Canter Levin & Berg Employment Solutions Canter Levin & Berg Employment Solutions
May 2012

Welcome to our July newsletter.

I make no apology for drawing your attention in this month's newletter to the decision of the Court of Appeal in Ranson v Customer Systems plc. If you don't read any of the other articles in our blog this year I urge you to take a couple of minutes to read this one because I think that many of our readers will be surprised by the decision. While still employed Mr Ranson contacted clients of his employer with a view to transferring their contracts to his new business. According to the Court of Appeal he was allowed to do so. I also make no apology for pointing out that this outcome could have been entirely eliminated if the employer had made sure that appropriate contractual terms prevented this. How frustrated would you be if this happened to you and you know that it could have been easily avoided?

We've also got news about how other employment law decisions could impact on your arrangements for your employees. Do you have to justify your criteria for redundancy? The size of your organisation is, sensibly, relevant.

Of course, there is more TUPE news(!) and I've also included a round up of other employment law news in July 2012 to keep you right up to date.

In my July round up I've also included a few opinion comments which you may or may not agree with. They're my own views so please let me know if you agree or disagree or comment on the website.

If you have any enquiries about the articles, our service, or any other employment law matters, please feel free to contact me at or direct dial 0151 239 1003.

My next report will come to you from south west France but, as regular readers know, I'll make sure that you have all the employment law developments for SMEs that you need to know.

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Martin Malone

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This month's news:

1. not reasonable for employer to ignore medical report

BT v Daniels is a useful illustration of the impact of an employer’s size and administrative resources when looking at the fairness of a dismissal. It concerned a BT engineer dismissed for three offences of dishonesty. In the course of the disciplinary proceedings, a report was put forward pointing out that he had a history of significant stress related mental health issues. On the strength of this, three other allegations were dropped, but although the report expressed the view that the disciplinary process could exacerbate his condition, and suggested an occupational health report be obtained before proceeding, this step was not taken. The Employment Appeal Tribunal upheld the decision of an employment tribunal that a reasonable employer would have obtained an occupational health report. On behalf of the Claimant, is was argued that:

The range of reasonable responses required an objective consideration by the employment tribunal of matters that included the fact that this is a large employer, the Claimant has a long standing relationship with it with no disciplinary record, and at the tribunal there was, essentially, no dispute about the facts.

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2. ET1s should be kept brief

Employment tribunal claimants have a tendency to submit lengthy ET1 claims, effectively outlining the whole of their evidence. This can be frustrating for respondents, and, it seems, Employment Judges, because it is necessary to sift through a lengthy document to identify what claims are being made, and what matters of law and fact are in dispute. The practice has, most likely, grown up for a number of reasons. In the case of unrepresented claimants, this could be for fear of “missing something out” or not being sure what to include; in the case of represented claimants, it might be to save the costs of drafting another document. In a recent case, it seems that the hope was that disclosing the full case would prompt an offer of settlement. The reaction of the employment tribunal judge looking at the case was to make an order requiring claimants who had submitted such lengthy documents to cut them down to fit on one side of A4 paper. The claimants appealed against the order, on the basis that restricting their written claim to an arbitrary length could result in them missing out an essential part of their claim.

While critical of the approach taken by the claimants, the Employment Appeal Tribunal held that an employment tribunal judge has no power to the make an order of this type, and that “It is for the Claimants to advance their claims as they see fit”, although it could result in a costs order against them if they are found to have conducted the proceedings unreasonably.

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3. union did not victimise member by refusing to continue representation

Croad v UCU is a case concerning a university lecturer with disabilities who sought help from her union to bring a disability discrimination claim against her employers. She became dissatisfied with how they were handling the matter for her and complained. They eventually withdrew from acting for her, for a number of reasons, including that she had ignored their advice. She alleged that they had failed to make reasonable adjustments, and had victimised her.

