In Part 1 of our 2023 employment law review, we had a canter through the announced legislative changes. In part 2, with more bad puns to hand, we gallop through the notable 2023 case law developments to remember.
- Holiday Pay: Miami Underlying Vice: The Pay Equalizer
- Redundancy: Redundancy Python's Meaning of Reasonable Life; Redundancy Python's Life of Palmer
- TUPE: Last of the Transferred Wine: TUPints of lager and a Package of SIPs
- Restrictive Covenants: Strictly Come Drafting; Strictly Come Drafting: it takes it too far
- Tribunal Jurisdiction: Jurisdiction World: the Lost Clause; Jurisdiction World: Data Dominion
- Artificial Intelligence: Have I Got Fake News For You
- Whistleblowing: Mission Issue Impossible; Mission Limit Impossible
- Industrial Action: Strikebusters!
- Worker Status: Don't Never Mind the BuzzContract; I'm Sorry You Haven't Got an Employment Relationship; Temporary Question Time
- Dismissal: The Informed Taskmaster; The Can't Unilaterally Repair Shop; The Regretted F Word; I'm not a Boss get me out of here
- Equality: Dancing on Thin Ice; The Indirect Strongest Link; Only Connecting; Mastermind Only; What the Investigation Papers Say; Mr and Mrs Whoever; The taX Factor
1. Holiday Pay
We begin with a perennial favourite, holiday entitlement and pay. For the past two decades, this topic has been highly litigated and far more complicated than it should be. While change is coming (see Part 1: Our 2023 top legislative picks), many aspects of the existing provision of the Working Time Regulations 1998 (WTR) remain. 2023 has brought us two lessons that will continue to apply after the holiday pay revamp on 1 January 2024.
Miami Underlying Vice
In October, the Supreme Court in Chief Constable of the Police Service of Northern Ireland and another v Agnew and others overturned the 2015 judgment in Bear Scotland v Fulton. The Bear Scotland "three-month gap" and "contiguous sequence" rules are incorrect. A series is not ended as a matter of law by a gap of more than three months between unlawful deductions related to holiday pay. Furthermore, a series of deductions based on paying basic pay as holiday pay, without including regular overtime or allowances, is not automatically ended by a lawful payment that arises because, on a later occasion, there was no overtime or allowance that needed to be included. What constitutes a series is a question of fact that must be answered in light of all relevant circumstances. The question is, what is the "unifying vice" that links the series of deductions together?
The Supreme Court also confirmed that there is no legal requirement that reg 13 leave (four weeks) and reg 13A leave (1.6 weeks) must be taken in a particular order – it is a "composite whole". Given the differing carry-over and pay calculation rules that apply and continue to apply, employers should consider having a clear deeming order policy.
The Pay Equalizer
In relation to payments on termination of employment, ostensibly under reg 14, employers can make payments on termination under a "relevant agreement" that do not precisely reflect what the worker would have been paid had they actually taken the leave during their employment, save that the sum paid should be more than nominal. The Employment Appeal Tribunal (EAT) has now held that a formula under a "relevant agreement" cannot result in a worker being paid less than the usual amount they would have been paid when working. As such, the use of a 1/365th formula will result in an underpayment (Connor v Chief Constable of the South Yorkshire Police).
Redundancy Python's Meaning of Reasonable Life
Even if a dismissal is genuinely on the grounds of redundancy, whether it is fair or unfair to dismiss for that reason depends on whether the employer acted reasonably in dismissing the employee for that reason in all the circumstances. This year, we are reminded:
- In a potential redundancy situation, employers need to consider possible suitable alternatives to redundancy. At a time when the Coronavirus Job Retention Scheme was in operation, furlough was a possible suitable alternative raised by the employee. It should have been properly considered rather than rejected out of hand. Exceptional context but principles remain the same - failure to reasonably consider suitable alternatives to redundancy may render any subsequent redundancy unfair (Mhinurwa v Lovingangels Care Ltd – EAT)
- Employers have an obligation to consult with the workforce on proposed redundancies at a formative stage of the process whether or not collective consultation under TULRCA 1992 has been triggered. Reasonableness in redundancy procedures should reflect good industrial relations practice, which requires "general workforce consultation" at a time when employees have the potential to affect the decision. Failure to do so could render the dismissal unfair. Furthermore, for global employers, what may amount to "good industrial relations practice" may vary from country to country (De Bank Haycocks v ADP RPO UK Ltd – EAT).
