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After Cavendish Square/ParkingEye, is it more or less likely to be a penalty?

November 23rd, 2015 by Julian Wilson

Reports of the decision of the Supreme Court in the joined appeals in Cavendish Square and ParkingEye left me confused because some reckoned the decision represented a narrowing of the application of the penalty doctrine whilst others considered it had expanded the doctrine’s scope. So on a wet weekend afternoon I took hold of a copy of the Judgment – [2015] UKSC 67- and tasked myself to find out. Here is what I found.

First, the Supreme Court tells us that it declined invitations by Counsel either to abolish the penalty doctrine or to extend it.

Second, Lords Neuberger and Sumption (in the leading judgment with which Lord Carnwath agreed) suggest that they have given the doctrine a reappraisal.

I hope they will forgive me if I say that it seems to me to be more of a facelift than a remodelling.

They tell us now that:

“[32] The true test is whether the impugned provision is [1] a secondary obligation which [2] imposes a detriment on the contract-breaker [3] out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation” (my enumeration, added for convenience)

As to [1] – the identifier that the provision must be a secondary obligation – this might appear to be restrictive but traditionally, a penalty has always been identified as a disadvantage triggered upon breach and yet there have been cases dealing with “disguised penalties” where the court has looked beyond the draftsman’s ability to circumvent the need for the trigger of a breach. Those cases treated the doctrine as one of substance not form. From what I can see, the Supreme Court neither elevated nor diminished those cases. Lords N and S (at [14] to [15]) recognised that the secondary obligation requirement meant that in some cases the application of the penalty rule may depend on how the relevant obligation is framed in the contract. If the draftsman had framed a conditional primary obligation rather than a secondary obligation providing a contractual alternative to damages, that would usually avoid the application of the doctrine. However, Lords N and S said, the capricious consequences of this state of affairs were mitigated by the fact that the classification of terms for the purpose of the penalty rule depends on the substance of the term and not on its form or on the label which the parties have chosen to attach to it. They nevertheless declined to expand the doctrine to ensure its application did not turn on mere questions of drafting even where a realistic approach was taken to the substance of the transaction and not just its form. They felt that the fact that the application of the doctrine could turn upon questions of drafting was justified by the fact that the rule “being an inroad upon freedom of contract which is inflexible … ought not to be extended” at least by judicial, as opposed to legislative, decision-making.

Essentially, therefore, the Supreme Court does not seem to have taken the whole of the rug away from under the feet of those arguing in future of the doctrine’s application to disguised clauses.  What is not clarified is whether and when a clause dressed as a conditional primary obligation will be treated as a disguised penalty. Let us take, for example, the clause in the famous Interfoto Library case beloved of all students of contract law:

“All transparencies must be returned to us within 14 days from the date of posting/delivery/collection. A holding fee of £5 plus VAT per day will be charged for each transparency which is retained by you longer than the said period of 14 days…”

which the then Lord Justice Bingham, no less, felt challengeable as a disguised penalty clause. That clause imposed a primary obligation on the hirer of the transparencies to perform an act, namely their return within 14 days but it did not purport to impose a secondary obligation providing for payment on breach of a specified sum of money in lieu of damages. Instead, it provided that, if the hirer did not perform the 14 day obligation, a holding fee would be payable.

Assuming the Supreme Court would defer to Bingham L.J.’s analysis, what factor makes that clause a disguised penalty? Presumably, it is the fact that the contract imposed the obligation to perform within 14 days. If the contract had merely stated:

“A holding fee of £5 plus VAT per day will be paid for each transparency which is retained by you longer than …14 days…”

the obligation to pay the specified sum would have amounted to a conditional primary obligation and ought not, on the reappraised test, have fallen within the doctrine. Seems a tad artificial doesn’t it?

As to [2] the Supreme Court did not restrict the nature of the detriment imposed to payments of money. It was more expansive in its view. Lords N and S saw no reason why an obligation to transfer assets (either for nothing or at an undervalue) should not be capable of constituting a penalty. Similarly, the fact that a sum is paid over by one party to the other party as a deposit, in the sense of some sort of surety for the first party’s contractual performance, would not prevent the sum being a penalty, if the second party in due course forfeited the deposit in accordance with the contractual terms, following the first party’s breach of contract. Lord Mance accepted that the doctrine extended to where the detriment imposed was a transfer of money’s worth rather than just of money.

What of [3] the new test of the measure of the detriment?

The clause must impose a disproportionate disadvantage on the party in breach if it is to be classified as penal. That is nothing new. That there is an element of deterrence in the detriment imposed is no longer enough. Moreover, the measure of the detriment will no longer always be tied to a pure damages comparison. The judgments recognise that the party imposing the disadvantage may have a legitimate commercial interest in the performance of the primary obligation extending beyond a financial substitute for performance. Lord Mance put it this way:

“What is necessary in each case is to consider, first, whether any (and if so what) legitimate business interest is served and protected by the clause, and, second, whether, assuming such an interest to exist, the provision made for the interest is nevertheless in the circumstances extravagant, exorbitant or unconscionable.”

So, in Cavendish Square, the court could look beyond the particular loss arising from the breach of the restrictive covenant to the innocent party’s legitimate commercial interest in the protection of it goodwill. In ParkingEye, the court could look at the overall cost of providing and maintaining a car parking enforcement scheme rather than the particular loss caused by the individual parker’s extended stay.

This approach undoubtedly provides a greater ambit of justification to the innocent party and restricts the circumstances in which a clause is determined to be penal in its effects.

Julian Wilson

11KBW’s Richard Leiper appeared for Cavendish Square

When is travelling time working time? And when does working time not earn the minimum wage?

September 14th, 2015 by Harini Iyengar

The European Court of Justice (“the ECJ”) has now given judgment in Federacion de Servicios Privados del sindicato Comisiones obreras v Tyco Integrated Security Case C-266/14 consistent with the Advocate General’s opinion, on which James Goudie QC blogged recently. For peripatetic or mobile workers (who do not have a fixed or habitual workplace) time spent travelling from home to the first appointment and from the last appointment back home counts as working time under EU law. The judgment has very significant implications for employers whose workforce includes, for example, home care staff, gas fitters, and sales teams.

“The improvement of workers’ safety, hygiene and health at work is an objective which should not be subordinated to purely economic considerations,” says the preamble to the Working Time Directive, as the ECJ pointed out. The judgment describes how Tyco formerly ran a network of regional offices, to which its security system technicians used to report each day to collect their vehicles and work schedules. Time travelling from home to the regional office was not treated as working time, but time travelling from the regional office to the first appointment, and back again from the last appointment to drop off their vehicles, was counted as working time. As a cost-saving measure, made possible by new technology, Tyco then abolished the regional offices, so that its workers now park their company vehicles at home, collect equipment, parts and materials just once a week, and receive their daily schedules and record their appointments through a mobile phone application. The court considered that the nature of the journeys to the first appointment and from the last appointment had not changed with the abolition of the regional offices, and so it was still working time. Clearly sympathetic to the workers, whose commutes were up to three hours long since closure of the regional offices, the Court held, “Having lost the ability freely to determine the distance between their homes and the usual place of the start and finish of their working day, they cannot be required to bear the burden of their employer’s choice to close those offices.” The Court readily accepted, however, that Tyco remained free to determine the rate of pay for the time spent travelling between home and customers, because – save for holiday pay issues – the Working Time Directive does not apply to the remuneration of workers.

Is it safe for employers to assume that the ECJ’s ruling affects only rest breaks and leave entitlements, and will create no new entitlements to pay? UK workers’ entitlements to rest breaks, overnight rest and holidays are derived from European law. In contrast, the right to receive a minimum wage is based in domestic law, and regulations 27, 34 and 39 of the National Minimum Wage Regulations 2015 expressly exclude time spent travelling between the home and the workplace from the time which is eligible for the minimum wage. Thus, there is a superficial disjunct between the EU working time rights including the ECJ’s judgment that travel to work counts as working time, and the domestic regime under the minimum wage rules in which travel between home and work does not generally count.

Will peripatetic workers now come under pressure from employers to opt out of the 48-hour week, so that they can, for example, be instructed to take compulsory rest breaks when they arrive at work and just before they set off for home? Whilst the UK’s long-standing opt-out of the 48-hour maximum week prescribed by the Working Time Directive is officially continually under review at Brussels, the Government stated only this month that retention of the opt-out is a top priority – click here.

A more realistic view is that, depending on the particular contracts of employment, any collective agreements, and whether the employer negotiates with a recognised trade union, the ECJ’s judgment that peripatetic workers’ commuting time is “working time” will in practice entitle many UK employees to claim significant sums of additional pay, and, in some cases, those pay claims will be based on the minimum wage rules, or on higher rates of pay derived from collective agreements. Many employers will also have to reconsider route-planning between clients and to revise daily schedules to incorporate additional rest periods. Some employers may even find that, in order to maintain a profitable business, living close to the client area will have to become a job requirement for peripatetic workers. In a further complication, we are currently waiting to see the proposals for the new national living wage for workers aged over 25. These working time, national minimum wage and living wage riddles are only just beginning.

Harini Iyengar

Petter v EMC: Employment Share Schemes, Choice of Forum and Anti –Suit Injunctions – did the CA take a step too far?

August 13th, 2015 by Julian Wilson

In granting the anti-suit injunction against EMC Corporation in Petter v (1) EMC Europe Limited (2) EMC Corporation [2015] EWCA Civ 828, the CA considered that it was upholding the policy in section 5 of Regulation (EU) 1215/2012 for the protection of employees from being sued other than in the courts of their domicile. But was it exceeding the limits of its jurisdiction to regulate the lawful conduct of foreigners, and interfering in the process of justice in the court of a friendly foreign state?

The Facts

EMC Corporation (“EMC Corp”) is based in Massachusetts. Mr. Petter was employed by its English subsidiary, EMC Europe, in a senior role. In that role, he was party to a share distribution scheme known as a “Stock Plan”, under which awards of common stock of EMC Corp were made available by EMC Corp as part of his total remuneration on a deferred basis.

The Stock Plan contained an express choice of Massachusetts law and an exclusive submission to the jurisdiction of the Massachusetts courts.

Mr. Petter left EMC Europe and took up employment with a local subsidiary of a competitor American company.

EMC Corp started proceedings against Mr. Petter in Massachusetts seeking declarations that it was entitled under the terms of the Stock Plan and related agreements to rescind the most recent awards of stock to him.

Mr. Petter responded by starting proceedings against EMC Europe and EMC Corp in the English High Court seeking declarations that the restrictive covenants in his contract of employment were unenforceable as being an unreasonable restraint of trade, that the provisions of the Stock Plan under which EMC Corp purported to rescind awards of stock were unenforceable and that he had not acted in breach of his contract of employment. He also sought an interim injunction prohibiting EMC Corp from pursuing the proceedings against him in Massachusetts.

Mr. Petter served EMC Corp out of the jurisdiction, in Massachusetts, on the basis that it was his employer and party to a contract of employment within Article 20 of the Recast Brussels Regulation 1215/2012.

EMC Corp challenged the jurisdiction of the English court on the grounds that the Stock Plan contained a contractual choice of the Massachusetts forum.

The Massachusetts court dismissed Mr. Petter’s challenge to its jurisdiction, declaring that it had jurisdiction to determine EMC Corp’s claims based on the contractual choice of forum in the Stock Plan.

The case bore close similarities to Samengo-Turner v J&H Marsh & McLennan (Services) Ltd [2007] EWCA Civ 723.

At first instance- [2015] EWHC 1498 (QB)- Cooke J. upheld the English court’s jurisdiction against EMC Corp on the basis, following Samengo-Turner and Duarte v Black & Decker [2007] EWHC 2720 (QB) that the Stock Plan with EMC was part of the contract of employment and the provisions of s.5 of the Recast Brussels Regulation in matters relating to individual contracts of employment applied to the dispute and overrode the jurisdiction agreement in the Stock Plan.

Cooke J. nevertheless declined to grant an anti-suit injunction to restrain EMC Corp from pursuing its proceedings in Massachusetts, as a matter of discretion, for reasons of comity and because the Massachusetts proceedings were not vexatious or oppressive by reason of them being in the forum of contractual choice. Despite a natural aversion to parallel proceedings, he regarded it to be unlikely that EMC Corp would submit to the English jurisdiction and that parallel proceedings in both courts were therefore inevitable with the losing party in each jurisdiction likely to resist enforcement in the other jurisdiction and to succeed in doing so because of the perceived lack of jurisdiction of the other court.

The CA allowed Mr. Petter’s appeal against the refusal of the anti-suit inunction and dismissed EMC Corp’s appeal on jurisdiction, holding that the case was indistinguishable from Samengo-Turner and the result ought to be the same.

The CA held that the effect of the Regulation was that the English court was bound to disregard the Massachusetts exclusive jurisdiction clause and to assume jurisdiction. The Judge had been in error in making an assumption that EMC Corp would not submit to the English jurisdiction and would continue the Massachusetts proceedings. The principle emerging from Samengo-Turner was that, in such a case, where there were parallel proceedings in a foreign forum outside the Member States, the English court could not do nothing and an anti-suit injunction should ordinarily be granted to restrain proceedings in order to protect the employee’s rights. The public policy of the English forum to be found in the provisions of the Regulation overrode party autonomy and the principle that agreements must be kept.


The CA’s approach was to exercise a jurisdiction beyond the limits of its territoriality, which was always likely to encourage rather than quell disorder, as Cooke J. below had rightly foreseen.

Even before the CA’s Order had been perfected, EMC had moved the Massachusetts court to grant an injunction restraining Mr. Petter from taking any further steps in the proceedings in this country and had applied for summary judgment on its claim there. This flurry of activity naturally led to a further judgment of the CA – [2015] EWCA Civ 828 – in which it deprecated EMC Corp’s conduct and granted, in addition to the anti-suit injunction, mandatory injunctive relief requiring EMC Corp to withdraw its motion for summary judgment in Massachusetts.

The CA’s grant of the ASI against EMC Corp cannot be reconciled with proper adherence to the doctrine of international jurisdiction, the doctrine which fetters the exercise of a national court’s jurisdiction beyond the limits of its territoriality.

EMC Corp is not resident within the English jurisdiction. It was served with English process outside the jurisdiction as permitted by the Regulation. This was a use of the English court’s extended long-arm jurisdiction pursuant to the Regulation. EMC Corp did not submit to the jurisdiction. EMC did not contract in to the jurisdiction.

The CA appears to have assumed that just because EMC Corp could be served with the English court’s process outside the jurisdiction pursuant to the Regulation, there was no territorial limit on the things which it could order EMC Corp to do. So, it felt able to order EMC Corp to refrain from doing things abroad and to positively do things abroad even when the conduct it was seeking to regulate was lawful in the country where it was being performed.

This was a flawed approach. As the late Dr. Francis Mann observed in a leading article, “The Doctrine of Jurisdiction in International Law,” (1964) 111 Recueil des cours 146:

“The mere fact that a state’s judicial or administrative agencies are internationally entitled to subject a person to their personal or ‘curial’ jurisdiction does not by any means permit them to regulate by their orders such person’s conduct abroad. This they may do only if the state of the forum also has substantive jurisdiction to regulate conduct in the manner defined in the order. In other words, for the purpose of justifying, even in the territory of the forum, the international validity of an order, not only its making, but also its content must be authorised by substantive rules of legislative jurisdiction.”*

Although the English Court here was entitled by the Regulation to subject EMC Corp to its curial jurisdiction, that Regulation did not provide it with the substantive jurisdiction to require EMC Corp to desist from asserting its legal rights in Massachusetts.

Indeed, so far as the Regulation is concerned, the power of the English court to order an ASI is inconsistent with the Regulation, see the decision of the European Court in Turner v Grovit.  It does not matter for these purposes that Turner‘s ratio only applies where the proceedings to be restrained are proceedings in another Member State rather than in the US. The point is that the Regulation cannot be relied on as the basis of any substantive rule of English legislative jurisdiction to grant an ASI regulating the conduct of a non-submitting foreigner abroad.

The substantive jurisdiction to grant ASIs is contained in s. 37 SCA 1981 which, of course, gives the court the discretion to order any form of injunction when it appears to the court to be just to do so.  But whether it is just or not to do so in any particular case includes a consideration of territoriality under the doctrine of international jurisdiction. The CA did not undertake that consideration.

The case law shows that the power to grant the particular form of injunction called an ASI is also confined to where it is appropriate to avoid injustice because pursuit of the foreign action would be oppressive or vexatious: Aerospatiale.  The court must consider both the injustice to the claimant in England if he is subjected to suit abroad and injustice to the defendant in restraining his foreign suit.

Little consideration appears to have been given in the CA to whether or not the proceedings pending in Massachusetts, which it was being asked to interfere in and restrain, were in any way vexatious or oppressive in nature. This was perhaps because the CA regarded itself bound by Samengo-Turner. If the CA had considered that question, the answer must surely have been “no” because the assumption of jurisdiction by the Massachusetts court was plainly not manifestly exorbitant on English or international law principles. Mr. Petter had made a contractual choice of that forum, in relation to disputes under the Stock Plan, exclusive to any other. As the CA acknowledged, English law has always attached considerable importance to upholding and giving effect to exclusive jurisdiction clauses. The English court could hardly therefore criticise the basis of jurisdiction on which the Massachusetts court was acting. Also, the claim in Massachusetts appears to have been plainly arguable and not made in bad faith or doomed to failure. What then could justify interference by the English court with the process of justice in the court of a friendly foreign state? As we have seen, it was certainly not the Regulation.

The CA would have been wise to take into consideration that restraining a person from pursuing a remedy in a foreign court where-if he proves the necessary facts-he has a cause of action is (however it is disguised as being directed at the litigant personally) an interference with the process of justice in that foreign court, see British Airways v Laker. For this reason, the grant of the ASI remedy always requires caution. There must be demonstrated a good reason why the decision to stop the foreign proceedings should be made in England rather than in the foreign court, see Re Maxwell Communications (No.2). The normal situation facing the English court being asked to grant the injunction is that it is being asked to pre-empt or override the foreign court’s decision whether or not to allow the proceedings before it to continue. It has been said that the English court should normally assume that the foreign judge is the best person to decide whether an action in his own court should proceed: Barclays Bank v Homan and that the English court should respect his competence to do so and his decision: Aerospatiale; Airbus. The CA undertook no such consideration in Petter.

