words, the real or core reason for the detriment was the disclosure). In Fecitt, the EAT chose to adopt the discrimination burden of proof guidelines as set out in Igen v Wong. The EAT held in Fecitt that the employer should have to prove that the disclosure was 'in no sense whatsoever' connected with the detriment. In other words, the employer must show that the protected disclosure played no more than a trivial part when the detriment was applied. Whilst the EAT recognised that Igen v Wong was a race discrimination case where the European Directive applied, it also noted the assimilation of the law of victimisation in discrimination cases and victimisation in whistleblowing cases. This decision, unless successfully appealed, will make it easier for claimants to prove their cases.

Excessive cost a defence to not introducing a reasonable adjustment

An employment tribunal agreed with the Foreign and Commonwealth Office's (FCO) decision to withdraw an offer to a deaf senior diplomat when it discovered that the cost of providing lip-speaker support would be unduly excessive. In Cordell v Foreign & Commonwealth Office, Ms Cordell, a profoundly deaf diplomat, was offered a promotion to the embassy in Kazakhstan. The FCO applied its Reasonable Adjustment policy which required adjustments over £10,000 to be assessed for reasonableness. It calculated that the approximate cost of the proposed adjustments to enable Ms Cordell to do the job were in the region of £249,500 (more than 5 times Ms Cordell's salary). The FCO decided that the cost was unreasonable and withdrew the offer to Ms Cordell who brought a claim of disability discrimination.

The tribunal held that the FCO was not in breach of its duty to make reasonable adjustments. It took account of the fact that the costs exceeded Ms Cordell's salary by 5 times and was more than the cost of employing all the local staff at the Kazakhstan embassy. Further, the cost would take up about half of the FCO's entire disability budget.

This is a useful tribunal decision for employers, whilst it is not binding on other tribunals or courts, especially because it had previously been thought that the cost of an adjustment was not a relevant factor in deciding whether it was reasonable.

Reinstatement is a reasonable adjustment

In Hinsley v Chief Constable of West Mercia Constabulary the EAT held that the Chief Constable of West Mercia should have offered reinstatement as a 'reasonable adjustment' to an employee with depression who resigned from the police force. Mrs Hinsley was a probationary police officer in the West Mercia police who exhibited dissatisfaction with her job and indicated that she did not like independent patrol duties. It was agreed to remove her from these duties but she rejected the offer. She brought claims of bullying and sex discrimination which she later withdrew. She then expressed a wish to leave the police and but she was counselled to consider her position and was offered welfare support. She insisted on tendering her resignation. She was again asked to reconsider but she said she had an alternative job offer outside the police force.

The force delayed processing her resignation letter and asked for an exit interview to be arranged. Mrs Hinsley then said she may have been hasty and wanted to stay with the police but to be transferred to a different team (having previously rejected an offer of transfer). She was offered a transfer to any other team because the one she had identified had performance issues. She rejected that offer but was counselled by the police force to consider staying.

She telephoned Mr Coley, divisional personnel officer, a few days later to say that she wanted her exit interview brought forward as she was about to start her new job. At the exit interview she was urged again to retract her resignation and was offered transfer to the original team she had wanted to transfer to or to any other team. She rejected all these options and confirmed her intention to resign, which was finally accepted.

Mrs Hinsley was then diagnosed by her GP with depression. She telephoned the police force's personnel department to advise them of this diagnosis and to ask to be reinstated. She spoke to Mr Coley and threatened 'industrial tribunal proceedings' saying she would get a considerable sum of money because she had been diagnosed with depression. Her request for reinstatement was considered by three heads of department and the conclusion reached that there was no provision in the police regulations for reinstatement or re-engagement. Mrs Hinsley brought proceedings under the Disability Discrimination Act (DDA).

