Canter Levin & Berg Employment Solutions Canter Levin & Berg Employment Solutions
December 2013

Welcome to our final employment law bulletin for 2013 and we're signing off with a bumper edition.

Although most of the cases we cover do not make the news, this month we have reports covering some headline grabbers including Crystal Palace FC, G4S, professional firms engaged in tax avoidance, whether legal expenses insurance provides for proper legal representation and the Supreme Court case concerning a deeply religious couple who refused to allow civil partners to stay in a double room at their hotel. Of course, we could not round off the year without more news about TUPE and there are a couple of cases dealing with the practical and frequently encountered issues connected with making reasonable adjustments for disabled employees and recovering recruitment costs.

I hope that you've found our 2013 newsletters useful and, dare I say, occasionally interesting. As I've commented on many occasions employment law is one of the most complex and difficult areas of law that exists, as demonstrated by my first item about "pre-pack administrations" and TUPE, but it is at the same time the field of employment that most people are likely to encounter, at least during their working lives. Keeping up to date is a daunting challenge for everyone, including employers and employment lawyers! I hope that in 2014 I can continue helping you to navigate through the various complexities in this newsletter and the corresponding blog posts and that, with my colleagues, we will continue to provide value for money employment law services of the highest standard for SMEs.

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Martin Malone

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This month's news round-up:

1. does anyone, including judges, know the correct approach to ETO dismissals and administrations?


In March 2011 I commented on the uneasy interplay between insolvency law and employment law. At that time the question was whether highly contentious "pre-pack" administrations provided an opportunity to dispense with a workforce as well as most of the company's debts by using a TUPE exemption. Oakland v Wellswood (2008) appeared to allow administrators to do so, whereas OTG Ltd v Barke appeared to close that option.

Against this background Crystal Palace FC Ltd & Another v Kavanagh & Ors is a recent and significant Court of Appeal case dealing with the fairness of dismissals by administrators of struggling companies. In 2009 the finances of the company running the club were in a parlous state and it went into administration at the beginning of 2010. The administrator wanted to sell the business as a going concern, if he could. One obstacle to this was that the ground where the club played was separately owned, and the only credible buyer, a consortium, wanted the ground as part of the deal. The next month the ground's owner was also put into administration by its bankers. Negotiations ensued which were complex, fast moving, and subjected to spin by the parties, but were not immediately productive.

The administrator decided to mothball the club once the season ended (with relegation narrowly avoided), in the hope of selling later. As part of that, in May 2010 he dismissed 25 employees who, he was advised, could be sacked without ceasing the core activities of the company. The administrator finally sold the company to a consortium in August.

An Employment Tribunal found that while the sale was not the reason for the dismissals, they were for a reason connected with the transfer. Normally such dismissals are automatically unfair. However it went on to decide that the dismissals were fair, being for an "economic, technical or organisational" (ETO) reason, in that reducing the wage bill would allow the administrator to keep the business going – a reason separate from the longer term objective of being able to sell the business later. (However, reducing the workforce to make the business more attractive to a buyer would not have been an ETO reason).

The Employment Appeal Tribunal disagreed with the Employment Tribunal about whether the dismissals were for an ETO reason. Because the administrator intended to sell the club eventually, the dismissals could not be regarded as for an economic reason, but could only be treated as being to facilitate the sale, applying the dictum of Mr Lord Justice Mummery in Spaceright Europe Limited v Baillavoine [2012] ICR 520 that:

For an ETO reason to be available there must be an intention to change the workforce and to continue to conduct the business, as distinct from the purpose of selling it. It is not available in the case of dismissing an employee to enable the administrators to make the business of the company a more attractive proposition to prospective transferees of a going concern.

The Court of Appeal in turn took the contrary view, because the circumstances in the present case differed from those in Spaceright - for example footballing is a seasonal trade, and the players tend to be its only realisable asset – and the EAT had put too much emphasis on the term "mothballing".

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2. disguised employees: they're not as smart as they'd like to think they are

Last May I commented on the Queen's Speech and the removal of the presumption of self-employed status in LLPs. I pointed out at the time that almost invariably fixed share partners in LLPs were, in reality, employees in all but name so that there was little point in LLPs continuing to pretend otherwise.