Julian Wilson

*See also by Dr. Mann, “The Doctrine of International Jurisdiction Revisited after Twenty Years,” (1984) 196 Recueil des cours 9, 19. Dr. Mann’s influential articles were referred to by Hoffman J. in Mackinnon v Donaldson, Lufkin and Jenrette Securities Corporation and Others [1986] Ch. 482 and by Mance L.J.  in Societe Eram Shipping Company Ltd v Compagnie Internationale De Navigation [2001] CP 112 who explained that the theme of the passage from Dr Mann’s article which Hoffmann J. had cited, was that a state’s exercise of its power to regulate the conduct of persons abroad required the state to have not merely personal jurisdiction over that person, but also substantive jurisdiction to regulate conduct in the manner undertaken.

Peripatetic workers

June 15th, 2015 by James Goudie QC

Spanish employers refused to count as “working time” within the meaning of the Working Time Directive the time that their employees spend each day travelling from home to their first customer and from their last customer to their home. In an Opinion delivered on 11 June 2015, in Case C-266/14, Advocate General Bot has advised that the Directive should be interpreted as meaning that the time that peripatetic workers, that is to say workers who are not assigned to a fixed or habitual place of work, spend travelling from home to the first customer designated by their employer and from the last customer designated by their employer to their homes constitutes “working time”.

Advocate General Bot observed that the Directive does not provide for any intermediate category between “working time” and “rest periods”; that it does not provide for “grey periods” interposed between working time and rest periods; and that the CJEU has adopted a two-pillar approach, whereby anything not covered by the concept of “working time” is covered by the concept of “rest period”, and vice versa.

The definition of “working time” is based on three criteria, which, in the light of the case-law of the Court, it appears necessary to regard as cumulative: (i) a spatial criterion (to be at the workplace); (ii) an authority criterion (to be at the disposal of the employer); and (iii) a professional criterion (to be carrying out his activity or duties).  The failure to take into account as “working time” the time which peripatetic workers spend travelling from home to the first customer designated by their employer and from the last customer designated by their employer to their homes is contrary to the Directive in so far as, in the case of that category of worker, the three criteria are met.

Peripatetic workers may be defined as being workers who are not assigned a fixed or habitual place of work. Such workers are therefore required to work at different premises every day. It follows from that definition that travelling for those workers is an integral part of being a peripatetic worker and therefore inherent in the performance of their activity. Travelling by those workers is a necessary means of providing their services to the customers designated by their employer. Such travelling must therefore be regarded as forming part of the activity of those workers.

When peripatetic workers travel from home to their first customer and from the last customer to their homes they are not outside the scope of their employer’s management power. The travelling is done in the context of the hierarchical relationship which links them to their employer. The workers are in fact travelling to customers that have been determined by their employer and in order to provide services for the benefit of their employer.  It is not therefore only when peripatetic workers are at the job site that they are subject to the instructions of their employer.

Therefore, in Advocate General Bot’s opinion, the third and second criteria were met. He also regarded the first, spatial, criterion as being met.

Travelling is an integral part of being a peripatetic worker, a place of work cannot be reduced to the physical presence of the employees on customers’ premises. It follows that when they use a means of transport to go to a customer designated by their employer, at whatever time during their working day, peripatetic workers must be considered to be “at work”.  When examining whether in the specific context of peripatetic workers the criteria in the definition of “working time” are met or not, there is no need to differentiate between, on the one hand, journeys from those workers’ homes to a customer, and, on the other hand, journeys the workers make between customers. It is not disputed that travelling by the workers between customers is considered to form part of the workers’ working time. Moreover, in the absence of a fixed or habitual place of work the departure and arrival points of the daily journeys are those workers’ homes.

James Goudie QC

Some other substantial reason

April 16th, 2015 by James Goudie QC

In Anderson v Chesterfield High School UKEAT/0206/14/MC, Mr Anderson is currently the elected Mayor of Liverpool.  This is an executive post and regarded as full-time.  The position carries with it an annual allowance of almost £80,000.  He had previously held positions as Councillor of Liverpool City Council, the Leader of the opposition on the Council and ultimately at the time of his election as Mayor, Leader of the Council, which was in effect a full-time post with an annual allowance of approximately £50,000.

Prior to his election as Mayor, he was employed by a neighbouring Local Authority, Sefton Metropolitan Borough Council (“Sefton”) at Chesterfield High School. Once elected Leader of Liverpool City Council he had ceased to work at the School.

Sefton agreed that he should continue as an employee. This was on the basis that he would be paid the maximum allowed as paid leave to enable employees to hold public office by Section 10 of the Local Government and Housing Act 1989 (208 hours per annum).  His post was held open.   Sefton also continued to pay pension contributions.

This arrangement continued until the School became an Academy.  His employment then transferred by a TUPE transfer to the Respondent, now independent of Sefton.

The Respondent was concerned that the arrangement was “inequitable”,  principally because the Respondent was paying some £4,500 per annum to the Claimant but the pupils at the school received no benefit.  The Respondent accordingly terminated the agreement.  The Claimant claimed, inter alia that he had been dismissed unfairly.

The ET found that he had remained an employee and had been dismissed for “some other substantial reason”, a potentially fair reason.  However, the dismissal procedure was unfair, and his claim for unfair dismissal was upheld.  He was entitled only to a basic award subject to a Polkey deduction and contributory fault.

Mr Anderson appealed.  The EAT on 14 April 2015 upheld the decision of the ET on the basis that the deductions were justified on the facts found by the ET and that the Respondent had acted reasonably in taking the view that a continuation of an arrangement whereby Mr Anderson was paid (albeit a modest amount) by a publicly funded school, without having to provide any services, for an indefinite period was of no value to the Respondent and might lead to significant criticism.  It was entitled reasonably to regard the arrangement as inequitable and unsustainable and to terminate Mr Anderson’s  employment.

His Honour Judge Serota QC said:-

“13.      No concern appears to have been given as to what the public perception might be of the expenditure of public money to a full-time politician who was not expected or required to provide any services in return.”

“57.      In my opinion the principal reason for the “dismissal” was obvious. The realisation that a continuation of an arrangement whereby the Claimant, an elected official of a neighbouring Local Authority, was paid (albeit a modest amount) by a publicly funded school without having to provide any services for an indefinite period was considered to be of no value to the Respondent and might lead to significant criticism if the arrangement became public.  The Respondent was reasonably entitled to regard the arrangement as inequitable and unsustainable.  It was also the case that the Respondent considered that the arrangement (including the indefinite holding open of the Claimant’s post) led to some instability within the school.

58.       The Employment Tribunal’s conclusions on the Polkey deduction and deduction for contribution were conclusions to which it was entitled to come.  Its conclusion that the Claimant was party to a misuse of public funds was certainly within the range of reasonable responses of a reasonable employer.  Further, the Claimant’s conduct can reasonably be regarded as culpable or blameworthy.  The finding that the Claimant would have been dismissed in any event had a “fair” dismissal procedure been followed is unassailable as a finding of fact that the Employment Tribunal was entitled to make.  I am unable to see how consultation would have made any difference.  …

59.      It seems to me as though the Claimant has simply not given sufficient attention as to how the arrangement he made with Sefton and so continued with the Respondent might look to outsiders.  The Claimant was entitled to receive almost £80,000 per annum from Liverpool for his role as elected Mayor, yet also procured a payment (albeit modest) from public funds for which he provided, and was not expected to provide, any service.  It was, more likely, considered to be a reverse form for a zero hours contract, whereby the Respondent was bound to make payment of salary but the Claimant was not bound to provide any services.  It is certainly fairly arguable that this arrangement may strike members of the public as constituting a misapplication of public monies. …

60.      What most people would consider the Respondent’s desire to extricate itself from this arrangement, which could have been a public relations disaster for the school, would seem to me to be a clear example of SOSR for ending the employment relationship with the Claimant.  I am satisfied that this is the conclusion to which the Employment Tribunal came and to which it was clearly entitled to come.  In the circumstances, the appeal is dismissed.”

Access to Employment

February 5th, 2015 by James Goudie QC

What proof of linguistic knowledge should be required in order to be able to access employment in the public service?  That was the issue before the CJEU in Case C-317/14, European Commission v Kingdom of Belgium, in which Judgment was given on 5 February 2015.

All the provisions of the TFEU relating to freedom of movement for persons are intended to facilitate the pursuit by nationals of the Member States of occupational activities of all kinds throughout the European Union, and preclude measures which might place nationals of Member States at a disadvantage if they wish to pursue an economic activity in another Member State.  Those provisions thus preclude any measure which, albeit applicable without discrimination on grounds of nationality, is liable to hinder or render less attractive the exercise by EU nationals of the fundamental freedoms guaranteed by the Treaty. However, Member States are entitled to lay down the conditions relating to the linguistic knowledge required by reason of the nature of the post to be filled.  Nonetheless, the right to require a certain level of knowledge of a language in view of the nature of the post must not encroach upon the free movement of workers. The requirements under measures intended to implement that right must not in any circumstances be disproportionate to the aim pursued and the manner in which they are applied must not bring about discrimination against nationals of other Member States.

In the present case, the CJEU acknowledged that it may be legitimate to require a person applying to take part in a competition held in order to fill a post in a local service to have knowledge of the language of the region in which the municipality is located of a standard commensurate with the nature of the post in question. It may be considered that a post in such a service requires an ability to communicate with the local administrative authorities and, as the case may be, with the public.

In such a case, the possession of a diploma certifying that the candidate has passed a language examination may constitute a criterion for assessing the required linguistic knowledge.  However, said the CJEU, to require that a person applying to take part in a recruitment competition provide evidence of his linguistic knowledge exclusively by means of one particular type of certificate, issued only by one particular Belgian body tasked with conducting language examinations in Belgium for that purpose, appears, in view of the requirements of the freedom of movement for workers, disproportionate to the aim pursued. That requirement effectively forces interested persons residing in other Member States, for the most part nationals of those Member States, to travel to Belgium for the sole purpose of having their knowledge tested in an examination which is mandatory for the issuance of the certificate required for their application. The additional expenses which that requirement entails are liable to make it more difficult to gain access to the posts in question. The Kingdom of Belgium had not invoked any objective which might be capable of justifying those effects.

Bankers’ remuneration: is fixed pay now to be regulated too?

November 21st, 2014 by Tom Ogg

Yesterday the ECJ released Advocate General Jääskinen’s opinion on the UK government’s challenge to the Bonus Cap.  The Bonus Cap provides by Articles 92 to 94 of the CRD IV Directive, and implemented by the UK regulators within SYSC 19A, that certain bankers’ bonuses may not be more half their total pay, or two-thirds with shareholder approval.

AG Jääskinen, as widely expected, found the Bonus Cap to be lawful.  It was, however, a closer-run thing than the press release suggested (which for most of yesterday was the only document available; the actual opinion not having been released).   The AG noted that the UK government’s arguments had “varying degrees of merit“, with one point in particular “providing the most cogent reasons for questioning the validity of the measures impugned” (para 118).  That argument is that Article 153(5) TFEU, as interpreted by the ECJ, precludes the EU adopting measures that regulate the level of pay that workers receive.

However, the AG’s view is that “the rules set up through Articles 92 to 94 of the CRD IV Directive can, at most, be viewed as having a link with pay, while the Council adds that the amount of the fixed component is left to the remuneration negotiation between the staff and the financial institution“.  Consequently, there is no limit on the total pay that may be awarded, and so the AG took the view that the Bonus Cap is lawful.  There is, however, scope for argument about that.  If the Bonus Cap were properly adhered to, some argue, the Bonus Cap would tend to limit overall pay because historically a very large proportion of bankers’ pay has been by way of bonus.

The legal niceties were, however, overtaken by events.  Dramatically, upon receiving the AG’s opinion, George Osborne (UK Chancellor of the Exchequer) decided to abandon the challenge to the Bonus Cap.  See here.  Notably, Mr Osborne then wrote to the Governor of the Bank of England, Mark Carney.  In that letter, Mr Osborne notes that the response to the Bonus Cap has been to push up fixed remuneration, which is not subject to the malus and clawback rules that apply to variable remuneration.   Consequently, Mr Osborne states that “I believe there is a need for careful consideration of how, in jurisdictions such as the EU where the balance of banking remuneration has shifted towards fixed remuneration, compensation schemes can still achieve the objective of supporting sound risk taking“.  In other words, the regulators need to consider how fixed pay can be controlled, which was exactly the issue that Mark Carney discussed earlier this week in his speech to the Monetary Authority of Singapore.

What would control of fixed remuneration look like?  Mr Osborne’s letter states that he was ‘interested’ in the ideas floated by President William Dudley of the New York Federal Reserve regarding ‘performance bonds’.  Those ‘bonds’ would be forfeited were fines to be imposed on a bank by a regulator, so that senior bankers bear the brunt of those fines rather than shareholders.  The proposal would be to treat such bonds as part of the fixed pay of senior bankers.  Mr Osborne, I note, was very keen for such proposals to be developed through the Financial Stability Board, of which Mr Carney is chair, so as to ensure that there is coordinated international action, rather than the UK acting alone.  We await the proposals with interest.

Tom Ogg

Conduct and disability

November 20th, 2014 by James Goudie QC

Was there gross misconduct?  If there was, did it justify dismissal?  Those were issues before Judge Eady QC in Burdett v Aviva Employment Services Ltd, UKEAT/0439/13/JOJ, a case concerned with both unfair dismissal and discrimination arising from disability.  The employee had committed assaults in the workplace.  However, this was because of his disability.  He suffered from a paranoid schizophrenic illness.  The ET was judged to have been in error in finding gross misconduct.  They had failed to engage with the question of blameworthiness.  The ET was also found to have been in error in assuming that dismissal will necessarily fall within the range of reasonable responses in a gross misconduct case.

In addition, the ET had failed to demonstrate that it had properly scrutinised the proportionality of the means chosen by the employer to achieve the legitimate aim of adherence to appropriate standards of conduct in the workplace, namely dismissal.  There had been no critical evaluation of possible alternative means, in particular home-working, and whether dismissal was no more than was necessary.  The ET’s conclusion on the discrimination arising from disability claim under Section 15 of the Equality Act 2010 could not be upheld as safe.

The case does not break new ground in terms of legal principles.  However, there are some useful restatements:-

“31.  … if an employer dismisses for a reason characterised as gross misconduct, the Employment Tribunal will need to determine whether there were reasonable grounds for the belief that the employee was indeed guilty of the conduct in question and that such conduct was capable of amounting to gross misconduct (implying an element of culpability on the part of the employee). Assuming reasonable grounds for the belief that the employee committed the act in issue, the Tribunal will thus still need to consider whether there were reasonable grounds for concluding that she had done so wilfully or in a grossly negligent way.”

“32.   Even if the Employment Tribunal has concluded that the employer was entitled to regard an employee as having committed an act of gross misconduct … that will not be determinative of the question of fairness.  The Tribunal will still need to consider whether it was within the range of reasonable responses to dismiss that employee for that conduct.  The answer in most cases might be that it was, but that cannot simply be assumed. …”

“78.       The task of the ET was to scrutinise the means chosen by the Respondent as against such other alternatives that (on the evidence) might have been available to achieve the aim in question.  In so doing, it was required to weigh in the balance the discriminatory impact of the measure chosen against such other alternatives open to the employer.”

Judge Eady QC’s concluding remarks were as follows:-

 “85.       This was a difficult case for all involved. The Claimant has plainly suffered a series of life events and a serious illness that have been catastrophic for him. For its part, the Respondent was faced with an unusual set of circumstances which required a sensitive balancing exercise between its obligations of fairness to the Claimant and its duty of care to its employees more generally. In such cases, it can be all the more important that Tribunals take care to fully set out the reasons that have led to their conclusions. It is trite law that parties are entitled to understand how a Tribunal has reached its Judgment (why they have won or lost). Where the balancing exercise raises issues of particular complexity and sensitivity, it is especially important that the reasons provided are clear, so that parties are not left trying to piece together an explanation for the Judgment or second guess whether the Tribunal has had regard to a particular point. In this case, I am not satisfied that this has been done, both as regards the unfair dismissal or the discrimination arising from disability claims.”

James Goudie QC

Local authority powers to suspend and dismiss teachers

October 17th, 2014 by Tom Ogg

[This post originally appeared on 11KBW’s Education Blog].

In Davies v LB Haringey, a decision of Mr. Justice Supperstone handed down on today (17 October 2014), the claimant was a teacher who had been on full time release for trade union duties for 14 years.  At the time she went on release, she was working at a community school, so by section 35 of the Education Act 2002 her employer was the local authority rather than the governing body.

In 2014, the council wished to investigate disciplinary allegations against her and suspended her in relation to breaches of the council’s Code of Conduct and Social Media Policy.  She claimed that this was a breach of her employment contract, asserting that, by reason of regulation 19 the School Staffing (England) Regulations 2009, only the governing body had the power to suspend her.

The Council, represented by Peter Oldham QC of 11KBW, argued that the Regulations applied only to those worked in schools, and the reality of the situation was that the claimant had not done so for a long time. Further the Council argued that regulation 19 of Regulations gave a power to the governing body to suspend but did not take away the Council’s power to suspend under the contract of employment.

The judge agreed with both of the Council’s contentions.   Whilst the facts were very unusual (on account of the teacher’s absence from the school on trade union duties), nevertheless, the determination that the local authority retains statutory powers of suspension and discipline, at least in exceptional cases, is significant.

