Gowling WLG's employment, labour & equalities experts bring you the top five employment law developments from June 2019 that may affect your business.

Here are our five significant employment law developments you should be aware of this month - what they are and how they might impact your business.

  1. Disability discrimination: perceived disability, progressive conditions & meaning of day-to-day activities
  2. Changing terms and unionised workforces
  3. Holiday pay & overtime revisited
  4. Right to privacy and use of personal e-mails in decision to dismiss
  5. Reinstatement and re-engagement orders do not impose an absolute obligation on the employer to do so

STOP PRESS: Sneak peek at early July important judgment on restrictive covenants - Post-termination restrictions: the Supreme Court reinvigorates the blue pencil test.

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1. Disability discrimination: perceived disability, progressive conditions & meaning of day-to-day activities

Is the concept of direct discrimination under the Equality Act 2010 wide enough to encompass perceived disability discrimination? Yes.

In the first Court of Appeal judgment on the question of 'perceived disability', Chief Constable of Norfolk v Coffey, the Court has confirmed that claims based on a perception of disability are permissible. The starting point is whether or not the employer perceived the employee to have an impairment that has "all the features of the protected characteristic". There is no need for the employer to conclude that the employee meets the legal definition of having a disability.

But what if an employer does not perceive the employee to have a disability now but instead perceives that the employee has a condition which is likely to progress into a disability? Does the Equality Act only cover those wrongly perceived to be currently disabled or does it also extend to those who an employer perceives will meet the definition of disability at some point in the future?

Under Schedule 1 paragraph 8 to the Equality Act, an employee will be deemed to have an impairment with a substantial adverse effect on their normal day-to-day activities if they suffer from a progressive condition and can show that the condition currently has an impact, but not a substantial adverse impact, on his or her ability to carry out normal day-to-day activities but the condition is likely to result in an impairment having a substantial adverse effect in the future. The Court has held that as perceived disability is protected under the Equality Act; if a person is perceived to have a progressive condition, they are also covered.

On the question as to whether a condition has a substantial adverse impact on an individual's ability to carry out 'normal day-to-day activities', the Court has confirmed that 'normal day-to-day activities' includes activities which are relevant to participation in 'professional life' as held under European case law, though the Court of Appeal prefers the phrase 'working life'.

In this case, the Court upheld the tribunal's decision that a police officer, who was turned down for a transfer to another force because her hearing was marginally below the medical standard for police recruitment, had suffered direct discrimination because of a perceived disability. The Force's reason for refusing the transfer was concern that the officer would end up on restricted duties in future. This indicated that it perceived her to have a progressive condition.

But does this amount to direct discrimination in which case it is not possible to raise an objective justification defence? Or is it a case of discrimination arising from disability in which the case the employer could run an objective justification defence? Was her transfer request turned down because of her perceived disability (direct discrimination) or because of a belief that she would not be able to perform a font-line role in future (discrimination arising from disability)?

The Court considered it to be right in principle that an employer's concern about the ability of a disabled individual to do a job could constitute direct discrimination but only where that concern was significantly influenced by a stereotypical assumption about the effects of the disability. The Court stressed that in a typical case where a person is refused a job - or indeed is dismissed or suffers any other detriment because they are unable to meet a performance standard in consequence of a disability, they will have no claim of direct discrimination but instead a have claim for discrimination arising from disability.

In Mrs Coffey's case, the tribunal was entitled to find that the decision-maker had acted on the basis of a stereotypical assumption. The decision-maker assumed that Mrs Coffey's hearing loss would render her incapable of performing front-line duties in the future despite Home Office guidance and the Force's medical advisor's recommendation that Mrs Coffey be given an at work assessment. As such it was direct discrimination and so the question of objective justification did not arise.

Lessons for employers:

In addition to providing the first Court of Appeal guidance on 'perceived' discrimination and 'progressive conditions', this judgment is notable for confirming that the phrase "normal day-to-day activities" does indeed include normal activities which may arise only at work.

