Settlement Agreement: Sums to be paid net of tax (fact sensitive)

Thanks to Paul Smith of Broadway House Chambers for preparing this case summary

Where a Compromise Agreement is silent as to whether a settlement sum is to be paid gross or net of income tax, how should the term be construed for tax purposes?

As being the gross sum from which income tax should then be deducted, says the High Court in Barden v Commodities Research Unit International.

The Claimant and Defendants had reached a settlement negotiated through mediation. As part of that Compromise Agreement they agreed to pay a settlement sum of £1.35million to the Claimant, but the relevant term of the Agreement did not stipulate whether this sum was to be paid gross or net of income tax.

In a first-instance case peculiar to its facts, the Chancery Division explored the legislative framework surrounding the taxation of payments made in connection with the termination of employment. Emphasising that the test in such cases is objective and not one based upon the subjective knowledge or intentions of the parties, Vos J determined that the reasonable observer would have concluded that the settlement sum would be paid net of income tax. By analogy, the reality of the PAYE system is that no employee expects to receive their gross salary each month, and in arguing the contrary position in respect of a termination payment Mr Barden was advancing a "commercial absurdity".

TUPE: apportioning liability for failure to inform and consult

Thanks to Catriona Stirling of Cloisters for preparing this case summary

Where an employment tribunal makes orders for compensation in tort against Respondents jointly (or jointly and severally), does it have the power to apportion liability between the Respondents?

No, according to the EAT in Country Weddings v Crossman. The employment tribunal can do nothing other than to make an order for joint (or joint and several) liability, as the case may be.

If there is an issue between the parties who have been found liable as to the relative share of the liability that they should bear, this is a matter that has to be determined in the County Court or the High Court under the provisions of the Civil Liability (Contribution) Act 1978.

This was a TUPE case in which the employment tribunal had chosen to apportion the compensation for a breach of the regulations so as to make the whole sum payable by the transferee. The EAT held that it was quite clear that the TUPE regulations provided for the liability to be joint and several between transferor and transferee and that this was in line with the general principle laid down by the Court of Appeal in London Borough of Hackney v Sivanandan & Ors where orders for compensation are made by employment tribunals in claims involving liability of more than one party.

Equal Pay: Meaning of 'In the Same Employment'

Thanks to Will Young of Outer Temple Chambers for preparing this case summary

In Equal Pay cases, does the requirement that the comparators be "in the same employment" as the Claimants mean that there has to be some possibility that they could actually be employed at the establishment at which the Claimants work?

No, according to the Supreme Court in the case of North & Ors v Dumfries and Galloway Council.

The requirement in section 1(6) of the Equal Pay Act 1970 (broadly reproduced in s79 Equality Act 2010) that the comparators be employed "at establishments in Great Britain which include [the Claimant's] one and at which common terms and conditions of employment are observed either generally or for employees of the relevant classes" means merely that the Claimants must show that if employed at the Claimants' establishment, however unlikely, the comparators would be employed under broadly similar terms to their current terms.

It is no answer to say that it is not possible (or even feasible) that the comparators would ever work at the Claimants' establishment; the fact that the two classes of employees have to work in different locations is no barrier to equalising the terms on which the work is done. The test in section 1(6) is only designed to weed out cases in which geography plays a significant part in determining the terms and conditions of the relevant employees, not to determine the comparability of their work, which is achieved by other mechanisms in the legislation.

TUPE

Thanks to Claire Scott of Burness Paull & Williamsons LLP for preparing this case summary

Does an employee who spends all of his time providing services to a customer transfer under regulation 3(1)(b) of TUPE when other employees also provided the service?

No, says the Court of Session in Ceva Freight UK Limited v Seawell Limited, upholding the decision of the EAT.

Ceva provided inbound and outbound services to Seawell who then in-sourced those services. Mr Moffat spent 100% of his time on the outbound services in a supervisory role. Other employees of Ceva spent part of their time providing the same services to Seawell.

The Court considered regulation 3(3)(a)(i) and ruled that where the activities are carried out by the collaboration, to varying degrees, of a number of employees who are not organised as a grouping having as their principal purpose the carrying out of the activities for the client, it is not legitimate to isolate one of that number on the basis that the employee in question devoted all, or virtually all, of his working time to assisting in the collaborative effort.

