The historic Supreme Court hearing and judgment on the proroguing of Parliament was hands down the case of the month. Despite the continuing Brexit uncertainty, employment law developments continue. Gowling WLG's employment, labour & equalities experts bring you the latest top five employment law developments that may affect your business:
- The dangers of selective waiver of legal professional privilege
- IR35: upping the enforcement ante
- Rest breaks under the Working Time Regulations
- The Employment Tribunal Service annual statistics
- Upcoming October key cases
1. The dangers of selective waiver of legal professional privilege
Legal professional privilege consists of two limbs: legal advice privilege and litigation privilege.
- Legal advice privilege protects confidential communications between client and lawyer, made for the dominant purpose of seeking or giving legal advice. Unlike litigation privilege, it does not protect communications between the client or lawyer and a third party, such as a witness or an expert.
- Litigation privilege applies to communications which come into existence with the dominant purpose of being used in aid of pending or contemplated litigation. In contrast to legal advice privilege, it can apply to communications between the client or lawyer and a third party. The purpose of litigation privilege is to allow a litigant to prepare for litigation without the danger of any documents produced for that purpose being disclosable to the other side, which might give them an insight into the advice given by the lawyer or the way in which the litigant's case is being conducted.
Under litigation privilege, where a genuine attempt has been made to settle a dispute, details of the settlement negotiations are inadmissible in evidence before the court or tribunal. The rationale for the rule is that parties should be encouraged to have full and frank settlement discussions without fear that any admissions or prejudicial comments which they might have made to try to settle the matter may be used against them in evidence should the settlement discussions fail.
Extreme caution is needed as unfortunately privilege in a document may be waived or lost, either intentionally, partially or by implication. Where privilege is waived in a document, this may subsequently give rise to claims of implied collateral waiver of privilege in other related documents that are part of the same transaction. Effectively the law prohibits a party from 'cherry-picking' which privileged documents to disclose to prevent the court/and or its opponent from being given only a partial picture where that may cause unfairness or misunderstanding. This is sometimes referred to as 'collateral waiver'
In September we saw an example of 'collateral waiver' in an employment dispute context.
In Kasongo v Humanscale UK Ltd, Ms Kasongo brought claims of automatic unfair dismissal and discrimination on the ground of pregnancy and maternity, asserting that the employer knew at the point of dismissal that she was pregnant. The employer denied knowing this, asserting that it dismissed her because of poor performance, work attitude, attendance and lateness issues.
In defending the claim the employer disclosed:
- A note made by its senior HR manager of a telephone call she had with the company's external solicitor on 25 January 2018, in which she sought advice on the termination process. The note set out the solicitor's advice about the lack of unfair dismissal protection, the possibility of giving pay in lieu of notice, and the potential for a discrimination claim based on race.
- An email sent by the senior HR manager the same day in which she summarised that advice for the employer's in-house legal counsel and stated that the company wanted to dismiss for 'tardiness, attendance and quality of work'.
- A draft dismissal letter, prepared by its lawyers on 2 February 2018, but with the lawyer's comments redacted.
The employer disclosed the above as it believed these communications corroborated its account that the dismissal on performance and conduct grounds was already in hand well before she intimated that she might be pregnant. Best laid plans…
Despite the draft dismissal letter being redacted, Ms Kasongo somehow managed to read the redacted words and sought to rely on them at the hearing (simply crossing out words with a black marker does not work!). The redacted words in question were:
"[Tamsin [the Claimant's line manager] - please double check I have this correct factually and that you are not uncomfortable with us saying any of this. The idea is to do enough to show we've not dismissed her for any discriminatory reason.]".
The question for the employment tribunal was whether the unsuccessfully redacted lawyer's comments in the draft letter were privileged.
As you probably guessed, the EAT held that the employer could not maintain privilege in respect of the redacted parts of the draft dismissal letter. The note, email and draft dismissal letter were all part of the same continuum of advising on Ms Kasongo's dismissal and possible legal implications, so the 'same transaction'. Given the importance in this case of the reason for dismissal, the redaction in the draft letter clearly presented a partial or misleading picture amounting to impermissible cherry-picking.