- Whether an employee unreasonably refuses alternative employment and loses their right to a redundancy payment is subjective, and each individual case must be considered in light of its particular circumstances. The question is not whether a reasonable employee would have accepted the employer's offer, but whether that particular employee, taking into account their personal circumstances, was being reasonable in refusing the offer (Mid and South Essex NHS Foundation Trust v Stevenson - EAT).
Redundancy Python's Life of Palmer
And a huge sigh of relief from Insolvency Practitioners – "He's not the Company officer, he's (as it turns out) not a very naughty boy!" The Supreme Court held that administrators do not fall within the meaning of a "director, manager, secretary or similar officer of the company" under the Trade Union and Labour Relations (Consolidation) Act 1992. This means administrators are not subject to the threat of criminal sanction if they fail to comply with the statutory notification requirements triggered where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less (Palmer v Northern Derbyshire Magistrates' Court).
Last of the transferred wine
A TUPE transfer can occur by a single or a series of transactions. It is vital to fix the time of the transfer, as this determines which employees will be caught and which rights and liabilities will be transferred. While easily done where there is a single transaction, a series of transactions is more complicated. The transfer date will be the date on which responsibility for carrying on the business passes from the transferor to the transferee. This is a particular point in time rather than a period of time. This year, the EAT remind us that there is no rule or presumption that where there is a series of transactions, the transfer date is the date of the last transaction. In addition, where a transfer has cross-border elements, you must consider the whole business being transferred, not simply the UK elements (Rajput v Commerzbank AG).
TUPints of lager and a package of SIPs
Under TUPE, all of the transferor's "rights, power, duties and liabilities under or in connection with a transferring employee's contract" pass to the transferee. The Scottish Court of Session agreed with last year's EAT warning that "in connection with" an employee's contract may extend to an employee's rights under a collateral contract to participate in their employer's share incentive plan (SIP). The right to participate in the SIP was found to be part of his overall financial "package". Accordingly, the transferred employee was entitled to participate in a plan of substantial equivalence with the transferee (Ponticelli UK Ltd v Gallagher).
4. Restrictive covenants
The general rule is that all contractual restraints on a former employee's freedom to work are void and unenforceable as being in restraint of trade and contrary to public policy unless they can be shown to be no wider than reasonably necessary to protect the employer's legitimate business interests.
Strictly come drafting
Employers who may have drafted their non-compete clauses too broadly may have limited life-lines. This year, the Court of Appeal in Boydell v NZP Ltd reminded us of the two very limited life-lines:
- If the clause would be valid in all ordinary circumstances within the parties' contemplation, it will still be valid if it also covers "extravagant, fantastical, unlikely or improbable" circumstances.
- The courts can "sever" words from a non-compete, allowing it to remain in force while limiting its scope. The words have to be capable of being removed without adding to the remaining wording, and the removal should not cause any major change in the overall effect of all of the post-employment restrictions in the contract.
It should be remembered that these are very limited lifelines. A court will not rewrite a clause to make it enforceable if it is too broad. Nor will it construe a wide (and void) restriction as having implied (and valid) limitations. Strictly speaking, it's best get the drafting right in the first place!
Strictly come drafting: It takes it too far
Contractual post-termination restrictive covenants, such as non-compete clauses, are void and unenforceable as being in restraint of trade unless they are no wider than reasonably necessary. But, does the same rule apply to bonus clawback provisions? No. In Steel v Spencer Road LLP, the High Court held that while there was no doubt that a bonus or commission scheme which is conditional on the employee remaining in employment for a specified period of time operates as a disincentive to resignation, it does not turn such a provision into a restraint of trade.
5. Tribunal Jurisdiction
Jurisdiction world: The lost clause
Where a contract of employment states that the law of a particular country is to apply (choice of law clause), it often also purports to confer jurisdiction on the courts of the same country to resolve any disputes relating to the contract (jurisdiction clause). But is an exclusive jurisdiction clause worth the paper it is written on where the employee is domiciled in the United Kingdom? – Not really.
The English Commercial Court confirmed in Gagliardi v Evolution Capital Management LLC, that, like the pre-Brexit position, post-Brexit, an exclusive jurisdiction clause in a contract related to employment in favour of the employer's (or, in some cases, the employer's parent company's) home state/country will not be enough to oust the jurisdiction of the employee's home country's courts:
"In matters relating to individual contracts of employment …If the employee is domiciled in the United Kingdom, the employer may only sue the employee in the part of the United Kingdom in which the employee is domiciled (regardless of the domicile of the employer)."
