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

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* Our rating system is designed to help busy HR professionals prioritise
their reading. Does this ruling have immediate implications for your practices
and policies? Is it a one-off decision based on unusual facts? Or is it one to
keep an eye on as it goes to appeal? Case round up will help you decide. Each
case is rated from one to five stars; the more essential it is that you know
about it, the more stars it will have.

Lawson v Serco Ltd, EAT
An important ruling on the ability of overseas employees to bring claims in
the UK

* * * * Lawson, a British national domiciled in England, worked for Serco –
a UK company with a UK head office – as a security supervisor on Ascension

Lawson resigned and claimed automatic unfair dismissal, alleging that he had
been forced to work longer hours than permitted under the Working Time
Regulations 1998. The critical issue was whether the tribunal had jurisdiction
to hear the complaint, and the EAT ruled that it did.

In October 1999, the Employment Rights Act 1996 was amended to allow staff
working wholly or mainly outside the UK to claim rights under that Act, such as
unfair dismissal.

The ability of employees working abroad to bring claims in UK employment
tribunals now depends on complex rules governing the territorial scope of
legislation, the territorial jurisdiction of employment tribunals and the
conflict of laws between competing jurisdictions.

The EAT held there was no territorial limit on the scope of either the ERA
or the WTR. The issue was not where Lawson worked or where the acts occurred,
but the fact that his employer carried on business in the UK. This gave the
tribunals jurisdiction to hear a complaint against Serco. Further, the ERA
provisions were mandatory and could not be excluded by an agreement that some
other national law would apply.

The decision makes clear that many ‘posted’ workers within and outside the
European Union can rely on UK statutory protection in claims before UK
employment tribunals, provided their employer carries business in the UK, or
(in cases to which the Brussels Convention is relevant) is a UK company, or has
its central management in the UK.

What you should do

– UK employers with staff overseas should carry out an audit, with legal
assistance, to identify which of these may be able to bring complaints in UK
employment tribunals

– Protect against such liabilities by ensuring appropriate employment
practices – particularly in relation to claims of unfair dismissal

– You may face practical difficulties in defending such claims, for example,
because witnesses would need to travel to the UK for a hearing. These
difficulties and costs can be reduced by seeking appropriate directions from
the tribunal, such as provision for witnesses to be cross examined in writing,
rather than attending a hearing in person.

Alamo Group (Europe) Limited v Tucker and Others, EAT
Transferee liable for transferor’s failure to inform and consult under

* * * * Alamo bought an insolvent business from its receivers. The purchase
was a transfer of an undertaking under TUPE, but the transferor failed to
inform and consult the affected workers as required under Regulation 10 of
TUPE. An employment tribunal made a protective award of two weeks’ pay per
employee against Alamo, on the grounds that the liability for the failure to
inform and consult transferred under TUPE. Alamo appealed unsuccessfully to the

Regulation 10 of TUPE obliges a transferor to inform staff affected by a
transfer, via their representatives, of the fact that the transfer is
happening, the reasons for it, the effect on those employees and any measures
which transferor or transferee propose to take in connection with it.

Transferors and transferees must consult the representatives on measures
each proposes to take. Breach of these obligations, or the rules governing the
election of non-trade union staff, risks a protective award of up to 13 weeks’
pay per employee. These awards are made by reference to gross pay (without any
statutory maximum), not lost earnings, and so can prove very expensive.

The critical point here was the EAT’s conclusion that liability for the
transferor’s breach passed to the transferee under TUPE. The EAT ruled that
Regulation 5 of TUPE transfers all liabilities to the transferee unless these
are expressly excluded from transfer by TUPE itself (as is the case for certain
occupational pension schemes). This is hugely problematic for transferees. If
liability transfers, what incentive does the transferor have to comply with its
obligations? Such arguments were rejected by the EAT in Alamo – "the
primary purpose of the regulations is to protect the employee, even if it
follows that the innocent transferee may on occasion have to bear the

In some cases, transferees can mitigate the effects of this decision through
appropriate warranties and indemnities. However, in outsourcing situations
(especially contractor changeovers) and purchases of insolvent businesses, such
protection may be impossible to obtain.

What you should do

– Transferees must either ensure the transferor discharges its obligations
or take appropriate indemnity protection

– Companies buying businesses should allow sufficient time before the
transfer to allow the obligations to be discharged

– Those tendering for services in outsourcing situations should seek to
negotiate indemnities from the client organisation, especially in relation to
failures to consult by outgoing contractors

– Purchasers of insolvent businesses are particularly vulnerable – the
potential liability for failures to consult should be reflected in the purchase

– Transferees should minimise their exposure by informing and consulting
staff after the transfer. Tribunals are likely to give transferees credit for
trying to mitigate the effects of the transferor’s breach when awarding

Qua v John Ford Morrison Solicitors, EAT
The first EAT decision on time off for dependants

* * * * The applicant, a legal secretary, was dismissed after a high level
of unauthorised absence. She had taken time off work to care for her son, who
became ill as a result of a recurring medical condition. She contended her
absences were due to taking emergency dependants leave under the Employment
Relations Act 1999, making her dismissal automatically unfair. The EAT held
that the tribunal had misapplied the legislation. It remitted the case, giving
some useful guidance on the right to dependant care leave.

The EAT stressed that to take advantage of emergency leave protection,
workers must advise the employer – in advance if possible – of the reasons for
the leave and the amount of time they expect to need off work. The right allows
a "reasonable" amount of time off to deal with unexpected or sudden
events affecting dependants and to make any necessary long-term arrangements
for their care. What action is deemed ‘necessary’ will depend on the nature of
the incident and the extent to which anyone else could help out.

