ECJ Ruling on Employee Benefits

[Thanks to www.emplaw.co.uk for allowing me to reproduce their summary of this case]

The European Court of Justice has ruled that (most) benefits provided to employees under salary sacrifice schemes are VATable. Salary sacrifice schemes are enormously popular, not only the £10 retail voucher scheme operated by Astra Zeneca which led to the present case, but also in particular 'cycle to work' schemes which allow employees to buy bikes at a substantial discount. No doubt they will now wither, if not die.

Astra Zeneca offers its employees a remuneration package which, as well as normal salary, includes selected benefits which employees can choose from a list. Each selected benefit gives rise to a deduction from the normal salary. Among those benefits, Astra Zeneca offers its employees retail vouchers to be used in certain shops, worth £10 each in the shops. This is advantageous to the employees as the deduction from salary for each £10 voucher is less than that amount (between £9.25 and £9.55 is deducted).

Astra Zeneca claimed reimbursement from HMRC of the input VAT which it incurred when buying the retail vouchers. HMRC rejected the claim, asserting that Astra Zeneca had to pay VAT in respect of retail vouchers it purchased if/when they were supplied to its employees as part of their remuneration packages (the employees, of course, are not taxable persons for the purpose of VAT).

The ECJ agreed with HMRC, holding that the provision of a retail voucher by a company to its employees as part of their remuneration constitutes a supply of services effected for consideration.

Specifically the ECJ ruled:

"Article 2(1) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, must be interpreted as meaning that the provision of a retail voucher by a company, which acquired that voucher at a price including value added tax, to its employees in exchange for their giving up part of their cash remuneration constitutes a supply of services effected for consideration within the meaning of that provision".

Astra Zeneca UK v HMRC.

Employment Status

[Thanks to Ed McFarlane of EEF for providing this case summary]

The EAT (Silber J presiding) has handed down Judgment in the case of Community Dental Centres Ltd v Sultan-Darmon which is authority for the proposition that an unfettered right of substitution in a contract is fatal to worker status.

The Claimant, a dentist, brought an unlawful deductions claim against his Practice. It was agreed that he was not an employee, but the Tribunal found he was a worker. On appeal, the EAT held that the Claimant's right of substitution meant that he could not be a worker, because he was not obliged to "perform personally any work or services" within the meaning of s230(3) Employment Rights Act 1996, and dismissed the claim for lack of jurisdiction.

The EAT took pains to get its teeth into a range of authorities on worker status and preferred the Byrne Brothers (Formwork) Ltd v Baird line (a working time case) to Redrow Homes (Yorkshire) Ltd v Buckborough. It extracted the principle that where a genuine right of substitution exists, there cannot be worker status. It was not sufficient that the individual might be obliged to personally find a substitute; that analysis (as in Redrow Homes) was inconsistent with established authorities.

Remedies in Discrimination Claims

[Thanks to Kathleen Donnelly of Henderson Chambers for providing this case summary]

The EAT (Wilkie J) has handed down its decision in St Andrew's Catholic School v Blundell. The case concerned the victimisation of a teacher over a 4 month period, culminating in her dismissal. The Tribunal awarded £22,000 injury to feelings, £5,000 aggravated damages, 5 years loss of future earnings, and recommended the Respondent send a letter to all parents and teachers stating that the headmistress accepted all criticism of the Claimant's teaching ability was unfounded.

The EAT's judgement is an interesting source of reading on remedies in SDA cases. In particular, it:

• reduced compensation for injury to feelings to £14,000. The judgment includes a helpful review of some post-Vento mid- to upper-range authorities;
  
• upheld the aggravated damages award on the basis of the manner in which the Respondent conducted the remedies hearing, criticising the Claimant's teaching ability, contrary to the evidence presented at the liability hearing;
  
• upheld the award in principle of 5 years future loss of earnings; and,
  
• held that the terms of the tribunal's recommendation should be amended so as not to require the headmistress to make statements with which she ("however wrongheaded") does not agree.

Territorial Jurisdiction

[Thanks to Leanne Targett-Parker of Temple Court Chambers for providing this case summary]

The EAT (Underhill P) has handed down its decision in MOD v Wallis, which is authority for the propositions that:

a) when working in Europe for an organisation, and being eligible for that position because the Claimants were the spouses of UK armed forces personnel, there is a sufficiently close connection between that employment and Great Britain to be within the scope of domestic, unfair dismissal legislation; and,

b) despite, on a literal reading s6 of the Sex Discrimination Act 1975, an ET would lack jurisdiction on a sex discrimination claim in Europe, the Equal Treatment Directive is intended to confer rights on expatriate employees and domestic rules limiting territorial scope must be displaced, enabling the ET to have jurisdiction on a sex discrimination claim at least within Europe.