Jurisdiction world data dominion
Under the UK data protection regime, there is an exemption from some UK General Data Protection Regulation provisions in relation to information required to be disclosed in connection with "legal proceedings". We now have the first judgment on the scope of this exemption. When defending a discrimination claim before a tribunal, can a former employer disclose information about another former employee who is alleged to have committed the discriminatory act? Does the former employer first need to inform the former employee of the tribunal proceeding and invite them to participate in it? The Scottish Sheriff's Court in Riley v Student Housing Company (Ops) Ltd, said no.
The Court found that the tension between data protection requirements and the demands of litigation was exactly what the exemption was intended to address. Requiring the employer to have invited the former employee to comment and give a witness statement would undercut its discretion as a litigant.
6. Artificial Intelligence
Have I got fake news for you
In Harber v Commissioners for His Majesty's Revenue and Customs, the First-Tier Tax Tribunal warn of the perils of using AI in tribunal proceedings. In this case, a litigant in person based their appeal on nine apparently supportive previous decisions. The problem, they were all false AI-generated references. Well done to the judge for spotting the dodgy references.
A growing problem. In the writers' recent experience, also beware of AI-generated case summaries that often are way off the mark. Check your sources!
Mission issue impossible
A settlement agreement/COT3 cannot protect an employer from claims whose cause of action only arise after the date the settlement agreement/COT3 was entered into. But consider the "issues" carefully. This year, alleged whistleblowers negotiating settlement of detriment claims where employment is to be ongoing have received a stark warning.
In Ajaz v Homerton University Hospital NHS Foundation Trust, the EAT held that a claimant who had entered into an Acas COT3 agreement to settle claims of whistleblowing detriment could not bring a new claim based on detriments that occurred after the COT3 was entered into as they arose out of the same alleged disclosures. In this case, the claimant had settled all "issues and complaints" including whether the disclosures made were "protected disclosures". By setting all "issues and complaints" rather than simply "complaints", the claimant could not re-litigate the issue of whether they had made protected disclosures on which the alleged further detriment claim was based.
Mission limit impossible
Linking a dismissal to a protected disclosure is an attractive objective for a claimant, as there is no financial cap on compensation and no service requirement. The EAT remind us that an employee's compensation for whistleblowing detriment and automatically unfair dismissal cannot be capped at an amount specified in the termination provisions of a contract of employment, even for a very senior employee. The EAT disagreed with the employer that it would be 'just and equitable' to limit compensation to the contractual amount regardless of the loss. Any attempt to contractually limit compensation in this way would be an unlawful limit of the employee's statutory employment rights. An expensive lesson from the EAT in SPI Spirits (UK) Ltd and anor v Zabelin – the employee being awarded £1.6 million rather than the £270,000 contractual sum. The Winner of this year's "Nice Try" Award.
8. Industrial action
Prior to 21 July 2022, reg 7 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 prevented employment businesses from supplying temporary workers to cover the work of those taking part in industrial action. This year, the High Court upheld a judicial review challenge brought by 13 trade unions over last year's revocation of reg 7. The Court agreed that the Government has failed to comply with its statutory duty to consult and quashed the revocation with effect from 10 August 2023 (R (on the application of ASLEF and ors) v Secretary of State for Business and Trade).
However, this is not the end of the story. The Government has launched a fresh consultation on revoking reg 7. Revocation or no revocation? The answer will likely turn on the outcome of the next general election.
9. Worker status
Recent years have seen a number of worker status claims from those working in today's gig economy. Many gig economy workers have been able to establish that they do indeed have "worker status", for example, the high profile Uber drivers' litigation. The headline from the 2021 Supreme Court judgment in Uber is whether an individual is a "worker" is primarily a question of statutory, not contractual interpretation. You start with the purpose of the statutory provision and interpret it in the way that best gives effect to that purpose, "irrespective of what had been contractually agreed".
Don't never mind the buzzcontract
This year, the EAT in Ter-Berg v Simply Smile Manor House Ltd and others has clarified that the reference in Uber to it being wrong to use the contract as a starting point does not mean that the written terms are irrelevant. Instead it is saying that in a case where the true intent of the parties is in dispute, it is necessary to consider everything that may cast light on whether the contractual terms reflect the agreement, rather than the stricter approach that conventional contractual principles would allow.
I'm Sorry I haven't got an employment relationship
Also, this year, the Supreme Court in IWGB v CAC confirmed that the right to form and join a trade union under article 11 of the European Convention on Human Rights (freedom of association) only arises in an employment relationship. In this case, the Central Arbitration Committee had scrutinised the substance of the relationship between Deliveroo and its riders and concluded that the riders were genuinely self-employed. Accordingly, they did not have an employment relationship to rely on trade union rights conferred by article 11.