The right does not cover time off to enable the employee to provide care for
a sick child herself, only to deal with the immediate crisis. Controversially,
the EAT suggested that in the case of a recurrent medical condition likely to
involve relapses, the illness may cease to be unexpected, and so may not
trigger the entitlement to leave.

The effect of the absence on the employer is irrelevant when considering
whether the worker is taking ‘reasonable’ time off. Reasonableness must be
judged on the facts of each case. Where leave is frequently taken, the total
amount of time taken off can be considered when deciding what is reasonable.

What you should do

– Publicise policies on family-friendly leave rights, stressing the
importance of notification when leave is to be taken

– Dismissing staff for taking leave can be very dangerous – discuss the
problem with them and see if alternative solutions exist

– Be alert to the risks of sex discrimination claims as female employees
still tend to bear the burden of caring for dependants.

Murray v Newham Citizens’ Advice Bureau, EAT
Useful guidance from the EAT on justifications for disability

* * * Murray applied for an advice worker job with the Citizens’ Advice
Bureau (CAB). He had been diagnosed as a paranoid schizophrenic after stabbing
his neighbour, and was receiving treatment and appropriate medication. The CAB
was concerned the stressful work environment could trigger further violent
episodes, and suggested Murray be considered for a less stressful bureau. He objected,
as his psychiatrist had assured him that stress was not a material factor in
his illness. His complaint of disability discrimination failed at tribunal. The
EAT upheld his appeal, and remitted the case for rehearing.

The critical issue was whether the CAB could justify its rejection of
Murray’s application on the grounds of its fears of a violent episode, despite
failing to investigate the medical position. The EAT confirmed employers must
justify their decisions on the basis of what was known to them at the time.
Tribunals should consider whether it was "within the band of reasonable
responses" for the employer to decide not to seek further information. If
so, the tribunal should then assess whether the decision not to offer the post
was for a reason that was material or substantial. Interestingly, the EAT held
that a prospective employer of a person with a disability cannot be expected to
carry out the same rigorous investigations as would be expected from an actual

What you should do

– Scrutinise your recruitment policies and practices for risk of
discrimination, as these are prime areas for litigation

– Ensure managers are aware of the need to be adequately informed about the
possible effects of a disability before discounting or rejecting a candidate
because of it

– Consider introducing a mechanism for managers to ask candidates before
interview whether they have any disabilities which could hamper them at
interview or affect their ability to do the job. This allows time for the disability
to be investigated and for reasonable adjustments to be considered.

Case of the month by Christopher Mordue
Scottish court paves the way for huge holiday back-pay claims

MPB Structures v Munro, Scottish
Court of Session
A troubling decision for employers who distribute holiday pay through rolled up
hourly rates

* * * * * Munro worked for a building
company. His hourly rate of pay included an allowance of 8 per cent for holiday
pay. The employer used the rolled-up hourly rate to reduce the administrative
inconvenience of calculating holiday pay each time leave was taken. The Court
of Session upheld an EAT decision that this was not permitted at all under the
Working Time Regulations 1998.

Under Regulation 16(1), an employee is entitled to be paid at
the rate of a week’s pay (as calculated under the Regulations) in respect of
each week of annual leave. The court said this required staff to be paid for
holidays as and when they were taken. Paying in advance could discourage
workers from actually taking their leave, and was contrary to the purpose of
the regulations.

The court went on to rule that the employer had made no
payments for Munro’s annual leave under the regulations. The rolled-up rate was
intended to exclude Regulation 16(1), and so was void. He was entitled to be
paid in full for the holiday he had taken, without giving credit for the money
he had already received under the rolled-up rate.

Many employers use rolled-up hourly
rates to pay holiday pay, particularly for staff whose hours fluctuate from
week to week. The main reason is to avoid calculating entitlements separately
for each worker and for each period of leave. This decision is hugely
problematic for these employers, as it deprives these payments of any legal
effect. They not only face the administrative burden of calculating and paying
for holiday pay, but also significant retrospective claims. These could be
brought as an unlawful deduction from wages, allowing the recovery of
‘non-payment’ for periods as far back as the introduction of the right to paid
annual leave on 1 October 1998.

The Scottish Court of Session is equivalent to the Court of
Appeal in England and Wales. While not strictly binding on tribunals outside
Scotland, the decision in Munro may prove extremely persuasive. There is no
corresponding English authority on this issue. When the Court of Appeal
considered the use of rolled-up hourly rates in Blacktown v Gridquest Ltd t/a
Select Employment, it refused to deal with the points raised in Munro,
confining itself to ruling that in that case the employer could not rely on a
rolled-up rate because there was no mention of the holiday pay element in the
contract itself. Employers in England and Wales must either await further case
law developments, or take steps to remove rolled-up rates and reduce their
exposure to claims.

What you should do

– Employers in Scotland using rolled-up rates should take
urgent steps to devise other methods of paying for annual leave

– Employers in England and Wales should consider whether the
significant risks attached to rolled up rates are worth their administrative

– Any alternative system of paying for annual leave must
provide for payment as and when leave is taken

– Employers should seek advice on how to calculate pay for
holidays taken by staff with variable hours of work. In most cases, the amount
of a week’s pay will be calculated by reference to average earnings over the
previous 12 weeks

– Calculations may be made easier by using IT solutions

– Requiring leave to be taken in whole weeks may reduce the
administrative burden – it avoids the need to calculate holiday pay for up to
20 separate days of leave (bear in mind this may require changes to contracts).

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