UK: Employment Disputes And Jurisdiction: Unravelling Workers´ Rights

Last Updated: 17 March 2008
Article by Andrea Nicholls, Clare Battersby and James Davies

Two recent cases have helped to clarify the current approach to determining jurisdiction in employment disputes involving UK workers posted abroad, or foreign workers in the UK.

Many companies have UK workers posted abroad or recruit staff from overseas to work in the UK. Some employees appear to spend so much of their time travelling that it is not clear in which country their ‘base’ actually lies. The question of which jurisdiction will deal with a dispute, if it arises, is often dealt with in the employment contract. But that is by no means the end of the matter.

The legal framework and concepts that give rise to this situation are confusing and overlap each other.

Overriding Principles

The basic concept is that some rights override what the parties may have agreed between themselves in the employment contract. These are differently labelled depending upon the legislation from which they arise.

The three main pieces of legislation are the Rome Convention, the Posting of Workers Directive and the Brussels Regulations. For the purposes of this article, only the aspects of these that relate to employment are considered.

The Rome Convention

The Rome Convention states that parties are contractually able to decide which particular law will apply, provided that none of the ‘mandatory rules’ oust that decision. In the case of an election that, say, New York law will apply, and the employee is in the UK, the effect is that the employee will be able to avail themselves of whichever law is the most favourable. So, if the UK provisions are more beneficial – which in anything unrelated to discrimination they are likely to be – the employee would be well advised to opt to be subject to UK statutory rules.

However, deciding which ‘mandatory rules’ apply is not easy either, and involves deciding which is the ‘applicable law’. There seem to be three main strands to this:

  1. The applicable law will be presumed to be that of the country in which the employee predominantly delivers performance, even if they are temporarily employed in another country.
  2. Where the employee works in several jurisdictions, the applicable law is that of the country in which the employer’s place of business (through which the employee was hired) is situated.
  3. However, the applicable law may also be decided by the jurisdiction with which the contract is ‘more closely connected’ – which can lead to an examination of how and from where the employee was paid and managed, and the location from which any disciplinary decisions emanate.

The Posting Of Workers Directive

While this Directive is often regarded as applying to those posted overseas in the construction industry, it applies to anyone posted by their employers to perform temporary work in other member states, including senior executives. It gives them the same ‘floor of employment rights’ available to other workers employed in the host country.

Under the Posting of Workers Directive there are:

  • ‘mandatory rules for minimum protection’; and
  • a ‘hard core of protective rules’.

Together, these rules cover such things as working hours, holiday entitlement and protective measures for pregnant women. However, they do not include the right not to be unfairly dismissed.

The Brussels Regulation (Council Regulation (Ec) No 44/2001 On Jurisdiction In Civil And Commercial Matters)

In the context of the employment arena the Brussels Regulation is perhaps the least intrusive piece of legislation. It only applies to ‘employees’, and where the defendant, irrespective of their nationality, is domiciled in any EU country. Unlike the Rome Convention and the Posting of Workers Directive, it does not have any overriding principles. The Regulation is therefore only really effective in determining the correct jurisdiction for purely contractual issues. The recitals state that the ‘weaker party’ – usually the employee – should be able to choose the jurisdiction most beneficial.

So Where Does This Leave Uk Employers?

The difficulty therefore lies in identifying whether any mandatory rules apply and, if so, determining their territorial scope. It is not possible to ‘contract out’ of mandatory rules.

We look first at purely contractual claims, which fall under the Brussels Regulation.

Exclusive Jurisdiction Clauses

Employment contracts often state that the provisions are subject to the courts of a particular jurisdiction. These are known as ‘exclusive jurisdiction clauses’. However, what is often not realised is that this applies to where the matter is to be litigated, rather than which law is to be applied. When drafting contracts, employment-related or otherwise, it is therefore important to specify that the contract will be subject to the chosen country’s law and the exclusive jurisdiction of the chosen country’s courts.

In Samengo-Turner and others v J&H Marsh & McLennon (Services) Ltd and others, the Court of Appeal considered the effect of an exclusive jurisdiction clause (in this case the New York courts) on a long-term incentive plan, and the application of the Brussels Regulation.

Facts Of The Case

The claimants were domiciled in England and employed as reinsurance brokers by the first defendant, MSL, an English company, which was part of the MM group. The second and third defendants, MMC and GC, were also part of the MM Group, but were based in New York.

