UK: Employment Newsletter - October 2012

Last Updated: 14 November 2012
Article by Brian Gegg

POST-EMPLOYMENT VICTIMISATION CLAIMS

By Jesper Christensen

A claim for victimisation can be brought where an employee has been subjected to a detriment as a result of bringing a discrimination complaint.

Prior to the Equality Act 2010, discrimination legislation gave former employees the right to bring claims for victimisation that occurred after their employment ended. However, although the Equality Act makes postemployment discrimination and harassment unlawful, it specifically excludes post-employment acts of victimisation (section 108(7)). In the recent case of Taiwo v Olaigbe, the employment tribunal judge held that this was a drafting error, and that the Act should be interpreted to protect former as well as current employees.

Ms Taiwo had worked as a live-in nanny/housekeeper under a migrant worker visa until she left her employment, complaining of racial abuse. During the course of subsequent tribunal proceedings, her ex-employers sent the trial bundle to the United Kingdom Border Agency, asking that they re-examine her immigration status. Ms Taiwo then brought a claim for post-employment victimisation. The employers argued that such claims are excluded by the Equality Act 2010.

The employment judge referred to the EHRC Code of Practice on Employment and correspondence from the Government Equalities Act office each of which seem to confirm that protection from post-employment victimisation is maintained under the Equality Act. He concluded that the current exclusion is a drafting error and that words should be read into the Act in order to clarify that victimisation claims relating to former employment are covered.

This decision conflicts with a previous tribunal decision in Jessemey v Rowstock Ltd, in which it was held that Mr Jessemey could not proceed with a victimisation claim relating to an unfavourable reference given by his former employer. However, Taiwo v Olaigbe is more consistent with the intention behind the legislation and previous case law, and is a common-sense decision. An amendment to the Equality Act 2010 would nevertheless be welcome in order to clarify the situation.

HARMONISING TERMS AND CONDITIONS AFTER A TUPE TRANSFER IS NOT AN ETO REASON ENTAILING CHANGES IN THE WORKFORCE

By Brian Gegg

A dismissal connected with a TUPE transfer will be automatically unfair unless it is for an economic, technical or organisational reason entailing changes in the workforce ('an ETO reason'). The courts have interpreted 'changes in the workforce' to mean changes in job functions or numbers employed. Manchester College v Hazel & Huggins illustrates the limitations of the ETO defence when introducing new terms and conditions following a transfer.

In August 2009, 1500 staff transferred to Manchester College under TUPE, including the two claimants, Mrs Higgins and Mrs Hazel. Six months later, the College began a process of cost savings which included a request for volunteers for redundancy as well as pay cuts. The College also wished to rationalise the 37 different contracts they had inherited from the transfer, and to correct inequalities in these various terms and conditions.

The redundancies were largely achieved through voluntary redundancies, and in May 2010 Mrs Huggins and Mrs Hazel were informed that their jobs were safe. They were then asked to agree to a pay cut, but refused. Because of their continued objection to the pay cuts, they were dismissed. Although they subsequently agreed to the pay cut, and continued to work, they brought a claim alleging that their dismissals were automatically unfair under TUPE.

The tribunal held that Mrs Higgins and Mrs Hazel were dismissed because they would not agree to the new terms and conditions, which were connected to the transfer and therefore automatically unfair. The College argued that where there was harmonisation of terms and conditions as well as redundancies, it should be able to rely on the ETO defence. However, the employment tribunal held that the fact that others were previously dismissed for redundancy did not alter the fact that these particular employees were dismissed by reason of harmonisation, which, whilst it is a potential ETO reason, does not entail changes in the numbers or functions of the workforce. Therefore the claims of automatic unfair dismissal were upheld. Since the claimants had continued to work for the College, the tribunal made an order for re-engagement based on the new terms and conditions with the exception of pay. Their salaries were restored to their previous levels but frozen until other employees on the new pay scales caught up.