The EAT overturned the tribunal's decision, finding that the Chief Constable had breached the DDA by failing to make a reasonable adjustment (ie reinstating her). It noted that there was no express prohibition in law (including the Police Regulations) against reinstatement after an employee had resigned. It found that it would have been a reasonable adjustment to take her back into the service without the need to apply from scratch. Interestingly, the EAT appears to be suggesting that an employer's duties towards an ex employee are no less onerous than when the employee still worked for the employer. This is a worrying development and will hopefully not be the last word. Employers will be very concerned if they are expected to offer re-employment to every employee with depression who has resigned.

ECJ decision on objective justification in age discrimination

The ECJ in Georgiev v Technicheski universitet – Sofia, filial Plovdiv held that in principle it was reasonable for Bulgarian national law to compulsorily retire university professors who reach the age of 68 and who can only work beyond the age of 65 by means of fixed term contracts concluded for a period of one year and renewable at most twice.

Mr Georgiev was a university professor whose employment was terminated under national law when he reached the age of 68. He challenged this decision. The university argued that national legislation pursued a social policy aim linked to the training and employment of teaching staff. The ECJ ruled that it was in principle reasonable to apply an age limit so that younger academics could be promoted. It noted that professorial posts are limited and a position needs to be vacated in order to allow promotion. It may therefore be appropriate to apply an age limit to achieve such promotions and to maintain quality. However, it was for the national court to decide whether the age limit of 68 in this case was legitimate and proportionate to achieve those aims.

No discrimination claim for advert if no interest in application

The EAT in Berry v Recruitment Revolution and others held that a person could not bring an age discrimination claim based on terminology in job adverts targeting younger applicants if he had no interest in applying for the job. The act complained of must have impacted on him in some way.

Pension assurances pass to new employer under TUPE

Transferee employers should always carry out careful due diligence to calculate the extent of the liabilities they are inheriting. In Robert Whitney v Monster Worldwide Ltd the Court of Appeal upheld a High Court decision that where a 'no detriment guarantee' had been given to Mr Whitney when his final salary pension scheme was replaced with a money purchase scheme, this assurance transferred to his new employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006. It was irrelevant that the assurances were not clearly recorded. The fact was that there had been a contractual agreement to this effect and that agreement transferred to a subsequent employer by way of a separate contractual novation even though it related to an occupational pension scheme.

Employee can bring breach of TUPE information and consultation claim where there are no employee representatives

The EAT in Hickling (t/a Imperial Day Nursery) and others v Marshall applied the EAT's decision in Howard v Millrise that an affected employee could bring a claim for breach of the duty to inform under Regulation 13 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 where there was no union or elected representative. This decision actually appears to fill in a hole in the practical operation of the TUPE regulations which previously existed.

And Finally... Proposal to extend fully paid maternity leave blocked

EU ministers have objected to the proposed amendments to the Pregnant Workers Directive adopted by the European Parliament, in particular the requested extension of minimum paid maternity leave to 20 weeks. Concerns were expressed about cost implications. It is expected that Belgium, which holds the Presidency, will redraft the amendments aiming to extend the minimum length of maternity leave from 14 to 18 weeks.

The Equality Strategy

The Government Equalities Office has published 'The Equality Strategy – Building a Fairer Britain' which indicates its intention to implement s159 of the Equality Act 2010 (allowing positive action in recruitment and promotion) from April 2011 and sets out a scheme for voluntary gender pay reporting in the private and voluntary sectors.

Proposal to unify courts and tribunals

The Ministry of Justice has published a consultation paper on unifying the courts and tribunal service. The proposal is to 'join up' the administrative functions of the justice system. The new organisation will be called Her Majesty's Courts and Tribunals Service and will begin operating on 1 April 2011. Legal processes and procedures will not be affected.

Guidance on agency workers

The CIPD, together with Adecco, has published guidance for organisations that use agency staff to help them understand the impact of the new regulations which come into effect on 1 October 2011: 'Equal Treatment for agency workers: a guide to the Agency Workers Regulations 2010'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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