Notwithstanding (occasionally convoluted) protests from leading accountancy firms, particularly those that championed such arrangements, details of the crackdown have now emerged in the form of draft legislation published by HMRC. According to detailed guidance notes the changes are likely to affect "Individual members of a limited liability partnership (LLP) who work for the LLP on terms that are tantamount to employment ('salaried members') and LLPs that have salaried members". The objective is to make the tax system fairer by ensuring that employment taxes are paid by LLP members who are essentially employees and, significantly, the LLP employer - consequently liable for 13.8% Employers' NIC contributions.

There is a three-fold test:

  • - the disguised salary condition
  • - the influence condition
  • - the capital contribution condition

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3. DAS finally forced to face up to fair legal expenses insurance


European Community Directive 87/344/EC on legal expenses insurance gives policyholders the right to a free choice of representative in legal proceedings. Notwithstanding this, private individuals of modest means who look to legal expenses insurance to fund litigation (and many household policies include some form of cover) find that they are offered in house representation or are directed to a solicitor from a panel maintained by their insurer, rather than their own choice of representative. In practice insurers try to keep costs down by inviting tenders from law firms willing to undertake work on cases on the basis of a low fixed fee. In my experience the value of such services ranges from poor to positively harmful but, of course, all that insurers are concerned about is discharging their contractual obligations for the minimum outlay. Ironically the type of restrictions that have applied are exactly the mischief that the Directive was designed to address. Unsurprisingly insurers and particularly DAS have fought tooth and nail to restrict access to legal representation.

In a victory for those seeking genuine access to justice the European Court in Jan Sneller v DAS Nederlandse Rechtsbijstand Verzekeringsmaatschappij has held that an insurer is not entitled to insist on using its own in-house lawyers. Mr Sneller's insurers, DAS, refused to cover the costs of a lawyer he instructed in his unfair dismissal claim, on the basis of its policy terms which said that external lawyers could only be used if DAS had considered that external lawyers were necessary. This was unduly restrictive in the light of the right of insured individuals to have the choice of an appropriately qualified person to represent them in any proceedings.

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4. asleep on the job


In Whittlestone v BJP the Employment Appeal Tribunal has taken another look at an issue which seems to recur from time to time – are workers entitled to minimum wage for hours spent asleep? Ms Whittlestone worked as a home care for an agency. By day she visited a number of service users at home for 20 minute "shifts" to attend to their needs, travelling between them by bus – nearly always without having time to return home between them. She was not paid for travel time. She had no set working hours, but worked as needed to carry out the number of visits allotted to her. She also slept over for eight hours overnight, when required, at a house occupied by three disabled adults for an additional fixed fee of £40 a week. As she appears to have slept over at least two nights a week this was well under the minimum wage. She resigned, giving a month's notice and during her notice period she was given markedly less work that was the norm – which had been at least 50 hours a week on average before she handed in her notice.

She made a claim to be paid the minimum wage for the sleepovers, for her travel time and to recover deductions made from her final pay for alleged overpayments. She failed in the Employment Tribunal, but succeeded in the Employment Appeal Tribunal on all three claims:

  1. With regard to the sleepovers, it was irrelevant that she had never actually had to attend to any of the occupants of the house overnight – in this case her very presence in the house amounted to work – her job was to be there.
  2. Regarding the second aspect of the claim, the Tribunal had failed to understand that the work being done was assignment work, and that therefore she was entitled for be paid for the time spent travelling between assignments.
  3. With regard to the overpayments, taking into account the rules for calculation of notice pay for those without normal hours of work under section 89 of the Employment Rights Act, she had not been overpaid, and so the employer had not been entitled to make any deductions.

This is a notoriously tricky area, and the Honourable Mr Justice Langstaff (President of the Employment Appeal Tribunal) remarked that terms such as "on call" and "core hours" could be misleading and made it clear that employers and their advisers need to get back to basics and look at the actual wording of the regulations – and even then it can be difficult to decide what should be paid and what should not.

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5. is a zero hours contract one of employment or self-employment?


News about zero hours contracts continues unabated. After I reported last month that the Chartered Institute of personnel and Development had conducted research suggesting that many people are happy with zero hours contracts, Vince Cable has performed the sort of volte face that seems to come easily to politicians by announcing that the crackdown on zero hours contracts that he had championed just weeks earlier will not now take place. However there is to be a Government consultation.

In G4S Secure Solutions (UK) Ltd v Alphonso the Employment Appeal Tribunal has looked at what amounts to a zero hours contract in the context of procedural issues as to whether a claim was in time or not and whether the appeal could proceed despite having the employee failed to comply with the Tribunal's orders. As I have mentioned before zero hours contracts are not defined in statute and it is therefore unsurprising that we have seen a rash of cases dealing with legal issues concerning their operation in practice.