The Claimants were wives of service personnel working at NATO headquarters in Europe, employed by schools attached to those headquarters, and were dismissed when their husbands' service ended.

This case goes marginally further than the Lawson v Serco 'special connection' being a feature of the work done, by including as a factor the trigger for the employee's eligibility to apply for the job.

Amendment of Claims

[Thanks to James Medhurst of Employment Law Advocates for providing this case summary]

The Court of Appeal has handed down its decision in New Star v Evershed, which is authority for the proposition that adding a public interest disclosure claim to an unfair dismissal claim with similar facts does not require "wholly different evidence" such that the application to amend should be refused.

The claimant had made a disclosure about work colleagues being bullied but the same allegations had been raised in the context of his unfair dismissal claim, where he argued that they contributed to the intolerable atmosphere causing him to resign. Although the respondent said the allegations were irrelevant to the unfair dismissal claim, they had not been struck out and remained part of the case.

The Court of Appeal accepted that this was not a mere 're-labelling' and specific findings would now have to be made about the individual components of the public interest disclosure claim; but it upheld the reasoning of the Employment Appeal Tribunal that there was a substantial overlap in the issues.

Part-Time Judges' Pensions - ECJ Reference

[Thanks to Claire Darwin of Matrix Chambers for providing this case summary]

The Supreme Court has unanimously referred the appeal of Mr O'Brien QC, a former fee-paid part-time Judge who is seeking retrospective admission to the Judicial Pension scheme, to the Court of Justice of the European Union.

O'Brien and others argue that the specific exclusion of part-time judges paid a daily fee from the protection of the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 is incompatible with the Part-Time Workers Framework Directive (97/81/EC), and that the 2000 Regulations have not properly implemented the Directive into UK law.

The Directive leaves Member States free to define who is a worker in accordance with national law and practice, provided that the definitions respect the content of the pan-European Framework Agreement on part-time work.

The Supreme Court has referred the following questions to the Court of Justice:

(1) Is it for national law to determine whether or not judges as a whole are workers within the meaning of the Framework Agreement, or is there a Community norm by which this matter must be determined?

(2) If judges as a whole are workers within the Framework Agreement, is it permissible for national law to discriminate (a) between full-time and part-time judges, or (b) between different kinds of part-time judges in the provision of pensions?

Lord Walker, delivering the judgment of the court, observed that judicial office "partakes of most of the characteristics of employment". This suggests that the Supreme Court is of the view that judges generally are workers within the 2000 Regulations; however the court has not expressed a concluded view on this issue.

Supreme Court Press Release
Supreme Court Judgment

Taxation of Awards

[Thanks to Lionel Stride of Temple Garden Chambers for providing this case summary]

The EAT (HHJ Peter Clark) has handed down its decision in Yorkshire Housing v Cuerden, which is authority for the proposition that awards of personal injury and injury to feelings relating to a tortious act (such as a failure to make reasonable adjustments in a disability discrimination claim) that pre-dates the termination of employment are not taxable and, consequently, should not be subject to 'grossing up'.

It was further held that awards in respect of pension and earnings loss should ordinarily be grossed up by taking into account the appropriate marginal tax rates for each part of the award: it is wrong simply to apply the highest marginal tax rate to the whole sum.

The EAT declined to comment on the controversial observations in Orthet Ltd v Vince Cain [2004] IRLR 857 that awards for injury to feelings are always non-taxable regardless of when the discrimination occurred, which remains open to argument.

TUPE

[Thanks to James Medhurst of Employment Law Advocates for providing this case summary]

The EAT (Slade J) has handed down its decision in Nationwide Building Society v Benn, which is authority for the proposition that, where there has been a dismissal in the context of a TUPE transfer, it is an error of law for a tribunal to take into account a breach of the consultation requirements in concluding that the dismissal was unfair, in circumstances in which there has been no successful claim for a failure to consult. In this case, no such claim had even been pleaded. However, it would be permissible to take into account the extent of consultation, both collective and individual, about changes to terms and conditions.

An individual employee has no standing to bring a claim for a failure to consult in a case in which employee representatives have been elected but the consultation with those representatives is said to have been inadequate. Such a claim can only be brought by the elected representatives.

In order for there to be an economic, technical or organisational reason entailing changes in the workforce, it is not necessary for the entire workforce to be affected by the changes. It is sufficient for the changes to affect the transferred employees only.