The Court agreed with the view expressed by the EAT in Eddie Stobart Ltd v Moreman that the concept of an organised grouping “implies that there be an element of conscious organisation by the employer of his employees into a grouping – of the nature of a “team” – which has as its principal purpose the carrying out de facto of the activities in issue.”

The Court was not persuaded by Mr Moffat’s job description which indicated he was employed for the purpose of enabling the contract with Seawell to be performed.

Redundancy and parental leave

Thanks to Vanessa Latham of Berrymans Lace Mawer for preparing this case summary

When selecting for redundancy, can an employer assess workers who have been off work on parental leave on different criteria to those who have not been on leave?

No, says the Court of Justice of the European Union (CJEU) inRiezniece v Zemkopības Ministrija, a reference for a preliminary ruling.

According to the CJEU, where it is the case that a much higher number of women than men take parental leave, EU law precludes:

1) the assessment of workers in their absence, for the purpose of abolishing posts, on the basis of criteria less favourable than that applied to workers who did not take parental leave. Any such assessment must encompass all workers liable to be concerned by the abolition of the post and must be based on criteria which are absolutely identical to those applying to workers in active service. The implementation of those criteria should not involve the physical presence of workers; and

2) the dismissal of a female worker who has been transferred to another post at the end of her parental leave following that assessment, where it was not impossible for the employer to allow her to return to her former post or where the work assigned to her was not equivalent or similar and consistent with her post because, at the time of the transfer, the employer knew that the new post was due to be abolished.

Striking Out Tribunal Claims

Thanks to Will Young of Outer Temple Chambers for preparing this case summary

Can a discrimination claim be struck out for a wilful failure on the part of a Claimant to comply with tribunal orders? Not unless consideration has been given to whether the failure has rendered a fair trial impossible, according to the EAT in the case of Ahmed v Bedford Borough Council.

The Claimant brought claims of race, religious belief and disability discrimination, but unreasonably failed to comply with the tribunal’s order that he be examined by a medical expert for the purposes of a PHR on the issue of disability. The tribunal struck his claim out in its entirety as a result.

The EAT held that the issues in such a situation were: whether the conduct in question was scandalous, unreasonable or vexatious; whether a fair trial was still possible; and whether the sanction of strike out was proportionate. In this case there was insufficient consideration of the latter two conditions (for example whether a lesser sanction was appropriate), and the matter was remitted back to a different employment Judge.

Employment Tribunal Fees - Update

UNISON has announced that it is applying to the High Court to judicially review the government's decision to introduce fees in employment tribunals.

It is unclear from its press release whether the application has yet been lodged.

The main two arguments being raised by UNISON appear to be:-

1. it is unlawful to introduce fees which make it prohibitively difficult to enforce European Community law
    
2. the fees indirectly discriminate against women, who (typically) earn less than men.

We'll be discussing the practicalities and ramifications of tribunal fees, and updating you on this judicial review challenge, at myMasterClasses next month (a new London date has been added, as the existing date has sold out - more details soon).

Covert Surveillance

Thanks to Peter Taheri of 5 Essex Court for preparing this case summary

Does the employer breach an employee's Article 8 rights by using evidence from covert surveillance to dismiss him?

Certainly not on these facts, held the EAT in City and County of Swansea v Gayle.

Mr Gayle was dismissed after his employer covertly obtained video evidence showing him, on five occasions, at a sports centre while he was being paid to work.

Noting that the video evidence was taken in a public place of somebody in a public place (outside the sports centre), the EAT held that fraudsters can have no reasonable expectation that their conduct is entitled to privacy. When the employee was on his employer's time, he had no reasonable expectation that he could keep private from his employer where he was or what he was doing.

The EAT also pointed out that only if faults in the investigation are relevant to the dismissal is it likely to be held unreasonable. Even if the dismissal was already sufficiently evidenced before the covert surveillance, the employment tribunal was wrong to find unfair dismissal based on the covert surveillance: at most, the video evidence was irrelevant to the dismissal. An unnecessarily thorough investigation is unlikely without more to make a dismissal unfair.

