Case roundup

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

Pinnacle ACI Ltd v Honeyman and Cape Industrial Services Ltd
Further confusion on TUPE and when new contractors can refuse to engage
existing staff

* * * * Cape lost a maintenance contract to its competitor, Pinnacle. It
told its nine employees who worked on the contract that they were entitled to
transfer to Pinnacle. Pinnacle refused to employ them, disputing that TUPE
applied. The employees sued both Cape and Pinnacle for unfair dismissal and
redundancy payments. The EAT held that TUPE applied, even without a transfer of
assets or employees.

Key points

Predicting when TUPE applies to contract changeovers is notoriously
difficult. Here the tribunal correctly applied the latest test set out by the
Court of Appeal, basing its decision on a consideration of all the facts of the
case. While apparently straightforward, this test does make it difficult to
anticipate whether a tribunal would find TUPE applied in a case where neither
assets nor employees transfer.

While European case law in this area requires either assets or employees to
transfer, domestic law stresses that if neither transfers, the tribunal must
examine why. This means examining all the facts surrounding the non-transfer of
employees, not just whether the new contractor’s motive in refusing to take on
staff was to defeat TUPE.

It was thought one ‘good’ reason for not taking on the old staff might be
that the new contractor could resource the contract using its existing workers.
However, Pinnacle failed in that argument in this case. It had just lost a contract
at another site and so had a ready workforce for the contract it won from Cape.

But Pinnacle was employing a similar number of staff to Cape and the
tribunal considered that had it not lost the other contract, Pinnacle would
probably have recruited Cape’s employees. The same service would have been
provided by the same skilled workforce, which would clearly have been a
transfer of an undertaking.

The EAT held this was a permissible conclusion. This case indicates that
even the ability to staff the contract with an existing workforce may not
prevent TUPE from applying. The difficulty is this approach focuses not just on
the facts in the case but on what the position would have been had different
facts applied.

What you should do

– Incoming contractors should assume that TUPE will apply unless there is a
really strong argument to the contrary.

– Contractors should seek to include TUPE costs when pricing their bid,
rather than seek to undercut the incumbent, only to face unfair dismissal and
termination liabilities.

– Client organisations should consider obliging new contractors to apply
TUPE to avoid disruption to services or an attempt to increase the contract
price if a TUPE dispute arises.

– See 26 for more on TUPE.

Gate Gourmet v Jangra, EAT
The dangers of acting too hastily in ill-health terminations

* * * * After an accident at work, the applicant developed a medical
condition that prevented her carrying out her job working on conveyor belts.
She was absent from work and it was not clear when she would be fit to return.
An attempt to return to lighter duties was unsuccessful. After 16 months
absence, a meeting took place at which a manager decided to dismiss the
applicant with immediate effect as there was no clear prospect of her returning
to work. She was encouraged to reapply for work when she was fit. She
unsuccessfully appealed, by which stage her condition had worsened.

However, she succeeded in a complaint of unfair dismissal and disability
discrimination. The tribunal considered the termination meeting had been
convened too hastily and that the employee should have been warned that the
meeting could result in termination. The EAT allowed the employer’s appeal
partly on the ground that the tribunal had failed to consider properly the defence
of justification to the disability discrimination complaint.

Key points

This case usefully illustrates the need to ensure that employees are given
proper warning that their employment is under threat before ill-health review
meetings or disciplinary hearings. This will be even more important when the
statutory procedures under the Employment Act come into force next year – a
failure to provide this information in writing will make the dismissal
automatically unfair and may result in a 50 per cent increase in compensation.

A further feature of the case was that the decision to dismiss was taken
while the applicant was awaiting test results. The tribunal was very critical
of this on the grounds that it was unreasonable not to have waited the short period
of time for the full medical picture to emerge. For that reason, it considered
the dismissal not to be justified under the DDA.

Although the EAT considered that the tribunal had failed to apply the
correct test on justification, the case illustrates the risk of jumping the
gun, not least because the EAT considered that justification should be judged
at the date of the discriminatory act – facts discovered after termination
could not be relied on.

What you should do

– Have written procedures for ill-health terminations.

– Train managers to follow the procedures and to be aware of the key
practical pitfalls.

– Give proper warning to employees if a review or disciplinary meeting could
lead to their dismissal.

– Ensure the full medical picture is available before deciding to dismiss.

– Remember the need to consider reasonable adjustments under the DDA.

– Managing Incapacity is the theme for next month’s employers’ Law briefing,
to be held on 5 December at the British Library in London. See page 16 for more

Cobley v Forward Technology Industries Plc, EAT
Automatic dismissal of a director when he was ousted from the board was

* * * Cobley was employed by Forward Technology as managing director and was
a member of its board of directors. He led an unsuccessful management buy-out
of the company, which was ultimately taken over by another company, Crest.

