Employment Essentials: November 2017's top 5

30 November 2017


Gowling WLG's employment, labour & equalities experts bring you the latest top five employment law developments that may affect your business - what they are, and what you can do about them.

  1. Workers wrongly classed as self-employed can claim years of unpaid & untaken holiday
  2. Gig economy: Spotting the difference between 'workers' and the self-employed
  3. Wrongful dismissal: false dismissal reason = breach of trust & confidence
  4. The National Living Wage v the Real Living Wage
  5. Workplace sexual harassment and the effect on mental health

1) Workers wrongly classed as self-employed can claim years of unpaid & untaken holiday

It is now well established that the prohibition on carry-over of untaken annual leave contained in the Working Time Regulations 1998 (WTR) does not apply where a worker is 'prevented' from taking their annual leave due to sickness absence or family related leave. Is a worker also 'prevented' from taking their annual leave in circumstances where an employer has wrongly classed an individual as an independent contractor, therefore denying any right to take paid holiday? Does carry-over equally apply in such cases and if so how much can be carried over? These are questions the Court of Justice of the European Union (CJEU) has considered in Sash Window Workshop Ltd v King.

Mr King's unpaid holiday claims

Mr King worked for Sash Windows as a self-employed commission-only salesman from June 1999. While Mr King did take some holiday throughout his years of service, he was never paid for this. When Sash Windows terminated his engagement in October 2012, Mr King successfully claimed holiday pay before an employment tribunal, which accepted that he was a 'worker' for the purposes of the WTR 1998.

In particular, Mr King as a worker, was entitled to holiday pay for:

  1. Holiday Pay 1: Holiday accrued but untaken in the final leave year (2012/13);
  2. Holiday Pay 2: Holiday actually taken between 1999 and 2012 but unpaid; and
  3. Holiday Pay 3: Holiday accrued but untaken throughout his employment period (1999-2012), being 24.15 weeks

The EAT allowed Sash Windows' appeal on the inclusion of Holiday Pay 3, holding that the tribunal had failed to make findings of fact to support its conclusion that Mr King was prevented from taking his annual leave for reasons beyond his control. There was therefore no basis for departing from the usual position under the WTR that entitlement to leave expires at the end of the relevant leave year. Mr King appealed to the Court of Appeal, who made a reference to the CJEU.

CJEU ruling

On 29 November, the CJEU ruled as follows:

  • Is a worker 'prevented' from taking annual leave if they are wrongly categorised as self-employed?

    Yes - a worker is 'prevented' from taking their annual leave in circumstances where an employer has wrongly classed an individual as an independent contractor, therefore denying any right to take paid holiday. The right to take annual leave and to payment for that leave are two aspects of a single right. Where an employer denies a worker is entitled to paid leave, that will deter the worker from taking leave, thereby 'preventing' them from taking the leave.
  • Does carry over apply as it does for those 'prevented' from taking annul leave due to ill-health and if so how much can be carried over?

    Yes, carry-over must be allowed and is not limited to a period of say 15 or 18 months as has been held by the courts in relation to those 'prevented' from taking leave due to ill-health.

    The CJEU distinguished ill-heath cases which took into account not only the protection of workers but also the protection of employers who had already been faced with organisational difficulties due to long periods of sickness absence. By contrast until Mr King retired, there was no interruption to his professional activity for the employer.

    It was irrelevant that the employer, wrongly, thought that Mr King was not entitled to paid annual leave: "it is for the employer to seek all information regarding his obligations". Unlike situations where prevention is due to the worker's ill-health, an employer that does not allow a worker to exercise his right to paid annual leave must bear the full consequences.

Where does this leave employers?

Where employers incorrectly treat workers as independent contractors, they could find themselves faced with unpaid holiday claims going back a number of years, in Mr King's case 12 years. While the Deduction from Wages (Limitation) Regulations 2014 limits how far back individuals can claim unpaid holiday as a deduction of wages claim, this judgment opens a new door for back pay claims via a statutory Working Time Regulations route.