Mr Alphonso originally started work as security guard for G4S in 2002. In 2011 he asked to move to a zero hours contract for personal reasons; this was agreed and put in place on 14 November that year. He was thereafter offered work twice, but then in May the next year he was sent his P45. It was automatically generated because he had not worked for three months and his screening for suitability to work as a security guard had expired. He presented a claim for compensation for unfair dismissal. The question was, when did he stop being employed – when he received his P45, or when he transferred to a zero hours contract? G4S said his zero hours contract meant there was no obligation to offer work, or for him to take it, so it was not an employment contract but a self-employed arrangement.

Unsurprisingly the Employment Appeal Tribunal held that it was not as simple as that. Mutuality of obligation is only part of the equation. The Employment Tribunal judge had failed to "examine the detail which is required to determine whether or not there was a contract of employment in this case" and so while there was insufficient material available to determine the status of the contract it was equally inadequate merely to assert that the contact was a zero hours one and therefore without protection from unfair dismissal, the stance taken by G4S.

The case was returned to the Employment Tribunal to look at all the facts to see if there was an employment contract in existence in May 2012.

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6. a car parking space, an email, a dismissal and perversity


Mrs Donnelly worked for the Environment Agency from 1992. She was on a flexitime contract. Towards the end of her time there she was disabled by osteoarthritis of the knees and spondylitis, which affected her back and her hip. As a result she found it difficult to walk far. This meant she had to change roles. In January 2010 she was offered a temporary role as an alternative, but she only did it for two weeks before going off sick with stress. She had a number of concerns about that change in role and her employment, but at the heart of a long running tribunal claim were the trouble she had getting a parking space close to her office, an email she alleged was harassment, and her ultimate dismissal in 2011 for lack of capability. She was successful in all those claims before Employment Judge Reed sitting at the Employment Tribunals in Liverpool. The Agency appealed: (The Environment Agency v Donnelly).

Mrs Donnelly argued that her employer had imposed a "provision criterion or practice" (PCP) that she must walk to the office from an overflow car park when she got into work at half past nine, and that in refusing to earmark a parking space in the main car park for her, they had failed to make a reasonable adjustment. The Agency argued that she could have come into work at nine, when there were plenty of spaces, and so there was no PCP. theyy also proposed that she could be "shuttled in" from a more distant car park, in the sense that she could ring the office and someone would come and fetch her and, at the end of a shift, return her. Controversially, it was also suggested that she could use a disabled person's parking space, but on the understanding that she would have to remove her car if the space was required by a blue badge holder. The Employment Appeal Tribunal disagreed with such arrangements. Mrs Donnelly was contractually entitled to come into work at the later time, and it was for her employer to make reasonable adjustments, not for her.

Turning to the email said to have been harassment, this was written to her during her final episode of sickness. In it a Mr Hopwood referred to her "negativity" and cast doubts on her capability or willingness to fulfil any role with the Agency at all. The Employment Tribunal described the email as "less than supportive or helpful" but, according to the Employment Appeal Tribunal, that fell far short of harassment. The email could not reasonably have been read as falling within the statutory definition of harassment - and so that finding was set aside, on the basis that the decision made by the Judge was perverse.

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7. TUPE changes


Draft regulations for the forthcoming TUPE reforms have been published. The changes they are intended to make are:

  • To allow a transferee to start collective consultation with representatives of employees due to be transferred about planned redundancies before the transfer takes place, if the transferor agrees. This will require a good deal of co-operation between the two if the consultation is to be meaningful, and if a sale is not yet a "done deal" a seller may be reluctant to allow it.
  • Providing that variations connected with the transfer will be deemed void if the transfer is the reason for the variation - but not variations for a reason "connected with" the transfer. This is apparently a narrowing of the scope of the regulations, and variations will also be allowed if there is an "economic technical or organisational" (ETO) reason entailing changes in the workforce, or an otherwise void variation is permitted by the employment contract. It remains to be seen whether vague, "catch-all" variation clauses will be found to be effective in such a situation. Courts and tribunals have in the past been reluctant to accept that employers can use very wide general variation clauses to make unilateral fundamental changes in employment terms (See for example SmithKline Beecham plc v Johnson). There is also the challenge presented of drafting a variation clause allowing for a variation which would be void in law (because the reason for the variation is the transfer), were it not for that clause's existence.
  • Making a similar change to the provisions on unfair dismissal, so that dismissals will be unfair if the reason for the dismissal is the transfer itself, but not if the reason is merely "connected with" the transfer. There will no doubt be a good deal of litigation about when a reason is the transfer and when it is just connected with it.
  • Confirming that as held in Alemo -Herron & Ors v Parkwood Leisure Ltd , where the terms of a collective agreement are incorporated in a transferred employment contract, changes to the collective agreement after the date of transfer will not carry through to the transferred contract, unless the transferee is a party to the same collective agreement.