Tom Ogg

‘Wrotham Park’ on the march; Court awards 10 Million Euros in negotiating damages for breach of an equitable obligation of confidence

October 3rd, 2014 by Simon Devonshire QC

In CF Partners (UK) LLP –v- Barclays & Ors [2014] EWHC 3049 (Ch), the High Court (Hildyard J) awarded the Claimant 10 million Euros as ‘Wrotham Park’ damages for breach of an equitable obligation of confidence.   So far as the writer is aware, this is the largest award of its kind to date, and is indicative of the increasing judicial willingness to assess damages by reference to the release or licence fee that would have been agreed in a hypothetical negotiation; see my earlier post on the One Step case.    The CF Partners case gives some interesting guidance on the nature and basis of assessment, as well as on breach of confidence as a cause of action more generally.

The Facts

The facts are complicated (and addressed in the judgement in some 200 pages).   In the summary that follows, the facts are simplified for the purposes of analysing the Judge’s most interesting legal conclusions.

In 2008, the Claimant (“CFP”) approached Barclays (“the Bank”) for a loan to finance its bid to acquire a target company with a large portfolio of carbon credits in a various hydro power projects (“T”). CFP had identified T as being undervalued in the stock market.   In support of its loan application, CFP provided the Bank with a spreadsheet containing technical information about T and proposed routes to realising its intrinsic value (“the Spreadsheet”).

CFP’s negotiations with T fell through, and in 2010 the Bank acquired T, selling it on for a substantial profit in 2012.   Amongst other things, CFP alleged that the Bank had used the Spreadsheet in deciding to target and/or in its acquisition of T, in breach of an equitable obligation of confidence.   It was common ground that there was no fiduciary relationship between CFP and the Bank, but CFP claimed an account of profits, alternatively damages assessed on the ‘Wrotham Park’ basis.


The Court found that the Bank had acted in breach of its equitable obligations of confidence to CFP.

First, did the Spreadsheet contain confidential information at all?   Whilst the Spreadsheet was compiled from information that was publically available, “the production of the final spreadsheet involved skill in the assessment of variables in respect of a difficult asset class in a new and developing market.   It was time consuming and laborious, and was needed in order to present the relevant information (whatever its derivation) in technically robust and reliable, digestible and logical form for the purposes of assessment by financial institutions and potential purchasers” (para 936).   The Judge thought that a useful litmus test of the confidentiality of the material in question was that it had caused the Bank to change its mind, suggesting that there was something of special insight and value provided to it (para 960).   This reasoning will be familiar to commercial employment lawyers; employee competition cases have frequently acknowledged the confidentiality of key client listings and databases, the individual components of which may be available from public sources but where the confidence lies in the compilation and codification of the data and its utility in identifying market opportunities.

Secondly, had CFP proved that the Bank had misused the Spreadsheet?   The Judge said that misuse had to be demonstrated and it was not enough to show that the recipient was influenced by the information; equally, a change of outlook was not sufficient; acting upon it had to be shown (para 982).   However, “subconscious use may constitute misuse … misuse may be inferred from the fact that a defendant, having obtained the confidential information, is influenced by it (whilst it retains the quality of confidentiality) in determining and then embarking on a course of conduct otherwise than for the purpose for which it was provided”  (paras 983 & 984).   Confidential information may so saturate a person’s mind that it becomes virtually impossible to say of any given action that he was or was not influence by it (para 993).   CFP’s presentation to the Bank had opened its eyes to T’s materially greater potential than the Bank had previously appreciated (para 1011), and was ultimately still causative when the Bank came to acquire T.

Thirdly, was CFP to be denied any relief on the basis of the Bank’s ‘unclean hands’ defence?   It was common ground that this defence couldn’t apply to a common law cause of action, but could the fact that the spreadsheet itself included material that CFP had used/deployed in breach of an obligation to confidence to T provide a complete answer to the claim based on breach of the equitable obligation of confidence?    The Judge said no.   On the facts, the information the confidentiality of which CFP sought to vindicate was of very considerably greater scope and quality than the information it misused.   The clean hands doctrine “is reserved for those exceptional cases where those seeking to invoke it have put themselves beyond the pale by reason of serious immoral and deliberate misconduct such that the overall result of equitable intervention would not be an exercise but a denial of equity” (para 1133).

An account?

The Judge rejected CFP’s claim form an account.   In the absence of a fiduciary relationship, the usual remedy for a breach of an obligation of confidence (even one arising in equity) was damages, and an account would only be ordered in exceptional circumstances of the type identified by the House of Lords in AG –v- Blake.    The “usual or default approach where there is no fiduciary relationship … is to restrict the claimant to a claim in damages” (para 1180).    This is a statement of the orthodoxy.   However, the Judge did observe that this did not “preclude an assessment of damages which is juridically similar to a gain based remedy, as is in part at least the Wrotham Park ‘negotiating damages’ approach” (para 1181).   It is here where the judgement is at its most interesting.

Negotiating Damages

Basing himself on Seager –v- Copydex (No. 2) [1969] 1 WLR 809, the Judge started from the premise that the basic approach to any assessment of damages for breach of confidence (whether the obligation was contractual or equitable) was to assess the value the information that the defendant took (para 1182).   If the information was trivial and readily available elsewhere, its value might be charged at the price a consultant would have charged to obtain it.    If it was very special indeed, it might be valued on the basis of a capitalised royalty.   If it fell somewhere in the middle (“involving something unusual such as could not be obtained by just going to a consultant”) a Wrotham Park approach would be justified (valuing the information “at the price a willing buyer would pay a willing seller”) (para 1184).  The Judge thought that this was just such a case (paras 1194-1195).

Thus the Court had to ask – what consideration could CFP reasonably have demanded from the Bank as the quid pro quo for permitting the use of its confidential information (para 1198).    This was a very artificial exercise, especially given the huge differences between the parties as to what would have been their negotiating position, which made it hard to envision any reasonable discussion between them (paras 1199-1200).   In carrying out the exercise: the fact that the parties would not in practice have agreed a deal is irrelevant; the notional negotiation is deemed to have taken place in the commercial context as it existed at the date of breach; but if there had been nothing like an actual negotiation between the parties, the court could look at the eventual outcome and consider whether that provides a useful guide as to what the parties might have thought at the time of their negotiation (para 1204).    Whilst the assessment is an objective one “the hypothetical negotiation may be informed by evidence as to what factors and negotiating arguments the parties say (subjectively) they would have advanced” (para 1205).   But “it is for the court to decide what the shape and result of the hypothetical negotiation …. would have been” (para 1209).    Whilst expert evidence may assists in identifying metrics for measuring the risks and potentialities idenitified during the hypothetical negotiation “the resolution is not for expert opinion but overall judicial assessment” (para 1210).

The assessment is not conducted solely by reference to the information actually found to have been misused, especially where the information concerned is a composite idea or (say) a dictionary – if you misappropriate a dictionary, you pay for the whole dictionary, not just for the few words you have looked up in it (paras 1212-1214).   Moreover, it is not only past misuse which has to be franked, but (once misuse is established) the price payable for the release of the other party’s rights (para 1215).    The assessment may be informed by the type of compensation that would have been sought and agreed by the (hypothetical) seller and purchaser – e.g cash, equity stake, brokerage payment or some blend thereof (para 1216).   The Court inevitably has to paint with a broad brush; para 1295.  In fixing on a figure of 10 million Euros, the Court took account of the fees that the Bank had proposed to charge CFP had it participated in its acquisition of T as a debt provider and M&A adviser.   This was a contemporaneous indication that the transaction had a value that could withstand such a cost and still make the prize attractive; para 1299.


The assessment in any given case is likely to be highly fact sensitive.   CFP had argued that the Wrotham Park assessment should yield no less than 45 million Euros.    In one sense, therefore, the award fell below CFP’s expectations.   But by the same token, it had not lost anything by the Bank’s actions.   It did not claim it could have purchased T or sold the Spreadsheet information elsewhere but for the Bank’s actions.   In reality, the Bank was forced to disgorge part of its gain.    For its part, the Bank said that (at tops) any reasonable negotiation would have yielded less than a million.   It seems likely that the case will be appealed, so watch this space.   In the meantime, the case is further evidence that judges are becoming increasingly sympathetic to the use of negotiating damages to assess loss in commercial disputes.    ‘Wrotham Park’ is on the march.

Simon Devonshire QC

Proprietary remedies, fiduciary bribes, and dishonest assistants: FHR and Novoship

October 2nd, 2014 by Rupert Paines

Directors and senior employees will often have wide-ranging managerial power over their companies: the ability to commit or disburse company assets, with significant autonomy and limited detailed oversight. Those in such positions will not always act responsibly, and will be attractive targets to others seeking a share of the potential spoils. In two important judgments from July, the Court of Appeal and Supreme Court significantly increased the remedies available against both bribed fiduciaries and those who bribe them.

FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45 concerned a transaction related to the sale of the Monte Carlo Grand Hotel. FHR, the purchase vehicle, engaged Cedar as its agent in negotiating the purchase. The purchase was completed, but Cedar in the course of negotiations obtained for itself an “Exclusive Brokerage Agreement” from the vendor, under which Cedar was paid €10m. FHR sued Cedar and claimed, inter alia, that the sum was held on constructive trust.

This presented a discrete issue of considerable importance (and academic interest): where a fiduciary has accepted a bribe or secret commission is his acknowledged liability to account to the principal a personal one only, or does the fiduciary hold the assets comprising the bribe or secret commission on constructive trust for the beneficiary? The difference between the two is practically significant where either (i) the fiduciary has become insolvent, or (ii) the fiduciary has disposed of the bribe/secret commission. Only if the remedy is proprietary will the principal be able to claim priority over unsecured creditors, or use equitable tracing to follow the proceeds into others’ hands.

In FHR the Supreme Court, in a unanimous judgment, decided that a proprietary remedy was available. The argument for a ‘personal only’ remedy was that a constructive trust can be imposed only over benefits which “can properly be said to be the property of the principal” (at [10]): where the fiduciary had misappropriated the principal’s assets or exploited an opportunity which he was under a duty to exploit, if at all, for the principal. However a fiduciary who accepts a bribe is neither misappropriating the principal’s assets, nor exploiting an opportunity: the fiduciary’s duty is not to take a bribe and hold it on his principal’s account, but rather not to take a bribe at all! The principled argument for a proprietary remedy was essentially that equity refuses to allow a fiduciary to rely on his own breach of duty to show that a payment was a bribe, so assumes that a fiduciary holds a bribe on trust for the principal. This was buttressed by practical arguments: the result would be simpler, since it obviates differences in available remedies for the same liability; the notion that a fiduciary should be able to retain the proceeds of a bribe is unattractive; and it would be curious if a fiduciary could do so, while far less opprobrious conduct may create a constructive trust. The Court concluded that the latter arguments won out.

The court’s reasoning is not beyond criticism but the result is, as a matter of policy, unsurprising. The ‘principled’ argument for a proprietary remedy seems flawed. It is never assumed that all assets of a fiduciary (including eg. his house or car) are trust assets. There is therefore an implicit ‘jump’ in the reasoning, which requires the insertion of the fact that the bribe is not the fiduciary’s personal asset, but rather results from his dealing with the trust. However, this ‘jump’ obscures the key issue: what profits for a fiduciary, arising from his dealings with the trust but not involving trust property, attract proprietary remedies? One rationalisation of the outcome may be to consider the ‘opportunity’ represented by the bribe as a new species of ‘fiduciary opportunity’, in line with those cases where a fiduciary has exploited an opportunity which arose in his fiduciary capacity, but which the principal was unable to exploit himself (cf. Keech v Sandford (1726) Sel Cas Ch 61).

The second case, Novoship (UK) Ltd v Nikitin [2014] EWCA Civ 908 (decided a fortnight before FHR) involved a Mr Mihayluk, the General Manager of a shipping company. He had acted in breach of fiduciary duty both by taking bribes for himself and by directing bribes to third parties in negotiating charterparties. The point of interest concerned a set of charters (‘the Henriot charters’) negotiated between himself and a Mr Nikitin, to whom Mr Mihayluk had in other negotiations directed bribes. There was no evidence that the Henriot charters had been concluded otherwise than on market rates, but Christopher Clarke J had held that Mr Nikitin was a dishonest assistant (since he negotiated the Henriot charters when he knew that Mr Mihayluk had made him dishonest payments, and so continued a corrupt relationship). The question which the Court of Appeal considered was whether an account of profits was available against Mr Nikitin.

Mr Nikitin argued that, as a dishonest assistant, he had never been a true fiduciary: he never promised to subordinate his own interests to those of the principal. In that context the account of profits, with its historical root in the obligations of the true fiduciary, was inappropriate. The Court however decided that it was appropriate to consider a dishonest assistant, like a knowing recipient, as someone who has “in principle, the responsibility of an express trustee [which] … would include, in an appropriate case, a liability to account for profits” (at [82]). However, unlike a true fiduciary, the common law concepts of causation and remoteness should be applied by analogy to assess the quantum of profit resulting from the dishonesty. Since the Henriot charters had been entered into on market rates, there had been no such profit, and so Novoship did not recover.

Again, the attraction of the judgment is obvious: where a dishonest assistant has profited from his dishonesty, why should he not be made to disgorge that profit? Again, however, the principled problems are equally obvious. The reason a knowing recipient is liable to account is that he has received trust property. The dishonest assistant is ‘mixed up’ in the fiduciary’s breach of trust, but has undertaken no fiduciary duties: why should he be liable to account (as opposed simply to paying equitable compensation)? The answer seems to be that he is a ‘constructive fiduciary’, but it is unclear what this signifies beyond the imposition of the liability to account. The application of the common law causation/remoteness analysis represents a further departure from trust law orthodoxy.

The two judgments are each individually very significant. They greatly widen the remedies available to employers wishing to pursue claims against bribed senior employees and directors (particularly where insolvent, or where the assets have been squirrelled away), and against those who bribed them. In combination, moreover, they raise an intriguing further question: can a constructive trust be obtained over profits received by a dishonest assistant? The emphasis of FHR on the special status of fiduciary obligation might be thought to tell against this, but in Novoship the Court of Appeal baldly held that the dishonest assistant, as constructive fiduciary, has “the responsibility of an express trustee”. If a fiduciary is a constructive trustee even in respect of assets that were not previously the principal’s assets and which he was not under an obligation to exploit for the principal, could the constructive fiduciary be a constructive trustee of any profits, even where those profits were not previously the principal’s assets nor assets which he was under an obligation to exploit for the principal? Doubtless the appellate courts will, in due course, supply an answer.

Rupert Paines

Calculating Damages for a Lost Career: Sharan Griffin v Plymouth Hospital NHS Trust

September 25th, 2014 by Harini Iyengar

Harini Iyengar comments on the latest Court of Appeal case on the calculation of damages for a lost career


The Court of Appeal has conducted an interesting analysis of the proper approach towards calculating damages for a lost career, namely the assessment of future loss of earnings and of pension loss in a final salary scheme, in Griffin v Plymouth Hospital NHS Trust [2014] EWCA Civ 1240.  It rejected the challenge to the period of time for which future loss of earnings was compensated, but held that the failure to apply the substantial loss method of calculating pension losses had been an error of law in the circumstances of the case.

The Claimant was a specialist clinical technician in bone densitometry who had fallen ill with systemic lupus erythematosus in 2007 and had resigned in 2009 claiming that Plymouth Hospital NHS Trust had failed to make reasonable adjustments to facilitate her return to work.  She won her claims of constructive unfair dismissal and disability discrimination.  The Claimant’s salary had been £32,753 and, on the basis that she would now work a 25-hour week because of her disease, she was awarded compensation of £105,643.01, which increased on remission to £166,595, and which she appealed again.  The Claimant had very specialist skills for which the NHS provided the only real market in her local area.  Underhill LJ urged HMCTS and / or the Judicial College to give priority to producing an updated version of the 2003 Guidance “Compensation for Loss of Pension Rights – Employment Tribunals” (“the Pensions Guidance”) on the assessment of pension loss in the Employment Tribunal, to take account of important changes in pension law and practice.

The Appeals

The Claimant appealed to the Employment Appeal Tribunal arguing that the award of compensation by the Employment Tribunal (“the Tribunal”) was too low.  Supperstone J remitted the case to the Tribunal to make further findings and then reconsider its award.  The Tribunal increased the award on remission.  Again, the Claimant appealed that the compensation was too low.  HHJ McMullen dismissed that appeal.

Two findings of fact were critical to the Tribunal’s first assessment of financial loss: (1) with reasonable adjustments, Ms Griffin would have continued her employment indefinitely on a 25-hour week; (2) in the events which happened, her return to Plymouth Hospital was now impossible but she could find no other work because no other local employer needed her specialist skills.

The award of the entirety of her past loss of earnings until the date of the hearing on the basis of a 25-hour week was uncontroversial.  Future loss of earnings was more complex.  The original remedy judgment held that the Claimant was “likely” to obtain suitable alternative employment at 25 hours a week in a year’s time, and so awarded her £15,201.48.  It was just an estimate based on an assumption that she would continue to make reasonable efforts to mitigate her loss, and using a mid-point of the probabilities in accordance with Elias LJ’s remarks in Wardle v Credit Agricole Corporate and Investment Bank.  Nevertheless, the Tribunal was silent as to what sort of job it expected the Claimant to obtain and at what level of remuneration.  Supperstone J considered that that had been an error of law and remitted the case to the Tribunal to review its decision on continuing loss of earnings.

On remission, the Tribunal heard no further evidence but relied on the evidence and submissions which had been presented at the first hearing, supplemented by further written and oral submissions.  It noted that the Claimant had applied for positions with pro-rata salaries of £11,000-£22,000 and was satisfied that there were no other positions outside that range which were suitable for her.  She had transferable skills of administrative and clerical natures.  It went on to find that, despite the lack of any evidence as to how she could obtain promotion in an administrative role, she would impress a future employer with her intelligence, capability and determination, she would have obtained a job at £18,000 pro rata, but have progressed to management and earned £25,000 pro rata after five years and £30,000 pro rata after another five years, and after a further two years she would have achieved parity with her job for the Respondent.  This gave a total of £43,196.51 in loss of future earnings.

