TUPE and insolvency

The Court of Appeal has heard the appeal in Oakland v Wellswood (Yorkshire) Ltd. Although its written judgment has not yet been published, it appears that it heard an appeal only on a narrow point of employment law and did not give definitive guidance on the application of the insolvency provisions in the TUPE Regulations which had been the principal issue in the EAT. See our previous E-Bulletin on the EAT decision.

Pursuing a new line of argument on appeal, Mr Oakland relied on section 218 of the Employment Rights Act 1996 to contend that as the business in which he worked had transferred to the buyer, his continuity of employment had not been broken. The Court agreed and accordingly he had sufficient length of service to bring an unfair dismissal claim, even though there was no finding that he had transferred to the buyer under TUPE.

The Court was not required to consider the application of regulations 8(6) and 8(7) of the TUPE Regulations to the sale of a business in administration and it did not expressly overturn the EAT's decision on this issue. It did, however, express doubts that regulation 8(7) would automatically apply in an administration.

Impact

• In our view, the EAT decision on the application of regulation 8 of TUPE was of limited application even before this appeal.
• It must be regarded with caution and should not be taken as being of general application to the sale of a business from administration, whether by a pre-pack sale or otherwise.
• Given the remaining conflict between the EAT decision and government guidance on the application of regulation 8 of TUPE, the application of TUPE in insolvency situations must be considered very much on a case by case basis taking into account factors such as the type of insolvency procedure, the circumstances in which it began, the content of any report(s) by the insolvency practitioner and the assets being disposed of.
  

13 August 2009

Employer has substantial flexibility to determine selection pools in a redundancy exercise

The EAT has held that an employer has a wide measure of flexibility in determining the pools for selection in a redundancy process (Lomond Motors Ltd v Clark).

The issues faced by the employer in this case will be familiar to those involved in carrying out redundancy exercises. Lomond Motors had four car dealerships, two in the west of Scotland and two in the east. Mr Clark worked as a branch accountant, originally in the west and, by the time of his dismissal, in the east. There was one accountant responsible for both branches in the west region, but two accountants, including Mr Clark, in the east region. Lomond Motors decided that it would be better for its business to have only one branch accountant in the east, who would be responsible for both sites in that region. This meant that one of the accountant's positions would be redundant.

It used a selection pool consisting only of the two branch accountants in the east. Mr Clark was selected for redundancy and lost an internal appeal. He claimed unfair dismissal on the basis that the selection pool should have included the accountant in the west. The tribunal upheld his claim.

The EAT disagreed, however, emphasising that the question to be answered was whether the method and selection were such as could have been determined by a reasonable employer. Different people can quite legitimately have different views about what is fair in any particular situation and the employer therefore has a wide measure of flexibility to determine the appropriate pool. Lomond Motors' chosen pool was within the range of reasonable responses.

Impact on employers 

• This is a very favourable decision for employers and confirms that they have flexibility in identifying an appropriate selection pool for redundancy provided it does so in a reasonable way.
• Provided that an employer can put forward a reasonable case for using a particular selection pool, a tribunal should not interfere with its decision.
• A note of caution, however: such an employer-friendly decision may not withstand future challenges.

13 August 2009

TUPE and liability for equal pay

The Court of Appeal has upheld the decision of the EAT, in Gutridge v Sodexo, that following a TUPE transfer a transferee can be liable for the transferor's equal pay breaches.

The employees had been transferred from their NHS Trust employer to Sodexo and, around five years after the transfer they raised equal pay claims against Sodexo in relation to pre-transfer equal pay liabilities. Their comparators were male maintenance assistants who also worked at the hospital, but who had not transferred to Sodexo.

The Court of Appeal upheld the EAT's ruling that liability for equal pay claims relating to the period prior to the transfer does pass under TUPE to the transferee employer. However, the time limit for bringing such a claim is six months from the date of the transfer and in this case the employee's claims were out of time. They could not therefore recover back-pay relating to the period prior to the transfer on this occasion.

The Court of Appeal also upheld the EAT's ruling that the equality clause implied into every contract of employment by the Equal Pay Act "bites" as soon as there is a case of an unequal pay - there is no need for a legal ruling. As a result, at the time of the TUPE transfer the claimants had a contractual right to be paid at the same rate as their male comparators. This contractual right transfers under TUPE, putting the transferee under a continuing obligation to honour its terms. The claimants could therefore enforce the right to higher pay against Sodexo. The time limit for claims of this nature is six months from the end of the employee's employment with the transferee.

