Case round up

Our resident experts at Pinsent Curtis Biddle bring you a comprehensive
update on all the latest decisions that could affect your organisation, and
advice on what to do about them.

Contributions by Jonathan Coley, Helen Corden, Pam Kaur and Charles Rae,
Pinsents Birmingham

Marshalls Clay Products Limited v Caulfield and others, EAT
Further guidance from the EAT on the legality of rolled up holiday pay

* * * * * The EAT considered five appeals on the controversial question of
rolled-up holiday pay and whether an employer could fulfil the requirement to
pay employees for holidays by including an amount in their wage packets each

The facts of the first appeal, by Marshalls, illustrate the position. In
this case, there was an agreement that included in the rate paid for every hour
worked (including overtime) was an identified sum by way of holiday pay, which
was paid to employees throughout the year.

Key points

The EAT decision follows two recent cases concerning the legality of
rolled-up holiday pay, Blackburn v Gridquest (Court of Appeal) and MPB v Munro
(Scottish Court of Session).

In Gridquest, the Court of Appeal held that where a contract was silent on
the issue, it was not open to an employer to unilaterally allocate part of a week’s
pay as holiday pay. In Munro, the Scottish Court of Session went further, and
held that even where a contract expressly states that part of a weekly or
hourly rate relates to holiday pay, that does not satisfy the Working Time
Regulations 1998.

In Marshalls, the EAT identified five categories of contract (listed below)
dealing with the issue of holiday pay, and held that employers using categories
1 to 3 would not be discharging their obligations to give employees paid
holiday pay in accordance with the Working Time Regulations 1998, but would
have to make an additional payment for holiday pay. However, categories 4 and 5
were legitimate ways of paying staff for their holidays:

1. Contracts which are silent as to holiday pay

2. Contracts which purport to exclude liability for or entitlement to
holiday pay

3. Contracts where rates are said to include an amount for holiday pay, but
there is no indication or specification of an amount

4. Contracts providing for a basic wage or rate topped up by a specific sum
or percentage in respect of holiday pay

5. Contracts where holiday pay is allocated to and paid during (or
immediately before or after) specific periods of holiday.

What you should do

The position for employers in England is now clearer, though employers in
Scotland will still be bound by the Munro decision. Following the Marshalls
decision, employers wanting to roll-up holiday pay legally into an hourly or
weekly rate of pay must:

– Clearly incorporate rolled-up holiday pay into the individual contract of
employment, and thus expressly agree it with employees

– Clearly identify the allocation of the percentage or amount of holiday pay
in the contract and preferably in the payslip

– Ensure the rolled-up holiday pay amounts to a true addition to the
contractual rate of pay

– Keep records of holidays taken

– Take reasonably practicable steps to ensure workers take their holidays
before the expiry of the relevant holiday year.

A v B, EAT
Useful guidance on the reasonableness of investigations

* * * * B, a social worker, was accused of sexual impropriety with a
14-year-old girl in his care. Following an investigation and disciplinary
hearing, he was dismissed for gross misconduct. The tribunal found the decision
to dismiss B was fair, notwithstanding that the investigation had taken two and
a half years to complete, potentially significant evidence had not been
disclosed to B during the investigation or at the disciplinary hearing, and the
investigating officer had failed to take statements from some witnesses whose
evidence may have assisted B. However, the EAT reversed the tribunal’s decision
and held that the tribunal had been wrong to find that the investigation
carried out by B’s employers was reasonable in all the circumstances.

Key points

The EAT stressed that when conducting investigations employers must consider
the gravity of the charges and their potential effect on the employee. Serious
allegations of criminal behaviour, where disputed, must always be the subject
of a careful and conscientious investigation and the investigator should focus
on potential evidence that points towards the innocence of the employee as well
as on proving the charges.

The EAT also held that in deciding whether an employer has carried out such
investigation as was reasonable in all the circumstances, a tribunal should
consider any delays. In certain circumstances, a delay in the conduct of the
investigation might itself render an otherwise fair dismissal unfair,
especially where the consequence of the delay is that the employee is or might
be prejudiced.

Finally, the EAT held that where the investigation is defective it is no
answer for an employer to say that even if the investigation had been
reasonable it would have made no difference to the decision.

If the investigation is not reasonable in all the circumstances, the
dismissal is unfair and the fact that it may have caused no adverse prejudice
to the employee becomes a factor in deciding compensation.

What you should do

– Consider carefully the scope of any investigation and what should be

– Identify and interview all relevant witnesses, even if you think they may
have forgotten relevant evidence

– Carry out the investigation in a timely manner

– Disclose all relevant evidence to the employee

– Take into account evidence that may point towards the innocence of the
employee as well as that which may prove the charges.

Virgin Net Limited v Harper, EAT
Can an employee with less than one year’s service claim compensation for
loss of a chance to claim unfair dismissal?

* * * * Harper commenced employment with Virgin on 4 April 2000. Her
employment contract was expressed to be terminable on three months’ notice
either way. Harper’s employment was terminated on 2 March 2001 with immediate
effect. Harper brought a successful claim in the employment tribunal for
wrongful dismissal. The issue was whether the tribunal was correct to award
Harper damages for being denied the right to claim unfair dismissal.