As for pension loss, the Claimant had been a member of the final salary NHS pension scheme.  At the first remedy hearing, both parties had relied on the Pensions Guidance although – as typically happens – the Claimant had contended for the substantial loss approach and the Respondent for the simplified approach.  Using the simplified approach, the Tribunal assessed pension loss at £32,827.69, based on a finding that the Claimant would be able to join a final salary pension scheme again after four years. On remission, the Tribunal again decided to adopt the simplified loss approach.

Therefore, the issues for the Court of Appeal were: (1) the lawfulness of the Tribunal’s decision to limit her period of future loss to 12 years; and (2) the use of the simplified approach to the assessment of pension loss.

The Period of Loss

The first issue pertaining to the period of loss was whether the Tribunal had been right, on remission, to exclude evidence of subsequent developments.  The second issue was the lawfulness of the finding that she would regain her previous level of earnings after 12 years.

By the date of the remitted remedy hearing, several months had passed since the date on which the first remedy hearing had found that the Claimant would have found work, but she had not.  Instead, she had accepted advice from the Job Centre to take a National Vocational Qualification in Business Administration, which required a work or voluntary placement, and so she had begun a voluntary year-long placement.  She had been refused permission to present documentary evidence to establish these facts.

Before the Court of Appeal, the Claimant relied on Curwen v James and NCP Services Ltd v Topliss to argue that it had been an error of law for the Tribunal to speculate about that which it already knows.  The Respondent contended that Supperstone J had remitted only the issue of what level of earnings the Claimant should expect from the date at which she obtained paid employment, and not the settled finding as to when that date would be.

Admission of New Evidence as to Period of Loss

Underhill LJ distinguished between the situation in which a court or tribunal at first instance is conducting its primary assessment of compensation and the situation in which an appellate court is asked to admit evidence of events occurring subsequent to the primary assessment of compensation.  He said that the principle in Bwalfa and Merthyr Dare Steam Collieries (1891) v Pontypridd Waterworks Co – that in assessing compensation the decision maker must avail himself of all the information at hand, not listen to conjecture on a matter which has become established fact, and not guess when he can calculate – must apply just as much when a tribunal is reconsidering damages as a result of remittal.  The second situation was essentially different, however, as the appellate court approached a case in which a valid final award had been made.  The general approach is that because of the important interest in the finality of litigation, neither party should be able to re-open a final award simply because things had turned out differently from what had been expected.  Nevertheless, Underhill LJ pointed out, that approach was not applied with absolute rigour.  He said the best guidance was that provided by Lord Wilberforce in Mitchell v Mulholland, that “the matter is one of discretion and degree”.  New evidence was likely to be admissible where basic assumptions had been falsified by subsequent events, or where a refusal would affront common sense or a sense of justice, or on other grounds which “must be left to the Court of Appeal”.

The Finding as to the Date on which the Claimant would Obtain New Employment

The Court considered that it was clear from Supperstone J’s judgment that the remitted question pertained to the Claimant’s rate of remuneration in the employment which the Tribunal had found that she would obtain after a year, and that there had been no challenge before Supperstone J as to the date on which she would obtain it.  Whether the Claimant should be allowed to take advantage of the adventitious opportunity of the appeal to adduce fresh evidence was a matter for the discretion of the Tribunal in accordance with the guidance given in Mitchell v Mulholland.  Underhill LJ considered that the documents about the Claimant’s NVQ placement added nothing of significance in regard to the level of job she might in due course hope to obtain or her rate of pay, and the Tribunal had already had a wealth of information from the first hearing about the type of work she might do.  Further, the Claimant had never in fact tried to rely on the documents to challenge the finding as to the date on which she would obtain employment.  The Court of Appeal made clear, however, that even if the Claimant had sought to have the new evidence admitted in order to try and change the finding as to the date on which she would obtain new employment, the question of the date which had been found at the original remedy hearing was a good example of the type of matter falling within a field of uncertainty in which the trial judge’s estimate had been made, which should not be tampered afterwards, in the interests of finality.

The Finding that the Loss would End after Twelve Years

Before the Court of Appeal, the Claimant criticised the Tribunal’s approach to her medical evidence, in particular that it had found she would eventually take on a management role despite the greater stress which that would involve.  Underhill LJ, however, firmly stated that in fact there was nothing in any of the medical evidence which would justify a conclusion that the stress of a management role might mean that the Claimant was incapable of fulfilling such a role.  He accepted a criticism that the Tribunal, whilst refusing the Claimant permission to adduce documentary evidence, had commented on her submission that she was doing a voluntary placement which it inferred was in a stressful environment, but held that this error did not vitiate the Tribunal’s second remedy judgment as a whole.  The Court rejected a submission that the finding of a twelve-year period was perverse and /or inadequately reasoned, because the exercise was inherently based on speculation about the Claimant’s attitude and abilities and the local job market.  Underhill LJ condemned as “hopeless” a submission that the Tribunal had erred in placing too much reliance on the Claimant’s performance as a witness and as an advocate when assessing her abilities and attitudes.  Likewise, a point that the Tribunal had erred by failing to take account of the possibility that the Claimant might have been promoted had she remained at the Respondent failed because she had made no submission on those lines to the Tribunal.

Finally, the Court of Appeal rejected an argument that the Tribunal had erred in law by omitting to use the Ogden Tables to calculate the Claimant’s future loss of earnings.  The point did not arise for determination, because the Court had already held that the Tribunal had lawfully found that she had not suffered a career-long loss.

Whilst expressing sympathy for the Claimant’s serious long-term debilitating disease, Underhill LJ said that the Tribunal was under no obligation to take a pessimistic if not indeed rather demeaning view that her disease prevented her, as a woman of ability and determination, from ever again undertaking a job with some degree of responsibility, particularly once she was freed from the toils of litigation.

Pension Loss

As to pension loss, the Court of Appeal was careful to state that the only issue for them was whether it had been an error of law to use the simplified approach to pension loss instead of the substantial loss approach, and that the judgment should not be treated as an attempt at a comprehensive summary of the Pensions Guidance nor used as a short-cut where different issues arise.  Underhill LJ then reminded himself that in a final salary scheme the employee’s entitlement is simply to the benefits and there is no entitlement to the employer’s pension contributions.  The loss takes the form of loss of enhancement to accrued pension rights and loss of acquisition of future rights.  For loss of enhancement, actuarial tables are provided in the Pensions Guidance.  Only the latter head of loss should be affected by the choice between the simplified and substantial loss approaches.  The essential difference between the two approaches is that when assessing pension losses arising in the period after termination of employment, the simplified approach measures loss by reference to the employer’s pension contributions, regardless of the fact that it was a final salary pension scheme.  The substantial loss approach requires the use of actuarial tables comparable to the Ogden Tables.  After using the tables, the Tribunal generally has to apply withdrawal factors to reflect the probability that the particular employee before it would have left employment before retirement age other than for the usual risks of mortality and disability.

Underhill LJ noted in passing that he respectfully agreed with Elias P’s criticism of the Pensions Guidance in Network Rail Infrastructure Ltd v Booth, that, where an employee had lost employment with a final salary pension scheme but obtained new employment with a money purchase pension scheme, it was unnatural to take account of the new employer’s pension contributions when assessing loss of earnings, but to disregard them when calculating pension loss, as the Pensions Guidance required.

For Underhill LJ, the tendency of the Pensions Guidance to limit the use of the substantial loss approach to cases, in which the employment had continued for a long time, the employment was very stable, and the employee had reached a certain age where she was less likely to move on, was explained by the fact that those three factors increased the likelihood of the employee still being an active member of the pension scheme at retirement – which would justify an assumption of “whole-career loss”.  Such an employee was to be contrasted with an employee who probably would have changed jobs anyway after a couple of years.

Pragmatically, the Court of Appeal pointed out that if the substantial loss approach were taken and then a massive, intuitive, withdrawal factor had to be applied, the level of uncertainty would beg the question whether there had been any point in attempting to assess whole-career loss in the first place.

Underhill LJ confessed to finding that section of the Pensions Guidance “a little opaque” but considered it clear that the substantial loss approach was recommended only where there was a sufficiently firm basis for the necessary assumptions, eg where the employee had already found new employment, or it had been determined that the employee would never find new employment, or a date had been found by which the employee would have found new employment.

Underhill LJ criticised the Tribunal for rejecting the substantial loss approach solely on the basis that, when considering whether the Claimant had been in the Respondent’s employment “for a considerable time” it said that that factor did not apply where the Claimant, aged 34, was still a long way from retirement.  The Tribunal had failed to address the question of how likely the Claimant had been to stay in that employment until retirement.  On the facts of the particular case, he pointed out, the Claimant was an employee with a specialist skill for which the principal, if not indeed the only, market was in the NHS, so she was likely to remain in the NHS for her entire career despite being 34.  Furthermore, her medical condition made her cautious about embarking on a major career change.

Noting that the Tribunal had applied a withdrawal factor of 20% to the calculation of loss of enhancement, the Court of Appeal said that that finding, even though made for a different purpose, was inconsistent with the finding that the uncertainties of the Claimant’s continued NHS employment were so great as to rule out the substantial loss approach to loss of future pension rights.  Underhill LJ relied on the Network Rail case to back up his views.

The Court of Appeal further criticised the Tribunal for assessing the likelihood of the Claimant eventually regaining her pre-dismissal earnings after 12 years instead of doing its proper task of calculating her pension losses.

Underhill LJ observed that the Tribunal had found that the Claimant would have obtained employment with the benefit of a final salary pension scheme after four years, but had not relied on that factor when rejecting the substantial loss approach.  The Court of Appeal considered that the Tribunal had had no proper basis for rejecting the expert’s unchallenged evidence that it had been unlikely that any future employer would offer a final salary scheme as most of these are closed to new entrants.

The Court of Appeal held that the Tribunal misdirected itself in the reasons it gave for applying the simplified loss approach and that in the particular circumstances of the case and in the light of other findings, the only correct conclusion was to apply the substantial loss approach.

The Pensions Guidance

In conclusion, Underhill LJ pointed out that although the Pensions Guidance was extremely valuable, it had no statutory force and its recommendations are “not gospel”.  Further, there have been several important changes in pension law since 2003, other changes are forthcoming, and the current Pensions Guidance is out of date.  He urged HMCTS and the Judicial College to review and update the Pensions Guidance as a priority.


As fewer and fewer new employees are able to join final salary pension schemes, public sector employees are becoming more and more aware of the very valuable pension rights which they enjoy, which they simply cannot replicate elsewhere.  Therefore, there are many incentives for public sector employees to litigate aggressively on pensions issues.

The current cap on compensation for unfair dismissal is £76,574, although, for dismissals after 29 July 2013, a Tribunal may not award a successful Claimant more than one year’s gross earnings.  This case, involving disability discrimination, illustrates the increasing discrepancy between compensation for unfair dismissal claims and compensation for discrimination or whistleblowing claims.

Nevertheless, in practice, the cap on unfair dismissal compensation has created a dangerous tendency for parties in employment litigation to start with a rough and ready, and rather short-term, approach towards the analysis of the future losses caused by a statutory tort.  Given the current high rate of settlement in employment disputes, it is unsurprising that parties are slow to expend time and costs on a very detailed schedule of loss at an early stage in proceedings.  Likewise, given the fact that many cases do settle in the period between the liability and the remedy hearing, parties, for good reasons, often dally in preparing and sharing their rigorous calculations of loss of future earnings and pension loss.

The assessment of future loss of earnings and of pension loss is a complicated and time-consuming matter, which requires the careful collection of relevant evidence, its analysis, an attempt to speculate about the future in a logical and rational manner, and a series of precise mathematical calculations.  It is refreshing to the see the Court of Appeal grappling with the outdated and awkward Pensions Guidance, which practitioners have found so difficult to apply in practice over the years.  As Underhill LJ points out, an updated version of the Pensions Guidance is overdue and will be very helpful to the Employment Tribunals, employers, employees, and their advisers.

As with any interesting appellate judgment, the implications of this case are limited by its specific facts, and other questions remain unanswered – in particular whether it would be an error of law not to use the Ogden Tables when assessing compensation in a case of lifetime career loss.

Updated UK Corporate Governance Code: Remuneration Changes

September 17th, 2014 by Tom Ogg

The Financial Reporting Council (FRC) has today released an updated version of the UK Corporate Governance Code, which will apply to accounting periods beginning on or after 1 October 2014.  As promised by the consultation, the new Code attempts to ensure that the financial interests of board members are aligned with the long-term interests of the company.  Companies should “comply or explain”, i.e., if they are not following the Code, they should explain why.

Section D concerns remuneration.  The key provision is D.1.1: “Schemes should include provisions that would enable the company to recover sums paid or withhold the payment of any sum, and specify the circumstances in which it would be appropriate to do so.”  In other words, directors’ contracts should include malus or clawback provisions – concepts which will be familiar to those working in the financial services sector (see SYSC 19A of the FCA Handbook).

As regards non-executive directors: “They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning” (see A.4).  D.1.2 provides:  “Where a company releases an executive director to serve as a non-executive director elsewhere, the remuneration report should include a statement as to whether or not the director will retain such earnings and, if so, what the remuneration is.”  D.1.3 provides that non-executive members of the board should not normally receive share options or other performance-related elements.  They may do so with shareholder pre-approval, but there are dark warnings about independence, and the Code provides options should not be realised for at least a year after a non-executive director leaves his or her post.

On early termination, D.1.4 provides: “The aim should be to avoid rewarding poor performance. They [the remuneration committee] should take a robust line on reducing compensation to reflect departing directors’ obligations to mitigate loss.”  Finally, D.1.5 states that notice periods should be a year or less.  There are provisions in respect of the process for making remuneration decisions in section D.2.

Thomas Ogg



The new conduct and remuneration regime for bankers: “Making individual accountability a reality”

July 30th, 2014 by Tom Ogg


On Wednesday 30 July 2014, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) released consultation papers relating to individual accountability and remuneration in the banking industry.  The changes apply, broadly speaking, to banks, building societies, credit unions and the nine investment firms designated by the PRA.

The proposed changes are detailed and wide-ranging.  This post concentrates on what is ‘new’: was revealed by the consultation paper, rather than setting out the framework that was set out in the Banking Reform Act and the Parliamentary Commission on Banking Standards.

The headlines are as follows:


  • The regulators have proposed new deferral and vesting periods for variable remuneration.  The minimum deferral period for Code Staff is increased from three to five years, and for senior managers (see below) the minimum deferral period is increased to seven years.  In both cases vesting must be no faster than pro rata.  The first vesting event must be delayed by a year for Code Staff, and by three years for senior managers.
  • Clawback, where a firm requires repayment back to the firm of remuneration already paid to employees, is proposed to be applied to the remuneration of both FCA and PRA-regulated firms currently within the Remuneration Code’s scope.  Clawback must be possible for a period of at least seven years from the date of the award of the remuneration.  For senior managers, firms must ensure that there is an option in employee contracts for the deferral period to be extended by three years (i.e. to ten years) where a firm has commenced an internal investigation (or a regulator has commenced an investigation) that could potentially lead to the application of clawback.
  • Buy-outs.  The PRA and FCA are consulting on four potential approaches to controlling the impact of firms buying out the variable remuneration lost by employees when they move positions, on account of ‘bad leaver’ clauses.  The options include: (1) banning buy-outs; (2) banning bad leaver clauses, for the purpose of ensuring that malus rules would continue to apply; (3) in effect, the regulator applying malus to buy-out awards; (4) relying only on clawback to control buy-outs.
  • Metrics.  The regulators are consulting on imposing a uniform rule for the calculation of profit, and for performance metrics, in relation to the calculation of bonus pools overall and for individual bonuses.

Conduct Rules

  • The FCA has stated that it intends to apply the Conduct Rules to all bank staff, except those in generic roles (such as receptionists or catering staff) “whose role would be fundamentally the same as it would be if they worked in a non-financial services firm”.  In other words, a far, far wider population of bank employees may now be disciplined by the FCA for misconduct.  The PRA has adopted a far narrower approach in accordance with its (prudential) objectives.  The rules under APER will continue to apply to non-banks.
  • The content of the proposed Conduct Rules is much the same as under the current approved persons regime (APER).  However, there is one new proposed rule for SMFs that is of note: “You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversea the discharge of the delegated responsibility effectively”.
  • Notification of disciplinary matters.  Firms are proposed to be required to report breaches or suspected breaches of the Conduct Rules by a SMF within seven days of the firm becoming aware of the matter.  In relation to other staff, firms will be required to produce a quarterly report only to the FCA.
  • The PRA has elected not to provide detailed guidance as to the effect of the new Conduct rules.  The FCA, however, has produced guidance.  This accords with the regulators’ differing approaches to producing policy material.

Senior Managers Regime

  • PRA-specified senior management functions (SMFs), who are the most senior individuals in a bank, are relatively small in number.  Only 11 specific positions are specified in the consultation paper.  The FCA-specified SMFs are far more numerous, including all non-PRA-specified board members, and certain functions currently specified under APER (e.g. the compliance and money laundering functions).
  • Banks will be required to produce a ‘responsibilities map’ which sets out how management and governance arrangements are allocated throughout the firm.  The responsibilities map should designed so that there are no gaps in accountabilities, and the firm’s board will be required to confirm annually that the map has no such gaps.
  • The PRA and FCA have taken slightly different approaches to the allocation of responsibilities amongst senior managers.  The PRA allocates specific responsibilities to each type of SMF – e.g. the chief finance function is responsible for finance.  In addition, the PRA has set out 18 ‘prescribed responsibilities’ that must be allocated to SMFs in the firm (whether PRA- or FCA-specified SMFs).
  • By contrast, the FCA will require the first 8 of the PRA’s prescribed responsibilities to be allocated to SMFs, but otherwise has a more flexible regime of ‘key functions’ that the FCA expects ought in most circumstances to be allocated to an individual SMF.  However, the consultation paper is relatively curt as regards the expected approach to handover certificates, and the content of statements of responsibilities.

