January 2021 Newsletter

To kick off this month’s bulletin, we are going to look at the potential impact of Brexit on Employment Law.

The transition period is now over and the UK Government is currently free to make changes to employment law that would not have been possible before.

However, there are some limits to these new freedoms from a trade perspective. The trade agreement reached with the EU stipulates that, in the field of employment law, neither side will ‘weaken or reduce’ levels of protection ‘in a manner affecting trade or investment between the parties’. This obligation is not limited to those areas of employment law governed by the EU but refers to UK employment law as a whole.

For example, unfair dismissal is not an area covered by EU law, but if the government were to repeal it altogether that would clearly be a breach of the trade agreement. It is also clear that the wholesale repeal of the Working Time Regulations or TUPE is out of the question, at least for now. It remains to be seen whether future UK governments may seek to diverge from the agreed trade and legal position even further.

Notwithstanding this, there are many changes that could be made now that would not be regarded as sufficient to affect trade, but will be of importance to those interested in employment law.

For example, the rules on holiday pay have been causing difficulty for many years and there is a serious disparity between the annual leave provisions of the Working Time Regulations and the requirements of the Working Time Directive as it has been interpreted by the European Court. There is now nothing to stop the UK Government from providing clarity on issues such as: the inclusion of overtime in calculating holiday pay; or the effect of long-term sickness absence on an employee’s working entitlement. If the Regulations are amended by the EU, the UK courts could apply the new rules without considering the EU Directive.

Other possible changes include: making it easier to agree a change in employment terms and conditions following a TUPE transfer; capping compensation in discrimination cases and perhaps simplifying some of the rules surrounding agency workers.

How much appetite or capacity the government has for making such changes remains to be seen. But, given the outstanding commitments from the 2019 Conservative Party manifesto on redundancy protection for new parents and additional leave for carers, a significant Employment Bill in 2021 may very well be on the cards.

  1. Employment tribunals – level of penalties for failure to follow the ACAS Code

Overview: All employers and employees must follow the ACAS Code of Practice in relation to disciplinaries and dismissals. If either party fails to follow the Code, the tribunal can increase or decrease tribunal compensation by up to 25%.

There have been several recent cases surrounding this.

Firstly, in Wardle v Credit Agricole Corporate and Investment Bank, the Court of Appeal said that, when applying this rule, a tribunal should only fix the rate of uplift once it has considered how much the uplift would equate to financially. This is to ensure it isn’t disproportionate for either side. They also held that Employment Tribunals can ‘reconsider’ any judgment where it is “necessary in the interests of justice”. A tribunal can either do this of its own initiative; at the request of the Employment Appeal Tribunal; or if one of the parties makes an application for a reconsideration within 14 days of a judgment.

In another case, Banerjee v Royal Bank of Canada, the employee won his claim for whistleblowing unfair dismissal. The Employment Tribunal found that the employer had failed to follow the ACAS Code and ordered a 25% - the maximum – uplift. (This was contrary to the Wardle approach because the percentage uplift was fixed before the remedy hearing to calculate the employee’s compensation.) The amount of uplift was especially important in this case because the employee was a highly paid City trader and the 25% uplift amounted to £261,000. The employer wanted this decision to be reconsidered but, by the time the remedy hearing took place, the time limit for making an application had expired. The employer argued that the tribunal could reconsider the decision of its own initiative.. The tribunal agreed. It decided that the parties should calculate how much compensation was owed to the employee and then address the ACAS uplift afterwards. The employee appealed, saying that the employer had essentially got around the expired time limit by planting the reconsideration idea, which meant any reconsideration would not be on the tribunal’s ‘own initiative’.

On appeal, the EAT disagreed with the employee. Although the issue of reconsideration was discussed at the remedy hearing, the employer did not actually make an application. The tribunal could still decide itself whether to reconsider a judgment. The fact that the employer had reminded the judge about his ability to reconsider the judgment, and suggest that they should do this, did not undermine the tribunal’s ability to act on its own initiative. A (failed) application by one party to reconsider a judgment might stop an employment tribunal being able to take that step ‘of its own initiative’, but that had not happened here because no application had been made. An advocate can remind a tribunal about its own powers without undermining their ability to act independently.

Take away: The power to reconsider judgments is rarely used by tribunals. However, it is comforting to know that parties are not prevented from reminding a judge of the rules and their overriding duty to deal with matters fairly and justly. Despite this, it’s always best for parties to make any relevant tribunal applications within the appropriate time limits to avoid uncertainty. This judgment is also a helpful aide-memoire about ACAS uplifts, which should be considered at the remedy rather than liability stage.