Impact on employers

• Contractors who inherit employees under TUPE, particularly employees who have in the past been in the public sector, may find themselves liable for substantial claims relating to pay inequalities.
• Claims based on historic inequalities will come to light quickly, as employees only have 6 months from the date of the transfer to bring their claim.
• However, claims based on the ongoing contractual right to equal pay that transferred with the employee may not come to light for some time.
• Due diligence on pay structures may not be enough as it is unlikely that sufficient detail will be available to identify potential equal pay claims.
• Ideally, transferees should seek warranties regading equal pay compliance and indemnities against claims.
  

13 August 2009

Legal representation at internal disciplinary proceedings

In the case of Kulkarni v Milton Keynes Hospital NHS Foundation Trust, the Court of Appeal has held that in certain circumstances an individual may have the right to be legally represented at an internal disciplinary hearing.

Dr Kulkarni had been accused of sexual misconduct. The NHS Trust refused his request to be allowed legal representation at the disciplinary hearing. The High Court turned down his claim that this infringed his right to a fair trial under Article 6 of the European Convention of Human Rights (Article 6), holding that his human rights were adequately protected by his right to establish his innocence if the matter was referred to the General Medical Council and/or to bring a claim in the Employment Tribunal.

The Court of Appeal disagreed with the High Court. It held that it was an express term of Dr Kulkarni's contract of employment that he was entitled to be represented at internal disciplinary hearings by a legal representative retained or instructed by his medical defence union.

Although not required to do so, the Court of Appeal went on to consider whether a refusal to allow legal representation could amount to an infringement of Article 6. Article 6 does not generally apply to disciplinary hearings, but can in certain circumstances. The Court found it difficult to draw a firm line but suggested that Article 6 would only apply where a doctor faces charges so serious that he will effectively be barred from employment in the NHS if guilt is established. The Court went on to say that in a case such as Dr Kulkarni's, where the practitioner is facing what could amount to a criminal charge, Article 6 would require the employer to permit legal representation at the disciplinary hearing.

This is consistent with the decision of the High Court in the case of R (on the application of G) v the Governors of X School, where the serious nature of the misconduct allegations against a teacher meant that they were entitled to legal representation.

Impact on Employers

• In this case, the clause in the NHS policy relating to representation at disciplinary meetings was not clearly drafted, hence the differing interpretations by the High Court and Court of Appeal.
• Many doctors and dentists employed in the NHS are contractually entitled to representation by a lawyer instructed or retained by their medical defence union.
• Other employees in the public sector facing disciplinary charges with serious consequences if there is a finding of guilt may be able to rely on Article 6 to insist on legal representation where they face a threat to their ability to practice their profession, as opposed to the loss of a specific job.
• Article 6 does not apply directly to private sector employers but private sector employers should ensure that their disciplinary procedures deal clearly with the right to legal representation.
• Even where policies expressly and unambiguously exclude legal representation at disciplinary hearings, employees in the private sector may still request it if the circumstances are sufficiently serious, for example where an employee could face criminal charges or be struck off by their professional body as a result of their alleged misconduct. Provided there is an express term excluding the right to legal representation, an employer will be within its rights to refuse, but must first give fair consideration to any request.

13 August 2009

Case round-up

In this round-up of recent cases we consider recent decisions on the use of dispute resolution procedures and their impact upon subsequent disciplinary hearings, a Court of Appeal decision on the affirmation of contracts, the impact on substitution clauses on employment status, two recent decisions on disability discrimination and an EAT finding that a "sleeping-in" allowance counts towards the minimum wage.

Attempts at conflict resolution did not prevent disciplinary action
In West London Mental Health NHS Trust v Sarkar, the EAT held that the employer's actions in seeking to resolve complaints against Mr Sarkar through an internal "Fair Blame Policy", designed to deal with less serious matters, did not mean that his subsequent dismissal for gross misconduct was unfair or outside a range of reasonable responses open to the employer. Once attempts at mediation broke down it remained open to the employer to continue the formal disciplinary procedure and to treat the misconduct as grounds for dismissal. Under the new ACAS Code of Conduct, which replaced the Statutory Dismissal and Disciplinary Procedures in April this year, employers are encouraged to mediate in suitable circumstances. Employers will be relieved to know that their options for dealing with the matter will not be narrowed purely as a result of electing to mediate. Where mediation is attempted but breaks down, employers can still pursue the matter under their disciplinary procedures. In order to prevent disputes and misunderstandings, employers are advised to include, as an express term in their disciplinary policy, a provision that matters of misconduct may be progressed through the disciplinary procedure if attempts at mediation fail.