Certification regime

  • The core of the certification regime is that banks rather than the regulators should assess the fitness and propriety of employees within the scope of the regime (which includes employees who could cause the bank ‘significant harm’, but are not SMFs).  However, the FCA does not propose to set out detailed rules for firms to apply.  Rather, it will amend the FIT section of the FCA Handbook “so that its application and relevance for firms’ assessments is readily apparent”.  By contrast, the PRA proposes to make general rules in due course.
  • Although the regulators differ slightly on their approach to general guidance, both regulators will require firms to (1) undertake a criminal records check before appointing a person to a certification function or a SMF and (2) take up references covering the last five years of the individual’s employment history for the same purpose.  Firms providing references will be required to disclose whether an individual breached a Conduct Rule, the basis for the firm’s conclusions, and any disciplinary action taken as a result.  This is a further expansion in the importance of references for individuals applying for jobs in the financial service industry.
  • The FCA’s proposed scope for individuals subject to the certification regime includes ‘material risk takers’ (i.e. individuals subject to the remuneration code); anyone who would have been a ‘significant influence function’ under APER but is not a SMF; customer-facing roles that have qualification requirements, as set out the Training and Competence Sourcebook section of the FCA Handbook; and anyone who supervises or manages another certified person.  However, only ‘material risk takers’ will be certified persons within the PRA certification regime, with certain exceptions.
  • If a firm refuses to renew the certificate of an individual, it will be required to “take reasonable care to ensure the individual ceases to perform the certification function in question”.  Clearly, the reasonableness of the removal of the certification will be key for the purposes of any unfair dismissal claims arising.

Impact on non-banks

  • Prior to the release of the consultation paper, the FCA had indicated that it was considering the changes that it would make to the approved persons regime for non-banks in the light of the changes for banks set out in the Banking Reform Act.  It would appear, at first sight, that those changes for non-banks are relatively limited.  Footnote 2 of the CP on accountability states: “Other regulated firms are not affected by the changes“.  As a result, the regulatory systems for individuals in respect of banks and non-banks will be quite different for the foreseeable future.

The deadline for responses to the two consultations is 31 October 2014.

Thomas Ogg

Remuneration Code: Clawback and the Bonus Cap

July 28th, 2014 by Tom Ogg

In recent days, two pieces of news related to the most controversial elements of the Remuneration Code have emerged: clawback, and the bonus cap.  The Remuneration Code applies to the variable remuneration (i.e. bonus) of certain employees of banks, building societies, investment firms, and some overseas firms of a similar nature.


Following the conclusion of the PRA’s consultation on “clawback”, the final instrument amending SYSC 19A (the Remuneration Code section of the PRA and FCA Handbooks) has been published by the PRA.  It is available here.

Clawback is a contractual mechanism whereby a firm may require repayment of remuneration already paid to an employee.  Under the proposals, variable remuneration (only) must be subject to clawback for a period of at least seven years from the date on which it was awarded.

The rules will only apply to PRA-regulated firms, which is a smaller group that to which the Remuneration Code applies generally.  For example, although the Code applies to all investment firms, only nine of the biggest investment firms are PRA-regulated. 

The key rule will be SYSC 19A.3.51B R (see the instrument):

A firm must make all reasonable efforts to recover an appropriate amount corresponding to some or all vested variable remuneration where either of the following circumstances arise during the period in which clawback applies:

(a)  there is reasonable evidence of employee misbehaviour or material error; or

(b)  the firm or the relevant business unit suffers a material failure of risk management.

A firm must take into account all relevant factors (including, where the circumstances described in (b) arise, the proximity of the employee to the failure of risk-management in question and the employee’s level of responsibility) in deciding whether and to what extent it is reasonable to seek recovery of any or all of their vested variable remuneration. 

Clearly, firms will struggle with phrases such as ‘all reasonable efforts’, ‘reasonable evidence’, ‘all relevant factors’ and ‘to what extent it is reasonable’.  For an in-depth discussion of the issues relating to clawback (including some of those terms), see Richard Leiper’s excellent article in the ELA Briefing (£).   The PRA’s instrument comes into force from 1 January 2015, and applies only to remuneration awarded after that date.

The Bonus Cap

At present, employees subject to the Remuneration Code may only be awarded a bonus that is no more than 100% of salary: see SYSC 19A.3.44 R.  However, a firm may award bonuses of 200% of salary, so long as the shareholders of the firm consent in accordance with the procedure set out in SYSC 19A.3.44B R.  The procedure requires, among other things, that 66% of the shareholders agree to the higher cap, or 75% if less than 50% of the shareholders are represented at the vote (as measured by voting power, rather than the number of shareholders).  The procedure is transposed from article 94(1)(g)(ii) of CRD4.

The European Banking Authority has now issued a Q&A on the precise mechanisms to be adopted at such a shareholder meeting.  It should be stressed, however, that the Q&As do not have the force of law, nor do they have ‘comply or explain’ status.  However, they may be of persuasive value in any future proceedings, and the Commission has a role in the drafting of the Q&As.   Two issues are usefully fleshed out by the Q&As:

First, there are points as to the specific procedure to be adopted at a shareholder meeting:

…without prejudice to national law, it should be noted that to determine what proportion of the share/ownership rights is “represented” as required by CRD, a poll vote should actually take place at the relevant shareholder meeting (even if the outcome of such a vote may appear obvious from a show of hands and/or any proxies received). In line with the applicable company law, firms should make it clear to shareholders/owners how each form of conduct (voting for or against, sending a proxy, abstaining, attending but not voting etc.) will be treated for the purpose of being represented. The meaning of being “represented” is the same for the threshold test (i.e. the 50% test) as for the majority test (i.e. the 66% or 75% test).

Voting results should be duly documented and disclosed.

Second, the issue of what to do with the votes of employees whose remuneration is at stake in the vote is addressed.  CRD4 and SYSC 19A.3.44B R (4) make clear that those employees are not to be permitted to participate in the vote on the bonus cap.  Helpfully, the Q&A states that the voting rights of those employees should not be counted in relation to the denominator, either.  In other words, when calculating whether a 50%, 66% or 75% threshold has been reached, the voting rights of those employees should be ignored entirely. 

Thomas Ogg

Company boards and equality laws

July 23rd, 2014 by Tom Ogg

The Equality and Human Rights Commission has today released guidance entitled Appointments to Boards and Equality Law, written to help companies and others understand what steps are permitted in order to increase the representation of women at board level.

The most important points to note:

  • Companies may select on grounds of sex if two candidates for a position are assessed to be of equal merit and where only one has a protected characteristics (e.g. gender) which is underrepresented in the company: section 159 of the Equality Act 2010.  Otherwise, positive discrimination is unlawful.
  • Companies may also take positive action to promote participation by women (and persons with other protected characteristics) if the (a) participation in a particular activity (such as holding a directorship in a particular company) is particularly low amongst persons sharing a certain protected characteristic, and (b) the aim of the positive action is to enable or encourage persons with that protected characteristic to take up that activity.

Examples of lawful positive action provided by the EHRC are (page 8 of the guidance):

  • reserving places for women on training courses in board leadership
  • targeting networking opportunities for women
  • providing mentoring and sponsor programmes, which assist in the development of female talent.
  • offering opportunities to women to shadow existing board members and/or observe board proceedings
  • placing advertisements where women are likely to read them and encouraging a pipeline of applicants, and
  • setting aspirational targets for increasing the number of women on boards within a particular timescale.

Finally, the guidance notes the provisions of the proposed EU Directive on improving the gender balance amongst non-executive directors of companies listed on stock exchanges (Directive 2012/0299).  It is a time-limited directive, ceasing to operate in 2028, that includes provision for Member States to impose financial penalties on firms for breach of its provisions.   The following measures are required by the Directive:

  • Unsuccessful candidates would be able to request information on the selection criteria relating to non-executive board positions, on the company’s comparative assessment of the candidates for the job, and on the company’s reasons for selecting candidates.
  • Companies would be required to publish information on the gender composition of their boards, and submit yearly progress reports describing the measures used and proposed in order to reach the 40 per cent target. Those failing to meet the target would be required to explain the reasons for their failure, the measures taken thus far and those planned for the future.

Note that the Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013 already imposes a requirement on certain companies to publish an annual report containing information about the gender composition of their boards.

The guidance does not have the status of a Code of Practice issued under section 14 of the Equality Act 2006 (possibly for political reasons).  Courts and tribunals must, under section 15(4) of the 2006 Act, take into account any part of a Code of Practice that appears relevant to them to any questions that arise in proceedings.  However, although only guidance and not a Code of Practice, the fact that it is issued by the EHRC will usually be enough to ensure that a court seized of a matter to which the guidance is relevant will almost take it into account.

The guidance should therefore be helpful to companies and other bodies who worry about falling foul of equalities legislation, which is easily done.  See, for example, the prominent political blogger Guido Fawkes, who it appears was diligent enough to read page 10 of the guidance, which notes that all-women shortlists are unlawful under equalities legislation – and excitedly wrote a post on the guidance.  He failed, however, to reach page 11 of the EHRC guidance, which outlines the special provisions for political parties (until 2030) which permit the use of all-women shortlists by registered political parties in relation to elections to government (see sections 104 and 105 of the Equality Act 2010).

Thomas Ogg


Guido Fawkes has gamely updated his blog post to reflect the legal position set out above.  This blog was referred to as being written by  “people who seem to know what they are talking about“, which is as good an epithet for this blog as we could hope for.


Wrotham Park damages for breach of restrictive covenants and illegitimate competition? The Court says yes in One Step (Support) Ltd –v- Morris-Gardner & Anor [2014] EWHC 2213

July 15th, 2014 by Simon Devonshire QC

In Wrotham Park v Parkside Homes [1974] 1 WLR 798, the Court declined to order a land-owner to destroy a property he had built on his land in breach of a covenant in favour of his neighbour.  Instead, it awarded the neighbour damages in lieu of an injunction under Lord Cairns’ Act, in such sum “as might reasonably have been demanded by the [covenantee] … as the quid pro quo for relaxing the covenant” (815).  The Court assessed the damages as a modest percentage of the profit anticipated (“with the benefit of foresight”) by the contract breaker.

Employment lawyers have sought to exploit Wrotham Park for some time now, particularly following the seminal judgments of the House of Lords in AG v Blake [2001] 1 AC 268, where it was held that in exceptional circumstances (where conventional remedies had no value) the contract breacher could be required to account for the fruits of his breach of contract.  The implications of both decisions were considered in WWF-World Wide Fund for Nature v World Wrestling Federation [2007] EWCA Civ 286, a claim by the Fund that the Federation had breached contractual restrictions agreed between them on the use the Federation could make of the WWF initials.  The Court held that in light of the judgment in Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830, it had to be regarded as settled that, on a claim by a covenantee for an injunction and damages against a covenantor who had acted in breach of a restrictive covenant, the Court might, in addition to granting an injunction to restrain further breaches, award damages in respect of past breaches notwithstanding that the covenantee could not establish actual financial loss (para 48), in the sum it would have been reasonable for the covenantor to pay and the covenantee to accept for the hypothetical release of the covenant. 

Much of the debate in the WWF case focused on the power to award damages in lieu of an injunction under Lord Cairns’ Act, and the cases decided under that jurisdiction (and in particular Wrotham Park).  However, the Court accepted (obiter) that such damages were available at common law (whether or not an injunction was sought).  As Chadwick LJ put it at para 54 “the power to award damages on the basis of what it would have been reasonable for the covenantor to pay for a hypothetical release does not depend on the covenantee establishing (as a factual premise) that, absent a release, the covenant could have been enforced by injunction …”.    The Court also said that it was wrong to regard this as a “gain-based” remedy.  Rather (para 55) “… that formula … was informed by the view … that the circumstances led inexorably to the conclusion that – had there been any negotiated release from the restrictions imposed by the settlement agreement – it would have been ‘on terms requiring payment of a royalty’.  The formula reflected the Court’s view as to the basis upon which the hypothetical bargain between the parties, acting reasonably, would have been made.”

Up to now attempts to apply that reasoning to breaches of post-termination employment covenants have met with resistance.    Conventional wisdom leant against the award of such damages in the paradigm employee defection case.  Wrotham Park damages are not available to the victim of a (contractual) breach as of right.  They “are available in broadly two situations: … where it is impossible to compute the loss or where compensatory damages would be inadequate”; Lighthouse Carrwood Ltd v Luckett [2007] EWHC 2866 at para 58.  The modern judicial development of Wrotham Park springs out of the House of Lords’ judgment in AG v Blake [2001] 1 AC 268, and the development of remedies “for innocent parties who will suffer loss from breaches of contract which are not adequately remediable by an award of damages” (per Lord Nicholls).  They will only be awarded where the Court is satisfied that they are “a just response to circumstances in which the compensation which is the Claimant’s due cannot be measured (or measured solely) by reference to identifiable financial loss”; per Chadwick LJ in World Wide Fund for Nature v World Wrestling Foundation Inc [2008] 1 WLR 455.  On even the more expansionist views of the availability of such damages, the Court has to proceed cautiously and incrementally, so as not to subvert the ordinary (expectation loss) principles governing the assessment of damages; van der Gaarde v Force India [2010] EWHC 2373 (QB) esp at paras 503, 505, 507 and 538.  It must be “manifestly unjust” to leave the Claimant with no award (para 538).  Such damages will not be appropriate at all where they provide relief “out of proportion to the real extent of the Claimant’s interest in proper performance”.

In BGC –v- Rees & Anor [2011] EWHC 2009 (QB) Jack J gave short shrift to a claim for Wrotham Park or transfer fee damages for the alleged breaches by individual brokers of their notice periods and PTRCs.  The claims posited a hypothetical negotiation between the recruiter and the employer from whom the employee had been (allegedly) poached. Tullett Prebon (i) argued that Wrotham Park could not be used as a panacea where the loss could be conventionally assessed, but where the alleged breach had not in fact harmed the victim’s economic interest, and (ii) pointed to the fact that there was no decided case where such damages had been awarded for breach of an employment contract.  Jack J. agreed (at para 97): “I have concluded that in the present situation release payment damages are not  available …  In English law three cases are of particular relevance: AG v Blake [2001] 1 AC 268, World Wide Fund for Nature v World Wrestling Foundation [2008] 1 WLR 455 and van der Gaarde v Force India [2010] EWHC 2373 QB.  The situation in the present case is one in which the court will ordinarily assess the loss of profit as best it may and award a figure.  The assessment may be difficult depending on the evidence which is available.  But the court is used to that, and can arrive at a figure just as it can, for example, in the difficult situation where it has to assess the loss of future earnings of a seriously injured teenager.  The intended function of the claim here is to avoid BGC’s problem that it cannot show that it has suffered any loss because it has not in fact done so.  In my judgment the award of release payment damages is not available as a substitute for conventional damages to compensate a claimant for damage he has not suffered.  Nor should it be used to award a larger sum than a conventional calculation of loss provides. [Emphasis Supplied]

There were signs in subsequent cases that other decisions of the High Court might take a less restrictive approach.  An attempt was made to claim Wrotham Park damages for breach of a confidentiality agreement in Jones –v- IOS (RUK) Ltd & Anor [2012] EWHC 348 (Ch).   Whilst the Judge found that (on the facts) a hypothetical negotiation would have yielded no (or at most a nominal) licence release fee, he did not suggests that this sort of case was per se inappropriate for such an approach to the assessment of loss.   On the contrary, he regarded it as “now well established that in an appropriate case damages for breach of contract may be measured by the benefit gained by the contract breaker from the breach … the court may award damages to the claimant to represent the price he could reasonably have extracted for requiring a licence payment in return for permitting the defendant to do what he has done” (para 97).  However, the consideration of the hypothetical negotiation had to be “founded upon the underlying realities of the situation against which it falls to be undertaken” (para 108) and would only be appropriate where it was manifestly unjust to leave the claimant with no award (para 109).    More recently, in Force India –v- I Malaysia Racing Team & Ors [2012] EWHC 616 (Ch) Arnold J concluded that what he called “negotiating damages” were available for breaches of both contractual and equitable obligations of confidence, although only where the claimant could not prove that he had suffered loss in any of the more conventional ways (para 424).

Which brings us to One Step (Support) Ltd –v- Morris-Gardner & Anor[2014] EWHC 2213.    The claimant (a company providing supported living services to children leaving care and to vulnerable adults) alleged that the defendants (a former director and manager) had breached non-compete covenants and obligations of confidentiality by setting up and operating a rival business.   The Court found the claim well founded.   It declined a claim for an account of profits for breach of contract (on the basis that such a remedy was only available exceptionally following AG –v- Blake, and on the facts the breaches were relatively straightforward and unremarkable).   However, the Court concluded that there was no need to find “exceptional circumstances for there to be an award of Wrotham Park damages, which might be considered to be simply one form of compensatory damages” (para 104), and that this was “a prime example” of a case in which such damages should be available – “[t[he defendants have breached straightforward restrictive covenants in circumstances where it will be difficult for One Step to identify the financial loss it has suffered by reason of the … wrongful competition, not least because there was a degree of secrecy in the establishment of [the defendant’s] business which has not been fully reversed by the disclosure process” (para 106).   The Judge buttressed the conclusion that negotiating damages were available because “the covenants provided that the restraint was subject to consent, not to be unreasonably withheld”.    He awarded Wrotham Park or ordinary damages, at the Claimant’s election (para 108) 

This judgment (if followed) seems to show a significant relaxation of the circumstances in which Wrotham Park damages might be appropriate.    Indeed, the judgment doesn’t recognise any of the notes of caution or restriction sounded in earlier cases (perhaps because they weren’t cited or relied upon), and suggests that such damages are available on an either/or basis at the claimant’s election (presumably depending upon the option that yields the greatest return).    There was indeed nothing unusual about the facts of One Step – where ex-employees set up a competing business, their actions are almost always secretive and surreptitious.    Even where a covenant does not recite that it may be relaxed by agreement, this is always possible by negotiation and it is hard to see this as a potent independent justification for the Court’s order.   Will One Step be regarded as a case on its own facts?   Alternatively, if the approach on One Step takes firmer root, will parties start seeking to resist interim injunction applications on the basis that damages are (now) an adequate remedy for the employer?     This judgment gives food for thought on many different levels.