Mandatory Retirement Ages

[Thanks to Tom Mountford, pupil barrister at Blackstone Chambers, for providing this case summary]

The Court of Appeal has handed down its decision in Seldon v Clarkson, Wright & Jakes, a case concerning the ability of a partnership to justify a mandatory retirement age of 65. The Court, dismissing the appeal of Mr Seldon, held:

• the Framework Directive permitted Member States to derogate from the principle of equal treatment in relation to direct age discrimination by permitting justification. This power of derogation (Article 6) is directed at Member States implementing the Directive and not at private employers.
  
  
• the UK implemented that derogation by way of, amongst other provisions, Regulation 3 of the Age Regulations which provides that a person discriminates against another as long as the first person cannot show the treatment or, as the case may be, provision, criterion or practice is a proportionate means of achieving a legitimate aim. Regulation 3 thus allows for employers to justify both direct and indirect discrimination. This was held by Blake J to be a lawful derogation in Age UK.
  
  
• the requirement in Article 6 of the Framework Directive of an objective and reasonable justification by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives, achieved by appropriate and necessary means, (which the ECJ in Heyday has glossed as a requirement of "legitimate social policy objectives") is not a test which private employers need to satisfy in seeking to justify direct age discrimination under Regulation 3 of the Age Regulations.
  
  
• rather, an employer's legitimate aims are not limited to "social policy objectives". As the ECJ noted the legislation gives employers "some discretionary powers or a degree of flexibility". The Court of Appeal held that the appropriate test is whether an employer's actions are consistent with the social or labour policy of the United Kingdom which justified the Regulations.
  
  
• the principle that a discriminatory measure may be justified by a legitimate aim other than that which was specified at the time when the measure was introduced, applied by the ECJ in the context of indirect discrimination in Schönheit, is equally applicable in the context of direct discrimination.
  
  
• a private employer's aim of producing a happy workplace is within, or consistent with, the UK Government's social policy justification for the Age Regulations. To allow people to retire with dignity would also seem to be a justification for having a mandatory retirement age.
  
  
• it is a legitimate consideration that a rule such as a mandatory retirement age in a partnership deed has been agreed by parties of equal bargaining power.
  
  
• the assessment of justification in the context of a mandatory retirement age must be made at the point of termination, involving the two interrelated questions: (1) as at the date of termination was a rule requiring retirement at that age justified? (2) was the application of that rule justified in the particular circumstances?
  
  
• however, in general, it is of the essence of a mandatory rule that it is generally applied. As such, it will be rare that the second question requires much beyond the justification of the general rule.
  
  
• a compulsory retirement age cannot be defeated on the basis that a less discriminatory means could be employed by reference to a higher age. Such an effect cannot have been within the legislative intendment as it would mean that it would be impossible to justify any retirement age yet Recital 14 of the Directive seems to contemplate the legitimacy of a retirement age.

Pension Losses

The EAT has given Judgment in the case of Sibbit v The Governors of St Cuthbert's Catholic Primary School (HHJ McMullen presiding) which is a case dealing with the appropriate assessment of pension loss.

The case illustrates the correct approach to be followed by the Employment Tribunal when using the Guidance to Tribunals on the assessment of compensation for pension loss, and, crucially, in making the decision as to whether the "simplified loss approach" or the "substantial loss approach" ought to be followed.

In this case, Mrs Sibbit was a teacher dismissed on grounds of gross misconduct by the Respondent.

She was 58 at the time and intended to retire within 12 months of her dismissal, meaning that she would have a further one-year's pensionable service remaining but for her dismissal.

The Employment Tribunal found her to be unfairly dismissed and awarded pension loss in accordance with the simplified loss approach.

The Claimant appealed, arguing that the substantial loss approach ought to have been followed. The EAT agreed, stating that on the facts, the correct application of Section 123 (1) of The Employment Rights Act 1996 was for the Tribunal to follow the substantial loss approach set out in the Guidance.

The EAT held that they were entitled to interfere with the Tribunal's judgment; saying it was wrong as a matter of principle for the Tribunal to have awarded pension loss in accordance with the simplified loss approach when the guidance clearly indicated that the substantial loss approach would be more appropriate.

Effective Date of Termination

[Thanks to Rosa Dickinson of St Philips Chambers for providing this case summary]

The EAT (Silber J) has handed down judgment in Wedgewood v Minstergate Hull Ltd., which is authority for the proposition that the effective date of termination is not altered simply because the employee is absolved of their duty to work.