The Employment Appeal Tribunal upheld the decision that the union’s solicitors had not acted unlawfully in refusing to continue to act for her against the university, once proceedings had started against the union. Professionally, they could not continue where there was a potential conflict of interest.

There would be the clearest conflict of interest to represent a party in litigation knowing that it was likely you would be the defendant in a claim by the Claimant in respect of the very matters in which you had represented her.

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4. changing the effective date of termination of employment

It is a truth universally acknowledged that an employer and employee cannot agree between them to change the date on which employment is regarded as ending for the purposes of calculating time limits in tribunal cases. This is known as the “EDT” or effective date of termination and is imposed by statute. In cases of summary dismissal the EDT will nearly always be the date on which dismissal took place. Hawes v Curtis is an example of the rare case when the EDT may not be the original date of dismissal. The circumstances were that two employees, who were both keyholders, were dismissed for misconduct after stock shortages were discovered, but their employer was not able to identify which individual employee was responsible.

Nearly 6000 shirts had gone missing over a period of 8 months. They were dismissed summarily on 5 October, and appealed against dismissal. Their appeal was heard on 27 October. On 4 November the manager dealing with the appeal confirmed their dismissal and specified that their date of summary dismissal would be 4 November and they would be paid until then.

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5. complex redundancy selection criteria not always necessary

When advising on redundancy procedures, employment lawyers tend to emphasise that employers should take care to ensure that they use objective criteria when selecting from a pool of employees. And very good advice it is too. Mitchells v Tattersall, however, shows that this does not inevitably mean a box ticking exercise is required.

Mitchells, the brewery, had a senior management team (“SMT”) of five. They ran into financial difficulties and the board decided to look at cutting the SMT to reduce expenses. They identified the property manager as the manager who contributed least, and was least likely to contribute, to bringing in revenue and on that basis decided that he should be made redundant. He successfully claimed unfair dismissal. The employment tribunal found that the dismissal was unfair because the board had used subjective criteria when selecting for redundancy, and that the procedure followed was unfair. However, they considered that he would have been made redundant if a fair selection method and procedure had been followed, and on the basis that there was a one in five chance of his being made redundant in any event, reduced compensation by 20%

Mitchells appealed to the Employment Appeal Tribunal, which upheld the finding on unfair dismissal, but only on the ground that the procedure had been unfair. In particular, the board had jumped straight from identifying the claimant as the most likely candidate to dismissing him, without so much as considering any other member of the SMT for redundancy and that “at no time was serious consideration given to any argument put forward by the Claimant as to why any other member of the SMT, rather than him, should be selected for redundancy“.

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6. the inevitable monthly TUPE item!

For sad TUPE anoraks, Landsorganisationen i Danmark v Ny Molle Kro and Daddy’s Dance Hall are classic cases, where transfers of leases of a bar and nightclub respectively were found to be transfers of undertakings. LOM Management Ltd v Sweeny (Transfer of Undertakings) [2012] UKEAT was a case where the daughter of tenants of a Glasgow pub maintained that she was transferred to the new tenant when the lease was transferred. She argued that her situation was the same as in those cases. The employment tribunal agreed, but the EAT took the view that while it was possible for the reversion of a pub tenancy to the brewery and reletting to a second to amount to a transfer of an undertaking, it would not do so unless there was evidence of a transfer of an economic entity which retains its identity, and according to the EAT there was no such economic entity in this case.

Interestingly (at least to anoraks)...

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7. "consultant" transferred under TUPE (yes, more TUPE!)

Freedman gives us an example of the difference between a person being accepted as self-employed for the purposes of tax and national insurance but in fact being an employee. Dr Freedman operated a business as a sole trader, and in 2009 incorporated it as Career Energy Ltd (CEL). A new company, Career Energy Consultancy Services Ltd (CECSL), was formed and 52% of its shares were sold to an investor. As part of the overall transaction, CEL was put into liquidation and its employees, assets and contracts were transferred to CECSL. Dr Freedman then continued to act as Chief Executive under a new service agreement until February 2010 when the investor who controlled the majority shareholding replaced him as Chief Executive. Thereafter Dr Freedman continued as a director and carried out the same duties; however he was described as a consultant and was paid salary and commissions gross against invoices submitted. In October 2010 CECSL went into insolvent liquidation.