Simon Devonshire QC

Jessemy v Rowstock Ltd: post-termination victimisation and the limits of judicial reasoning

March 7th, 2014 by Harini Iyengar

Harini Iyengar explains the Court of Appeal’s conclusion in Jessemy v Rowstock Ltd [2014] EWCA Civ 185 that victimisation of former employees remains unlawful even though “on any natural reading of the relevant provisions of the [Equality Act 2010], taken on their own and without reference to any contextual material, post-termination victimisation is not proscribed”.


The Court of Appeal (“CA”) has held that post-termination victimisation is unlawful, by adopting an ingenious interpretation of section 108(7) of the Equality Act 2010.  Whilst the outcome is clearly correct according to the coterie of right-minded employment lawyers (amongst whom I would aspire to class myself), the case provides an intriguing example of a court concluding that what the law says is in fact exactly what it does not say.  Does the type of judicial reasoning which the CA has deployed in Jessemy v Rowstock Ltd give discrimination law a bad name?

The Judgment

The judgment of the CA was given by Underhill LJ, former President of the Employment Appeal Tribunal (“EAT”), (with whom Ryder and Maurice Kay LJJ agreed) and upheld the judgment which his successor, Langstaff J, had given on the same issue in the EAT in Onu v Akwiwu, whilst overruling Mr Recorder Luba QC in Jessamy v Rowstock Ltd in the EAT.

As Underhill LJ stated, “the issue is one of pure law”, so, in regard to the facts, it is sufficient to relate simply that the claim of post-termination victimisation which the Employment Tribunal (“ET”) and then the EAT dismissed concerned a Claimant who was subjected to a detriment in the form of a poor reference from a former employer because he had brought proceedings for unfair dismissal and age discrimination.

The First-Generation Discrimination Statutes

The CA first considered the law on victimisation under the “first-generation” discrimination statutes (the Sex Discrimination Act 1975, the Race Relations Act 1976, and the Disability Discrimination Act 1995) which prohibited discrimination by an employer against a worker “employed by him” or “whom he employs”.  In Post Office v Adekeye the CA held in 1997 that the natural meaning of these phrases confined the protection against discrimination to workers employed at the time of the act complained of, however, in Coote v Granada Hospitality Ltd in 1999 the European Court of Justice (“ECJ”) held that since sex discrimination was proscribed under the Equal Treatment Directive, the “principle of effectiveness” meant that employees complaining of sex discrimination had to be protected against victimisation on that account, whether the victimisation occurred during employment or after termination.  On remission, the EAT held in Coote that “employed by him” should be construed as including a former employee who had complained of sex discrimination, and that Adekeye should not be followed.

Then, in Rhys-Harper v Relaxion Group plc in 2003, the House of Lords authoritatively determined that in regard to all three first-generation discrimination statutes, “employed by him” and “whom he employs” (despite the use of the present tense) could and should be read as applying to former employees.  According to Underhill LJ, “The essential point is that it was regarded as extremely unlikely that Parliament had intended to exclude all claims for post-employment discrimination.”  The majority reached those conclusions by applying ordinary domestic principles of construction, rather than the ECJ decision in Coote.

The Second-Generation Discrimination Provisions

In 2003, in regard to sexual orientation and religion or belief, and in 2006 in regard to age, the second-generation discrimination rights were brought in through statutory instruments which expressly rendered unlawful any discrimination or harassment which arose out of and was closely connected to “relationships which have come to an end”.  Equivalent provisions were inserted by regulation at the same time into the first-generation discrimination statutes.

This analysis brought Underhill LJ to the bedrock of his argument: “The upshot of all that is that at the time that the 2010 Act was drafted it was well-established that post-employment discrimination – which included victimisation – was unlawful.”

The Equality Act 2010

He went on to analyse the structure of the Equality Act 2010.  Part 2 sets out key concepts on equality, Chapter 1 giving the protected characteristics and Chapter 2 explaining “Prohibited Conduct” in the form of direct and indirect discrimination, ancillary matters, and then “Other Prohibited Conduct” in sections 26 and 27 defining harassment and victimisation respectively.  Unlike the first- and second-generation anti-discrimination rules, under the Equality Act 2010 rules, discrimination, harassment and victimisation are separated out as distinct forms of prohibited conduct.

It is only in Parts 5 and 8 that the relevant prohibited conduct is made unlawful.  In Part 5, sub-sections 39(3) and (4) make it unlawful to victimise an employee by subjecting him or her to any other detriment (such as providing a bad reference).  Section 83 contains the definition of “employee” as someone who is employed under a contract of employment, a contract of apprenticeship or a contract personally to do work.  Part 8 covers “Prohibited Conduct: Ancillary” and includes section 108:

(1)   A person (A) must not discriminate against another (B) if –

(a)   the discrimination arises out of and is closely connected to a relationship which used to exist between them, and

(b)   conduct of a description constituting the discrimination would, if it occurred during the relationship, contravene this Act.

(2)   A person (A) must not harass another (B) if –

(a)   the harassment arises out of and is closely connected to a relationship which used to exist between them, and

(b)   conduct of a description constituting the harassment would, if it occurred during the relationship, contravene this Act.

(3)   It does not matter whether the relationship ends before or after the commencement of this Act.



(6)   For the purposes of Part 9 (enforcement), a contravention of this section relates to the Part of this Act that would have been contravened if the relationship had not ended.

(7)   But conduct is not a contravention of this section in so far as it also amounts to victimisation of B by A.

The CA plainly identified “the problem” about section 108 as being that it explicitly proscribes post-termination discrimination and harassment, but contains no equivalent provisions as to victimisation.  Underhill LJ politely said of section 108(7) that its “intended effect is far from clear”.

The New Generation Directives

Underhill LJ next moved on to European Union (“EU”) law, in the form of the Race Directive of 2000, the Framework Directive of 2000 on religion or belief, disability, age and sexual orientation, and the Recast Directive on sex discrimination of 2006, which he categorised as the new generation directives, structured differently from the Equal Treatment Directive which was in force at the time of the claims in Coote and Rhys-Harper.  The new generation directives all contain a prohibition on victimisation which is worded in a broadly similar way, requiring Member States to introduce into their national legal systems such measures as are necessary to protect employees against dismissal or other adverse treatment by the employer as a reaction to a complaint within the undertaking or to any legal proceedings aimed at enforcing compliance with the principle of equal treatment.

Reaching the same conclusion in regard to EU law as he had in regard to domestic law, he said, “It is clear from the decision of the ECJ in Coote that that provision must apply equally to acts done after as well as during the currency of the employment relationship.”

The Straightforward Reasoning of the ET and the Luba EAT in Jessamy

The CA described the reasoning of the ET and the EAT in Jessamy as “straightforward”.  Mr Recorder Luba QC’s EAT regarded it as “highly unlikely” that Parliament had intended with the Equality Act 2010 to legislate away any redress for post-employment victimisation, given both the domestic law in Rhys-Harper and the UK’s obligations under EU law.  The EAT fully acknowledged the “flexible interpretative approach” required by EU law, and cited Attridge LLP v Coleman and Ghaidan v Godin-Mendoza, but concluded that to read section 108(7) as prohibiting post-termination victimisation would “fly directly in the face of what Parliament has actually enacted.”


The Wholly Domestic Interpretation of the Langstaff EAT in Onu

In contrast, Langstaff J’s EAT in Onu took an approach based on interpretative principles of domestic law, as in Rhys-Harper,  to conclude that the reference to “an employee of A’s” in section 39(4), could be stretched to include former employees.

The Reasoning of the Court of Appeal

Underhill LJ considered that it was “clear that on a natural reading of the relevant provisions of the 2010 Act, taken on their own and without reference to any contextual material, post-termination victimisation is not proscribed”.  How then did he manage to reach the opposite conclusion through deft judicial reasoning?

To start with, he acknowledged the shortcomings in Langstaff J’s approach in the EAT.  Although, in isolation, “an employee of A’s” can be read as referring to a former employee, that is not consistent with the scheme of the Equality Act 2010, in which prohibited conduct arising out of a past relationship will be proscribed, if at all, by the ancillary provisions in Part 8, and in particular by section 108.  There, discrimination and harassment post-termination are prohibited but not victimisation.

He then stated that when the contextual materials were considered, it was clear that the provision in the statute was “not the result which the draftsman intended”, pointing out that Langstaff J, Mr Recorder Luba QC, and the barristers in the case all shared that view.

The contextual materials on which Underhill LJ relied were (i) Rhys-Harper and the second-generation discrimination provisions which expressly made post-termination victimisation unlawful; (ii) the absence of any indication from the Government that the Equality Act 2010 was intended to change the law by removing protection against post-termination victimisation; (iii) the Explanatory Notes on section 108 which referred to claims being “dealt with under the victimisation provisions and not under this section”; (iv) the fact that if post-termination victimisation were not proscribed then the UK would be in breach of its obligations under EU law; and (v) the absence of any rational basis for treating post-termination victimisation differently  from post-termination discrimination and harassment.

Taken together, these five matters led him to conclude, “It follows that the apparent failure of the statute to proscribe post-termination victimisation is a drafting error.   …  In the end, it is unnecessary to be able to show how the error arose as long as it is clear that it was indeed an error.”

The key issue for Underhill LJ was therefore, “… how far is it right to go to correct what is an undoubted drafting error: would that, as the EAT put it, involve crossing the Rubicon?”  Underhill LJ reasoned that since the Equality Act 2010 gives effect to the UK’s equality obligations in EU law, the Court must adopt “the Ghaidan approach” which empowered it more widely to “depart from the natural reading of the language of the statute, including by the implication of words which alter its effect as drafted” than would be possible on a conventional domestic approach to statutory construction.  He considered that the “flexible interpretative” Ghaidan approach “unquestionably” applied here.  After a detailed analysis, he concluded that “the only question is whether it is “possible” … to imply words into the 2010 Act which achieve that result” of proscribing post-termination victimisation, that it plainly was possible, and that the implication of such words “in fact represents what the draftsman intended.”  According to Underhill LJ, the Luba EAT erred in failing to appreciate just how flexible the Ghaidan approach was.  Yet, while making this criticism, he acknowledged that “the effect of section 108(7) is decidedly opaque”.  After bravely attempting to find meaning in the sub-section, Underhill LJ concluded that the first possible meaning (that post-termination was not intended to be proscribed and therefore was also not proscribed where it happened also to constitute post-termination discrimination) was one which would have “no rational reason … for having that effect, and it would have perverse results”, and the second possible meaning (that post-termination victimisation was proscribed elsewhere in the statute but for some reason cases of overlapping post-termination victimisation and discrimination claims should only be complained of under those other provisions) was “unconvincing” because cases of overlapping claims are common and do not in practice give rise to double recovery.  Ultimately, Underhill LJ did accept that “it is indeed impossible to see the point of sub-section (7)”.  He considered that “the draftsman may rather have lost his way in his treatment of section 108”, noting that in Schedule 28 “discrimination” was said to be defined in, amongst others, section 108, whereas in fact that section proscribed it.

From this position, that the draftsman must have lost his way, made an error, and drafted a meaningless sub-section, Underhill LJ reached the view that the section 108(7) contained “no clear indication of an intention that post-termination victimisation should be lawful”.  Therefore, he reasoned, there was “no obstacle” to implying that section 108 gave effect to the EU obligation to proscribe post-employment victimisation.  Perhaps intending to guide the lost draftsman, the Court of Appeal suggested either an amendment to section 108(1) to add:

In this sub-section discrimination includes victimisation,

or a new sub-section 2A to add:

A person (A) must not victimise another (B) if –

(a) the victimisation arises out of and is closely connected to a relationship which used to exist between them, and

(b) conduct of a description constituting the harassment would, if it occurred during the relationship, contravene this Act.

Having determined that it was meaningless, Underhill LJ was “not sure that anything needs to be done about sub-section (7)”.  He was, however, careful to state that the meaningless sub-section “can have no meaning which is inconsistent with post-termination victimisation being unlawful.”

Then, at the request of the Equality and Human Rights Commission, which was concerned about discrimination in the provision of goods and services, not all of which is proscribed by EU law, Underhill LJ also considered whether the domestic approach to statutory construction would lead to a different result.  He accepted a “more straightforward domestic route to the same result, by way of a “rectifying construction” of the kind adopted by the House of Lords in Inco,” involving a “plain case of drafting error”.  For Underhill LJ, where there is a drafting error through omission, there is “no real difference” between the Ghaidan and the Inco approaches. 

In Inco the court concluded that “the draftsman slipped up” and “the court must be able to correct obvious drafting errors”: the court held that the words “from any decision of the High Court under that Part” were to be read as meaning “from any decision of the High Court under a section in that Part which provides for an appeal from such decision.”  According to Lord Nicholls in Inco, a court could adopt such a course only if “abundantly sure of three matters: (1) the intended purpose of the statute or provision in question; (2) that by inadvertence the draftsman and Parliament failed to give effect to that purpose in the provision in question; and (3) the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used, had the error in the Bill been noticed.”  Lord Nicholls went on to say, however, that the third condition was of crucial importance, because otherwise the court would be crossing the boundary between construction and legislation.

No doubt recognising the dramatic nature of his interpretation, Underhill LJ said, “It would be different in a case where no such intention is established and the argument is simply that the implication sought is necessary in order to comply with EU law or the requirements of the Convention.”


Through sophisticated reasoning, the CA has achieved a result which is fair in the minds of the coterie of employment lawyers, and which will be of practical service to many litigants (be they workers, employers, or those giving or receiving goods and services) by ending legal uncertainty.  Is it right, however, for a court to respond to a statutory provision which has no satisfactory meaning by implying into the statute words which make conduct unlawful?  The CA did not hold that sub-section 108(7) must be deleted as meaningless, but left it to “some other court” to “cudgel its brains about what real effect, if any, it has”.  In spite of its hesitation to delete the sub-section, the CA felt confident in asserting that, whatever it might mean, the sub-section was definitely inconsistent with post-termination victimisation being permitted.

It seems to me that the CA has turned a statutory provision, which is, at best, meaningless, and is, at worst, ambiguous and inconsistent with the UK’s equality obligations under EU law, into a provision which renders conduct unlawful.  Can the position really be said to be analogous to Inco?  The Equality Act 2010 separated out harassment and victimisation into different claims, after decades of being aspects of discrimination.  In my view, the difficulty is that, whilst the draftsman clearly drafted poorly, exactly what he was up to in terms of tinkering with the law on discrimination, harassment and victimisation and how they should interrelate, remains very unclear, yet, I feel sure that he was up to something. 

Our clever judges know how to achieve the result which right-minded employment lawyers desire, through the deployment of deft judicial reasoning, but is it right to develop principles of judicial interpretation which permit a statutory provision to mean that conduct which is stated to be lawful is held to be unlawful? 

Access to justice in general is a matter of acute concern to barristers right now.  Within the field of employment law, the introduction of ET fees is having a profound effect on discrimination litigation, a part of the legal system which is intended to protect the most marginalised and disadvantaged groups of workers.  Is it idealistic and unrealistic for me to long for judicial reasoning which makes sense to those outside the inner circle of employment lawyers, in regard to what the major discrimination statute means?  Does the type of judicial reasoning which the CA has deployed in Jessemy v Rowstock Ltd give discrimination law a bad name?

Harini Iyengar

Fair deal

March 5th, 2014 by James Goudie QC

The Teachers’ Pensions (Amendment) Regulations 2014, SI 2014/424, amend the Teachers’ Pensions Regulations 2010, SI 2010/990, as previously amended, which govern the Teachers’ Pension Scheme (“the TPS”).  The 2014 amendments facilitate the implementation of the new Fair Deal – a non-statutory policy issued by HM Treasury in October 2013 (and provide for the third and final year of increased employee contribution rates, as recommended by Lord Hutton as part of his review into the affordability and sustainability of public sector pension schemes).   Amendments are made to existing arrangements to allow for access to the TPS for a new type of employee. 

Regulations 3 to 7 amend the 2010 Regulations so as to implement new Fair Deal.  Access to the TPS is expanded to allow a previously excluded type of employee (one who has been out-sourced from the public sector to an independent provider delivering public services) to retain their membership of the scheme.  Individual members continue to have access to the TPS while they remain employed on the out-sourced contract, and their access will continue following any subsequent compulsory transfers, so long as it is in respect of that same public service contract.


Staff restructuring and efficiency savings

February 7th, 2014 by James Goudie QC

In  Hazel and Huggins v Manchester College [2014] EWCA Civ 72 the Court of Appeal has dismissed the College’s appeal against a majority Employment Tribunal decision that the dismissals of two lecturers at HMP Elmley in Kent, Mrs Hazel and Mrs Huggins (“H&H”) were not for an “economic technical or organisational” (ETO) reason that entailed a change in the workforce, but were because they refused to agree to new, reduced terms, and this was connected to a TUPE transfer, making their dismissals automatically unfair.  Regulation 7 of TUPE provides that where, either before or after a “relevant transfer”, any employee (of the transferor or transferee employer) is dismissed, that employee shall be treated, for unfair dismissal purposes, as unfairly dismissed if the sole or principal reason for dismissal is the transfer itself  or “a reason connected with the transfer” that is not an ETO reason “entailing changes in the workforce”.

The College is a provider of further and higher education courses and vocational skills-based training. Among other things it provides offender learning in prisons. In 2009 it successfully bid for contracts to provide services in six regions of the Prison Service. In August 2009 it took over, under TUPE, the employment contracts of about 1,500 staff, including H&H,  in addition to about 2,000 already employed in offender learning and about 3,000 in the rest of the organisation.

A few months later the College’s Board agreed to a package of proposals set out in two reports from its Principal for what were described as “staff restructuring and efficiency savings” and “contract change for Offender Learning and other related staff’. The impetus for the proposals came from a number of factors. The general economic situation facing the further education sector was challenging.  There had also been changes in the funding allocation machinery.  Moreover, there were particular problems in Offender Learning.  Hidden costs had been encountered following the bid. In addition, employees in Offender Learning were on very disparate terms and conditions of employment, as a result of the College having built up this part of the business by absorbing a large number of different entities whose staff brought their previous terms with them.  Apparently they had to deal with no fewer than 37 sets of terms. Such a state of affairs was plainly very undesirable from the point of view both of effective management and of staff relations.  There was no doubt also a risk of equal pay claims. The total costs saving which it was planned to achieve from all aspects of the package was £5million.