Cobley was voted off the board and at an extraordinary general meeting, a
resolution to remove him as a director was carried. His contract provided that
in such circumstances, his employment would terminate automatically. The
tribunal’s rejection of Cobley’s claim of unfair dismissal was upheld by the

Key points

The company argued two potentially fair reasons for Cobley’s dismissal. One
was his conduct in attempting to buy the company at half its market value
during the MBO and his persistence in pursuing it, which substantially
increased the price Crest had to pay. However, the tribunal found that the
primary reason for Cobley’s dismissal was "some other substantial
reason" – the acquisition by Crest which resulted in Cobley’s removal as
director and employee. On appeal, the EAT agreed this was a legitimate reason
for dismissal. An employed MD must also be a member of the board of directors
and this was reflected in Cobley’s contract.

The next issue was whether the company had acted reasonably in dismissing
Cobley for that reason.

Against the background of the takeover battle, to which Cobley had led the
opposition, it was inevitable that he would cease to be a director when Crest
took control. The new owners were entitled to replace the board. Cobley was an
experienced businessman and would have been aware that, having lost the
takeover battle, he was at risk of being ousted.

What you should do

– Remember that in many cases, contractual damages could be much greater
than the maximum unfair dismissal award.

– Ensure that executive directors’ contracts provide for automatic
termination if they are removed from the board.

– Ensure that board meetings and EGMs held to remove directors are properly
and lawfully constituted otherwise the dismissal may be in breach of contract.

– When dealing with senior executive terminations, bear in mind that senior
execs may be well placed to mitigate any losses through alternative employment.
This may provide scope for negotiating a severance package which is less
expensive than a payment in lieu of notice.

Make sure you have your equal opportunities policies in order

Uchendu v International Marketing
Group (UK) Inc and Others, EAT
Putting equal opportunities policies into practice can pay dividends in
defending discrimination complaints

* * * * * The applicant was employed
by a marketing company as a secretary in its hospitality division. This was an
‘aggressive’ marketing environment staffed by female employees. The applicant’s
complaint of sex discrimination related to the action of a male employee who
joined the department shortly after her. On a number of occasions, he asked the
applicant whether she would be wearing her "fuck-me boots", a term
commonly used within the department by the female employees to refer to knee high,
black, leather boots with high heels. She did not appear upset or indicate that
the behaviour was unwanted.

When she resigned, she made no complaint of sexual harassment.
She then met with a personnel manager, and after complaining about her workload
and other members of the team, she also complained about the male employee’s

When asked if she wanted any action to be taken, she gave no
response. The personnel manager investigated the issue anyway, and when the
applicant brought tribunal proceedings, the company took disciplinary
proceedings against the male employee and gave him a warning for the use of
inappropriate language.

The tribunal rejected the sexual harassment complaint. The
applicant had not suffered any detriment nor had there been any less favourable
treatment. The expression was part of the normal language used in the
hospitality division. The applicant had not objected to its use and was found
to be oversensitive compared with other women in the division. Isolated
comments from a new staff member did not create an intimidating, hostile or
humiliating working environment.

The EAT upheld this conclusion, and agreed the company had
taken all reasonably practicable steps to prevent discrimination.

Key points

This decision is extremely unusual. The tribunal’s finding that there had
been no sexual harassment at all in this case appears to have been reached
largely because the offending expression was regularly used by other women in
the department. This case does not mean employers should not crack down on
inappropriate language. Other cases on sexual harassment indicate precisely the
opposite – what is mere ‘banter’ to some may legitimately be considered
objectionable byothers. Perhaps the absence of any objection by the employee
also influenced this part of the tribunal’s decision.

Of wider significance is the finding that the employer could
have successfully relied on the statutory defence to sex discrimination under
Section 41 (3) SDA 1975.

This allows employers to escape liability if they can show they
had taken all reasonably practicable steps to prevent the act of
discrimination. This defence is notoriously difficult to substantiate. However,
the EAT concluded it was extremely difficult to see what else the employer
could have done.

The company had a comprehensive equal opportunities policy,
copies were provided to new recruits and the policy was reinforced during
induction training.

The tribunal had also taken account of the employer’s response
to the complaint. While only steps taken prior to the act of discrimination can
be relied upon to support the statutory defence, the EAT considered that
subsequent actions – here the conscientious investigation of the complaint and
the disciplinary action – were relevant to show the equal opportunities policy
had real teeth.

What you should do

– Ensure you have comprehensive equal opportunities and
anti-harassment policies which include clear statements about what behaviour is
unacceptable in the workplace and a clear procedure for dealing with complaints.

– Communicate the policies to new staff through
training/induction programmes.

– Provide ‘refresher’ training regularly.

– Train managers to recognise cases of harassment and respond

– Challenge inappropriate or offensive behaviour through
informal counselling or disciplinary proceedings.

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