  1. Defending Indirect discrimination claims – can cost-cutting count as a legitimate aim?

Overview: One of the key differences between direct and indirect discrimination is that a claim for indirect discrimination can be defeated if the employer can show that the provision criterion or practice (known as a PCP) under challenge is a “proportionate means of achieving a legitimate aim” The circumstances in which this defence of justification will succeed have been the subject of many years of case law. One principle that has emerged is that an employer cannot simply rely on cost savings alone as a legitimate aim,  although it has generally been accepted that cost can be counted as one among several factors, a so-called “costs plus” approach.

The issue came up in the Court of Appeal case of Heskett v Secretary of State for Justice in which an employee complained of indirect age discrimination.

Facts: The case concerned the pay of probation officers which was based on a pay scale with 25 incremental points. A probation officer would previously have progressed three points up the scale each year, with the result that they could reach the top of their pay scale within about 8 years. In 2010, however, the Government introduced a pay freeze – limiting the increase in any public sector employer’s pay bill to just 1%. The Probation Service responded to this by limiting pay progression to just one point on the scale per year. Since those at the bottom of the scale were likely to be younger than those at the top, it was clear that this change would amount to indirect age discrimination unless it could be shown to be a proportionate means of achieving a legitimate aim.

The employer argued that its policy was legitimate given the limitations imposed on it by central Government. The employee argued that this amounted to no more than relying on a desire to avoid the cost of allowing pay progression to continue as it had in the past. Both the Tribunal and the EAT sided with the employer and the employee appealed to the Court of Appeal.  

Held: The appeal was dismissed. The Court of Appeal conducted a detailed review of case law and concluded that the term ‘cost plus’ was unhelpful. What had to be decided was whether, looked at fairly, the employer’s primary objective had been to save money. If that was all the employer was doing, then that would not amount to a legitimate aim. However, an employer was entitled to take proportionate steps to ensure that it ‘lived within its means’.  It followed that the Tribunal was entitled to find that the employer in this case was pursuing a legitimate aim in seeking to operate within the financial constraints imposed on it by the Government.

As for proportionality, the Tribunal had taken into account the fact that the employer had accepted that its current pay system was unsatisfactory and that it intended to change it so that it was less dependent on length of service. The Court of Appeal rejected the argument by the employee that this was an irrelevant consideration. The Tribunal had held that the reduction in pay progression was justified as a temporary measure while the employer carried out a more fundamental reform of its pay structure. That was a finding that the employer  was entitled to reach, although it raised the possibility of future claims succeeding if the reform was not carried out..

  1. How to go about Making Redundancy Dismissals

Overview: A redundancy is a dismissal as a result of a workplace closing down or the employer needing fewer employees to do work of a particular kind.

In Berkeley Catering Ltd v Jackson, the question was whether the reason that an employer needed fewer employees made a difference as to whether or not there was a redundancy situation.

Facts: Mrs Jackson was the Managing Director of a company owned by Mr Patel. Over the course of 2017 Mr Patel began – as he himself admitted - to undermine Mrs Jackson and disparage her in front of colleagues. He also began to take a more active role in the business. In 2018, he decided that he would step in as a full-time CEO, making the role of Managing Director redundant. After a series of consultation meetings, Mrs Jackson was dismissed.

First Instance Decision: Mrs Jackson claimed unfair dismissal, arguing that her redundancy was bogus. The Tribunal upheld her claim. There was no diminishing need for an MD role. Mr Patel had simply decided to increase the amount of time that he put into the company. There was no financial difficulty and the employer had taken on an Events Director after Mrs Jackson was made redundant, indicating that there was no diminishing need for senior management staff as a whole.

EAT Decision: On appeal, the EAT held that this was the wrong approach. The Tribunal had distracted itself by asking whether there was a ‘genuine’ redundancy situation. A redundancy situation either existed or it did not and an employer was free to organise its affairs in such a way as to reduce its requirement for employees. If it did so, then the motive behind that decision was irrelevant to the question of whether or not there was a redundancy. Motive was of course relevant to the issue of reasonableness, both in terms of whether the employer had acted in good faith and whether Mrs Jackson should have been offered the role of Events Director. But the Tribunal had fallen into error by bringing motive into play when considering whether there was a redundancy situation. The case was sent back to a different employment tribunal to decide whether the redundancy situation was genuinely the reason for dismissal and whether the dismissal was fair.

Take-away: Employers are free to organise their workforce as they like and reduce headcount if desirable. However, when making redundancies, a fair redundancy process should always be followed with alternative roles considered for those at risk where possible. Further, employers should always act reasonably and in good faith to avoid the risk of future litigation.