Temporary question time
In Ryanair DAC and anor v Lutz the EAT agreed that Ryanair's pool of contracted pilots were not self-employed but in fact employed by an aviation recruitment company who had insisted they set up individual personal services companies when looking at the reality of the arrangements. Since the pilots were not in business on their own account, they were being supplied to Ryanair as agency workers.
The pilot, in this case, was supplied to Ryanair for a five-year fixed term. This meant he was being supplied to work temporarily. "Temporarily" does not mean short term. The tribunal concluded that, rather than being an open-ended indefinite arrangement, this arrangement was terminable on a condition being satisfied (expiry of five years) and, as such, was temporary.
Those placed indefinitely (meaning open-ended in duration) are not placed temporarily and are outside the scope of the Agency Workers Regulations 2010. But if there is an express end date (other than a terminable on notice clause) for an assignment, then the supply will be temporary, even if it is for a number of years.
The informed taskmaster
The decision of what action to take against the employee will ordinarily be made by the person who conducted the disciplinary hearing, as they will have reviewed the investigation findings, heard all the evidence, and heard the employee's arguments in mitigation. However, the EAT in Charalambous v National Bank of Greece remind us that it is not a hard and fast rule. A decision to dismiss is not necessarily unfair where it is reached by a more senior manager who had consulted with the disciplinary chair before reaching their decision.
For a dismissal to be fair, the employee should have the chance to state their case during the disciplinary process. However, the manager who decides upon the dismissal does not necessarily need to meet the employee in person during the disciplinary process. As the EAT states, communication can be made "in writing or by way of a report to the dismissing officer". However, it would be good practice and desirable for a meeting between the employee and the dismissing officer.
The can't unilaterally repair shop
This year, we have two lessons on contract non-affirmation:
- In Brooks v Leisure Employment Services Ltd, EAT confirmed that engaging in a contractual grievance procedure is not likely to unequivocally affirm the employment contract for a constructive dismissal claim. The exercise of a contractual grievance procedure is an attempt to allow an employer to resolve the issues that gave rise to the breach of contract rather than an unequivocal affirmation of the contract. This is different from a so-called "vanishing dismissal" case where the consequences of succeeding in an appeal of a decision to dismiss results in the original dismissal decision simply falling away.
- In Jackson v University Hospitals of North Midlands NHS Trust, the EAT reminds us of the doctrine set out in Hogg v Dover College in 1990. When an employer makes a unilateral change to an employee's contract, it can amount to a dismissal in law if the previous contract has in effect been wholly withdrawn and replaced by a different contract. It will be an express dismissal by the employer, not a constructive dismissal. Accordingly, the employee cannot be held to have affirmed the old contract by working under the new contract.
The regretted f word
Whether an employee's expletive-riddled words of resignation uttered "in the heat of the moment" amount to a resignation must be viewed objectively from the perspective of the reasonable employer. Did the employee not only use words of resignation but also, that objectively it would have appeared to a reasonable employer that they "really intended" to resign? If it is found that notice of resignation was given, the giver cannot change their mind unless the other party agrees (Omar v Epping Forest District Citizens Advice).
I'm not a boss get me out of here
There is a general presumption that an employee cannot have more than one employer in respect of the same work. While this is only a presumption which can be displaced, it is a strong presumption and highly unlikely to be displaced in an unfair dismissal claim. This year we have had two cases and in both the arguments that there were joint employers were rejected with the EAT stressing it is very high hurdle to rebut the presumption (Fire Brigade Union v Embery and United Taxis Ltd v Comolly and anor).
We now turn to a number of equality cases.
Dancing on thin ice
We begin with one of our 'ones to watch out for in 2023' cases, Higgs v Farmor's School.
While those holding a gender-critical belief are protected under the Equality Act 2010 (as are those holding a gender identity belief), the manifestation of such a belief may, depending on the circumstances, be restricted. Whether action taken by an employer relates to the manifestation of protected beliefs (prohibited) or instead due to a justified objection to the manner of that manifestation (permitted) will be fact-specific and can be difficult in many cases, particularly where social media posts outside of work are concerned. An often difficult thin line to navigate.
In Higgs, the tribunal found that a Christian employee was not discriminated against due to her gender-critical beliefs, as her dismissal was not due to her holding of those beliefs but the inflammatory language used in social media posts. The EAT has now allowed Mrs Higgs to appeal. It was not enough for the tribunal to find that the employer was motivated by a concern that Mrs Higgs could be perceived to hold "wholly unacceptable views"; it needed to consider whether their motivation had arisen out of Mrs Higg's manifestation of belief, and so protected under the Equality Act 2010, or by a justified objection to that manifestation of belief, and so not protected. The case, subject to appeal, is now returning to the tribunal for further consideration. In the judgment, the EAT also helpfully set out the basic principles that will underpin the approach adopted when assessing the proportionality of any interference with rights to freedom of religion and belief and freedom of expression (See Employment Essentials the 2023 Mid-year Report: Part 2 cases).