This case serves as a warning to be very careful when disclosing documents relating to advice on a dismissal that would otherwise not have to be disclosed because of privilege. If there are related documents which are part of the same 'transaction', privilege may also be waived in respect of all documents relating to that dismissal.
2. IR35: upping the enforcement ante
IR35 refers to the anti-avoidance tax legislation that applies when an individual worker provides services to an end client through an intermediary, such as a personal service company (PSC) or a partnership, in circumstances where the individual would otherwise:
- for income tax purposes, be regarded as an employee or an office-holder of the client, and
- for National Insurance contributions (NICs) purposes, be regarded as in employed earner's employment by the client.
Before IR35 was introduced, individuals could avoid being taxed as an employee on payments for services by providing those services through an intermediary. By receiving dividends (rather than salary) from the intermediary (usually a PSC), the individual would not be liable for NICs and Pay As You Earn (PAYE) would not have to be operated. Since the introduction of IR35 in 2000, where the relationship between the worker and client would have been one of employment in the absence of the intermediary, IR35 ensures that the worker's income tax and NICs liability is broadly equivalent to that of an employee and imposes a PAYE and NICs obligation on the intermediary.
Getting the call wrong on whether an individual falls within the ambit of the IR35 regime can have significant tax implications. Recently, HMRC has been upping its enforcement efforts. This month three BBC presenters were held liable for £920,000 of unpaid tax having incorrectly claimed to fall outside the IR35 regime over a number of years.
In Paya Limited and others v HMRC, the BBC was obliged to provide and pay for, and the presenters were obliged to be available on a "first-call basis" for, a minimum number of days' work. The First-tier Tax tribunal held that this gave rise to a mutuality of obligation. Also, the contracts contained no meaningful right of substitution, there were restrictions on outside activities and the BBC exercised a degree of control consistent with employment.
Also, HMRC has recently written to around 1,500 contractors working for GlaxoSmithKline advising them to check whether they are compliant with the IR35 rules and has confirmed that it will be sending such letters to contractors in other sectors where there is the highest risk of non-compliance with the IR35 rules.
From 6 April 2020, the existing public sector restrictions and rules on IR35 are being extended to medium and large private sector employers. Under the controversial change, instead of the contractor having responsibility for determining their employment status for tax purposes, the client will need to make the call. They could be liable for any missing tax if they get the decision wrong. The client/hirer will also have responsibility for passing the status notification down the chain and directly to the worker. There will be a statutory status disagreement process aimed at resolving any disputes around the determined status and measures aimed at preventing clients making blanket determinations.
The Exchequer believes that extending the compliance burden to large and medium private employers will bring £3.1 billion in additional revenue between 2020 and 2024.
Employers who receive services from individual workers through an intermediary need to ensure that they are ready to implement the changes before 6 April 2020. Getting it wrong could result in liability for the unpaid tax. See 'IR35 private sector reform: Get ready for April changes' in which our tax experts unpack the 'who, what and when' of the draft legislation and HMRC guidance and their potential impact on employers.
3. Rest breaks under the Working Time Regulations
Under regulation 12 of the Working Time Regulations 1998 (WTR), most workers are entitled to a rest break away from their work station of not less than 20 minutes where daily working time is more than six hours. The employer can decide whether the break is paid or not.
Back in 2016, the Employment Appeal Tribunal (EAT) in Grange v Abellio London Ltd held that a claim for 'refusal' to permit rest breaks can be brought where the employer fails to make provision for such breaks, even if the worker does not expressly request them. Employers must take active steps to ensure their working arrangements enable workers to take the rest breaks they are entitled to. Workers cannot be forced to take rest breaks but they are to be positively enabled to do so. Mr Grange was therefore able to succeed in his claim that he was unlawfully denied his rest break by virtue of being regularly given 8 hour shifts with no rest break provision.The decision in Grange disapproved of previous EAT judgments which held that an employer would only be in breach of the WTR if it refused an express request to take the rest break.