Costs in the Employment Tribunal

Thanks to Vanessa Latham of Berrymans Lace Mawer for preparing this case summary

Can the employment tribunal order costs on an indemnity basis against an ex-employee without considering the impact of such an order on the Claimant, or without considering imposing a cap on recoverable costs?

No, says the EAT in Howman v Queen Elizabeth Hospital.

The Claimant brought a claim in the employment tribunal, which was dismissed. The tribunal found that the Claimant must have known that his case "never had a chance of success", that he had been advised at the case management discussion to "carefully consider his position", and ordered that the Claimant pay the Respondent's legal costs on an indemnity basis, subsequently assessed at £43,076.

The EAT found that costs should be assessed on the indemnity basis only "when the conduct of the paying party has taken the situation away from even that very limited number of cases in the employment tribunal where it is appropriate to make orders for costs".

The employment tribunal did not appear to have considered the impact on the Claimant of losing his house, or of the impact on his family. Further, it had failed to consider imposing a cap on the amount of costs for which the Claimant could be liable. As such, its conclusion could not stand and the question of costs was remitted to the employment tribunal.

SI laid before Parliament re One Year Cap on Compensatory Award

The draft The Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013 has been laid before parliament. It limits the compensatory award in an unfair dismissal case to the lower of £74,200 or 52 weeks' pay.

The exact commencement date is not known, but it is expected to come into force sometime in July (and will apply to all dismissals occurring after that date).

It'll be no great surprise to hear I'll be talking about this in my MasterClasses next month (have a look at some testimonials from earlier MasterClasses if you haven't already done so).

Radio 4 - Employment Tribunal Drama

Here's something a bit lighter than normal...

Yesterday's Afternoon Drama on Radio 4 was a dramatised employment tribunal hearing, with an ex-police officer claiming unfair selection for redundancy on grounds of her gender.  The first five minutes are set in the Claimant's waiting room (with a flustered barrister turning up late), and the rest is the tribunal hearing - unfortunately, with a stereotypical old-school employment judge and overbearing Respondent's Counsel.

Anorak-ey gripes apart (eg Counsel told off because documents weren't lodged two months in advance of hearing - seriously?), it's actually quite good.  It will be on iPlayer for another six days - listen here.

Striking Out and Relief from Sanctions

Thanks to Will Young, barrister at Outer Temple Chambers, for preparing this case summary.

What is the test for whether an 'unless order' has been complied with?

The EAT has held that 'substantial compliance' with an unless order was to be interpreted qualitatively rather than quantitavely, inJohnson v Oldham Metropolitan Borough Council.

The Claimant brought claims of sex discrimination and unfair dismissal. She was ordered to provide Further and Better Particulars of her claim, and there was an issue as to whether the Schedule she provided was adequate to comply with the order. The Employment Judge considered that elements of the claim still needed further particulars, but that there had been "substantial compliance". The EAT disagreed, saying that compliance with an unless order could not be judged by what proportion of the unclear issues had been addressed, but by whether the particulars given enabled the other party to know the case against it.

Guidance was also given in relation to applications for relief from sanctions. The degree to which an unless order had been complied with would be relevant, as would any steps taken by the applicant to remedy the non-compliance before the application was heard, particularly in the light of any criticisms of the first attempt made by the Tribunal.

Redundancy and Bumping

Thanks to Ed McFarlane of Deminos HR for preparing this case summary

May an employee be dismissed for redundancy where the employee's own job remains, but the needs of the business for different kinds of employee reduces?

Yes, held the EAT (HHJ Richardson presiding) in Contract Bottling Ltd v Cave. The Claimants worked in the Respondent's accounts department and were unfairly dismissed after a redundancy exercise in which a group of staff with diverse functions were put in a 'rather surprising' pool, with the lowest scoring four staff dismissed regardless of job function. Remaining staff were retrained to fill gaps, even if it would have meant retraining a warehouse manager in accounting. The Employment Tribunal rejected redundancy as the reason for the dismissals.