The indirect strongest link
Can associative discrimination arise in an indirect discrimination claim? This year, an employment tribunal in Rollett & others v British Airways PLC, agreed that in light of retained EU law, the Equality Act 2010 provisions must be read to protect against indirect associative discrimination. The tribunal explained that indirect associative discrimination is limited to where the employee can show that the employer applied a PCP, which put people with a particular protected characteristic at a disadvantage, and the worker can show that they were put at the same disadvantage. It remains the case that the employer may then justify the PCP as a proportionate means of achieving a legitimate aim. What indirect associative discrimination does not extend to is a broader concept of a worker who does not have the protected characteristic but who associates with a person who does suffer a disadvantage that is unique to their association with the person with the protected characteristic as held in the 2021 tribunal judgment of Follows v Nationwide Building Society.
The principle of associative indirect discrimination is to be retained in UK law from 1 January 2024 under The Equality Act 2010 (Amendment) Regulations 2023 (See Employment law review part 1: Our 2023 top legislative picks). A new s19A Equality Act 2010 will provide that indirect discrimination can be established if the claimant is put (or would be put) at "substantively the same disadvantage" as persons who share the relevant protected characteristic, in line with this latest judgment.
Section 15 of the Equality Act 2010 provides that a person (A) discriminates against a disabled person (B) if A treats B unfavourably because of something arising in consequence of B's disability, and A cannot show that the treatment is a proportionate means of achieving a legitimate aim. The disability need not be the sole or principal cause of the "'something" – it is enough for it to be a contributing factor (provided that it is more than minor or trivial).
This year we are reminded that while the "something arising in consequence" of B's disability can be broad, it is crucial that the something is in consequence of B's disability and that the unfavourable treatment by the employer was because of that something. The existence of a sufficient connection will often be highly fact-specific and reliant on medical evidence (McQueen v General Optical Council – EAT).
In Alcedo Orange Ltd v Ferridge-Gunn, the EAT remind us that in order for unlawful discrimination to be established under the Equality Act 2010, it is the individual employee who did the act complained of that must have been motivated by the protected characteristic. The discrimination and whistleblowing statutory regimes are similar in some respects, but they are distinct and different principles apply to each. In discrimination claims the decision maker must act on the proscribed ground, there is no claim against a duped decision-maker as there is in relation to whistleblowing claims.
What the investigation papers say
In relation to harassment claims, the EAT remind us in Greasley-Adams v Royal Mail Group Ltd, that it is only unwanted conduct of which the employee was aware that is relevant. The perception of the person claiming harassment is a key and mandatory component in determining whether or not harassment has occurred. If there is no awareness, there can be no perception.
In addition, the circumstances in which the alleged harassment occurred are highly relevant and must be considered. In this case, the employee may have, in fact, been offended by comments that he was "difficult" and "nosey" when reading an investigation report into his conduct. But, in the context of that investigation, it was not reasonable for the comments to have that effect. It was inevitable that in the course of a bullying investigation into his conduct, things that he did not like would emerge.
Mr and Mrs whoever
A quick reminder from the EAT that the protection provided by the marriage and civil partnership protected characteristic is limited to discrimination because an individual is married or in a civil partnership, rather than the identity of their spouse or civil partner (Ellis v Bacon and anor).
Flexible deal or no deal
In Glover v Lacoste UK Ltd, the EAT remind us that an employee returning from maternity leave can suffer detriment or disadvantage from a rejection of a flexible working request even where the employer later agrees to grant the original request before she returns to the office. Once a flexible working application has been determined, then the provision, criterion or practice (PCP) will apply, even if the employee has not yet returned to work from maternity leave. Employers should be mindful that any late change of heart will not cure any disadvantage or detriment suffered by the employee as a result of the initial rejection, but it could be helpful when it comes to a tribunal considering the level of compensation.
The taX factor
In Howard-Ravenspine v HMRC, the First-tier Tribunal agrees with many employment law practitioners that the exemption for death, injury or disability payments made by an employer to an employee on termination (s406 ITEPA 2003) can apply to part of a termination payment. The purpose of the disability exemption is to exempt from tax any element of a payment which is made on account of an injury or disability. It is not "all or nothing" as argued by HMRC.
To discuss any of the points raised in this article in relation to employment law developments, please contact Connie Cliff or Jonathan Chamberlain.