2. Changing terms and unionised workforces

If the source of a contractual employment term is a collective agreement with a trade union, then the obvious mechanism for change will be to seek the trade union's agreement to that change. Where the trade union's agreement to the proposed change cannot be reached, is it possible to seek agreement directly from the employees?

In such a scenario, an employer may consider seeking agreement directly with the employees through individual offer and acceptance of the new contractual term(s). Unsurprisingly, trade unions are not a fan of an employer adopting such a course and have increasingly argued that such a course would amount to a breach of section 145B of the Trade Union and Labour Relations Consolidation Act 1992.

Under section 145B, employers are prohibited from making offers to employees with the sole or main purpose of undermining collective bargaining by the union (the prohibited result). If a complaint is upheld for breach of s145B, the award is £4,193 (revised annually) per union member receiving the offer. Where an offer is made to a large number of union members, the cost can be considerable.

But just how wide is the scope of section 145B? When can lawful variation tip into being an unlawful inducement? Can, as the unions argue, section 145B include the situation of an employer who is otherwise committed to collective bargaining, but for economic/business reasons wishes to make adjustments to particular contractual terms derived from the collective agreement? In particular, if acceptance of a direct offer would mean that at least one term of employment will be determined by direct rather than collective agreement, is that sufficient to amount to an unlawful inducement, even if only for a limited time and/or other terms continue to be determined collectively?

The Court of Appeal in Kostal UK Ltd v Mr D Dunkley and Others has now set out the scope of section 145B :

  • Cases within scope:
    1. "where an independent trade union is seeking to be recognised and the employer makes an offer whose sole or main purpose is to achieve the result that the workers' terms of employment will not be determined by a collective agreement"; and
    2. "where an independent trade union is already recognised… and the employer makes an offer whose sole or main purpose is to achieve the result that the workers' terms of employment (as a whole), or one or more of those terms, will no longer be determined by collective agreement."

In scenario b, the "no longer" requirement clearly indicates a change taking the term or terms concerned outside the scope of collective bargaining on a permanent basis;

  • Cases not in scope
    1. "where an independent trade union is recognised, the workers' terms of employment are determined by a collective agreement negotiated by or on behalf of the union, and the employer makes an offer whose sole or main purpose is to achieve the result that one or more of the workers' terms of employment will not, on this one occasion, be determined by the collective agreement.

The Court concluded that the facts in Kostal clearly fell within the type of cases not in scope. For more on what happened in the Kostal case please see our recent insight 'Unionised workforces & varying contractual terms'.

Lessons for employers:

This judgment will come as welcome relief to employers with unionised workforces. As the Court states, had it agreed with the union's broad interpretation, it would have given recognised unions essentially a veto over even the most minor changes in terms and conditions of employment with employers facing a severe financial penalty for overriding the veto.

From a good industrial relations perspective, employers seeking to change terms and conditions with a unionised workforce should seek agreement on the same bargain with the union in the ordinary course as required by their recognition agreement. However, if an employer has a clear business reason for making a change and has reached an impasse with the union, this decision allows them to seek agreement directly with the employees through individual offer and acceptance without risking claims under section145B.

But this may not be the end of the story - Unite the union who is funding the litigation has confirmed its intention to seek permission to appeal to the Supreme Court.

3. Holiday pay & overtime revisited

Just when you think surely there cannot be any more outstanding significant overtime and calculating holiday pay cases left out there, another two come along! While the latest Court of Appeal for England and Wales (CA) judgment handed down at the beginning of June is 'as expected', the Northern Ireland Court of Appeal (NICA) judgment at the end of June strongly challenges the perceived wisdom on back claims.

'Normal pay' is that which is 'normally received'

In East of England Ambulance Service NHS Trust v Flowers, the CA has once again confirmed that when calculating holiday pay for the first four weeks of holiday entitlement under the Working Time Regulations 1998, 'normal pay' is that which is 'normally received'. Focusing on whether overtime is or isn't "voluntary" is irrelevant. The key is regular receipt. It will be for tribunals to determine, on a case-by-case basis, whether a particular pattern of voluntary overtime is sufficiently regular and settled.