MSL, the English company, was merely the employing vehicle, and the people it employed, including the claimants, worked for other companies within the MM group, but only other group companies also based in the UK.

Through their employment by MSL, the claimants were eligible to participate in the MMC 2000 Senior Executive Incentive and Stock Award Plan (the plan), the purpose of which was to advance the interests of MMC by providing a means to attract, retain and motivate its employees and those of its subsidiaries. Awards under the plan were administered by the MMC board in New York.

A bonus was introduced and awarded under the plan (the bonus agreement). Importantly, the bonus agreement was subject to New York law and had an exclusive jurisdiction clause stating that it was subject to the New York courts. The bonus agreement also contained numerous restrictive, confidentiality and provision of information/co-operation covenants.

After receiving awards of cash under the bonus agreement the claimants resigned. The second and third defendants, relying on the restrictive covenants in the bonus agreement, sought injunctions against the claimants in New York and made requests for ‘discovery, interrogatories and depositions’. The New York court granted the requested orders.

The English Proceedings

The employees went to the High Court in England and claimed that the defendants had repudiated their contracts of employment and that the terms of the bonus agreement were unenforceable for a variety of reasons. They also sought an anti-suit injunction preventing the defendants from continuing the injunction proceedings in New York.

This point was appealed up to the Court of Appeal, which considered the application of the Brussels Regulation.

Section 5 of the Brussels Regulation (jurisdiction over individual contracts of employment) provides:

‘Article 18

(1) In matters relating to individual contracts of employment, jurisdiction shall be determined by this section...

Article 20

(1) An employer may bring proceedings only in the courts in the member state in which the employee is domiciled...

Article 21

The provisions of this section may only be departed from by an agreement on jurisdiction:

  1. which is entered into after the dispute has arisen; or
  2. which allows the employee to bring proceedings in courts other than those indicated in this section.’

The Court of Appeal identified the main issue before it as being whether the claim made in New York under the bonus agreement was a matter relating to the claimants’ individual contracts of employment (Article 21 not being applicable presumably because the exclusive jurisdiction clause was entered into before there was a dispute).

The Court of Appeal noted that the employment contract need not be in one document or made at one time. The question was whether the terms of the bonus agreement formed part of the employees’ contracts of employment.

The defendants’ main argument was that the New York claim was brought by the second and third defendants, neither of which were the claimants’ employer (which was the first defendant), and to hold otherwise would pierce the corporate veil.

Whilst the Court of Appeal initially found this argument ‘formidable’, on further consideration it said that the injunction proceedings brought by the New York companies were ‘an employment claim against the employees and one would expect such a claim to be made by an employer’. Further, it held that the second and third defendants ‘have only been able to sue in the right of and as if they were employers because of the wide definition of "the company" in the bonus agreement’.

It noted that the second and third defendants were companies within the same group as the UK-based employing company (and first defendant) with a shared economic interest in the employment contracts and their enforcement, and that they should, therefore, be subject to the same jurisdictional restraint as the first defendant. The Court of Appeal held that this did not pierce the corporate veil in any real way, but simply recognised the reality of the situation.

Finally, the Court of Appeal held that the fact that the bonus agreement was administered and regulated in New York was of no relevance. The English courts had the closest connection with the dispute, concerning as it did the claimants’ activities during their employment, which was solely for UK companies within the MM Group. The Court of Appeal granted an anti-suit injunction to restrain the New York proceedings.

Comment

When drafting a contract, and seeking to ensure that certain clauses will be interpreted and litigated in a particular country, it is important to realise that there are two separate elements: the choice of law and the choice of jurisdiction.

In Samengo-Turner and others, in addition to the convenience of being sued in their national courts, the claimants’ main motivation in bringing the anti-suit application was to ensure that the restrictive covenants in the bonus agreement were enforceable only to the extent that they did not conflict with the narrower interpretation of restrictive covenants under English law.

This decision may well close the ‘back-door route’ of imposing more onerous restrictions on UK employees than would be permitted in the UK.

What Of Statutory Claims Under The Employment Rights Act 1996?

Jurisdiction in unfair dismissal matters Section 196 of the Employment Rights Act 1996 stated that those ‘ordinarily working’ outside of Great Britain did not have the right to bring claims for unfair dismissal. However, this was repealed and nothing was put in its place to give guidance on unfair dismissal rights of overseas workers working in the UK, guidance on unfair dismissal rights of overseas workers working in the UK, or of UK employees working abroad.

