Employment law banner

Employment Law Newsletter - October 2012


(W)hole in one?

Will a redundancy exercise be valid if it initially puts at risk just one employee, rather than two or more in a 'pool'? Logic says yes, if the job held by that person is sufficiently distinct from others in the business and is the one that is to be removed from the organisational structure.

And that stance has been confirmed by the EAT in Wrexham Golf Company v Ingham, correcting a tribunal which had erred by ruling that, even though Mr Ingham was the sole bar steward at a golf club, the employer should have created a 'selection pool' containing him and others doing different jobs. That, according to the EAT, was a failure by the tribunal to approach the matter from the standpoint of the 'range of reasonable responses' test – if it had been applied here, the likely answer was that the employer's approach would have been seen as reasonable.

This 'employer supportive' approach to redundancy reflects recent decisions, in a different context, in Mitchells v Tattersall and Nicholls v Rockwell (see our August issue). But, remember, 'the devil is in the detail'. Sometimes, it would clearly be artificial and legally risky (beyond the 'range of reasonable responses') to forgo creating a 'pool' of employees, even when their jobs do not have exactly the same titles and/or duties. Consideration and planning remain important.


Rewriting history

In Nejjary v Aramark, the EAT ruled that, if an employer had itself, when deciding to dismiss, ignored an employee's previous written warning for the same type of misconduct, it was not open to a tribunal then to take it into account when evaluating the dismissal's fairness. Now follow that through: if a tribunal cannot rewrite history, an employer will clearly be unable to do so by embellishing its story when it gives evidence at a tribunal.

But here's better news. Implicit in this decision (if the point needs restating) is that it can be permissible for employers to rely on past record in reaching a decision on sanction. On occasion, as the CA's 2008 decision in Airbus UK v Webb confirms, that might even extend to taking into account lapsed warnings in deciding to dismiss for proven gross misconduct. What is required is, of course, access to that past record, its clear relevance to the present charge and a proportionate view about its bearing on the chosen sanction.


Reforms – where are we up to?

In September, the Government announced its next proposed stages in the reform of employment law. First, there are two responses to 'Calls for Evidence' earlier in the year on the effectiveness of TUPE and on dismissals. On TUPE, the conclusion is that there are serious limitations on what might be done to change things, both legally, because of the link with the EU's Acquired Rights Directive, and practically, because employer's concerns are counterbalanced by the broad support of workers and trades unions. So, its commitments are confined to further consideration of a number of interesting, but hardly seismic, alterations. And it suggests that the final result might be improved guidance rather than amendment of the 2006 Regulations themselves. The response about dismissal law is a similar 'damp squib'. It has formally confirmed that the much discussed idea for a 'compensated no fault dismissal' scheme has been kicked into the long grass. Instead, action is to be taken with ACAS to improve the code of practice and to develop an 'interactive tool' for small businesses looking to apply it. Perhaps this is where the Government always knew things would end up and it was just interested in getting a bit of short-term publicity by banging the drum.

Then, there are some consultation papers. Alongside one about aspects of Mr Justice Underhill's recent review of the Employment Tribunal Rules, there is another covering two subjects that might be a bit more interesting to managers. One is about promoting the use of settlement (compromise) agreements through a code of practice on 'protected conversations' and optional model materials for them and settlement agreements. The second is on the nature of a reduction in the prescribed maximum compensatory award for unfair dismissal (currently £72,300). Here, the favoured option looks to be the lower of one year's pay or a capped amount. The mechanism for ascertaining the latter is technically also up for grabs. The Enterprise and Regulatory Reform Bill contemplates something between one and three times median earnings. But the Government appears inclined towards the bottom of this scale (£25,882). What was that about compensated no fault dismissal being ditched?


Tribunal awards

As if to underline the marginal relevance of the Government's deliberations over unfair dismissal compensation, the latest employment tribunal statistics (for the period April 2011 to March 2012) tell us that the median unfair dismissal award was just over £4,500 and the mean was £9,133. Even for the various types of discrimination claim, which are not subject to a cap, the medians were in the range £4,267 to £13,505. Hardly the stuff of retirement dreams or, one would think, of discouraging employment in the first place.