Also remember to check the contractual provisions to see if there is a contractual right to have overtime included, in which case there may not be a need to establish a regular pattern.

The grey area that still exists is how regular a pattern is needed for "normally received"? In the earlier case of Dudley Metropolitan Borough Council v Willetts and others, regularly working overtime one week in five was found to be sufficiently regular. As ever each case will depend on its particular facts.

Back claims revisited

Now for the surprise judgment; Chief Constable of the Police Service of Northern Ireland and another v Agnew and others. The NICA delivered a judgment on holiday pay at the end of June challenging the positon in relation to underpayment of holiday pay back claims resulting in a differing legal position for Northern Ireland from the rest of the United Kingdom.

Differing legislation

Workers in Great Britain can claim for underpaid holiday pay under the unlawful deductions from wages jurisdiction in the Employment Rights Act 1996 (ERA), which allows claims to be submitted within three months of the last in a "series of deductions". The House of Lords in HMRC v Stringer and others [2009] opened up the possibility of potentially very large claims for historical underpayments stretching back many years. However, in Bear Scotland Ltd v Fulton and other cases [2015], the Employment Appeal Tribunal (EAT) held that there will be a break in the chain of any "series of deductions" where a period of more than three months has elapsed between the deductions. The Bear Scotland decisions severely limits the scope for workers to make substantial retrospective claims for underpaid holiday.

At the same time that the Bear Scotland case was being considered by the tribunal, the government introduced The Deduction from Wages (Limitation) Regulations 2014, which limits a series of unlawful deduction claims under the ERA to two years for claims brought in Great Britain on or after 1 July 2015.

Claims for underpayments of holiday pay can also be made under Regulation 30 of the Working Time Regulations 1998 (WTR), provided the claim is brought within three months of the underpayment. There is no provision for claiming in respect of a series of underpayments going back longer than three months. The definition of "worker" in the WTR is wider than the equivalent definition in the ERA 1996, and explicitly includes police officers.

In Northern Ireland, equivalent holiday provisions to those in the WTR are set out in the Working Time (Northern Ireland) Regulations (WTR (NI)). Equivalent deduction from wages provisions are contained in the Employment Rights (Northern Ireland) Order 1996 (ERO). The Deduction from Wages (Limitation) Regulations 2014 do not apply in Northern Ireland and there are no equivalent regulations.

Under both the WTR and the WTR (NI), the case law requiring holiday pay be based on 'normal pay' including overtime relates to statutory annual leave entitlement which derives from the EU Working Time Directive (WTD), being the first four weeks of leave. It does not strictly apply to the additional statutory annual leave entitled, being a further 1.6 weeks or to any enhanced contractual entitlement.

What happened in the NI case?

3,380 police officers and 364 civilian employees brought claims for unlawful deductions under the ERO and claims for underpayment of holiday pay under the WTR (NI) against the Police Service of Northern Ireland (PSNI). The PSNI admitted that, since the implementation of the WTR (NI) on 23 November 1998, they have wrongly calculated holiday pay by reference to basic salary, instead of by normal pay including overtime. They agreed that the police officers were workers under the WTR (NI), but did not accept that they were workers under the ERO. They therefore argued that the officers could not bring claims in respect of a series of deductions and were limited to sums underpaid in the last three months before the claims were brought. If back claims going back many years were possible, the potential value of the claims dramatically increased from £300,000 to an eye-watering £30 million.

What did the NICA decide?