This case takes on an added significance in light of the rise in 'gig economy' worker status cases. For example the case of Mr Smith v Pimlico Plumbers to be heard by the Supreme Court in February next year concerns a seven year working relationship.

2) Gig economy: Spotting the difference between 'workers' and the self-employed

A tale of two decisions

This month we have had two contrasting decisions on worker status - Uber and Deliveroo.

On the one hand the Employment Appeal Tribunal (EAT) has upheld the tribunal's high profile decision that drivers engaged by Uber are not self-employed, but instead are 'workers' legally entitled to the national minimum wage, paid annual leave, and whistleblowing protection. The EAT confirmed that the tribunal was entitled to reject Uber's arguments that it was not a transport provider, but merely a technology platform providing an app which self-employed drivers could use. See Uber's 'worker status' appeal rejected - further appeal highly likely.

On the other hand, the Central Arbitration Committee (CAC) has found that Deliveroo riders are not 'workers' as there was a genuine substitution right that could be used both before and after a rider accepted a particular job, meaning the riders did not undertake to personally do any work or services for another party. See Uber drivers are "workers" but Deliveroo riders are not - what's the difference?

Leapfrog appeal

The "worker v independent contractor" debate is set to continue. Uber is now seeking permission to bypass the Court of Appeal and go straight to the Supreme Court using leapfrogging appeal rules that came into force in August 2016 for exceptional cases.

The Supreme Court is due to hear a similar worker status appeal in the case of Pimlico Plumbers Ltd and anor v Smith on 20 & 21 February 2018. In that case, the Court of Appeal upheld the decision of an employment tribunal that a plumber who was self-employed for tax purposes was nevertheless a 'worker' for unpaid holiday pay and unlawful deduction of wages claims and an 'employee' under the extended definition of the Equality Act 2010 for the purposes of a disability discrimination claim. It is understood that Uber will be seeking to get its appeal heard either together with or shortly after Pimlico Plumbers. We wait to see if the Supreme Court agrees to grant permission (a good chance) and if so how quickly it will be heard.

The Government too will have more to say on the subject. In the Budget the Government acknowledged that this is an important and complex issue. It intends to publish a discussion paper as part of its response to the Taylor Review of employment practices.

3) Wrongful dismissal: false dismissal reason is a breach of trust and confidence

This month, Rawlinson v Brightside Group Ltd provides a helpful illustration of wrongful dismissal principles.

The case of not so Mr Brightside

Mr Rawlinson was employed as in-house legal counsel. Shortly after his appointment, the employer had growing concerns about his performance. Instead of going through a performance management process, the employer decided to dismiss Mr Rawlinson five months after he had joined the company. The employer was keen to have Mr Rawlinson work his three month notice period to allow time to organise his replacement and for an orderly hand-over.

To "soften the blow" when dismissing Mr Rawlinson, he was told that he was being dismissed with notice as the company had decided to change its approach to its legal service requirements and would be using more external legal expertise. However, Mr Rawlinson believed the changes amounted to an outsourcing exercise to which the transfer of undertakings regulations (TUPE) applied. He resigned with immediate effect on the basis he believed the employer breached its statutory duty to inform and consult under TUPE.

Mr Rawlinson subsequently brought claims for breach of the duty to inform and consult under TUPE and wrongful constructive dismissal (based upon a fundamental breach of the implied term of trust and confidence). He did not have sufficient qualifying service to bring an unfair dismissal claim.

The tribunal rejected his claim that there was a relevant transfer under TUPE. As for the breach of contract claim, the tribunal found that the company's failure to forewarn Mr Rawlinson of any performance concerns and the potential for dismissal did not amount to a breach of the implied term of trust and confidence. Also, Mr Rawlinson's complaint was really about the manner of his dismissal. Under what is known as the 'Johnson exclusion zone', damages for breach of contract cannot be awarded in respect of unfair treatment due to the manner of dismissal (instead a statutory unfair dismissal claim must be pursued).

