UK: Clear From The Outset

Last Updated: 29 November 2016
Article by Ben Hegedus

I know that we, employment lawyers, bang on about the importance of employers ensuring that their contractual terms and policies are clear and up-to-date. In an attempt to show that this is not simply motivated by a desire to generate additional work (at least, not entirely) I want to use this article as an opportunity to flag-up a few practical examples of why this is so important, supported by recent court and tribunal cases as illustrative examples.

Enough is Enough

We are increasingly coming across cases of employees, having raised a grievance and having been disappointed with the outcome, following it up with a number of additional grievances and appeals. This often results in management starting to question whether the underlying trust and confidence necessary for a productive employer-employee relationship has irretrievably broken down. There has recently been a line of cases that have reiterated the fact that it is a risky strategy for employers facing such a scenario to look to rely on a 'breakdown of mutual trust and confidence' as the grounds for bringing the employee's employment to an end. For example, the Employment Appeal Tribunal in the case of Woodhouse v West North West Homes Leeds Limited, despite accepting that the majority of the concerns forming part of the ten grievances brought by Mr Woodhouse were without merit, concluded that the circumstances did not warrant the employer relying on the breakdown of mutual trust and confidence as the basis for coming to the decision to bring his employment to an end.

This is a salutary lesson for employers on the importance of having carefully drafted grievance and disciplinary procedures, which, among other things, make clear that: an employee when raising a grievance must set out all the matters relevant to it (in order to avoid a drip-drip approach being adopted by them); a grievance which looks to re-open issues that formed part of a previous grievance procedure will not be permitted; and any complaint that is considered by management to be deliberately false, malicious or frivolous will not be entertained and is likely to give rise to disciplinary action being taken. By doing so, the organisation will be able to manage such multiple grievances in a more effective manner and will have grounds for taking disciplinary action where necessary, rather than having to clutch at the straws of the breakdown of mutual trust and confidence argument.

How wide is our Discretion?

Most employment contracts have clauses which give the employer the power to exercise their discretion when deciding, for example, what bonus, commission pay or sick pay employees are entitled to.

The courts are making clear that they will not re-write such terms. They will be taken at face value and will be construed against the party looking to rely on them. Discretionary clauses tend to make the company the decision maker, using terminology such as "in the opinion of the company". In the case of Braganza v BP Shipping Limited, the Supreme Court looked at BP's decision that an engineer (who when working on one of its freight ships went missing in the middle of the night and was presumed to have been lost at sea) had committed suicide rather than died as a result of an accident, resulting in BP avoiding the need to make a significant payment to his family. The Supreme Court re-asserted the principle that where the contract indicates that the employer will be entitled to make a decision which will have a significant impact on the employee the courts will seek to ensure that such contractual powers are not abused by the employer. In so doing they will assess whether the employer had exercised its discretion in a rational rather than a perverse manner. In making such an assessment the courts are increasingly willing to adopt an approach previously reserved to reviewing decisions made by public authorities.

Such scrutiny includes a willingness to analyse what has been taken into account by the decision maker, including whether they have relied on matters that are not relevant or failed to include matters that are relevant. Employers are best able to limit the level of scrutiny tribunals and the courts are entitled to apply to such discretionary terms by ensuring that the contractual framework in which they are exercised is clearly defined. For example, by stipulating that "the employee shall have no right to a bonus or a time-apportioned bonus if s/he has not been employed throughout the whole of the relevant financial year, his/her employment terminates for any reason or s/he is under notice of termination" the company can prevent such judicial scrutiny in a large proportion of cases involving their discretionary bonus scheme.

Redundancy with Minimal Disruption

Where a redundancy situation arises it tends to be disruptive and unsettling not only for those directly affected and ultimately selected for redundancy, but also often those in the pool for selection. The part of the redundancy procedure which tends to cause the most wide-scale disruption, bringing with it the risk of losing highly valued employees, is the process of agreeing the selection criteria and their application to the pool for selection.

Where a set of selection criteria have been pre-agreed and endorsed by the employees, for example, in the employee handbook, it can (other than where collective redundancy consultation duties arise) enable the employer to use the pre-agreed selection matrix as part of a desktop exercise to be able to focus the information and consultation procedure on those identified as being at risk of redundancy. No cases on this as yet, but watch this space.

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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