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8. recoupment of recruitment costs


Cleeve Link Ltd v Bryla concerned the question of the enforceability of a clause seeking to recoup recruitment costs from an employee, and clearly establishes that an Employment Tribunal is entitled to consider whether or not such a clause is unenforceable as a penalty.

It arose in the case of Ms Bryla, a care worker recruited from Poland. Her contract of employment incorporated a term entitling her employer to recover all of its recruitment costs, which included an agency fee of £400 and her airfare, if she left within the first 6 months of her employment. The clause provided that after 6 months' employment, the proportion recoverable would reduce gradually to zero over the next half year (reducing by one-sixth each month). Ms Bryla left the job after only 12 weeks, when she was dismissed without notice for misconduct following an altercation about her working hours. She was owed £1,203.35 for unpaid wages but was paid nothing.

An employment judge found that the clause was unenforceable as a penalty, despite finding that the clause represented a genuine pre-estimate of the costs of recruitment incurred by the employer. The Employment Apppeal Tribunal overturned this. On the facts as found by the Employment Judge, the clause did not amount to an unenforceable penalty but a genuine liquidated damages clause. However it firmly rejected the employer's suggestion that an Employment Tribunal has no jurisdiction to find a penalty clause unenforceable.

It seems to me that the deduction contemplated by the contract must be a lawful deduction. If it is a penalty clause, it is not a lawful deduction, and I cannot accept [Cleeve Link's] argument that it is not within the province of the Employment Tribunal to decide this matter. This is no different to a number of other aspects of a contract of employment that fall to be considered, construed and adjudicated upon in the context of the statutory jurisdiction.

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9. civil partners denied hotel accommodation - not as clear cut a case as you might think


This long running case (Bull & Anor v Hall & Anotherr) hit the headlines this month when the Supreme Court gave its judgment on whether it was unlawful discrimination for Christian hotel owners to refuse a double room to civil partners, under a stated policy that they would only provide double beds to heterosexual married couples (which they had accidentally omitted to mention when taking a booking over the phone).

The Court held that it was indeed unlawful sexual orientation discrimination, although there was a split as to whether it was both direct and indirect discrimination, or just the latter. The court was unanimous, however, that while there had been a breach of the hotel owners' right to manifest their religion that was justified for the protection of the rights and freedoms of others. According to Lady Hale human rights law:

requires "very weighty reasons" to justify discrimination on grounds of sexual orientation. It is for that reason that we should be slow to accept that prohibiting hotel keepers from discriminating against homosexuals is a disproportionate limitation on their right to manifest their religion.

There was no dispute that restricting the availability of double beds to the married was indirect discrimination – the hotel owners, Mr & Mrs Bull, were undoubtedly imposing a requirement that only heterosexual married couples could take a room with a double bed. Their argument failed that this was justified because they should be permitted to run their business in a way compatible with their belief that to permit unmarried couples to share a bed would be to facilitate what they regarded as a sin.

It was emphasised that civil partnership had been created to recognise (and encourage) stable, committed, long term relationships and accord equality of respect and esteem to same sex couples. Specific exceptions had been carved out for ministers of religion and religious organisations - which indicates that there was no intention to allow individuals to opt out of the prohibition of sexual orientation discrimination on the grounds of their religious views in any other circumstances.

Where the Supreme Court split was over whether the treatment was direct discrimination with the dissenting minority taking the view that civil partnership could not be equated with marriage and therefore did not turn the indirect discrimination into direct discrimination. However, Lady Hale, giving the leading judgment, made clear that, in her view, the status of marriage and civil partnership were "indissociable" from the sexual orientation of the parties entering into each type of contract. The denial of a double bed to one group whilst allowing to the other was, in the majority's view, direct discrimination.

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