Employers must act on suspicion of misconduct or lose right to rely on it
The Court of Appeal has held that if an employer suspects an employee to be guilty of misconduct, it should instigate disciplinary proceedings against the employee or reserve its position to bring future disciplinary proceedings against the employee. If it knows of an act amounting to a breach of contract by an employee and does nothing, the employer may be taken to have affirmed the contract and will not subsequently be able to rely on a breach to justify dismissal (Cook v NSHK Limited and Ministry of Sound Recordings Limited).

Meaning of "likely" under the DDA
The House of Lords has held that the phrase 'likely to recur' in relation to the definition of disability under the Disability Discrimination Act must be given a wide meaning (SCA Packaging Limited v Boyle). Under the DDA, a person is disabled if he has a "physical or mental impairment which has a substantial and long term adverse effect on his ability to carry out normal day to day activities". A person who is currently fit may be able to claim protection under the DDA if they have previously suffered from a disability that is "likely to recur". The House of Lords held that "likely" does not mean "more than a 50/50 chance" or "more likely than not". The proper meaning of "likely to recur" is that it "could well happen". In the words of the House of Lords, interpreting "likely" in this way amounts to a broader and less exacting test' with the outcome that it may be easier to establish a disability attracting the protection of the DDA.

Failure to make reasonable adjustments can render a dismissal unlawful
Where a dismissal could have been avoided by making a reasonable adjustment (such as a phased return to work or a move to a different job), the employer's failure to make the reasonable adjustment meant that the dismissal itself amounted to discrimination under the Disability Discrimination Act. This decision of the EAT in Fareham College Corporation v Walters widens the scope of claims relating to the employer's failure to make reasonable adjustments and may make it easier for disabled employees to succeed in making out a claim of disability discrimination. It therefore mitigates, to a degree, the House of Lords decision in Malcolm, as applied by the EAT, which made it almost impossible for an employee to establish disability-related discrimination under the DDA. The EAT in this case also held that a claim for a failure to make reasonable adjustments only requires a "general" comparative exercise and not an individual, like for like comparison.

Substitution clauses and employment status
Yet another case on substitution clauses in agreements with individual contractors. Following the decisions of the EAT in Redrow Homes (Yorkshire) Limited v Buckborough & Sewell at the end of last year and, more recently, Premier Groundworks v Josza, the EAT has again considered the issue and has confirmed, in the case of Archer-Hoblin v MacGettigan, that where a contract contains a substitution clause:

• clear and unambiguous wording providing an unfettered right of substitution is inconsistent with an obligation to perform personally any work or services and therefore inconsistent with status as employee or worker. Such a right means that the individual cannot be a worker for the purposes of the Working Time Regulations. What happened in practice was not relevant when determining the meaning of the clause; and
• what happened in practice and, in particular, the individual's evidence that he would never send a substitute because he would lose the work, was relevant to the question of whether the substitution clause accurately reflected the parties' intentions or was a sham.

This decision acts as a reminder to employers that the wording of the contract will not prevent a finding that an individual is a worker or even an employee if it is a sham and does not reflect the true intentions of the parties.

Sleeping-in allowance counts towards minimum wage
The case of Smith v Oxeter Learning Disability NHS Trust concerned a worker who was contracted to work 15 hours per week at a residential care home and occasionally required to sleep at the care home to be on call for night duty. When he did so, he received a "sleeping-in allowance" of £25 per night. He did not receive any further payments under his contract in respect of the overnight duty, as he was never woken up while he was on call. The parties accepted that the time spent sleeping at the care home amounted to working time for the purposes of calculating Mr Smith's average hourly pay for national minimum wage purposes. The EAT held that the "sleeping-in allowance" was not paid on account of something distinct from performing his job but amounted to a payment for performing a sleep-in duty. Accordingly, it was not an "allowance" for the purposes of the National Minimum Wage Regulations and could be taken into account for the purposes of calculating whether Mr Smith was paid the national minimum wage.