An employment tribunal found that there had been no transfer of Dr Freedman’s employment in 2009, that he had ceased to be an employee in February 2010 and so declined to consider a claim for unfair dismissal and accrued holiday, on the ground that it had no jurisdiction to hear the case. The Employment Appeal Tribunal overturned this decision, considering that in focusing on the share transfer, the employment tribunal had failed to take into account the transfer of assets and contracts, and had been wrong to decide that there had been no transfer of his employment. Further, when Dr Freedman became a consultant he had in fact continued to be an employee regardless of the label put on the relationship by the parties.

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8. no time extension for litigant in person

A forensic accountant who had won an earlier victimisation claim against one of her employers on the basis of an unfair reference has had her appeal to the Employment Appeal Tribunal struck out because she filed it outside the 42 day time limit for appealing. Whilst she was not a lawyer, the EAT observed that she had considerable experience of litigation and there was no reason to allow her to appeal out of time against an order striking out tribunal claims which were too unclear for the tribunal to work out what tribunal jurisdiction applied.

Although the judgment of the EAT can be read for entertainment value, there is a serious point to be made. While a lot of what the Claimant had submitted could only be described as "gibberish", the EAT was not prepared to say that there was no possible genuine claim buried amongst the material she had put forward:

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9. employees do not owe a fiduciary duty to their employers

As we mentioned in last month's introduction, the Court of Appeal has confirmed that an employee, unlike a director, does not owe a fiduciary duty to his employer, overturning a High Court decision which had found in favour of the affected employer.

A fiduciary duty is the highest standard of care in either equity or law. It demands extreme loyalty to the person to whom the duty is owed - the principal or, in this case, the employer. Someone who is subect to it must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.

Ranson v Customer Systems plc is the case in point. Mr Ranson was a specialist information technology consultant. His contract required him to keep confidential information which came to his attention in the course of his employment both during and after his employment with the Company. This is really no more than the common law obligation which applies to all contracts of employment (see Faccenda Chicken v Fowler) and is a central tenet of employment law. However the contract said nothing about contacting clients. Mr Ranson decided to set up a competing business and both before and during his notice period he contacted clients about potential work for his new business. As a result, a contract was placed with his new business two days before he left Customer Systems (CS).

CS brought proceedings against him in the High Court claiming breach of a contractual obligation of fidelity (often referred to as a duty of good faith) and a breach of a fiduciary duty of loyalty as a result of meeting with clients of CS with a view to securing their business.

The High Court sided with CS and held that there were breaches of both the contractual duty of fidelity and also a fiduciary duty of loyalty.

The Court of Appeal disagreed.

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10. a quick round-up of other employment law news in July

carrying forward holiday entitlement

On 25 July the European decision that employees can take extra holidays to make up for time off sick while on holiday was expanded when it was confirmed by the Court of Appeal that a worker who was unable to take four weeks' annual leave due to sickness did not have to make a request to carry forward the untaken leave into a new holiday year in order to receive a payment in lieu of it on termination of employment. Many employers restrict the right to carry forward untaken leave into the next holiday year. This restriction is now of no practical effect for those who were sick when on holiday.

wearing religious symbols

In a suprisingly specific intervention, David Cameron has referred to the Eweida case (which we have previously reported) by stating in a PMQ reply that it is "an absolutely vital freedom" for employees to be entitled to wear religious symbols at work. Ms Eweida was told that she could not wear her crucifix necklace on health and safety grounds. The case is due in the European Court this September.

Baby P still featuring in employment law

Long after the tabloid headlines have gone the employment issues surrounding the "Baby P case" are still occupying the Employment Appeal Tribunal. The latest case concerns whether or not it was reasonable to dismiss two employees who had received warnings for misconduct.