The NICA held that police officers were 'office-holders' not 'workers' under the ERO. As such they could not bring claims for a series of unlawful deduction of wages. So far so good for the PSNI, but… police officers are 'workers' within the meaning of European Union law. Therefore, under the EU principle of equivalence, the WTR (NI) should be construed as allowing claims for underpayments for holiday pay that were part of a series of underpayments. The NICA therefore held that the following words be added to regulation 30 of the WTR (NI)

To enable tribunals to consider underpayments of holiday pay that were part of a series of underpayments, the words in italics must be read into the WTR (NI)

"An industrial tribunal shall not consider a complaint under this regulation unless it is presented- (a) before the end of the period of three months … beginning with the date on which it is alleged that … the payment should have been made or if presented in respect of a series of payments of wages from which deductions were made, before the end of the period of three months beginning with the date on which it is alleged that the last in the series of such payments was made; or (b) …;"

This means claims for back pay going back many years is possible under the WTR (NI).

Going from bad to worse for the PSNI, the NICA also ruled that whether there is a "series" of deduction of wages is a question of fact. Rejecting the Bear Scotland judgment, the NICA held

  • A series is not ended as a matter of law by a gap of more than 3 months between unlawful deductions related to holiday pay.
  • A series based on a common fault of paying basic pay as holiday pay regardless of any overtime or allowances is not ended by a lawful payment which comes about simply because on that occasion there was no overtime or allowance that needed to be taken into account.

The NICA also disagreed with the Bear Scotland approach as to when different classes of holiday leave are considered taken. It held that the first four weeks of statutory holiday leave entitlement deriving from the WTD is not necessarily taken first, with additional statutory holiday (the 1.6 weeks) or enhanced contractual entitlement taken thereafter. Rather, an individual's holiday entitlement must be considered a "composite whole", with each day's leave consisting of entitlement under all sources taken together.

Finally, the NICA also made a number of observations about the calculation of normal pay for holiday pay purposes, including the reference period, which it unhelpfully held was a question of fact for each case.

Where does this leave us?

For Northern Ireland

This case significantly increases the potential cost of historical holiday pay claims in Northern Ireland as it confirms that neither a three-month gap, nor a correct payment of holiday pay (which arose simply because no regular overtime needed to be taken into account on that occasion), will necessarily break a series of deductions. They can potentially bring claims going back to the start of their employment or 1998 (if later) and for the civilian staff potentially back to the start of their employment even if before 1998.

For Great Britain

Judgments of the NICA are not binding on the tribunals and courts in Great Britain, nevertheless they can have strong persuasive value. Aspects of this decision may prove persuasive if a further appeal were to be brought in relation to any of the points raised. Furthermore, if the NICA's judgment is appealed to the Supreme Court (which is likely, given the sum of money at stake), any Supreme Court judgment would be binding throughout the whole of the United Kingdom.

If the Bear Scotland judgment is incorrect on the three-month gap breaking a series point, the potential for large breach of contract back claims is still limited in Great Britain due to The Deduction from Wages (Limitation) Regulations 2014 limiting back pay to two years.

BUT, regulation 30(2)(a) of the WTR (NI) into which the NICA added words is identical to regulation 30(2)(a) of the WTR. If the NICA is correct and the same words are added to the WTR, then workers in Great Britain could potentially bring back claims going back as far back as 1998. However, this should not be an issue for employers who have already moved to systems which correctly calculate holiday pay on a 'normal pay' rather than 'basic pay' basis.

As to the particular sequence in which annual leave entitlement is taken, the NICA's composite approach is unhelpful. The Government's 2011 Modern Workplaces Consultation which proposed revisions to the WTR (but so far place far back on the 'too hard' shelf) included a proposal to introduce a default order in which Regulation 13 and 13A leave would be deemed to be taken. Perhaps this will be addressed post Brexit.

As for appropriate reference periods, unfortunately the case by case basis means we still do not have any helpful guidance from the courts, instead the usual "it depends on the facts". However, from 6 April 2020 the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 will introduce a reference period for calculating holiday pay of 52 weeks (or the number of complete weeks for which the worker has been employed if less than 52), in England, Wales and Scotland. This change will be particularly helpful for calculating holiday pay for casual and zero hour contract workers.