However the EAT has overturned the finding that there was no wrongful dismissal:

  • Implied duty of trust & confidence was breached

    The EAT has held that the term of trust and confidence implied into all employment contracts must include an obligation not to deliberately mislead. This does not mean an employer is under a broader obligation to volunteer information, such as a reason for dismissal. However, where the employer has provided a reason for dismissal, it must act in good faith. In other words, it must not give an untrue reason

    Although Mr Rawlinson resigned believing the implied term of trust and confidence was breached for a different reason (failure to inform and consult under TUPE), that did not matter. The employer was in breach of contract at the time entitling Mr Rawlinson to rely on that breach.
  • Outside the 'Johnson exclusion zone'

    The giving of the false reason for dismissing Mr Rawlinson did not relate to the dismissal, but instead was intended to ensure the employment relationship would continue for the notice period. It therefore did not fall within the 'Johnson exclusion zone'. A reminder that if an (ex)-employee suffers a loss as a result of an employer's breach of the implied term of trust and confidence in the steps leading to a dismissal, that is different to damages for the manner of dismissal itself and so outside the 'Johnson exclusion zone'.

    In this case, Mr Rawlinson's response to the false reason was to walk out, giving rise to a loss of earnings over the notice period. As such he suffered a financial loss as a result of the employer's breach.

As the old adage states, 'honesty is always the best policy'.

Wrongful dismissal v unfair dismissal

This case provides a helpful illustration of the key differences between wrongful and unfair dismissal:

  1. There is no length of service requirement for wrongful dismissal. For unfair dismissal employees must have two years' qualifying service, unless a special category applies, for example whistleblowing.
  2. This implied term of trust and confidence does not extend to an obligation for employer to give a reason for dismissal. In statutory unfair dismissal claims, the employer must establish a fair reason for dismissal and employers are required to provide written reasons for dismissal if requested (employees dismissed while pregnant or on maternity/adoption leave do not need to make a request and the two qualifying service rule does not apply).
  3. Damages for wrongful dismissal are limited to the notice period and/or the period of time it would have taken to complete a relevant contractual procedure (if one exists). Unfair dismissal claims attract compensatory awards subject to the statutory cap, currently the lower of £80,541 or 52 weeks' pay.
  4. For unfair dismissal, it is only what the employer knew at the time dismissal took place that can be considered. For wrongful dismissal, the employer or employee can also rely on facts that only came to light after the dismissal (Boston Deep Sea Fishing an Ice Co v Ansell [1888] (always nice to quote 19th century case law!).

4) The National Living Wage v the Real Living Wage

In this month's Budget the Government has confirmed the April 2018 National Minimum Wage (NMW) increases. The National Living Wage (NLW) which applies to workers aged 25 and over, will increase by 4.4% from £7.50 to £7.83 and is estimated to benefit over two million workers. At the same time, the other NMW rates will be increased as follows:

  • those aged 21 to 24 to increase from £7.05 to £7.38;
  • those aged 18 to 21 to increase from £5.60 to 5.90;
  • those aged 16 to 17 to increase from £4.05 to 4.20; and
  • Apprentices (aged under 19 or those in first year of apprenticeship aged over 19) to increase from £3.50 to £3.70.

Earlier this month, on 6 November, the Living Wage Foundation increased what it calls the 'Real Living Wage' (RLW) from £8.45 to £8.75 (UK rate) and from £9.75 to £10.20 (London rate). But these are only voluntary rates and are not the same as the NLW. In The National Minimum Wage, the National Living Wage and the Real Living Wage - What's the difference?, we take a back-to-basics look at what the legal requirements are for employers in the UK, the key differences between the NLW and the RLW and look to the future to see what challenges lie ahead.

5) Workplace sexual harassment and the effect on mental health

Against a backdrop of increasing awareness of the importance of good mental health, allegations of workplace sexual harassment by those in positions of power come thick and fast, causing a serious headache for Mrs May and business leaders alike.

This month the Advisory, Conciliation and Arbitration Service (ACAS) has launched new guidance to help employers Managing staff experiencing mental ill health and updated its guidance on what constitutes Sexual harassment

In Workplace sexual harassment and the effect on mental health - recognising and creating a healthy workplace, we explore the effect of workplace sexual harassment on mental health and how to look out for the signs of ill-health to develop a healthy and positive environment.

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