After a spate of conflicting decisions, three cases were consolidated and heard before the House of Lords (Serco Ltd v Lawson; Botham v Ministry of Defence; Crofts and others v Veta Ltd).

Three main principles can be drawn from this decision:

  1. if an employee is working in Great Britain at the time of the dismissal then they will be able to bring a claim in Great Britain;
  2. in respect of peripatetic employees, the base of the employee should be treated as their place of employment; and
  3. in respect of expatriate employees (ie those posted abroad for the purposes of a business carried on in Great Britain) they will only be able to bring claims for unfair dismissal in exceptional circumstances – for example:
  • if they are posted abroad by a British employer as representative of a business carried on in Great Britain, eg the foreign-based correspondent of a British newspaper; or
  • if they were recruited in Great Britain to work in an extra-territorial British political or social enclave in a foreign country (eg a military base in the case of Botham v Ministry of Defence); or
  • if they have equally strong connections with Great Britain as the other two categories.

Jurisdiction in discrimination matters in Williams v The University Of Nottingham the Employment Appeal Tribunal (EAT) confirmed that employment tribunals should adopt the same approach to discrimination claims by overseas employees as that adopted in Lawson in relation to unfair dismissal claims.

The Law

Unlike unfair dismissal, discrimination legislation expressly sets out the scope of the employment tribunal’s jurisdiction. In order to bring any discrimination claim, the employee must ‘be employed at an establishment in Great Britain’.

Nevertheless, an employee who works wholly outside Great Britain will be regarded as being ‘employed at an establishment in Great Britain’ if the following conditions are met:

  • the employer has a place of business at an establishment in Great Britain;
  • the work is for the purposes of the business carried on at the establishment; and
  • the employee is ordinarily resident in Great Britain (a) at the time when they apply for/are offered the employment; or (b) at any time during the employment.

Facts Of The Case

Dr Williams was a senior lecturer at Nottingham University (the university). He was recruited on the understanding that he would be seconded to its joint venture in Malaysia (UNMC). The university continued to pay his salary, although UNMC reimbursed the university for it, and the university’s disciplinary and grievance procedures applied to him. Dr Williams only ever worked in Malaysia during his employment. He brought claims for unfair dismissal and disability discrimination against the university in the UK.

In determining its jurisdiction, the employment tribunal (the ET) applied the same approach to both the unfair dismissal complaint and the disability discrimination claim, namely asking whether Dr Williams had been ‘working for the purposes of a business carried on in Great Britain’. Both parties agreed that this was the only condition left to satisfy under the three-tier test above, as Dr Williams was resident in Great Britain when he was offered the job and the university had a place of business in Great Britain.

The ET dismissed both claims on the grounds that Dr Williams’ employment had been for the purposes of the discrete business of UNMC carried on in Malaysia, which was not an integral part of the University but rather a franchise operation conducted by a separate entity. The ET rejected the submission that ‘work for the purposes of a business carried out at an establishment in Great Britain’ for discrimination claims should be interpreted differently from ‘work for the purposes of a business carried on in Great Britain’ for unfair dismissal claims. Lord Hoffmann’s words in Lawson so closely resembled the wording in s68(2A)(b) of the Disability Discrimination Act 1995 (the DDA) that it would be extraordinary if he had intended his approach not to apply also to discrimination legislation, particularly as unfair dismissal and discrimination claims frequently run in parallel.

The EAT agreed and dismissed Dr Williams’ appeal, reinforcing the decision by reference to the requirement under s68(2A)(b) that the focus is on where the work is actually performed, rather than where the contract requires it to be performed. Dr Williams never worked in Nottingham: he worked and was based in Malaysia. Had he returned to work in Nottingham in November 2005 as the university told him to, his claims may have had more success. Although the university benefited from the research he carried out, this was not enough to answer in the affirmative the question of whether he was employed for the purposes of the university’s business in Great Britain.

Implications

This case helpfully provides guidance on the statutory uncertainty of the employment tribunal’s jurisdiction in relation to unfair dismissal and disability discrimination claims. Although Williams dealt specifically with the territorial scope of the DDA, the fact that the wording in s68(2A)(b) is identical in other discrimination legislation, such as s10(1) and (2) of the Employment Equality (Age) Regulations 2006 and s10(1) and (1)(A) of the Sex Discrimination Act 1975, suggests that this approach may well also be applied to cases involving such other legislation.

In an increasingly globalised industry, employers in Great Britain with foreign postings need to be mindful of the potential claims from employees who work abroad.

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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