13 August 2009

News round up

In the news round up this month are the recently published ACAS annual report, the publication of an ACAS discussion paper on the Agency Workers' Directive, the publication of the Walker review on corporate governance in UK Banks, the Government's announcement that the review of the default retirement age will be brought forward to 2010 and an update on progress on the Equality Bill.

ACAS report shows substantial increase in claims
In its recently published annual report for 2008/09, ACAS notes the substantial increase of 22% in the number of unfair dismissal cases referred to it for arbitration and conciliation. In addition, the total number of conciliation cases received by ACAS from the Employment Tribunal is more than last year. ACAS believes that this is a direct result of the current recession. In another sign of the times, ACAS noticed a huge increase in the demand for redundancy advice through its free helpline and the number of redundancy pay claims rose by 36%.

ACAS discussion paper on Agency Workers' Directive
Employers will be aware of the Government consultation on the implementation of the Agency Workers' Directive in the UK, which closed on 31 July 2009. Under the legislation, Agency workers will have the same rights to basic pay and conditions as permanent workers after 12 weeks' employment. Prior to the end of the consultation period, the TUC published a survey, which showed widespread poor treatment of Agency workers, regardless of skill and pay. The Recruitment and Employment Federation responded that it painted an incorrect picture and was based on perception rather than fact. It called on the Government not to take a heavy-handed approach to implementing the Directive. An ACAS discussion paper seeks to give a more balanced view. It gives an overview of the issues relating to the Agency Workers' Directive, looks at Agency workers and their experiences, the Government proposals and the nature of the relationship between Agency workers, employer and Agencies. Comments and opinions are welcomed.

Early review of default retirement age
The Government has recently announced that it will bring forward its proposed review of the default retirement age under the Age Discrimination Regulations from 2011 to 2010. Commentators believe that the move signals that the Government intends to introduce either a higher default age or remove the default age altogether. The Heyday challenge to the legality of the default retirement age was heard earlier this month in the House of Lords and a decision is awaited.

Equality Bill update
The Equality Bill continues to progress through Parliament towards an implementation date in 2010. It has now completed the Commons Committee stage. The main changes to date from the original draft are:

• the introduction of the concept of a claim based on dual discrimination (previously referred to as multiple discrimination), which allows an employee to bring a discrimination claim based upon two or more protected characteristics, for example race and sex;
• the test for work related pregnancy and maternity discrimination being changed so that a woman will have to show only that she was treated 'unfavourably' not 'less favourably', effectively confirming the position established by case law that there is no need for a comparator;
• an amendment to prevent contracting out of the provisions of the Equality Bill, for example preventing employers contracting out of provisions such as the compulsory pay audits that may be introduced by future Regulations; and
• an amendment seeking to overcome the problems created by the Malcolm decision (see above). The current drafting is too widely drafted and lacks clarity. The Solicitor General will re-draft a definition of "discrimination arising from disability" in time for the report stage.

Walker review of corporate government and the Banking crisis
Earlier this month HM treasury published an independent review by Sir David Walker of corporate governance in UK banks and other financial institutions. For more information about the contents of the review see our Corporate Finance E-Bulletin. The review suggests significant changes to the governance of banks and financial institutions, including disclosure of the remuneration of board members and highly paid executives below board level.

13 August 2009

Consultations

We report on two recent consultations on a proposal to pass details of whistleblowing claims to regulatory bodies and employment status in the construction industry.

Consultation on "Whistleblowing claim forms"
The Department for Business, Innovation and Skills has issued a consultation on a proposal that tribunals should have the power, in claims involving whistleblowing, to pass details of alleged wrongdoing relied upon by the whistleblowers in tribunal claims to a "relevant regulator" for investigation.

The Employment Tribunals received around 1700 whistleblowing claims last year. However tribunals do not undertake an assessment of the underlying allegations. The consultation proposes that Tribunals will send copies of the claim forms or extracts of the relevant parts to the relevant regulators where the employee has given their express consent. The consultation closes on 2 October and legislation is to come into force in April 2010.

Employment status in the construction industry
HM Revenue and Customs has published a consultation on "false self-employment in construction", in which it proposes that workers in the construction industry will be treated as being in receipt of employment income for tax purposes and therefore subject to National Insurance contributions and tax unless they meet one of three criteria:

• the provision of plant and equipment;
• the provision of all materials; or
• the provision of other workers.

The consultation closes on 12 October 2009. The proposed rules will, of course, not change the individual's status for employment law purposes.

13 August 2009