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

Pitney Bowes Management Services Ltd v French
(EAT/408/00) EAT
Company-specific profit sharing schemes transfer under TUPE

* * * * Employees of the transferor, Sainsbury’s, had been contractually
entitled to participate in a profit sharing scheme receiving benefits paid in
Sainsbury’s shares. Following a TUPE transfer, Pitney Bowes argued it was not
bound to continue the scheme as it had no control over it, could not access
commercially sensitive information relevant to its operation and could not
issue Sainsbury’s shares. Both the employment tribunal and the EAT held the
scheme did transfer under TUPE.

Key points

One of the many areas of uncertainty under TUPE has been the extent to which
benefits intrinsically linked to the identity of the transferor can transfer
under TUPE. Do the obligations transfer at all and, if so, what must the
transferee do about terms that are impossible to replicate precisely? In this
case, whereas the employment tribunal held the obligation on the transferee was
to replicate the scheme exactly, the EAT at least took account of the practical
difficulties of doing so. Thus employees are entitled to benefit from a
‘substantially equivalent’ scheme. The transferee’s obligation under TUPE is to
replicate the features of the scheme as far as it can and substitute any
company-specific provisions with terms that leave the transferring employees in
a comparable position overall.

What you should do

– Transferees should undertake careful due diligence to identify all
transferring obligations including those relating to bonus or profit sharing
schemes. You will need to identify how ‘transferor specific’ elements can be
replaced.l Also, identify the extent to which the transferor has been able to
vary or withdraw the schemes, as you will have the same powers. This may
facilitate the tailoring of the scheme to your business.

– Provide for consultation with unions or employees over replacement schemes
– the EAT said it would expect to see this.

HM Prison Service v Beart
(EAT/650/01) EAT
EAT gives further guidance on reasonable adjustments under the Disability
Discrimination Act

* * * Mrs Beart suffered from clinical depression. Following a conflict with
her line manager, she took a long period of sick leave. The prison’s
occupational health physician recommended she be relocated or redeployed, as
the conflict was a cause of the depressive illness.

The prison failed to follow this advice, and Mrs Beart argued it had
breached its duty under section 6 of the DDA to make reasonable adjustments.
The EAT upheld this complaint, even though the tribunal had found it was only a
‘substantial possibility’ that she would be able to return to work had she been

Key points

This case makes it clear that where a disabled person is disadvantaged by
certain arrangements, an employer should not discount taking a particular step
just because it is not guaranteed to work.  The extent to which the adjustment in question is likely to work
will be relevant in assessing whether it is reasonable to make it, but other
factors such as its practicability and cost must also be considered.

What you should do

– Where a person covered by the DDA complains that certain arrangements put
them at a disadvantage, give detailed consideration to the full range of steps
you could take.

– Consult the employee as to what steps he or she feels would be

– Even if the employee has no suggestions, consultation with his or her GP
and with disabled charities or other relevant organisations may be appropriate.

– Do not discount adjustments just because they are not guaranteed to work.
If there is a chance they may work it might be safer to try them, particularly
where they would be cheap and easy to implement.

Hussain v H M Prison Services
(EAT/1250/00) EAT
EAT clarifies the liability of employers for the discriminatory acts of third

* * * Hussain, a prison officer of Pakistani origin, was subjected to racist
abuse on several occasions by various prisoners. He argued the Prison Service
had not taken sufficient steps to protect him from abuse and had subjected him
to a detriment. The EAT upheld the tribunal’s rejection of the complaint and
gave useful clarification on how such liability is established.

Key points

The principle that employers can be liable for the acts of third parties
towards their employees was established in the notorious case of Burton v de
Vere Hotel Company, 1997, ICR 1 – the so-called ‘Bernard Manning’ case. The
hotel chain was found to have unlawfully discriminated against two of its
waitresses by failing to take steps to prevent them suffering abuse at the
hands of the comedian Bernard Manning during his act at a hotel function.

In Hussain, the EAT said in deciding whether the employer has subjected the
employee to a detriment through the acts of third parties, several factors must
be considered:

– Did the employer cause or allow that thing to happen in circumstances
where he could control whether it happens or not? The key issue is whether the
employer could, by the application of good employment practice, have prevented
the abuse or reduced the extent of it.l Lack of foreseeability or the
unexpected nature of the event complained of could be relevant to whether the
event could be controlled.

In this case, the Prison Service had clearly warned the prisoners that abuse
would not be tolerated. The tribunal had correctly recognised there were limits
to what could be done.

What you should do

Undertake risk assessments to identify potential liabilities caused by the
discriminatory acts of third parties. This is particularly important in respect
of employees who come into contact with the general public or other third
parties in the course of their employment.