The EAT agreed with the tribunal's judgment in relation to both liability and remedy, dismissing the employer's argument that the redundancies and the harmonisation process should be seen 'holistically' as part of an overall process to achieve costs savings. It is conceivable that the outcome might have been different if the claimants had been asked to sign new contracts whilst the redundancies were actually being implemented.

REASONABLENESS OF RESTRICTIVE COVENANT MUST BE JUDGED AT THE TIME IT WAS ENTERED INTO

By Caroline Yarrow

In Patsystems Holding Ltd v Neilly the High Court has reaffirmed the principle that the reasonableness of a restrictive covenant must be judged at the time it was entered into, rather than at the time an employer seeks to enforce it.

In 2000 Mr Neilly began work as an account manager for Patsystems, which sells financial trading software. He was on £35,000 per annum, and his contract contained a one month notice period and a 12 month non-compete clause. Five years later, Nr Neilly was promoted to the role of Director of Global Accounts. His salary was increased to £80,000 and his notice period extended to three months. Mr Neilly signed a letter agreeing to these changes and acknowledging that all the other terms and conditions in his original contract remained unchanged. In April 2012, Mr Neilly resigned in order to take up employment with a company which Patsystems regarded as a competitor. Shortly afterwards, Patsystems summarily dismissed him and sought an injunction to enforce the non-compete clause entered into in 2000.

The High Court held that the non-compete clause was not enforceable since it was not reasonable at the time it was entered into, given Mr Neilly's status and responsibilities in 2000. The covenant would only be enforceable if Patsystems had asked for his express acceptance of the restriction in 2005 when he was promoted, or required him to sign a new agreement. Mr Neilly's acknowledgement that his previous terms remained unchanged was not enough to validate the previously invalid non-compete clause.

It is likely that the 12 month non-compete clause would have been unenforceable in any event, as a period of 6 months would have been sufficient. However, this case is a useful reminder for employers to review restrictive covenants as a matter of course when employees are promoted, and to agree any new covenants with individual employees using the correct legal procedure.

TRIBUNALS SHOULD ONLY CONSIDER MISCONDUCT TAKEN INTO ACCOUNT BY AN EMPLOYER WHEN ASSESSING REASONABLENESS OF DISMISSAL

The EAT case of Nejjary v Aramark Ltd is a reminder that when assessing the reasonableness of a dismissal, tribunals must not take into account factors which did not feature in an employer's decision to dismiss.

Mr Nejjary was employed as a hospitality manager by Aramark Ltd, a company which provides hospitality services to Goldman Sachs. He was dismissed for gross misconduct relating to three separate incidents involving failure to check arrangements for events. An internal appeal subsequently discounted two of these incidents but held that one incident of failure to check a booking sheet for a breakfast meeting was sufficient on its own to amount to gross misconduct, since Mr Nejjary's actions had brought Aramark's reputation into disrepute.

The employment tribunal found that Mr Nejjary's summary dismissal for failing to check a booking sheet would normally be outside the range of responses of a reasonable employer. However, since he had had previous written and verbal warnings arising out of similar circumstances, the tribunal held that his dismissal was fair. Mr Nejjary appealed, on the basis that the tribunal had introduced factors which had not formed part of the company's decision to dismiss.

The EAT emphasised that the reason for dismissal considered by the tribunal must be the employer's actual reason, not reasons for which the employee might otherwise have been dismissed. A tribunal cannot substitute a reason which was not used by the employer in its decision-making process. It must look at what was in the mind of the employer at the relevant time. Since the tribunal had found in this case that dismissal for a single incident was not a reasonable response, the EAT substituted a finding of unfair dismissal.

COURT CONFIRMS THAT LLP MEMBERS ARE NOT WORKERS

In Clyde & Co and another v Bates van Winkelhof, the Court of Appeal has allowed an appeal against the EAT's decision that a former equity partner of a limited liability partnership (LLP) was a worker and therefore eligible to bring a whistleblowing claim.

