UK: Employment Briefing - April 2011

Last Updated: 6 April 2011
Article by Brian Gegg, Jesper Christensen and Marc Meryon

Constructive Dismissal

In Tullett Prebon plc v BGC Brokers LP the Court of Appeal considered the High Court's construction of issues relating to repudiatory breach and constructive dismissal and upheld its findings.

A number of city brokers working for Tullett Prebon were poached by BGC using the means of forward contracts. Such contracts are legally binding and provide that an employee will commence work on a certain date. A large financial inducement is usually offered, with part payable up front, the other part payable when the employee starts employment.

It was clear from the facts before the High Court that the Tullet brokers had been plotting the move to BGC for some time, aided by the ex-Tullet in house lawyer and another ex-Tullet broker now at BGC. Several meetings had been held in expensive restaurants, incriminating emails found and an unusually high number of blackberries and other devices 'lost' together with the information contained in them. Three of the Tullet brokers (the Tullett Three) were persuaded by Tullett to change their minds and opted to remain with Tullett. Tullett successfully applied for an injunction restraining the remaining Tullett brokers from breaching their contractual obligations (including stopping them from starting work with BGC). The High Court found that there had been a conspiracy by BGC and the Tullett brokers, the main purpose of which was to facilitate a sham 'constructive dismissal' scenario enabling the brokers to walk out and commence employment with BGC with no restrictions. The High Court also found that the Tullett Three had been entitled to breach their forward contracts with BGC since BGC had itself been in breach of the implied duty of trust and confidence by conducting the unlawful conspiracy.

BGC appealed against the decision to reject the brokers' constructive dismissal claims and, further, that the judge had been wrong to find that the Tullett Three were entitled to breach their forward contracts on the basis of BGC's prior breach. The Court of Appeal held that it was appropriate to take into account Tullett's intention in persuading the Tullett Three to stay. Its intention was key to the question of whether it had shown an intention to abandon the contract. On the contrary, Tullett was trying to persuade its employees to stay in employment.

Considering the forward contract with BGC, the Court of Appeal held that such a contract was capable of containing an implied duty of trust and confidence even though employment had not yet started. The conduct of a prospective employer could constitute a repudiatory breach entitling an employee not to start employment with that employer. On the facts, the High Court judge had been entitled to find that BGC had breached trust and confidence by being involved in the conspiracy to induce the Tullett employees to breach their contracts.

Administrations and TUPE: Oakland -v- Wellswood revisited

Where a company goes into administration and the administrators sell on part or all of the business the question arises whether accrued employee liabilities will pass over to the buyer, who may inherit an unexpected list of old debts.

Regulation 8(7) of TUPE 2006 attempted to mitigate the effect of TUPE in the case of certain insolvencies. Mirroring the wording in the Acquired Rights Directive, it provides that contracts of assigned employees (with their accrued liabilities) will not pass to the buyer where the transferor

'is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner'.

In Oakland v Wellswood, the EAT held that administrations co uld fall within the Regulation 8(7) exception, depending on the facts. This decision caused a lot of controversy and has now been addressed again by the EAT in OTG Ltd v Burke and others (5 combined cases).

The EAT in OTG disagreed with the approach taken by the EAT in Oakland, which had followed what it called a fact based approach. Instead, it preferred the absolute approach, in other words, that administrations can never fall within the Regulation 8(7) exception. This is the case even in the case of a pre-pack procedure (where the insolvency practitioner plans in advance an arrangement under which the business is sold immediately after his appointment).

The EAT stated that the focus should be on the object of the procedure rather than the object of the individuals operating it, and the object of administration is to rescue the company. It is the obligation of every administrator on appointment to consider first whether the primary objective of rescuing the company as a going concern is overridden by other obligations. Formally, therefore, at that point the object is not to liquidate the company. Further, following a fact based approach would mean there was no authoritative way of establishing whether Regulation 8(7) applies, leading to increased cost, delay and uncertainty.

Given that the purpose of the Acquired Rights Directive is to protect employees and safeguard their rights in the event of a transfer, this must be the preferred decision but it does cut against the spirit of the Enterprise Act 2002 and the 'rescue culture'. Technically there are now two conflicting EAT decisions on these issues, but it is expected that the decision in Oakland will no longer be followed.

Liability of administrators for acts of discrimination

In another case involving administrators, an employment tribunal somewhat controversially has held that the individual administrators could be liable as principals in an agency relationship with employees of a company in administration.

In Spencer v Lehman Brothers Ltd (in administration), Ms Spencer claimed sex discrimination when she was dismissed for redundancy whilst on holiday just prior to commencing maternity leave at the point when the company went into administration. On the facts, a tribunal found that the Head of Corporate Security who (at the direction of the administrators) had dismissed her was not guilty of sex discrimination since all other staff made redundant had been treated in the same way and no employee had had the opportunity to be consulted.