As the claimant wished to leave earlier than his notice expired on 1st December 2008, the respondent wrote to him on 26th November 2008 stating: "you can be released today and will still be paid up to and including your notice period date of Monday 1st December 2008".

The claim form was issued on 28th February 2009. At first instance, the tribunal found that the claim was out of time as the letter of 26th November 2008 had brought the EDT forward to that date.

The EAT allowed the claimant's appeal. Although the case of Palfry v Transco [2004] IRLR 916 means the EDT can be altered by agreement, on the facts of this case, the letter dated 26th November 2008 did not constitute a variation as it referred to "your notice period date of 1st December 2008". Applying the case of Lees v Greaves [1974] 2 All ER 393, the mere fact of the claimant not being required to work was insufficient to effect a variation.

Costs

It's another judgment from the EAT suggesting, even more bluntly than the previous two, that a Claimant who lies in the tribunal should be ordered to pay the Respondent's costs. See paragraph 21 of the judgment for the comment from the Hon. Lady Smith.

On the facts, the EAT substituted an order that a Claimant who had been defrauded his employer should have to pay the Respondent's costs for (basically) having the cheek to bring a tribunal claim. However, a couple of interesting pointers arose:

• the fact that the Claimant's solicitors ceased acting does not, of itself, suggest the Claimant is not listening to legal advice (para 38).
  
• a Claimant cannot argue he was acting reasonably in bring a claim because he simply wanted a 'declaration' of unfair dismissal (para 39). This largely contradicts Telephone Information Services Ltd v Wilkinson (1991) IRLR 148, a case which was not cited to the EAT, and probably rightly so (see here for a discussion of Wilkinson).

Nicolson Highlandwear Ltd v Nicolson

Collective Agreements

[Thanks to Ed McFarlane of EEF for providing this case summary]

The EAT (Silber J) has handed down its decision in Worrall v Wilmott Dixon Partnership, which is authority for the proposition that:

• to incorporate a term of a Collective Agreement into a contract, the term must be brought to the employees' notice or agreed (paragraph 20). It isn't enough for the term simply to be in a readily-available document, such as a handbook. On the facts, a term in a Collective Agreement providing for enhanced redundancy pay was held to have not been incorporated into the Claimants' contracts, as there was no evidence of it being brought to the Claimants' notice or agreed.
  
  
• on a TUPE transfer, an incorporated Collective Agreement is frozen at the transfer, so transferred employees cannot benefit from future changes to the original Agreement. However, if legislation affects the original Agreement, then it also affects the transferred Agreement. In this case legislation would have deprived the Claimants - transferred Council staff - of enhanced redundancy pay, if a term to that effect had been incorporated into their contractsOn a TUPE transfer, an incorporated Collective Agreement is frozen at the transfer, so transferred employees cannot benefit from future changes to the original Agreement. However, if legislation affects the original Agreement, then it also affects the transferred Agreement. In this case legislation would have deprived the Claimants - transferred Council staff - of enhanced redundancy pay, if a term to that effect had been incorporated into their contracts.

Stigma Damages

[Thanks to Alfred Weiss of Zenith Chambers for providing this case summary]

The EAT (Cox J) has handed down its decision in Brown v Careham Hall, which is authority for the proposition that stigma damages will only be awarded where the employee's difficulty in finding new employment is attributable to the dismissal.

Brown was a care home worker automatically unfairly dismissed during her notice period amid allegations that she was rough with the residents. She claimed that her employer had torpedoed her new job by giving her an unfavourable reference. The tribunal concluded that even if she had not been unfairly dismissed, her employer would still have given her an unfavourable reference. It could not therefore be said that the difficulties she experienced in obtaining new employment were because of the unfair dismissal. Those difficulties were due to the reference and so could not sound in compensation under section 123 ERA 1996. The EAT also held that as the tribunal found that there had been a significant and serious breach of the now defunct statutory procedures, an uplift of 30% to 50% pursuant to section 31 EA 2002 was appropriate. However, where within that range the uplift was to fall was entirely a matter of fact for the tribunal and the EAT declined to interfere with the uplift of 30% awarded.

Caps on Redundancy Payments not Age Discrimination

[Thanks to Richard Hayes of Devon Law Centre for providing this case summary]

Kraft Foods had an "exceptionally generous" contractual redundancy scheme. Because of the high levels of payment under the scheme, it capped redundancy payments at the sum that a redundant employee would have earned if he had remained in employment until normal retirement age.