  1. Whistleblowing – what amounts to a public interest disclosure?

Overview: An employee who is dismissed for making a public interest disclosure, whistleblowing, can claim unfair dismissal even without the two years’ continuous service that is normally required. What is more, there is no cap placed on the amount of compensation that can be awarded, so successful claims can be very expensive for employers.

In the case of Simpson v Cantor Fitzgerald however, the employee’s claim was unsuccessful.

Facts: Mr Simpson had been employed for less than a year as a trader at an investment bank when he was dismissed. He claimed that his dismissal was the result of numerous allegations that he had made over the course of his employment about the behaviour of his fellow traders. In all, the Tribunal identified 37 specific allegations.

First-instance decision: The Tribunal held that none of these identified facts were protected disclosures. Broadly, a protected disclosure is a disclosure of information that tends to show that some legal wrongdoing has occurred and which the employee reasonably believes is in the public interest. The Tribunal found that many of Mr Simpson’s disclosures were really just complaints that he had lost out on commission because of the way in which trades were carried out. The real reason he had been dismissed was that ‘distrustful and obstructive’ behaviour had made it ‘utterly impossible for the team to work with him’.

On Appeal: On appeal, the Court of Appeal upheld the Tribunal’s findings.  The Tribunal had been entitled to find that the allegations that Mr Simpson relied on were not protected disclosures. This is because they were either insufficiently specific or because Mr Simpson did not genuinely believe that they demonstrated wrongdoing on the part of the employer or its employees. In any event, the complaints themselves were not the reason for dismissal.

The Tribunal were entitled to find that the manager who made the decision to dismiss Mr Simpson was not influenced by those allegations, but by the hostile and corrosive attitude that Mr Simpson displayed towards colleagues, as well as his poor timekeeping. Mr Simpson was dismissed because his employer considered him to be a poor team player, not because he had made protected disclosures.

  1. Unfair dismissal and redundancy – bank of casual workers

Overview: An employer making an employee redundant will not normally be acting reasonably unless it considers whether there is any alternative work that may be offered. In Aramark (UK) Ltd v Fernandes however, the employee argued that the employer should also have considered placing him in a bank of casual workers after his redundancy had taken effect.

Facts: The employer maintained a list of workers who they would call upon to perform ad hoc assignments from time to time. They did so frequently, with the result that those on the list, while not having the security of employment, had a reasonable expectation of future earnings. When Mr Fernandes was placed at risk of redundancy he asked to be placed on the list as that would help him offset his lost income. The employer refused and a Tribunal subsequently held that this rendered the dismissal unfair.

On appeal: The EAT overturned this decision. In an unfair dismissal case, the question is whether the employer has acted reasonably in treating the reason for dismissal, redundancy in this case, as a sufficient reason for dismissing the employee. Placing Mr Fernandes in the bank of casual workers would not have altered the fact that he had been dismissed, it was not a way of avoiding dismissal as an offer of alternative work would have been. It was therefore not a relevant consideration in deciding whether or not redundancy was a sufficient reason for dismissal. Whether the employer had granted the employee’s request or not, he would have been dismissed all the same. Since this was the only ground on which the Tribunal upheld his claim, the EAT ruled that the dismissal was fair.

  1. National minimum wage – 2021 rates

The government has accepted the recommendations of the Low Pay Commission and announced the National Minimum Wage and National Living Wage rates which will come into force from April 2021. Recognising the formidable task of recommending minimum wage rates in the middle of a global pandemic, the Low Pay Commission has sought to balance the needs of low paid workers – many of whom are doing critically important work – and the real solvency risks which small businesses are currently exposed to.

The different terms can be confusing. The National Minimum Wage is the minimum hourly pay that almost all workers are entitled to. The National Living Wage is higher and is currently paid to workers who are over 25. From April 2021, the government is extending the NLW to 23 and 24 year olds too. The new rates from April will be:

  • NLW (age 23 and over) - £8.91
  • Age 21 and 22 - £8.36
  • Age 18 to 20 - £6.56
  • Age 16 and 17 - £4.62
  • Apprentice rate - £4.30

Find full details at https://www.gov.uk/government/news/national-living-wage-increase-to-protect-workers-living-standards.

  1. Constructive dismissal and maternity leave

A constructive dismissal involves the employee resigning in response to fundamental breach of contract on the part of the employer. Normally, the employee will need to make it clear both that they are resigning and that the reason for their resignation is the employer’s conduct. In Chemcem Scotland Ltd v Ure however, the EAT held that these requirements were met by implication when an employee simply failed to return from maternity leave.