Key points

The EAT considered the fact that Harper’s claim was founded on Virgin’s
decision to dismiss her without notice. If she had been given the contractual
notice to which she was entitled, she would have had one year’s service and
could have brought an unfair dismissal claim. The EAT considered itself bound
by the decision in the House of Lords in Johnson v Unisys that it was not
possible to recover damages for breach of contract arising from the fact of or
the manner of dismissal. The EAT decided, therefore, that Harper could not
claim damages for losing the chance to claim unfair dismissal.

The EAT drew a distinction between a situation where employment was
terminated without giving the requisite contractual notice, in which case an
employee could not claim for loss of opportunity to claim unfair dismissal, and
a situation where the employer failed to follow a contractual disciplinary
procedure which, if followed, would have resulted in an employee obtaining
sufficient service to claim unfair dismissal. Although the EAT did not state
that such a claim should succeed, it left the door open by expressly refusing
to rule such a claim out.

What you should do

– Ensure that where your disciplinary procedures exceed the minimum to be
imposed by statute, they are expressed as non-contractual

– Make sure you follow all disciplinary procedures before dismissing an
employee, particularly where the procedures are contractual.

Frewin v Consignia Plc, EAT
Tribunals considering fairness of capability dismissal should consider
the cause of the illness

* * * * Frewin was dismissed by the Post Office on grounds of capability as
he was suffering from a stress-related illness. He was absent from 8 July 1999
to the date of his dismissal on 21 August 2000. Frewin claimed his illness had
been a direct result of bullying in the workplace.

Key points

The tribunal found Frewin had been fairly dismissed. Basing its decision on
the earlier EAT authority of London Fire & Civil Defence Authority v Betty,
the tribunal concluded that its consideration as to whether the Post Office had
acted fairly in dismissing the employee on the grounds of ill health was
unaffected by the consideration as to who was responsible for Frewin’s
inability to work.

The EAT, however, limited the decision in Betty purely to confirming that if
the illness was caused by the employer it did not make the dismissal
automatically unfair.

The EAT concluded that in considering the fairness of any dismissal for
incapacity, a tribunal must now consider whether that incapacity was caused by
the employer.

What you should do

– When considering any dismissal for a capability-related reason, understand
the illness suffered, the likely cause of that illness and whether it could be

– If there is a possibility of the illness being caused by work, consider
the contributory factors and whether they can be removed

– Put in place a bullying and harassment policy

– To avoid liability for stress-related illness, make a confidential
counselling service available to employees.

Case of the month by Jonathan Coley

Steven Horkulak v Cantor Fitzgerald International – High Court
City constructive/wrongful dismissal case about alleged bullying

* * * * * This case has received much publicity in the press due to the size
of the award made (just shy of £1m) and the fact that it threw the practice and
management style of this well-known City broking house into the limelight.
Horkulak earned, subject to bonuses, approximately £400,000 a year. He had a
fixed-term contract due to expire in September 2002. He resigned in June 2000
and claimed constructive dismissal arising out of the abusive and bullying
behaviour of his boss, Lee Amaitis.

Key points

Horkulak’s case relied on Amaitis’ conduct being a fundamental breach of the
implied term of trust and confidence. Horkulak succeeded. In reaching his
judgement in the High Court, Mr Justice Newman set out a helpful analysis of
the development of the implied term.

Building on the ruling of the House of Lords in Johnson v Unisys, the Judge
reiterated that the notion of an employment contract giving rise to a
"master and servant" relationship was now obsolete, and the move away
from this required paying particular attention to the element of co-operation
which underpinned the contract of employment.

The Judge rejected any suggestion that where substantial sums were paid by
an employer it acquired a right to treat employees according to a different
standard of conduct from that which might otherwise be required. The Judge also
gave little time to the argument ‘if you can’t stand the heat, get out of the
kitchen’, which depended on the argument that broking houses are an inherently
stressful environment.

The Judge concluded that Amaitis was indeed a dictatorial manager whose
exercise of authority was extreme. He was at various times referred to as
"intemperate", "unyielding" and "dictatorial".
The Judge accepted that Amaitis was prone to using abusive language. He held
that frequent use of foul language did not sanitise its effect and indeed the
language was a hallmark of Amaitis’ management style and had the express
purpose of confirming Amaitis’ authority and removing any rational discussion.
The threat to "break Horkulak in two" was wholly inconsistent with
any continued relationship of trust and confidence.

Cantor tried to defend its position by referring to Horkulak’s poor
performance. While the Judge accepted Cantor was entitled to expect high
performance levels, it also had to deal with any failure to meet these
performance levels in an appropriate way. In this case, Amaitis did not discuss
any failures in performance with a view to how the performance could be
improved, but to demonstrate the level of his disapproval and to reassert his
authority as the "boss". Threats of dismissal were used to

What you should do

– Ensure all line managers are trained in appropriate management style

– Make sure proper procedures are in place for monitoring and supervising
performance and an effective appraisal system exists

– Review bullying and harassment policies to ensure any concerns are

Star ratings

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their reading. Does this ruling have immediate implications for your practices
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