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
Cantor Fitzgerald v Bird and Others High Court
Unreasonable treatment of employees can undermine restrictive covenants
* * * Three of Cantor’s employees were poached by a rival broking firm,
ICAP, and they left without giving contractual notice. Cantor alleged that the
employees were in breach of contract and sought damages and injunctive relief
against them and ICAP for unlawfully inducing breaches of contract. They
succeeded only in relation to one employee as the High Court ruled Cantor
itself had repudiated the other two contracts because of the manner in which a
new remuneration package had been introduced. As Cantor itself was in breach of
contract, it could not prevent the employees from joining ICAP.
This is typical of the arguments deployed when staff are poached by
competitors. Employees seeking to escape notice periods and post-termination
constraints frequently argue that they have been constructively dismissed,
because if the employer commits a fundamental breach of contract, the contract
no longer binds the employee at all. As in this case, the stakes can be high –
employers may lose valuable restrictive covenants. Employees and their new
employer may be liable in damages and both parties run the risk of substantial
costs.
The employees relied on breaches by Cantor of the implied duty of mutual
trust and confidence. The different outcomes in the cases against the
individual employees reflected the different styles of the senior managers who
had introduced the new remuneration package. Cantor had tried to unilaterally
vary the contracts of employment and in the case of two employees, the senior
managers had behaved unreasonably, advancing the proposal in a hostile and
threatening manner. In the case of the other employee the senior manager had
behaved more reasonably.
What you should do
– Always ensure that confidential information and customer connections are
adequately protected against post-termination competitive activities.
Protective measures include substantial notice periods, garden leave clauses
and tightly drafted restrictive covenants.
– Include payment in lieu of notice clauses in employment contracts. These
allow employers to terminate without notice (albeit with a payment in lieu of
notice) without losing the protection of restrictive covenants.
– When recruiting staff from competitors, always check which restrictive
covenants will apply, and take advice as to whether these are enforceable.
– If relying on a constructive dismissal argument to escape covenants or
notice periods, make sure that the argument is credible.
– Recognise that treating staff badly can amount to a breach of the express
or implied terms of the contract. This can not only lead to disaffection and
defections, but render even the best-drafted protections worthless.
Astley &Others v Celtec Ltd Court of Appeal
A TUPE transfer can take place in stages, and the process of
transferring employees can extend over a substantial period
* * * * * This case arose from the creation of Training and Enterprise
Councils (TECs) in the early 1990s. Although the TECs took over certain
functions of the then Department of Employment, many DoE civil servants did not
actually transfer to the TECs immediately, instead only being seconded to work
in the TECs. Over time, seconded staff could take up direct employment with the
TECs, and this migration of staff took place during a six-year period. The
issue was whether they transferred under TUPE at that stage, with continuity of
employment preserved.
The critical issue was whether TUPE applied only from the date the TECs
began to function, or whether there was a ‘staggered’ transfer over a period of
time. Rejecting the conclusion of the EAT, the Court of Appeal considered that
each time a seconded DE employee took up employment with the TECs, this was a
separate transaction in the overall process of the transfer of the undertaking
from the DE to the TECs. There was no reason in principle why that transfer
process could not extend over several years.
The Court of Appeal analysed the position under the Acquired Rights
Directive rather than TUPE, as the directive was directly applicable in this
case. The directive was held to be sufficiently wide to embrace a transfer of a
business over a period of time. The Court acknowledged that the wording of TUPE
may be difficult to reconcile with this result, but it is likely that a similar
purposive approach would be adopted in cases on the TUPE regulations
themselves.
What you should do
The decision is particularly relevant where the transferor wishes to retain
some staff for a limited period to assist in post-transfer issues. To avoid the
uncertainties of the ‘transfer in stages’ approach, transferors should seek to
either:
– Agree with the transferee and transferring staff themselves on a process
of staged transfers, and that this will not undermine protection under TUPE, or
– Allow all staff to transfer on a single date but agree that certain
employees will be seconded back to the transferor for a limited period.
Carruth v Macfarlane Packaging, EAT
A reminder of the vital importance of using a reasonable selection pool
in redundancy exercises
* * * This appeal concerned the tribunal’s assessment of compensation for an
unfair redundancy dismissal but illustrates some critical points to bear in
mind in redundancy exercises.
The finding of unfair dismissal arose from the employer’s failure to
identify an appropriate pool from which to select employees for redundancy. The
applicant was the only employee considered for redundancy, even though another
employee with a different job title performed essentially the same work. The
applicant had longer service than this other employee and was more experienced.
These factors should have been taken into account.
The tribunal awarded compensation on the basis that had a proper selection
pool been used and appropriate selection criteria applied, the applicant would
have been retained, at least until some months later when the other employee
was also made redundant. The EAT said the tribunal should have considered
whether to give compensation beyond that date on the grounds that adequate
consultation on his redundancy would have identified alternative employment
which would have continued for a longer period.