The Employment Appeal Tribunal held that the dismissals were for redundancy and were a form of 'bumping'. Applying the well-known two-stage test of Murray v Foyle Meats, the EAT held that the first stage of the test, of a 'diminution in the requirement of the business for work of a particular kind' can be met in respect of several kinds of work, not just individual kinds of work.

The EAT declined to overturn the finding of unfair dismissal, but held that the Tribunal should have considered a Polkey reduction, following Software 2000 Ltd v Andrews; the evidence showed a need to reduce manpower, with a new accounting computer package requiring staff reductions in the accounts function. The EAT said that Tribunals should grapple with the evidence available and give reasons for decisions on Polkey reductions.

The case was remitted to the same Tribunal for reconsideration of the Polkey issue.

2013 Employment Law Changes - Update

Two developments to report.

First, BIS has published an updated indicative timetable of the planned commencement dates under the Enterprise and Regulatory Reform Act 2013.  Don't read it - it's impenetrable.  Instead, read this excellent summary from HR Bullets.

Second, HMRC has published guidance on capital gains tax and income tax/NIC exemptions for employee shareholder share awards.  It's super-technical.  Again, don't read it - you know what to do instead...

Costs Awards in Employment Tribunals

Thanks to Daniel Tivadar of 3 Hare Court for preparing this case summary.

Can an employment tribunal make a costs award that the paying party cannot afford to pay?  Yes, held the EAT in Vaughan v London Borough of Lewisham.

The Claimant brought two appeals arising out of the same proceedings. The first appeal dealt with the admissibility of secret recordings in Tribunal proceedings (see summary).

The second appeal challenged the costs award made by the Tribunal. The Claimant brought three sets of proceedings against numerous Respondents. The claims culminated in a 20-day hearing following which they were rejected in their entirety. The tribunal ordered the Claimant to pay one-third of the Respondents' costs - which amounted to around £260,000 in total - on the basis that the claims were misconceived.

The EAT held that the tribunal applied the correct two-stage test. The tribunal's conclusion that the case was misconceived was unimpeachable. It did not matter that there had been no deposit orders or observations made by the tribunal prior to its judgment that the claims appeared weak. Although the Respondents did offer to settle for £95,000, this was specifically stated to be for commercial reasons only. It was irrelevant that the matter was "fact-sensitive" and that the Claimant genuinely believed in her case - the claim was still misconceived.

The tribunal was not wrong in awarding the Respondents one-third of their cost. The EAT accepted that the currently unemployed Claimant would find it difficult to pay and it may take her several years to satisfy the order in full. Nonetheless, the tribunal was entitled to hold that there was a realistic prospect of the Claimant returning to employment and making a payment of costs.

NOTE that changes to the employment tribunal procedural rulescoming into force on 29th July 2013 mean that, from that date, tribunals will be allowed to conduct detailed assessments of costs themselves, rather than having to refer any costs assessment over £20,000 to the county court.

Acas Code of Practice on Settlement Agreements

New legislation enabling confidential pre-termination settlement agreements, contained in the new s111A of the Employment Rights Act 1996, is expected to come into force during the summer.

In broad terms, employers and employees will be allowed to enter into certain confidential discussions about termination of employment, which will be inadmissible in ordinary unfair dismissal claims.  It's a bit similar to - but has very important differences from - the 'without prejudice' rule.

Acas has produced its statutory Code of Practice on Settlement Agreements (scroll to the end of the consultation document, to which that link goes).  It contains a number of important differences from the draft version, including:-

• omitting the requirement that the initial termination settlement offer must be in writing
• omitting the template letters (but moving them to non-statutory guidance)
• adding a requirement that an employee must have a minimum of 10 calendar days to consider any offer
• adding an expectation that employees should be allowed to be accompanied at settlement meetings

Settlement Agreements are an important - and a very technical - development in employment law and HR relations which employers and employees need to understand.  I'll be covering them as the very first topic on the day during my Employment Law MasterClass.

Victimisation after Multiple Grievances/Claims

The facts of this case are interesting and many employers will have some sympathy for the employers in this situation.  The ratio - that victimisation claims don't require a comparator - doesn't really give the true picture.  Here are the facts...