4. Right to privacy and use of personal e-mails in decision to dismiss

Under article 8 of the European Convention on Human Rights (ECHR) everyone has the right to respect for their private and family life, their home and their correspondence.

Last year in the long-running case of Barbulescu v Romania, the European Court of Human Rights (ECtHR) reminded employers that workplace communications as well as personal communications may be covered by the notions of 'private life' and 'correspondence'. A reasonable expectation of privacy is a significant, although not necessarily a conclusive factor. In Barbulescu the individual's article 8 rights had been infringed, partly on grounds that he had not been given notice that the content of his communications sent via a work account would be monitored by his employer.

In Garamukanwa v United Kingdom, the ECtHR held that an employer was able to rely on material found on an employee's phone by the police to dismiss him and this did not breach the employee's right to privacy under Article 8.

In this case, the employee had been carrying out a long campaign of stalking and harassment against a colleague, Ms McLean, after their close personal relationship broke down. Ms McLean complained of Mr Garamukanwa's inappropriate behaviour to both her employer and to the police. During the course of the police investigation, material was recovered from Mr Garamukanwa's phone evidencing his campaign of harassment. The police passed the information to the employer and Mr Garamukanwa was subsequently dismissed following the conclusion of the employer's own investigation and disciplinary proceedings, which relied in part on the evidence passed to it from the police.

Mr Garamukanwa brought unfair dismissal proceedings (and other claims). He argued that the employer had breached his Article 8 rights by examining matters which related to his private life and using that as evidence to justify his dismissal. The employment tribunal and Employment Appeal Tribunal rejected his claims on the basis that Mr Garamukanwa had no reasonable expectation of privacy in relation to the material:

  • Mr Garamukanwa was aware after the first harassing e-mail was sent that Ms Maclean had made a complaint and must have expected that she would complain of feeling harassed by his ongoing correspondence with her and he could have had no expectation of controlling when and where she complained or what she did with the emails he sent to her.
  • The content of the emails sent to Ms Maclean's personal email address was not purely personal as it touched on workplace issues as well.
  • Mr Garamukwana had not challenged the use of the phone material or any of the private communications during the course of the disciplinary hearing, and that he had voluntarily provided the disciplinary panel with further private communications of an intimate nature between him and Ms Maclean.
  • Even if Article 8 was engaged, any interference with these rights was justified by the employer's need to protect the health and welfare of other employees.

The ECtHR has now also rejected the claim. While business communications are capable of falling within the protection given to 'private life'" and 'correspondence', the ECtHR found that Mr Garamukanwa could not have reasonably expected that any materials or communications linked to the allegations would remain private. He had been aware for almost a year prior to the police investigation that the individual concerned found his conduct objectionable, and that his employer considered the behaviour inappropriate. Mr Garamukanwa did not challenge the use of the material at any time during the disciplinary proceedings and, on the contrary, voluntarily provided additional communications for consideration.

Lessons for employers

This is a case where the principles set out in Barbulescu were followed, but the decision came down on the other side of the line and no breach of Article 8 was found.

Lessons:

  • Employers should remain cautious when attempting to rely on what could amount to private material as emails sent from a work email account which address personal matters may be covered by Article 8.
  • Material passed from the police to an employer is likely to fall outside Article 8, but this cannot be assumed in every circumstance.
  • Employers should note the importance of putting employees on notice about allegations of misconduct against them at an early stage, which in effect puts them on notice that future such conduct will not be private.
  • A failure by the employee to challenge an employer's use of material during a disciplinary process or to only wish to submit selected private material makes it difficult for an individual to later object to reliance being placed upon it.

5. Reinstatement and re-engagement orders do not impose an absolute obligation on the employer to do so

If the tribunal finds that the employee was unfairly dismissed, in most cases the remedy sought is financial compensation. However, the options open to the tribunal are:

  1. Reinstatement (to the same position the employee held before the dismissal);
  2. Re-engagement (to a different job with the same or an associated employer); or
  3. Compensation.