What you should do
– Remember that it is vital to use a reasonable selection pool. If the pool
is unreasonable the dismissal will be unfair, no matter how thorough your
consultation process.
– Identifying the wrong pool may also make selection criteria unreasonable.
– Concentrate on skills and types of work rather than simply on job titles,
grades or departments/business units. Ensure the pool includes employees with
interchangeable skills.
Pratley v Surrey County CouncilHigh Court
Stress claim fails because employee concealed her true medical condition
from employer
* * * The claimant’s claim for personal injuries arising from occupational
stress was rejected by the High Court on the grounds that she had deliberately
concealed the true state of her health from her employer. As a result, there
was no basis on which the employer could have anticipated a risk to injury to
her health.
This case follows the Court of Appeal guidance earlier this year in
Sutherland v Hatton in emphasising that the employer’s duty of care to protect
workers from the risk of stress-related illness is only triggered if the risk
of injury to health has been made sufficiently clear, so that a reasonable
employer would appreciate something should be done to avert it.
In this case the employee had specifically requested that her doctor should
not refer to stress in her sick notes as she was anxious not to be seen to be
struggling with her workload. In these circumstances, the more general
indications of a high and at times unreasonable workload were insufficient to
trigger the duty of care in the absence of a clear and specific warning of an
immediate risk to health.
What you should do
– Introduce and implement a stress management policy.
– Be alert to signs from the employee and the workforce in general of risks
to health. The absence of a specific complaint from an individual will not
always mean a stress claim cannot succeed.
– Remember that the causes of stress can give rise to other types of legal liability,
including constructive dismissal claims or discrimination/harassment
complaints.
– Remember that the cost to business of stress related absence is enormously
high, even in the absence of legal liability for damages. Proactive steps to
prevent or reduce stress have direct financial benefits.
Case of the month by Christopher Mordue
Age limit on employment rights deemed discrimination
Rutherford v Towncircle Ltd (t/a Harvest) employment tribunal
Tribunal allows over-65s to claim unfair dismissal and redundancy
payments
* * * * * Two employees aged 67 and 71 at the time of their dismissals, claimed
unfair dismissal and statutory redundancy payments. On the face of it, the
claims were bound to fail – the Employment Rights Act 1996 states that
employees cannot bring such claims if at the time of the dismissal they are
aged 65, or have reached their employer’s normal retiring age.
However, the employment tribunal held that the upper age limit was
indirectly discriminatory on the grounds of sex and breached Article 141 EC
Treaty. The tribunal agreed the statutory age limit disproportionately affected
male employees. Labour Force Survey statistics showed a disproportionate impact
on the number of male and female employees in ten-year age ranges above and
below the upper age limit.
The tribunal rejected the Government’s attempt to justify the discriminatory
effect of the age limit on grounds other than sex. For both statutory
redundancy payments and the right to claim unfair dismissal, the upper age
limit had been linked to the age at which employees could draw the state
pension – as employees approached State retirement age they had a reduced
expectation of continued employment. Previously the upper age limit was 60 for
women and 65 for men. This was revised to 65 for men and women following an ECJ
ruling in Marshall in 1986. However, women remained entitled to draw the State
pension at 60, a right not given to men.
The tribunal considered that the policy behind the upper age limit was
linked to the state pension age and therefore tainted by sex discrimination,
and held that the Government should have remedied this inequality before
Rutherford’s dismissal in 1998.
The Rutherford case is only a tribunal decision and in itself creates no
binding precedent. The case is to be appealed by the DTI, and employers will
naturally await the results of that process with interest. Although this case
concerned employees who were dismissed after reaching 65, it is possible that
the same arguments would apply to employees automatically dismissed at 65 or
any other normal retirement age. If so, the decision could be of much wider
significance.
This case has obvious parallels with the protracted Seymour-Smith
litigation, which challenged the then two-year qualifying period for the right
to claim unfair dismissal on the grounds that it indirectly discriminated
against female employees. The House of Lords rejected that argument holding the
disproportionate impact was objectively justified on grounds other than sex.
However, in the lengthy period before that decision, a great many claims
were presented to employment tribunals from those with less than two years’
service, only to be stayed for several years. It is possible that a similar
situation will now arise.
What you should do
– Do not assume that employees dismissed after the age of 65 will be unable
to claim unfair dismissal. Apply the same procedural safeguards as you would to
employees below the upper age limit.
– Until a more definitive ruling is obtained, you can still withhold
redundancy payments from those over 65 but be aware of the risk that you may
ultimately have to pay out.
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– If unfair dismissal complaints from those dismissed on or after reaching
65 are stayed pending a more definitive ruling, you will need to protect
yourself from the practical problems such inactivity creates.
The ability of witnesses to recall events diminishes over time and indeed,
key witnesses may leave the company. Ensure documentary evidence is retained
and statements are taken while events are still fresh.