Mr Hastie, a 62 year old employee, found his redundancy payment was capped at £76,560 - being what he would have earned if he had remained employed until 65. If no cap existed, he would have received about £90,000. He complained the cap amounted to indirect discrimination on grounds of age, as it would only bite against older workers.

The Employment Appeal Tribunal held that the cap was justified. The company's aim of preventing employees receiving a 'windfall' met a legitimate aim, namely giving appropriate payments to employees to compensate them for future loss of earnings. And the cap was a proportionate means of achieving that aim.

Kraft Foods v Hastie

Equality Act Implementation

[Thanks to Matthew White of St John's Chambers for providing this case summary]

According to a press release on the GEO website, the first wave of implementation of the Equality Act will go ahead to the planned October timetable following the publication of the first commencement order in Parliament next week. This will pave the way for the implementation of landmark provisions to protect disabled people from discrimination and tackle the gender pay gap.

Employment Tribunal Statistics 2009/10

[Thanks to James Medhurst of Employment Law Advocates for providing this case summary]

The Tribunal Annual Statistics for 2009/10 have just been published. The key findings are as follows:

• There was a 56% increase from 2008/09 in the number of claims accepted by Employment Tribunals, which were at their highest ever level. This is mainly attributable to multiple claims.
  
• There was a 14% increase in the number of single claims accepted by Employment Tribunals.
  
• There was a 17% increase in the number of tribunal claims associated with unfair dismissal, breach of contract and redundancy. This is likely to be caused by the economic recession.
  
• There was a 22% increase in the number of disposals by Employment Tribunals. This did not keep pace with receipts with the result that more than 400,000 claims remained outstanding.
  
• There was a significant drop in the number of Employment Tribunal claims in which the first hearing took place within 26 weeks of the claim being received. It fell from 74% to just 65%.

Termination Payments

[Thanks to Alfred Weiss of Zenith Chambers for providing this case summary]

The Court of Appeal has handed down its decision in Gibb v Maidstone & Tunbridge Wells NHS Trust , which is authority for the proposition that when a public body relies on the irrationality of its own financial and management decision making as a defence to a claim by an employee, the court will generally only interfere with the decision where the figures are plainly inexplicable.

The Appellant was the Chief Executive of an NHS Trust that suffered the outbreak of a super-bug. The Trust decided, per Lord Justice Sedley, "that the sacrifice most likely to propitiate the deities of Whitehall and the media was their chief executive officer".

The High Court had erred in concluding that the decision to pay the Appellant £250,000 in a compromise agreement was ultra vires. The judge had reached his own conclusions as to what financial prudence might require. He had also wrongly concluded that the Trust's costs savings in entering into the compromise agreement rather than face a claim for unfair dismissal were likely to be illusory. The fact the Trust had, in deciding on the figure of £250,000, taken into account the Appellant's many earlier years of good service and the time it might take her to find other employment was not irrational.

Unfair Dismissal Time Limits

[Thanks to Richard Hayes of Devon Law Centre for providing this case summary]

The EAT (Underhill P) has handed down its decision in Northamptonshire County Council v Entwhistle , which is authority for the proposition that it remains reasonably practicable for the employee to file their unfair dismissal claim within the usual time allowed (now three months from the effective date of termination), even though their employer has mistakenly advised them that the time limit for claiming unfair dismissal ran from the date of the rejection of their appeal. This was because the employee's solicitor should have known the limitation date (which ran from the date of dismissal) and filed the claim in time.

Dedman v British Building and Engineering Appliances Ltd [1974] ICR 53 and Marks & Spencer PLC v Williams-Ryan [2008] ICR 193 were correct. Unless the adviser was misled as to the correct limitation date by inaccurate information from the employer, the employee's only remedy was to claim damages in negligence from his adviser.

Employment Consultants and Litigation Privilege

[Thanks to James Medhurst of Employment Law Advocates for providing this case summary]

The EAT (HHJ McMullen) has handed down its decision in Scotthorne v Four Seasons, which is authority for the proposition that advice given by employment consultants about how to deal with an alleged act of gross misconduct does not have to be disclosed because it is protected by litigation privilege. The reason for following a disciplinary procedure is to avoid litigation and so the dominant purpose for seeking the advice was litigation and it did not matter that the consultants were not legally qualified.

The suggestion that advice from non-qualified advisers at an earlier stage would attract legal advice privilege was said to be "fraught with difficulty" but it was found on the facts that it was not required to be disclosed in this case because it was not relevant to the claim as pleaded. Although it had been alleged that the dismissal had been concocted in response to earlier events, this was supported by no more than bare assertion.