The Court of Appeal held that the effect of the Limited Liability Partnership Act 2000 (section 4(4)) is that an LLP member who would have been a partner under a general partnership could not be a worker. In addition, the relationship between an LLP member and an LLP does not have the characteristics of control and subordination which are inherent in the concepts of employee and worker.

This decision means that most LLP members have no employment rights except protection from discrimination, although a further appeal is expected. It should also be noted that the terms of the LLP members' agreement, and the duties and responsibilities of each individual, will also be vital in establishing their employment status.

GOVERNMENT CONSULTATION ON THE EFFECTIVENESS OF TUPE

In November 2011 the Government issued a call for evidence on the effectiveness of TUPE 2006, asking for views on the regulations and whether they could be improved. The replies received have been summarised in the Government's response which was published on 14th September 2012.

Various problems in implementing TUPE are highlighted, for example, in applying TUPE to service provision changes, harmonising terms and conditions following a transfer, and dealing simultaneously with TUPE consultation and collective redundancies. So far the Government has indicated that further consultation will definitely take place on:

  • whether the service provision changes should be retained;
  • whether liabilities should pass to the transferee or be held jointly and severally by the transferee and transfer or;
  • whether employee liability information should have to be provided to the transferee earlier than 14 days before the transfer;
  • whether to amend TUPE to provide that a change of location of the workplace following a transfer does not lead to automatically unfair dismissal ie it is capable of being an economic, technical or organisational reason entailing changes in the workforce.

However, the response also points out that the scope for change is limited due to the requirements of the European directive underlying TUPE, the complexity of the regulations, and general employment law. This means that improvements to current guidance may be more likely than changes to the TUPE regulations.

GOVERNMENT ANNOUNCES NEW EMPLOYMENT STATUS OF 'EMPLOYEE OWNER'

The Government has published consultation on its proposal to create a new employment status of 'employee owner'. Businesses will be able to offer individuals shares in their employing company worth between £2,000 and £50,000.

Although income tax and NICs would be payable on the grant of shares, they would be exempt from capital gains tax. In exchange, employee owners will have to give up the following rights:

  • the right to claim unfair dismissal (unless this relates to discrimination or automatically unfair dismissal);
  • certain rights to flexible working and training; and
  • the right to claim a statutory redundancy payment;
  • they will also have to give 16 weeks' notice of the intention to return from maternity or adoption leave (instead of the usual 8 weeks).

Employers will be able to include a contractual clause requiring employees to surrender shares when they leave, whether through choice, redundancy or dismissal. However, the employer would have to buy back the shares at a reasonable value.

The new employment status will be available to all companies, but is mainly intended for smaller, fast-growing companies. It would be implemented through the Growth and Infrastructure Bill from April 2013. There are many legal, tax and practical issues associated with this proposal. For example, smaller companies may find it costly and cumbersome to administer; employee owners may just be encouraged to bring other types of claim (such as discrimination); and it may not be attractive to employees from a tax point of view. It remains to be seen whether businesses or employees will embrace this new employment status.

AND FINALLY

The FSA has published a guidance consultation on the risks to customers from incentives paid to sales staff in the retail financial services sector. This follows a review which found that many firms have incentive schemes that could lead to misselling, but did not have effective systems and controls to manage this risk.

The Information Commissioner's Office has published guidance on deleting personal data under the Data Protection Act 1998. This guidance stresses the need to be clear with individuals what is meant by deletion and what happens to information once it has been deleted. This is vital where information has only been archived and could be reinstated.

The latest statistics published by the Ministry of Justice indicate a 15% fall in the number of claims received by the employment tribunal in the year up to 31 March 2012, although there was a slight increase in claims for disability, religion and belief discrimination, and failure to inform and consult on redundancy. Compensation was awarded in only 21% of unfair dismissal cases with a median award of £4,560. Sexual orientation discrimination had the highest median award of £13,505.

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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