The written warnings concerned alleged failure to follow monitoring procedures. Following the intervention of the Secretary of State for Children, Schools and Families, the individuals concerned were recalled for formal disciplinary proceedings concerning the issues which had resulted in the initial warnings. Notwithstanding that they had already been judged concerning the matters under review (the legal principle of "res judicata") both were summarily dismissed for gross misconduct.

The Employment Appeal Tribunal held that the dismissals were fair. The new investigators were entitled to reach a different view because the initial disciplinary proceedings were not " judicial". However, it was emphasised that each case should be considered on its own facts so that this should not be regarded as a "green light" for others to act similarly.

"super injunctions" in employment law and compromise agreements

Gary Walker was employed as Chief Executive of United Lincolnshire Hospitals Trust and was sacked when it was alleged that he swore openly in meetings. However, his dismissal was reported to be about him disobeying a government order to focus his attention on hitting targets for non-urgent medical cases and instead concentrating on emergencies.

He claimed unfair dismissal and an employment judge found that there was evidence that his disclosures about patient safety were protected under whistle-blowing legislation.

The claim was settled on payment to him of £320,000 plus legal fees and a confidentiality clause which prevents him from talking about the issues behind his dismissal.

David Bowles, chairman of the Trust until he resigned in 2009 concerning the targets issue stated:

The thing which really shocked me is that I, and all the other witnesses who would have been appearing at the employment tribunal, received gagging letters as well.
Tribunal system in "meltdown"

According to a report in People Management the number of outstanding tribunal cases has quadrupled from 144,900 in 2007 to 530,400 at the end of 2011. ACAS also has a significant backlog which calls into question its ability to provide a filtering process for new claims, as envisaged by the government's recent proposals.

OPINION: Much of the recent press coverage about employment law and procedure has been focused on liberating small businesses from the burden of what are perceived to be onerous (and often described as European) employment law rights. The reality is that many SMEs are forced into settlement of unwarranted claims by the wholly unreasonable protraction of what should be straightforward claims. The sooner the employment tribunal system is abandoned as a failed "short cut" and brought into the civil court process with the ability to apply tried and tested filtration of claims the better.

Tribunal Fees

Jonathan Djanogly, Ministry of Justice Minister, has said that it is unfair for the taxpayer to foot the bill for tribunals which cost £84 million a year. As you will have gathered from the last item I agree, but probably not in the way that Mr Djanogly has in mind. His proposal is that for "level one claims" the issue fee will be £160, with a hearing fee of £230 and "level two claims" will have an issue fee of £250 and a hearing fee of £950.

Level one claims are supposed to be "routine matters" such deductions from wages and level two claims are to be classed as more complex matters such as unfair dismissal and discrimination claims.

OPINION: Let's just pause at the fees. The usual exemptions will apply so that people who have just lost their jobs, and consequently their income, will qualify for fee exemptions. A key element of the vast majority of employment claims is for loss of income (no surprise) and costs provisions require the determination of who is the "winner" and who is the "loser". Does that sit comfortably with the concept of tribunals (a supposedly fee free alternative to court proceedings) so that property owners can go to the Lands Tribunal at no charge but former employees (with correspondingly no income) have to pay? This may seem to be employee biased but the bigger picture is that the "winner" has to pay the "loser". By the time that you get to that concept there really is no point in maintaining tribunals.

There is also a basic access to justice point. Theo Huckle QC, Counsel General to the Welsh government, has commented as follows:

True and free access to justice for all citizens, whether their claims are popular or unpopular, is an integral part of the democratic settlement in the UK. This decision totally undermines that principle.

The process of approaching a legal court or tribunal is off-putting for most citizens. The thought of doing so without direct legal advisory support and representation is daunting in the extreme.

To be required to do so and pay substantial fees as well in advance will undoubtedly deter many applicants with good claims who will thereby be denied access to justice.

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