But how much are employment rights worth anyway?

The Chancellor of the Exchequer has just announced plans to have legislation in place by April 2013 on contracts of employment for 'owner-employees'. The idea is that, in return for shares in the employer's business worth between £2,000 and £50,000 (which will be exempt from Capital Gains Tax), a job-holder gives up rights to claim unfair dismissal, receive a redundancy payment, request flexible working or seek time off for training, and has to give double the standard notice of early return from maternity leave.

The detail of this initiative is subject to consultation (given the general bar on contracting-out of statutory protections, the legislative changes could be quite complex), which will start quite soon. But it is already clear that, for new recruits, it is intended that an employer can choose to offer only this type of employment arrangement. So, with the current dearth of jobs and if '£2,000 buys as much as £50,000', there could soon be a quite rapid increase in the proportion of the workforce who have 'chosen' to relinquish their core employment protections for a minimal and uncertain consideration. And a two-tier workforce begins to evolve.


The importance of renewing your vows

From time to time, we have featured rulings on post-termination restraints. The general tenor of our comment has been that these provisions are devilishly difficult to get right and make stick. Here's the latest decision where that point can be made.

In Patsystems v Neilly, the High Court declined to enforce a 12-month non-compete clause which had always existed in the employment terms of Neilly, who had been promoted to Director of Global Accounts about half-way through his 12 years with the company. The court gave two related reasons. First, because Neilly had occupied a much more junior post with a one-month notice period when he was first made subject to the clause, the restraint had not been reasonable for him then. Second, given this original invalidity, the clause had not been 'given new life' by his subsequent assumption of the directorial post. This was because the variation of contract, which took the form of his signing a declaration that read:

'I agree to the variation of my terms which are stated in this letter and I acknowledge and agree that all the other terms and conditions outlined in my original documentation remain unchanged.'

was too general to reinstate a term that was 'a nullity'. So, Neilly was free to join a competitor.

The message here is twofold. Take care that, where you choose to make an employee subject to contractual restraints about 'joining the competition', you also make the content proportionate to the employee's role and status. And, at least where a promotion entails a 'step change', consider whether any covenants need refreshing.


The fine lines of constructive dismissal

Is there anything more to be said about 'constructive' dismissal (where an employee resigns, being entitled to do so without notice because of the employer's actions in repudiation of the contract)? Well, try these decisions.

In Logan v Celyn House, a veterinary nurse said she resigned in response primarily to alleged bullying (which the tribunal found unproven) but also to a failure to pay contractual sick pay (which the tribunal found proven and to be a repudiation). The EAT said it did not matter that the resignation was mainly induced by the unsubstantiated factor. It was sufficient for a constructive dismissal that a reason for resignation was both factually proven and a repudiation.

In Roberts v Whitecross School, the employer, despite receiving some advice that it could be wrong, decided to pay only half-salary as sick pay because it had adopted a mistaken interpretation of the contract. The employee resigned in response. An employment tribunal awarded her the lost pay, but refused to find she had been constructively dismissed. Although there was clearly a breach of contract, it was not sufficiently serious to be a repudiation because it was based on a mistake. Enter the EAT, which criticised that approach, finding there was a more fundamental breach that could be the basis of a constructive dismissal – the employer had a 'settled intention' and had acted on it. That was different from a simple oversight or 'pure error' resulting in underpayment. Check your rights before you act!

If you would like to discuss this or any other issue facing your organisation please speak to your usual contact at Collinson Grant or Richard Hendry on 0161 703 5600

Although care has been taken in the preparation of this Newsletter, Collinson Grant cannot accept responsibility for errors, omissions or advice given. Readers should note that only Acts of Parliament and Statutory Instruments have the force of law and only the courts can authoritatively interpret the law.