This month in Pazur v Lexington Catering Services Ltd, the EAT held that an employee who was threatened with dismissal when he refused to return to a client site because the client had not allowed him a rest break on a previous occasion was subjected to an unlawful detriment.
In reaching its decision, the EAT considered the 2012 case of Ajayi and Anor v Aitch Care Home (London) Ltd in which the then sitting EAT held that a 'refusal' or 'proposed refusal' of an employee to accept a contravention (or proposed contravention) of the WTR by his employer had to be communicated in advance to the employer. In that case, the dismissal of two employees found sleeping on duty was held to be fair, notwithstanding their subsequent assertion that they were exercising their rights to a rest break at the time, and refusing by conduct to accept their employer's failure to provide for any break.
In Pazur (which unfortunately fails to refer to Grange), the EAT has now stated that while there must be an explicit communication of the claimant's refusal (or proposal to refuse) to comply with the employer's requirement to work without the rest break, the employee is not required to state precisely which provision of the WTR 1998 is in issue, or even to have positively asserted a right under the WTR. It only needs to be shown that they were refusing to comply with an employer's requirement that would, as a matter of fact, contravene the WTR. In this case, it was clear that the employee was objecting to work at a client site where he would not be allowed a rest break,
On the questions of explicit refusal to allow and explicit assertion to take rest breaks, we now have conflicting EAT level decisions, it will take a future decision of the Court of Appeal or Supreme Court on this issue to resolve this conflict.
In the meantime, there are compelling reasons given in Grange v Abellio London Ltd that explicitly stated refusal by the employer to allow a rest break is not needed. If an employer puts into place working arrangements that fail to allow the taking of 20 minute rest breaks they will be in breach of the WTR. While employers do not need to go as far as enforcing that workers take their breaks, they do need to take active steps to ensure working arrangements enable workers to take their rest breaks if they wish.
4. The Employment Tribunal Service annual statistics
The 'Employment tribunal and EAT statistics for the year April 2018 to March 2019' have been published by the Ministry of Justice showing a total of 121,111 claims were accepted by employment tribunals, as compared with 109,685 last year. Compensation figures reveal that awards were made in 660 unfair dismissal claims (up 23% compared to 2017-18) and in 110 discrimination cases (as compared with 136 cases in 2017-18).
The figures show the median awards last year (and in comparison with last year) were:
- Unfair dismissal £6,243, down from £8,015;
- Race discrimination £7,882 down from £11,299;
- Sex discrimination £6,498 down from £10,638;
- Disability discrimination £12,156 down from £16,523;
- Religion or belief discrimination £4,767 down from £5,074;
- Sexual orientation discrimination no awards;
- Age discrimination £12,365 up from £6,184.
5. Upcoming October key cases
The end of September, saw the end of the judicial summer recess (the historic Supreme Court hearing and judgment on the question of the proroguing of Parliament being the September exception - see 'A Blank Piece of Paper': Supreme Court Quashes Prorogation).
Key cases to keep an eye out for in October:
- Whistleblowing: Royal Mail Group Limited v Jhuti - Manipulation of the decision-maker. In the context of a whistleblowing unfair dismissal claim, is it only the mental processes of the person or persons who was or were authorised to, and did, take the decision to dismiss that are relevant? What if the decision-maker is deliberately misled by the whistleblower's line manager?
The Supreme Court heard this appeal in June and the judgment is expected to be handed down sometime in October or November.
- Legal privilege: X v Y - On 2 October, the Court of Appeal will consider the question of disapplying legal advice privilege in relation to advice on 'cloaking' discrimination.
- Philosophical belief discrimination: Gray v Mulberry Company (Design) Ltd - On 8 or 9 October, the Court of Appeal will consider whether a belief in "the statutory human or moral right to own the copyright and moral rights of her own creative works and output" amount to a philosophical belief?
- Equal pay: Barnard v Hampshire Fire and Rescue - On 30 & 31 October the EAT will consider the effect of a series of promotions in establishing a "stable employment relationship". Was the ET correct in holding that the particular promotion was a fundamental or radical change in the work done so as to end a "stable employment relationship"?