– Analyse what steps could be exercised to reduce this potential and what
might constitute ‘good employment practice’.

– Provide clear guidance to third parties that abusing your staff will not
be tolerated.

– Give clear advice to employees that harassment from third parties should
be reported to managers and ensure managers are trained to recognise and deal
with harassment.

British Bakeries Ltd v M L O’Brien
(EAT/1479/00) EAT
Offences labelled as ‘gross misconduct’ in a disciplinary code may not always
make summary dismissal lawful

* * * O’Brien was summarily dismissed for gross misconduct. When he claimed
wrongful dismissal, the employer argued that his conduct fell within the
definition of ‘gross misconduct’ in the employment contract.

Key points

It is common for contracts, rules or disciplinary procedures to define the
types of behaviour that would be regarded as gross misconduct. But will such
offences always enable a lawful summary dismissal? According to the EAT, even
if a contract defines certain acts as constituting gross misconduct, it will
not normally be sufficient (in the absence of clear contractual wording) merely
for the employer to prove there has been conduct, however trivial, falling
within the definition. The conduct must be sufficiently serious to be a
repudiatory breach of contract.

What you should do

– If it is absolutely fundamental that certain types of misconduct should
automatically lead to summary dismissal, make sure this is made crystal clear
in the employment contract.

– Remember, however, that even if a dismissal is lawful (ie permitted under
the employment contract) it may still be unfair. Tribunals are often wary of a
‘tariff’ approach to disciplinary sanctions (ie certain types of misconduct
automatically leading to dismissal) and may find no reasonable employer would
have dismissed.

The Scottish Ministers v Dunlop
(EAT/1227/01) EAT
Variation to contract was ‘dismissal in disguise’

* * * Following an industrial accident, Dunlop’s employer considered him
unfit for his current job. He was offered a different job on a lower grade and
much lower salary. He accepted this, but claimed unfair dismissal. The first
issue was whether he had been dismissed.

Key points

The EAT rejected the employer’s argument that there had been a consensual
variation to Dunlop’s contract. The contract had been withdrawn. This was an
ill-health termination and Dunlop could claim unfair dismissal, even though he
had accepted the alternative job.

What you should do

Always remember the need for a potentially fair reason and a fair procedure.

Take care in the manner in which variations are proposed to employees’
contracts, particularly where duties or salary are affected.

Remember, termination of a contract is a ‘dismissal’ even if the employment
relationship continues.

Case of the month by Jon Fisher
EAT declares ‘rolled-up’ holiday payments unlawful

MPB Structures Limited v Munro
(EAT/1257/01) EAT
Another controversial EAT decision on holiday pay, with potentially
costly implications

* * * * * MPB Structures added an
allowance of eight per cent to each weekly pay packet as holiday pay. The EAT
held this fell foul of the Working Time Regulations which prevents workers from
contracting out of their entitlements.

In the EAT’s view, the only way the regulations can be met is
for holiday pay to be paid at the appropriate rate, as and when holiday is

Key points

In a terse judgment, the EAT said the regulations were meant to ensure
workers got appropriate holiday leave. For this, they must have the necessary

The EAT felt that the employer placing the onus on the worker
to save the holiday pay element of the wage did not accord with this aim. This
was particularly so where the worker took leave at the beginning of a holiday
year and so had not built up sufficient holiday allowance to constitute wages
for the holiday period.

This is one of a number of recent EAT decisions on holiday pay
which are difficult to reconcile. Most have concerned Reg 16(5) which states
that contractual payments made for a period of leave go towards discharging an
employer’s obligations under the regulations in respect of that period of
leave: Gridquest Ltd t/a Select Employment v Blackburn, 2002, IRLR 168 for
example, and The College of North East London v Leather, EAT/0528/00.

These cases, which were not referred to in this judgment,
proceeded on the basis that rolled-up holiday pay is permissible under the

If the EAT is right in this case, employers who pay rolled-up
rates will be deemed not to have paid any holiday pay for the purposes of the
regulations. The implications of this are particularly serious when one
considers the decision in List Design Group v Catley, EAT/0481/01 (see Case
Round up, April), which permitted employees to recover non-payments for
previous holiday as arrears of wages.  

Employees who have been paid a rolled-up rate could potentially
claim arrears of holiday pay going back to 1 October 1998, when the regulations
came into force.

What you should do

– Given the uncertain legal position, consider whether there is
a practical alternative to paying your workers a rolled-up rate.

– Keep an eye out for the Court of Appeal’s decision in Gridquest which it
is hoped will clarify the legal status of rolled-up holiday payments. Be
prepared to act swiftly in changing your arrangements if the Court of Appeal
follows this judgment.

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