The tribunal, however, went on to consider whether the administrators could potentially be liable, had an act of sex discrimination been proven, under an agency relationship with the employees. It held that the fact that the administrators were the agent of the company under the Insolvency Act 1986 did not mean that they could not also act as principals with regard to the employees. Here, an agency relationship arose when the administrators asked the Head of Corporate Security to select employees for redundancy.

This is a controversial decision but is only at tribunal level so will not be binding on other tribunals.

Knowledge of employer when dismissing

In Orr v Milton Keynes Council the Court of Appeal held that, provided an employer has undertaken a thorough and fair investigation, it is entitled to take only those facts known to it at that time into account when deciding to dismiss. Mr Orr was involved in an altercation with his manager, Mr Madden, during which he was rude and aggressive. He had also discussed confidential matters with some young people at a community centre in breach of express instructions from his manager. A full investigation was carried out during which Mr Orr declined to give his views. A disciplinary hearing was held in Mr Orr's absence and he was dismissed.

Mr Orr brought claims for unfair dismissal and race discrimination. Mr Madden had apparently prompted the argument by trying to unilaterally reduce Mr Orr's working hours and had then, referred to Mr Orr's Jamaican patois, commented 'you lot are always mumbling...I can't understand a word you lot are saying'.

The Court of Appeal upheld the EAT's finding that Mr Orr's dismissal was fair as the decision to dismiss fell within the band of reasonable responses. Deciding what knowledge the employer has at a particular time is not straightforward and to impute to the decision maker knowledge of Mr Madden's behaviour that could not reasonably have been acquired through the disciplinary procedure would impose too onerous a duty on the employer. This reinforces the principle that it is the reasonableness of the employer's conduct and processes which is key, rather than any possible injustice to the employee.

Redundancy: bumping

The EAT in Fulcrum Pharma (Europe) Ltd v Bonassera and another considered whether an employee had been unfairly dismissed for redundancy where bumping was not considered as an option.

Ms Bonassera was a Human Resources Manager supported by C, a Human Resources Executive. Fulcrum Pharma decided to make cuts and to reduce the HR function to one role, namely C's job, and that Ms Bonassera's post would therefore become redundant. No alternative employment was available to be offered to Ms Bonassera and she was made redundant. She brought a claim for unfair dismissal claiming that C should also have been considered in the pool for redundancy as many of their functions were interchangeable. A tribunal agreed and found that although consultation had taken place as to the method of achieving the redundancy, the selection process was fundamentally flawed. The EAT upheld the tribunal's decision, finding that Fulcrum Pharma had been wrong to conclude that the pool was one person because it was the manager's role that had to go. The issue of pooling had not been discussed with Ms Bonassera.

The case makes clear the importance of discussing with potentially redundant employees whether they would consider taking a lower post and, more generally, the issue of pooling. The failure to properly consult over these issues with Ms Bonassera resulted in an unfair dismissal finding against the employer.

And finally...
Default retirement age regulations

As covered in earlier briefings, the default retirement age will be abolished with effect from 6 April 2011. Our recommendation is that as from that date employees should be notified that any retirement age provisions in their contracts of employment and associated documentation should be removed unless there are strong reasons for retaining a retirement age. It is expected that such cases will be rare and will need to be objectively justifiable.

In the meantime, there has been some confusion over the transitional provisions which will apply. Amended draft regulations (the Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 have been published which provide for a 12 month transitional period. For the transitional provisions to apply:

  • Notice of intended retirement must have been issued on or before 5 April 2011
  • The employee must have reached the age of 65 (or any higher normal retirement age) on or by 30 September 2011
  • The requirements of the statutory retirement procedure must have been met.

The draft regulations set out the last date on which an employee may make a request to work beyond retirement as 4 January 2012. A request must be submitted between 3 and 6 months before the intended retirement date. Any extension granted by an employer must be for 6 months or less and the last date on which any such extension can expire is six months after 5 April 2012, ie 5 October 2012.

Change to tax treatment of payments made after issue of P45

HMRC has instructed employers, from 6 April 2011, to withhold income tax at the appropriate rate of tax from termination payments made after issue of a P45. At present, only basic rate tax need be deducted and the employee remits any additional tax due at the end of the tax year through self assessment.

As from 6 April, employers must use a 0T PAYE code in two additional circumstances: where a new employee starts work without producing a P45 and where an employer starts paying an occupational pension to an employee in addition to salary.

Time off for training

The Government has announced that it will not extend the right to request time off for training to employers with fewer than 250 employees.

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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