Mr Woodhouse is black. Over a period of four years, he lodged ten internal grievances alleging race discrimination.  Separately, he brought seven employment tribunal claims against his employer.  They were almost all found to be "empty allegations without any proper evidential basis or grounds for his suspicion".

The employer eventually dismissed him, because of a breakdown in trust and confidence.  The employment tribunal held this was not victimisation, because the employer would similarly have dismissed any employee (irrespective of race) who had brought a similar number of meritless grievances and claims.

That was wrong, held the EAT in Woodhouse v West North West Homes Leeds.  The grievances and tribunal claims were 'protected acts'.  He was dismissed because he made those protected acts.  There was no suggestion of bad faith (which would have prevented the grievances amounting to protected acts).  Since he was dismissed for making protected acts, his victimisation claim was made out.

It's undoubtedly the right decision from a legal perspective, no matter how unfair it may appear to the employer.  In the absence of bad faith, this case provides that an employer cannot dismiss an employee who makes serial but misguided complaints of (any sort of) discrimination.

Enterprise and Regulatory Reform Act Commencement Dates - 3/3

This is the third email containing information about the confirmed commencement dates in the Enterprise and Regulatory Reform Act 2013.

These are some minor reforms which come into force on 25th June 2013.

• all hearings in the Employment Appeal Tribunal will be heard by a judge alone (sitting without wing members), unless the judge directs otherwise.


• the two-year qualifying period for unfair dismissal will not apply where the reason for the dismissal is, or relates to, the employee's political opinions or affiliation (where the effective date of termination is after 25th June)


• the date for the annual index-linked increase in the compensatory award will change from February to 6th April (so the next increase will be 6th April 2014).  This is subject to...


• the Secretary of State will have the power to reduce the cap on the compensatory award, from the current £74,200 to the lower of a year's earnings or the national annual median wage (currently about £28,000).  BIS's Progress on Reform document of March 2013 indicates it intends to implement the one year cap initially (and is silent on the median wage cap).  If the employee's annual earnings are more than £74,200, then the £74,200 cap will still bite.


• some tweaks relating to Deposit Orders.

Remember that we still don't know the commencement dates for many of the big changes, including Acas Early Conciliation and confidential pre-termination negotiations, although we now know the Underhill tribunal procedural reforms will come into force on 29th July 2013.

Important: the Employment Law MasterClasses are filling up.  Make sure you don't miss out - book your place now.

New Employment Tribunal Procedural Rules

The The Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 have been published.  They arise from the fundamental review of employment tribunals, carried out by Underhill LJ (then Underhill J) last year.

Here are some of the key points:-

• more details of how tribunal fees will work.  In particular, a tribunal will reject a Claim Form if it is not accompanied by the fee (or a remission application).  If the hearing fee is not paid by the due date (set out in the hearing notice), the tribunal will write to the Claimant giving a deadline for paying the fee or making a remission application, in lieu of which the claim will be dismissed without further order.  There is a discretion to reinstate the claim if the fee is paid (or remission application made) after the deadline has passed
   
• important changes to the rules on default judgments, including the ability for a Respondent to apply for an extension of time outside the 28 day period for lodging the Response Form
   
• an initial paper sift by an employment judge of all Claim Forms and Response Forms, to check there is an arguable claim and defence (with a right to present submissions in writing as to why the claim/response should not be dismissed if the judge thinks there is no arguable point)
   
• several changes to nomenclature and practice, including 'case management discussions' and 'pre-hearing reviews' being merged into 'preliminary hearings'
   
• more case management powers for employment judges, including specific provisions relating to 'Unless' Orders and a power to conduct a hearing by email(!)
   
• changes to costs rules, including the power for employment judges to carry out detailed assessments of costs (removing the £20k cap)

Enjoy - they're drafted in plain English, not legalease, which is good as they are mandatory reading for any litigators.  I'll be explaining them at the Employment Law MasterClasses I'm running throughout July (Edinburgh, Cardiff, Birmingham, Manchester, London).

The new Regulations come into force for claims where the Respondent receives a copy of the claim form from the tribunal on or after 29th July 2013.