Against this background, the package had a number of different elements.  These includedg redundancies and other restructuring of roles, efficiency savings, and the proposed standardisation of contractual terms, including a single pay-scale for all staff in Offender Learning. The number of potential redundancies notified to the DWP was 300. As regards the changes in terms and conditions, the plan was to ask staff to sign new contracts of employment.  If they did not agree they would be dismissed and offered re-engagement on the new terms.  The various elements in the package were in practice inter-related. The College made the point in the course of the process that the introduction of the standard terms and conditions which it was offering would produce costs savings which would reduce the number of redundancies required.

The process of implementation of the proposals was complex. It required much negotiation and consultation both with the University and College Union and with individual employees. H&H were initially warned that they were at risk of redundancy or a reduction in contractual hours, but in due course it became clear that they would retain their existing jobs. Both were sent letters explaining the new terms being offered and enclosing contracts for their signature. It was explained that they were at risk of dismissal if they did not sign. The proposed salaries were 18.5% less than the current level for Mrs Hazel and 13.2% less for Mrs Huggins, though there would be a one-year period of protected pay. That was not acceptable to either of them. There was a period of further consultation, during which they in due course confirmed that they would agree to all the proposed changes except those affecting pay. Eventually they were sent notices of dismissal, but before those took effect they accepted the new terms, albeit under protest and expressly “without prejudice”. On that basis they continued to work for the College, but they were paid only at the reduced level. They then brought their proceedings in the Employment Tribunal complaining that they had been unfairly dismissed.

Underhill LJ said (para 22) that in a case where Regulation 7 of TUPE, and, more particularly “the ETO defence” is in play, three questions (the last with two sub-questions) arise: (1) What is the reason, or principal reason for the employee’s dismissal? (2) Is that reason the TUPE transfer itself, in which case the dismissal will be automatically unfair, or a reason “connected with the transfer” or neither? (3) If it is “connected with the transfer”, (i) is the reason ETO and (ii) does it “entail changes in the workforce”?

As to the second question, it was common ground that the dismissals were connected with the TUPE transfer.  The Court concluded that the answer to the first question was that the reason for their dismissals was that H&H had refused to agree to the new pay terms, and that the answer to the third question followed (as will generally be the case) from the first, namely that the refusal to agree to new terms and conditions was not a reason which entailed changes in the workforce, applying the Court of Appeal decision in Berriman v Delabole Slate Ltd [1985] ICR 546.

The College had argued with respect to the first question that the reason for the dismissals was the entirety of the package of proposals agreed by the College’s Board and that the package incorporated proposed redundancies that did “entail changes in the workforce”.  The Court of Appeal accepted that the proposed harmonisation of terms was “in a general sense” related to the proposal for redundancies. They were adopted as part of the same package of proposals. Both were intended to contribute to the required costs savings.  The achievement of the standardisation of terms would reduce the number of redundancies needed.

However, said Underhill LJ (para 23) “the fact that there was a relationship of this kind has no bearing on the statutory question” of what was the reason for the dismissals.  It is trite law that what matters is the factors that operate on the employer’s mind as to cause him to dismiss the employees.  The College’s need for redundancies played no part in its reason for giving H&H notices of dismissal.  Their dismissals had nothing to do with the other elements of the package or the fact that some other employees had been, or were proposed to be, made redundant.  The Employment Tribunal had adopted the correct approach and had been entitled to find as a matter of fact that in the sequence of events the principal, indeed the only, reason why H&H were dismissed was that they had refused to agree to the new terms of pay.

James Goudie QC

Mba, Article 9 and Indirect Discrimination

December 5th, 2013 by Sean Jones QC

Ms Eweida, you may recall, is the British Airways employee who wanted to wear a cross on a necklace over her uniform so that others could see it. She considered that that was a religious belief. Over-simplifying, doing what she wanted to do meant a breach of her employer’s dress code. Ms Eweida complained that, amongst other things, she was the victim of an act of indirect discrimination.

The test of indirect discrimination is now to be found at Equality Act 2010s. 19. The constituent elements of the test are:

  1. A provision, criterion or practice (“PCP”) must be applied to the claimant;
  2. The respondent must apply it (or the Tribunal must be satisfied that they would apply it) to people who do not share the claimant’s protected characteristic (in this case, holding the belief);
  3. The PCP “puts, or would put, persons with whom [the claimant] shares the characteristic at a particular disadvantage”;
  4. The PCP puts or would put the claimant at that disadvantage; and
  5. The respondent cannot show it to be a proportionate means of achieving a legitimate aim”.

In the domestic proceedings Ms Ewieda failed at the third hurdle. She could not establish that there were others who shared her particular belief. This is often referred to as the requirement for a “group disadvantage”. Solitary disadvantage, the Court of Appeal found, was insufficient. Denied a domestic remedy, Ms Eweida went to the European Court of Human Rights. Again, rather over-simplifying, the ECtHR decided that the wearing of a crucifix in the manner proposed by Ms Eweida amounted to a manifestation of religion falling within Art 9(2) of the Convention:

Freedom to manifest one’s religion or beliefs shall be subject only to such limitations as are prescribed by law and are necessary in a democratic society in the interests of public safety, for the protection of public order, health or morals, or for the protection of the rights and freedoms of others.

The Court decided that the interference with the manifestation was not, in the particular circumstances, proportionate. The UK should have protected Ms Eweida’s right to manifest her religion and had failed to do so.

Whilst the reasoning was clear it left unaddressed a very significant question. The claim had not failed because the Court of Appeal had decided that the PCP could not be justified; it failed because it could not be shown to have had the necessary indirectly discriminatory effect. The question of justification did not arise. So was the effect of the ECtHR’s decision that element 3 of the statutory test was to be regarded as incompatible with Article 9.

The Court of Appeal has now addressed this question in its decision in Mba v Mayor and Burgesses of the London Borough of Merton. Mrs Mba wanted to obey the Fourth Commandment and refrain from working on Sundays. The Council needed to provide care 24 hours a day and seven days a week to those living in the children’s home at which Mrs Mba worked. Having accommodated her desire not to be rostered on Sundays for a period, the Council decided that it could no longer continue to do so. Following an unsuccessful grievance, Mrs Mba resigned.

It was accepted that the requirement to work Sundays was indirectly discriminatory. The argument was focussed on issue 5 above: whether the justification defence was available. There was no dispute that the Council had a legitimate aim so that the argument was focused, narrowly, on the question of proportionality. It was not a case, therefore, directly concerned with what one might call “the unresolved Eweida question”.

The Employment Tribunal had, in assessing proportionality, taken into account three specific factors. Only one matters for present purposes: the Tribunal had taken into account the fact that sabbatarianism was not, in its view, a “core component of the Christian faith”. A lot of Christians work on Sundays.

Christians might take the objection that judging what religion requires by what adherents actually do is a misguided exercise. We are all sinners. The Court focused on a rather different issue: whether the number of people affected was relevant to justification.

Maurice Kay LJ decided that that the Tribunal had erred in its approach to justification. It should not have been asking how many Christians were affected. It should have been looking at the extent of the impact on sabbatarians, i.e. those who shared Ms Mba’s particular belief. Once one was satisfied that others were affected adversely (so as to jump hurdle 3), the number of those affected was not something that was relevant to the assessment of proportionality. He specifically did not place reliance on either Article 9 or Eweida which he considered to be a case that was “entirely fact sensitive”.

Elias and Vos LJ took a different approach – one that depended upon the impact of Article 9. Patrick Elias (whom I adore with a near religious fervour) tackles the unresolved Eweida question head on. He says the “group disadvantage” requirement (ie, hurdle 3) cannot be read down. Reconciling the domestic legislation with the Eweida decision will, therefore, either take a differently minded Supreme Court or legislation. Article 9 could be used, however, to determine how the proportionality question should be answered. The effect of Eweida was that:

It does not matter whether the claimant is disadvantaged along with others or not, and it cannot weaken her case with respect to justification that her beliefs are not more widely shared or do not constitute a core belief of any particular religion.

Both Elias and Kay LJJ took the view that the smaller the group that shared a claimant’s belief the easier it should be to accommodate it. If number of adherents was a relevant issue, therefore, it had the opposite effect to that which the respondent might have supposed.

With all three judges deciding that the Tribunal had erred in law, did Mrs Mba win? Nope. It was decided that since there was in practice no way of accommodating Mrs Mba’s beliefs, the outcome would have been no different even if the Tribunal had adopted he correct analysis.

Sean Jones QC

ETO Exception Established under TUPE despite the “Subjective Fact-Intensive Analysis” Still Required

November 27th, 2013 by Harini Iyengar

Harini Iyengar considers the Court of Appeal’s (“CA”) latest analysis of the Economic Technical or Organisational Reason Exception (“ETO”) under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) and the tension between the employment regime and the insolvency regime


This welcome judgment for employers and their advisors illustrates when the elusive ETO defence can operate successfully.  Nevertheless, the CA stressed the highly fact-sensitive nature of the ETO defence.  Obtaining the right evidence in TUPE cases is a perennial practical problem and the CA’s analysis shows clearly that success will continue to depend upon the quality of the documentary and witness evidence available, and upon cross examination of witnesses, with its inherent uncertainties.

In Crystal Palace FC Ltd and CPFC 2010 Ltd v Kavanagh and others [2013] EWCA Civ 1410 the CA restored the judgment of the Employment Tribunal (“the ET”) that the employees should not be treated as unfairly dismissed for a reason connected with a transfer under regulation 7 of the TUPE (“Regulation 7”) because the reason for dismissal had been an economic, technical or organisational reason entailing changes in the workforce.  Briggs LJ stated:

Regulation 7 unambiguously requires a subjective fact-intensive analysis of the ‘sole or principal reason’ for the relevant dismissal, so that the Employment Tribunal needs to be astute to detect cases where office holders of insolvent companies have attempted to dress up a dismissal as being for an ETO reason, where in truth it has not been.

The Context

Maurice Kay LJ, giving the leading judgment, pointed out the unavoidable tension between Employment law objectives of protecting employees’ acquired rights and Insolvency law objectives of protecting creditors’ interests. 

This interesting TUPE case arose in the context of the financial difficulties experienced by Crystal Palace Football Club (“the Club”).  At the end of the 2009-2010 season, the Club was in dire financial straits and went into administration at the behest of the Agilo Master Fund Ltd (“Agilo”).  The club’s owner was Crystal Palace FC (2000) Ltd.  There was a serious prospect of liquidation and the administrator was Mr Brendan Guilfoyle.  It is a fact that the liquidation of a football club will often leave few or no assets to be realised for the benefit of its creditors as the players tend to be the most valuable assets.  So, Mr Guilfoyle sought to sell the Club as a going concern.  A consortium led by Mr Steve Parish was interested but the position was complicated because the Selhurst Park stadium was owned by Selhurst Park Ltd. 

On 9 February 2010, Mr Guilfoyle advertised the Club for sale in the Financial Times, in the knowledge that Mr Parish’s consortium was already interested.  Three days later, Selhurst Park Ltd also went into administration and PWC were appointed administrators.  The principal creditor was the Royal Bank of Scotland, part of Lloyds Bank Group (“the Bank”).  Six days later, Mr Parish had signed a confidentiality agreement with Mr Guilfoyle.  It became clear to Mr Guilfoyle that there were no other credible bidders and the consortium was incorporated as CPFC (2010) Ltd (“CPFC (2010)”) and granted preferred bidder status.  Nevertheless, there was an obstacle because, understandably, CPFC (2010) wanted to acquire the Club only if it could also acquire the stadium.  The CA found (as so often happens in the context of TUPE and insolvency), “In the course of negotiations, the respective parties adopted positions, sometimes in public, for tactical reasons and what they were saying did not necessarily represent their true thoughts and intentions.”  

By May 2010 the terms of a sale agreement had been between Mr Guilfoyle and CPFC (2010).  On 24 May 2010 it was signed on behalf of CPFC 2010, however, it was held in escrow pending an agreement to acquire the stadium. 

Towards the end of May 2010, Mr Guilfoyle found the Club facing severe cashflow problems.  Agilo had lent the Club another £1,000,000 but it had been quickly used up.  Negotiations for a loan of £1,500,000 from Mr Parish were aborted when Agilo objected to its being given a preferential ranking.

The Facts became Critical

The CA found “the facts became critical” at that point in time and quoted extensively from the findings of fact contained in ET judgment.  Mr Guilfoyle decided to mothball the Club over the closed season when no matches would be played.  To that end he told his assistant to ask the Managing Director (“MD”) for a list of employees who could be made redundant and still permit the core operations of the club to continue during the closed season.  The MD took instructions from the administrator and he had been managing the Club on a daily basis during the administration.  The letter from the administrator to the MD stated that given the continuing uncertainty over the sale of the stadium and therefore the sale of the Club they had decided to sell the playing assets and mothball the Club’s trading operations at the end of May 2010.  Later correspondence stated that they had no funding for May and were reliant on the sale of a valuable player to discharge May’s liability.  The administrator had therefore decided that the Club would not trade in June and the creditors’ voluntary agreement would not be issued to creditors.  The proposal was to make the majority of administrative staff redundant on Friday and proceed with selling the more valuable players.  The MD met the Head of Finance and prepared a list of staff, retaining staff he believed necessary to continue to run the Club.  The administrator’s assistant wrote back to say more names were required.  Then a revised list was sent.

Mrs Kavanagh and three other employees were the Claimants.  They and 25 others were given letters of dismissal by Mr Guilfoyle on 28 May 2010, some with immediate effect and others from 31 May 2010. 

The CA quoted the ET’s words, that it was “a fast moving transaction, with scope for misunderstandings.”  In fact, the media got notice of the dismissals, and critical reports gave the impression that the Bank’s reluctance to agree the sale of the stadium was causing the impediment to the sale of the Club.  The Bank gave in to the media pressure.  On 7 June 2010 the sale had been agreed subject to formalities and technicalities.  The formalities of the sale of the Club to Mr Parish’s consortium were completed by 19 August 2010. 

Did the ETO Exception Apply?

The ET had found Mr Guilfoyle’s reason for dismissing the Claimants was genuine and it was in order to keep the Club alive as a going concern, in the hope that there would be a sale in the future.  The transfer of the Club remained a possibility but no more than that.

They drew a distinction between the administrator’s reason for the dismissal and his ultimate objective: “If the administrator’s reason is the necessity of reducing the wage bill in order to continue the business, in our view that is an ETO reason.  That reason is separate from the longer term objective of being able to sell the business in due course.  If the administrator’s reason for dismissal is that a smaller workforce will make the business more attractive to a prospective purchaser (who may not yet have been identified), that is not an ETO reason.”  The economic reason entailing changes in the workforce was simply that the administrator had run out of money and unless staff costs were reduced the Club would have to be liquidated.  It was not in Mr Guilfoyle’s contemplation that the very fact of making redundancies and the subsequent publicity would have the effect of very quickly changing the Bank’s mind, which enabled the sale of the Club.

In contrast, the Employment Appeal Tribunal (“the EAT”) had held that the ETO defence failed; it was clearly not an ETO reason because the dismissals were not in fact for the purpose of continuing the business but were with a view to sale or liquidation.

The CA considered the EAT’s reliance on a particular paragraph in Spaceright v Baillavoine: “For an ETO reason to be available there must be an intention to change the workforce and to continue to conduct the business, as distinct from the purpose of selling it.  It is not available in the case of dismissing an employee to enable the administrators to make the business of the company a more attractive proposition to prospective transferees of a going concern.”

Limiting Spaceright to its own facts, the CA held: “These proceedings involve the interaction of the legislative regime governing the position of employees on transfers of the undertakings of their employers and the regime governing companies in serious financial difficulties which have been put into administration.  The interaction of the two regimes will often involve tension between two policies.  The first is TUPE’s policy of protecting employees.  The second is the policy of encouraging the achievement of a better result for the company’s creditors than would be achieved on liquidation.” 

The CA described Regulation 7 as the “legal fulcrum” upon which the judgment swung.  Its application is “an intensely fact-sensitive process.”  A warning was issued to ETs and administrators that, “Care has to be taken not to enable those administering a company to so arrange matters as artificially to contrive an ETO reason and thus illegitimately to avoid the TUPE regime.”  The CA acknowledged on the other hand that there is a statutory regime to encourage corporate rescue and care must be taken not to characterise an arrangement by administrator as TUPE avoidance.

Interaction between the Protection of Employment and Insolvency

Briggs LJ provided an interesting discussion of the interaction between the protection of employment regime and the administration regime which operates for corporate insolvency. He said that he had been troubled about wider implications of the EAT judgment and the over extension of Spaceright.  His Lordship drew attention to Paragraph 3 of Schedule B1 to the Insolvency Act 1986 which sets out the purposes of administration, which include “rescuing the company as a going concern” and “achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration)”.  The latter purpose often involves a TUPE transfer.  An advantage of administration over liquidation is that the administrators have power to continue the company’s business protected by the moratorium on the pursuit of claims by creditors, so that it can be prepared and marketed for sale as a going concern, and proceeds of sale can then be distributed to the creditors, either by the administrators themselves or in a subsequent liquidation.  Once a business is closed down its value rapidly declines to an amount no greater than the aggregate value of the forced sale value of its constituent assets. 

“Pre-pack” administration, in which the business sale is arranged prior to the company going into administration, is becoming more popular.  In many administrations, however, the administrator continues the business in the hope or expectation of a sale for as long as he can, which means for as long as the necessary resources are available to him and while a sale at a price greater than the break-up value remains a realistic possibility.  Pragmatically, Briggs LJ pointed out that a company will only be in administration if it is hopelessly insolvent, to the extent that its directors have formed the view that without protection from its creditors it will not be able to trade its way out of its difficulties.  In his judgment, the company’s poor performance will often have arisen because of the manner in which the business was being conducted, and so the administrator will urgently need to reform and economise.  Dismissal of employees is unfortunately a principal method of economising.  Where employees make successful TUPE claims, liability will transfer to the purchaser, who will reduce the purchase price accordingly, thus reducing the sums available to creditors.