Facts: The case involved a family business in which the employee in question was the daughter of the owner. While she was on maternity leave, the owner was in the process of divorcing her mother, having formed a relationship with someone else – who was also an employee of his business. If his daughter returned from maternity leave, the owner’s new partner would be her new manager. This led to tension and conflict.

First instance decision: The Tribunal identified a number of matters in the handling of the daughter’s maternity leave that amounted to a breach of mutual trust and confidence. These included: failing to pay her statutory maternity pay on time and refusing to answer queries about what she was entitled to. The whole circumstances, the Tribunal found, showed that her father was hostile to the idea of her continued employment by the company. In the event she did indeed decide not to return but did not expressly resign. The Tribunal found that her resignation could be implied from the circumstances and took effect on the day when she had been due to return to work.

On appeal: The EAT upheld this finding. It rejected the father’s argument that the employee had not clearly communicated the fact that she was resigning or her reason for leaving. As the Tribunal had pointed out the employer had not, when she failed to return, taken any steps to clarify matters or ask her about her intentions. In the circumstances of the case her failure to return was ‘eloquent of the true position’ and this was understood by the employer.  

  1. Breach of contract

Repudiatory – or very serious – breaches of contract entitle the other party to the contract to consider that the contract has come to an end. But what happens in a case where one party contemplates breaching a contract, but the other party beats them to it?

Facts: In Palmeri v Charles Stanley, Mr Palmeri was a self-employed stockbroker who had worked for Charles Stanley for more than 20 years. He had a three-month notice period, but his contract did not contain a payment in lieu of notice (PILON) clause. The business decided to change its operating model to take a bigger chunk of Mr Palmeri’s earnings. He was not pleased. The company gave him an ultimatum – sign a new contract on the new terms or leave immediately with a PILON. Mr Palmeri reacted furiously and was verbally abusive to the managers present and the firm more generally. He then agreed to take the new terms under protest for the duration of his notice period. Unfortunately, the abusive behaviour continued and escalated so that the company withdrew the offer of new terms and summarily (without notice) terminated his contract.

Mr Palmeri brought two claims in the High Court, one for breach of contract for the summary termination, and a second claim for breach of the implied term of mutual trust and confidence for failing to allow him an orderly exit for his clients. The company said that Mr Palmeri’s abusive behaviour was a repudiatory breach of contract which entitled them to ignore contractual terms and terminate without notice. They also relied on several serious regulatory breaches which they only discovered after his termination. They said he was already in repudiatory breach of contract due to those regulatory breaches.

Decision: The High Court held that the company had no contractual right to make the original offer to Mr Palmeri (that he should accept the new terms or receive a PILON) because they had no contractual right to pay him in lieu of notice. However, they said that Mr Palmeri’s behaviour, including the abuse and the regulatory breaches, amounted to serious misconduct and a breach of the implied duty of trust and confidence. That repudiatory breach by Mr Palmeri justified the employer’s summary termination. The fact that the firm was preparing to breach his contract in future (by paying him in lieu of notice) if he didn’t agree to new terms was irrelevant. Charles Stanley were still entitled to rely on the abuse and regulatory issues as serious breaches of contract by Mr Palmeri enabling them to avoid its terms on notice.

Take-away: This case shows that repudiatory conduct by one party releases the other from the terms of the contract. In this case, the company had been planning to pay in lieu when it had not got the contractual right to do so. Fortunately, Mr Palmeri’s bad behaviour got there first and prevented the employer from effecting that proposed breach of contract. Always check contractual terms before paying in lieu of notice. These clauses should be standard in contracts to give businesses flexibility when it comes to termination.

  1. And finally… are minors employees? A Covid-19 Case

Employers across the country are being encouraged to accommodate the need for employees to self-isolate when required to do so because of Covid.

However, this message did not reach a newsagent in Lincolnshire who sacked a 15 year old paperboy for missing work after being told to self-isolate by his school. The boy’s father is reported to be considering legal action, but may face some difficulty. It does seem that the boy in question has been doing the job for around two years – so it is possible that he has sufficient length of service to claim unfair dismissal. However, it is not entirely clear that a 15-year-old, still legally regarded as a child, has the capacity to enter into a contract of employment in the usual sense.

The law is unclear. In 2003, a 15-year-old paperboy was held not to be a worker for the purposes of the Working Time Regulations in the EAT case of Addison v Ashby. But that case turned on the fact that the working time of children was dealt with by the Children and Young Persons Act 1933 and there was no appeal from the Tribunal’s finding that the boy in question had been unfairly dismissed.

The issue remains open – possibly because the rather modest pay of children delivering newspapers makes a lengthy legal battle uneconomic. Still, the boy’s father in this case does seem very annoyed. On balance, the newsagent might be better off reconsidering their decision.