A tribunal will consider what the claimant's wishes are, whether it is practicable for the employer to comply with any re-engagement or reinstatement order, and whether it is just and equitable in all the circumstances to make either order. The tribunal, in particular, will take into account any contribution on the part of the claimant to his or her own dismissal. It will also consider whether there has been a breakdown of trust and confidence between the claimant and the employer rendering an order not reasonably practicable. While financial compensation is by far the most common remedy, some claimants do actively seek reinstatement/re-engagement.

A successful claimant is entitled to one of the above remedies; he or she is not entitled to a combination. Where re-engagement or reinstatement is ordered, it will not be combined with a compensation award. However, this does not mean that the claimant receives no financial payment. On making an order for re-engagement or reinstatement, the tribunal must specify any arrears of pay and other benefits for the period between the dismissal and the re-engagement/reinstatement. Of particular significance for high paid employees, the award of arrears of pay is based on what the employee would actually have earned during the period between dismissal and re-engagement/reinstatement. In other words, the statutory cap on unfair dismissal awards does not apply.

In Mackenzie v Chancellor, Masters and Scholars of the University of Cambridge, the Court of Appeal was asked, if a claimant succeeds in getting a re-engagement order, does the employer absolutely have to re-employ them?

The Court of Appeal has held that an order for re-engagement or reinstatement does not impose an absolute obligation on the employer to re-engage the employee. In other words a claimant does not have a right to be re-employed. The only penalty for non-compliance with a re-engagement or reinstatement order contained in the legislation is that the employer becomes liable for an 'additional award' on top of what it would have had to pay if no re-engagement order had been made. In other words, a compensatory award plus an additional award (both subject to statutory caps).

In this case, the claimant was, until her dismissal, employed by the University of Cambridge as a lecturer in the law faculty. She brought unfair dismissal proceedings and sought an order for re-engagement. In the course of the hearing of that claim, the University conceded liability. The tribunal ordered the university to re-engage the claimant together with a back pay of £102,901.43 (gross).

The University did not wish to re-engage the claimant, so instead paid her the net equivalent of £107,467.07, which it was common ground was the maximum amount payable if the tribunal had awarded compensation instead of re-engagement plus a maximum' additional award' of 52 week's pay subject to the relevant statutory caps.

In this case, the combination of the level of the claimant's earnings and the time that passed between her dismissal and the making of the re-engagement order meant that the amount of back pay payable to her (£102,901.43) was almost as much as the aggregate of the compensatory and additional awards payable of £107,467.07 net. This made the penalty for not complying in practice just under £5,000 rather than £24,700 being the maximum additional award at the relevant time (the current cap is £27,300). As the Court commented "the University had had to pay only marginally more as a result of not complying with the order than it would have had to pay if it had done so…[but that was] the clear effect of the statutory provisions". Failing to 'actually' re-engage does not breach any right, and there is no Human Rights angle requiring actual re-engagement so as to provide an effective remedy, the remedy being an' additional award'.

Lessons for employers

A reminder of the financial consequences of a claimant seeking an order for re-engagement or reinstatement.

STOP PRESS: Important Supreme Court judgment on restrictive covenants

A sneak peek at a highly significant development for July 2019

On 3 July, the Supreme Court handed down its judgment in Tillman v Egon Zehnder Ltd on whether a restrictive covenant that prevents an ex-employee from being "interested in" a competitor for six months without an express carve-out for minor shareholdings was too wide and therefore unenforceable in its entirety.

The Supreme Court has taken this rare opportunity to consider some fundamental issues on the enforcement of restrictive covenants. In this long awaited decision we are given clarity on what is "an interest" in a competitor and if the current contract raises a problem what can and will the Court do to "blue pencil" the problem.

For more on this significant and rare Supreme Court judgment overruling some 99 year old case law, please see our insight Post-termination restrictions: the Supreme Court reinvigorates the blue pencil test.