Describing Regulation 7 as a “tie-breaker”, Briggs LJ called for a “reality check” because if Regulation 7 were interpreted so that whenever there was a transfer, the employees’ rights on dismissal were transferred, then it would represent a significant enhancement of their employment rights by reason of the transfer, because, but for the transfer they would simply have received the less valuable rights afforded to dismissed employees under the insolvency code.


It is refreshing to see the CA doing a “reality check” so that the ETO defence which exists in theory in the acquired rights regime can be understood and made use of by businesses and administrators in practice at a moment of financial crisis, with a view to optimal long-term outcomes for both employees and creditors.

Applicable Law

September 26th, 2013 by James Goudie QC

In Case C-64/12, Schlecker v Boedeker, the CJEU considered the Rome Convention and the law applicable in an individual employment contract.  Ms Boedeker was employed by Schlecker, a German undertaking with branches in a number of Member States.  After working in Germany from 1 December 1979 until 1 January 1994, she entered into a new employment contract, under which she was appointed as Schlecker’s manager in the Netherlands.  By letter of 19 June 2006, Schlecker informed Ms Boedeker that her position as manager for the Netherlands was to be abolished, and invited her to take up, under the same contractual conditions, a post in Germany. 

Ms Boedeker lodged a complaint against her employer’s unilateral decision to change her place of work.  In that context, she brought various actions before the Courts in the Netherlands.  In one such action she claimed that Netherlands law should be declared applicable to her employment contract.  The Netherlands Court made a reference to the CJEU for a preliminary ruling. 

Article 3 of the Rome Convention provides that a contract shell be governed by the law chosen by the parties.  No choice had been made in this case. 

           Article 6 applies to individual employment contracts.  It provides (emphasis added):-

 “1.  Notwithstanding the provisions of Article 3, in a contract of employment a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable under paragraph 2 in the absence of choice. 

 2.  Notwithstanding the provisions of Article 4, a contract of employment shall, in the absence of choice in accordance with Article 3, be governed:

by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country; or

if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated, unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.”

Therefore the applicable law will not always be the law of the country in which the employee habitually carries out his or her work.  It will indeed not be that law if the contract is more closely connected with another Member State.  Regard must be had to all the Article 6 factors, first and foremost of which is the country in which the employee habitually carries out his or her work, in Ms Boedeker’s case the Netherlands without interruption for more than 11 years. 

The CJEU did not rule out that nonetheless German law could apply.  She worked for a German company.  The financial elements were German based.  There were other German factors.  It would be open to the national Court to find that the contract was more closely associated with Germany than with the Netherlands, notwithstanding that the law of the Netherlands might be more favourable to Ms Boedeker than the law of Germany. 

The CJEU stated that the national Court must take into account all the circumstances of the case, and that among the significant factors suggestive of a connection with a particular country, account should be taken in particular of the country in which the employee pays taxes on the income from his activity and the country in which he is covered by a social security scheme and pension, sickness insurance and invalidity schemes. 

Landmark TUPE case decided in CJEU

July 26th, 2013 by admin

On 18th July 2013 the CJEU promulgated its Judgment in Alemo-Herron v Parkwood Leisure Ltd.

The central issue in that long-running litigation was the following:

1. where the contracts of employment between a transferor employer and its employees have a term incorporating the terms agreed from time to time in a collective bargaining process; and

2. the undertaking and those employees are transferred under TUPE; and

3. the transferee employer is not able to participate in that collective bargaining process;

4. is the transferee employer bound to apply terms agreed from time to time in that collective bargaining process after the date of the transfer

In the language of Europe, the view that the transferee employer is bound by post transfer collectively agreed terms is referred to as “the dynamic” view, and the opposite view is known as the “static” view. Parkwood, of course, argued for the static view to prevail. In doing so Parkwood relied on the earlier ECJ decision of Werhot [2006] ECR-1-2397.

The UK Tribunals and Courts came up with a range of different answers to the above issue and the Supreme Court referred a number of questions to Europe.

The CJEU has decided that Member States are precluded from introducing provisions which have the effect of binding transferees to the terms agreed after the transfer by some collective bargaining body to which the transferee cannot belong. In doing so the CJEU relied both on general principles and on the Judgment of the ECJ in Werhof.

The effect of this is that what was the established case-law in the UK under TUPE prior to this case, which case-law followed the dynamic approach (such as Whent v T Cartledge Ltd [1997] IRLR 153) is no longer good law.

Adrian Lynch QC acted for Parkwood Leisure Ltd.

Read judgment click here

The Supreme Court widens scope for equal pay comparisons

June 27th, 2013 by Julian Milford

Julian Milford

The question of when equal pay claimants can rely upon comparators employed at different establishments on common terms and conditions under s.1(6) Equal Pay Act 1970 (and now, s.79(4) Equality Act 2010) has long generated an inordinate amount of heat, not light. A unanimous Supreme Court (Lady Hale giving the single judgment) has now cleared away some of the fog of confusion in North v Dumfries and Galloway Council [2013] IKSC 45. In the process, it has overturned both the EAT and the Court of Session Inner House.

The background is this. Back in 1996, the House of Lords decided in British Coal Corporation v Smith [1996] ICR 515 that claimants in establishment A relying on comparators in establishment B did not need to be employed on common terms and conditions with their comparators. They only had to show that, if comparators were employed at both establishment A and establishment B, the comparators would themselves be on common terms. I.e. the test of commonality need only be between comparators, not between claimants and comparators.

What Smith arguably left open was the nature of the hypothesising required. Did it have to be at least feasible that comparators could be employed at the claimants’ establishment? And did the Tribunal have to hypothesise about how comparators’ terms and conditions might have to be varied, in order to make work at the claimants’ establishment possible?

The North case concerned school-based claimants seeking to compare themselves with manual workers such as grounds workers and refuse workers in different establishments. The EAT said that there had to be a “real possibility” of the comparators being employed at the claimants’ establishment, which was not the case here. The CSIH disagreed, but upheld the EAT in the result, on the basis that if comparators were employed in schools, their terms and conditions would need significant variation to make such working possible. So on the facts there would be no commonality of terms.

The Supreme Court disagreed with both the approach of the EAT, and the approach of the CSIH. It said that it was entirely unnecessary to hypothesise either about whether comparators ever could be employed at the claimants’ establishment, or about what adjustment would be needed to their jobs if they were. All one needed to ask was what terms comparators would be employed on, if they did their same jobs in a different location. That was a simple test, which the Employment Judge had correctly applied at first instance. So the claimants were entitled to compare themselves with manual workers in different establishments.

At first blush, it may seem surprising that the claimants in North did not argue their case in the alternative on the basis of the direct effect of Article 157 TFEU, and the test it lays down that there be a “single source” of terms and conditions for both claimants and comparators. The reason (which is not apparent from the SC’s judgment) is that the claimants had specifically reserved their position on whether the council was a “single source”, depending upon the outcome of their case on cross-comparisons under domestic law.

Lady Hale nevertheless made some interesting observations in North about the “single source” test, as support for her analysis of the relevant domestic law provisions. She referred with approval to the observations of the Advocate General in Lawrence v Regent Office Care Ltd C-320/00 [2003] ICR 1092 on when there would be a single source. The A-G had said there would be a single source in three categories of case: (i) where statutory rules applied to working and pay conditions in more than one establishment; (ii) where several establishments were covered by the same collective works agreement or regulations ;and (iii) where terms and conditions were laid down centrally for more than one organisation or business within a holding company or conglomerate. She also pointed out that the researches of counsel had discovered “no case in the Court of Justice in which the principle of equal pay has not been applied between men and women who work for the same employer”. She said (obiter) that applying the relevant principles “in this case it is quite clear that the difference in treatment between the claimants and their comparators is attributable to a single source, namely the local authority which employs them and which is in a position to put right the discrepancy if required to do so”.

Lady Hale’s approach to a “single source” casts doubt upon the Court of Appeal’s case law upon the issue:

(1)    In Armstrong v Newcastle upon Tyne NHS Trust [2006] IRLR 124, the Court of Appeal said that claimants and comparators employed by a single hospital trust in different establishments were not subject to a “single source”, because the hospital had not assumed responsibility for setting the terms and conditions of the comparators (who had transferred under TUPE). It is very difficult to reconcile that approach with North.


(2)    In DEFRA v Robertson [2005] ICR 750 the CA said that a single source did not apply civil servants in different government departments, who were all servants of the Crown, but whose terms were individually negotiated by departments to whom responsibilities were devolved under delegated legislation. It may be that this approach is also up for grabs in light of North. Lady Hale said that she did not need to decide the correctness of the Robertson case, but at least suggested that there was an argument to be had: see [40]-[41].

Overall, the Supreme Court’s approach simplifies the applicable principles. It also significantly widens the scope for cross-establishment comparisons in equal pay cases.

Contracting a contagious disease in the course of a teacher’s employment

May 30th, 2013 by Clive Sheldon QC

The Burgundy Book (the Conditions of Service for School Teachers in England and Wales) provides that a teacher is entitled to full pay where her ‘absence was due to an infectious or contagious illness contracted directly in the course of the teacher’s employment’, and that ‘such absence was not be reckoned against the teacher’s entitlement to sick leave’.

The meaning of the phrase ‘in the course of the teacher’s employment’ for these purposes was recently considered by the Employment Appeal Tribunal (“the EAT”) (presided over by Mitting J.) in O’Brien v. the London Borough of Haringey, The Governing Body of Coleraine Park Primary School (UKEAT/0167/12).

The facts were rather unusual. The primary school wanted to be part of a British Council initiative which involved creating links between schools around the world. A school teacher, Ms. O’Brien, had travelled to Gambia, and visited a school there. On her return, Ms. O’Brien sought to make arrangements for the primary school to be linked with the Gambian school. She also planned to visit that school during the next half-term holiday, where she would exchange materials with the Gambian school. It was agreed with her school’s head teacher that she would make the visit to Gambia, paid by herself, and would exchange the materials. Also, that she would be given paid leave for one day to allow her to fly out to Gambia.

Ms. O’Brien visited the school in Gambia, but unfortunately contracted cytomegalovirus during her visit there as a result of contact that she had with local schoolchildren. Ms. O’Brien subsequently claimed that she was entitled to be paid during her illness, as well as a further related illness, on the grounds that she had contracted the illness directly ‘in the course of [her] employment’.

Ms. O’Brien’s claim was dismissed by the Employment Tribunal, but succeeded before the EAT. The EAT rejected the analogy with tortious vicarious liability on the basis that the rules for vicarious liability ‘are established fundamentally as a result of a policy decision made by the law about the transference of liability for risks created by wrongful acts by those acting as the employees or agents of another person’. The task for the EAT was said to be different: ‘It is to determine what the two parties to the contract agreed should happen in the event that the employee suffered from illness’. The task, therefore, was to construe the contract. In doing so, the EAT drew heavily on a different paragraph to that dealing with ‘infectious and contagious illness’: the EAT referred to a paragraph of the Burgundy Book dealing with an ‘absence due to accident, injury or assault attested by an approved medical practitioner to have arisen out of and in the course of the teacher’s employment, including attendance for instruction at physical training or other classes organised or approved by the employer or participation in any extra curricular or voluntary activity connected with the school’, where full pay was awarded.

The EAT decided that this paragraph showed what the parties viewed as being “in the course of the teacher’s employment”: it included ‘participation in any extra-curricular or voluntary activity connected with the school’. Although the Burgundy Book had not spelt out the same definition when dealing with contracting illness, the EAT held that there was no reason why the parties should have adopted a different meaning to that for accidents, injuries and assaults.

Applying that definition, the EAT held that Ms. O’Brien’s illness was contracted during the course of her employment:

‘The school wished to take part in the initiative proposed by the British Council. To that end it required a link to be established with an overseas school and the exchange of materials with that school. Although the proposal that the link should be established with the school in Gambia came from the Claimant, it was approved and therefore determined by the acting headteacher that it should be that school with which the link was to be made. The Claimant required the permission of the acting headteacher for two purposes: first, to take the day of school term off to permit her to go to Gambia; and second, to exchange materials, one side of which originated from her school, with the school in Gambia.

The Tribunal’s findings that the visit to the Gambian school and all that went on there were not “part of the claimant’s normal duties” and that it was “her initiative, it was not an official visit” and that it was “not her remit to engage in activities at the school in the Gambia” are not in point. What had happened was that the acting headteacher had agreed that she should go to the school with the permission of the school to exchange materials. It must have been reasonably contemplated that for that purpose she would not simply act as a postwoman but in the interests of furthering the links that it was hoped would be established between the schools and for her school’s purposes that she would go in the ordinary course of her visit beyond those simple tasks.

In the end, what she was doing was an activity undertaken with the permission and approval of the school and connected with it.’

In many ways, the school may feel that this decision is harsh. At most, the relationship between the Claimant’s employment and the Gambian school where she contracted the illness was tenuous. Also, as a matter of contractual logic, the fact that one definition is provided for ‘the course of the teacher’s employment’ in one paragraph does not mean that this can then be translated to a different paragraph. Indeed, the fact that the latter paragraph does not expressly refer to the other definition might suggest that it is not to be used. There may also be policy reasons for the difference in approach, although these do not appear to have been explored before the EAT.

Clive Sheldon QC

When do the secular courts protect the rights of a minister of religion? When is a minister of religion called by God to a non-contractual relationship and when does she do her job under a contract?

May 20th, 2013 by Harini Iyengar

The Supreme Court held in The President of the Methodist Conference v Preston that a Methodist minister was not an employee and therefore had no claim for unfair dismissal.

Question for the Supreme Court

Haley Anne Preston was a Minister of the Methodist Church until 2009.  The Employment Tribunal dismissed her claim of unfair dismissal on the basis that she was not an employee.  The Employment Appeal Tribunal and the Court of Appeal disagreed.

The question for the Supreme Court concerned the essential character of the relationship between a Minister in full connexion with the Methodist Church who held a particular appointment within the Church and the governing body of the Church.  By majority, the Supreme Court concluded that it did not give rise to legal rights and duties and both sides, and that the rights and duties which existed did not constitute a contract of employment.

Lord Sumption and the Majority Judgment

Lord Sumption reviewed the caselaw and noted that there had been two recurrent themes: the distinction between office-holders and employees, and the idea that the spiritual nature of a minister’s calling meant that the relationship between a minister and a church did not create legal relations.  In Diocese of Southwark v Coker [1998] ICR 140, the Court of Appeal held that a stipendiary assistant curate was not an employee, and two of the judges considered that there was a legal presumption that ministers of religion were office-holders who did not serve under a contract of employment.  The House of Lords in Davies v Presbyterian Church of Wales [1986] 1 WLR 323 adhered to the distinction between an employment and a religious vocation, although they did not exclude the possibility of legally-enforceable obligations arising via the law of trusts.  In President of the Methodist Conference v Parfitt [1984] QB 368, the Court of Appeal held that a minister was not an employee.  The leading modern case until the present had been Percy v Board of National Mission of the Church of Scotland [2006] AC 28.  The House of Lords had taken the view that offices and employments were not always mutually exclusive categories and there could be a contract of employment alongside a minister’s occupation as an office. 

Lord Sumption accepted that, following Percy, the question whether a minister served under a contract of employment could no longer be answered simply by asking whether the occupation was an office or employment, or whether it was spiritual or secular.  Nor could it be answered by relying on the presumption that ministers generally did not work under a contract of employment because of the spiritual nature of the work.  The primary considerations were the manner in which the minister was engaged and the character of the rules or terms governing her service.  The background upon which the exercise of contractual construction should occur included the fundamentally spiritual purpose of the functions of a minister of religion.

His Lordship examined the Methodist Deed of Union in detail, noting in particular that the ministry was of a life-long character, from which a minister could not resign without acceptance by the President, and that Methodists adhered to a doctrine of priesthood for all believers, with the same disciplinary code for lay members and ministers.  The Church did not regard the stipend or the manse as consideration for the services of the minister; they were material support without which the minister could not serve God. 

For Lord Sumption, the three cumulatively decisive features were: first, the manner in which a minister was engaged (through admission into full connexion and ordination) was incapable of being analysed in terms of contractual formation; second, the stipend and manse were provided because of admission into full connexion and ordination, and not the work done; third, there was no right to resign unilaterally, even on notice.  These features made the ministry a vocation and not an employment.

Ms Preston relied on the way in which she had been invited in writing to take up the position of Superintendent Minister at Redruth, and had accepted in writing.  Lord Sumption said, “In other contexts, an exchange of letters like this one might well have given rise to a contract.”  Nevertheless, because the exchange occurred within the framework of the Church’s standing orders, it meant they were only part of a much longer procedure.  The invitation from the local committee was only a recommendation to the President.  The relevant relationship was between the minister and the Conference, which had the power to move Ms Preston between circuits.  She was serving not under the five-year relationship to which she was invited, but under a life-long ministry.

Lord Sumption said that the analysis of the Employment Appeal Tribunal and Court of Appeal gave rise to difficulties.  First, it would mean that almost any arrangements for the service of a minister of religion would give rise to a contract, unless the minister was a non-stipendiary volunteer.  Secondly, the analysis of offer and acceptance in the correspondence was inconsistent with the standing orders.  The supposed contract would not fit into the scheme of the Church’s constitution.  Third, Lord Sumption found Ms Preston’s case indistinguishable from Parfitt.   He said that the Court of Appeal had been wrong, and had got around Parfitt by over-analysing Percy and by paying insufficient attention to the Deed of Union and standing orders.

For Lord Sumption, the central question was whether the parties had intended to enter into a legally binding agreement.  He said that the correct approach was to examine the rules and practices of the particular church and any special arrangements made with the particular minister.  He declined to answer how a minister could enforce a claim to a stipend and to occupation of a manse, without a contract, but said these benefits were probably enforceable as part of the trusts of the Church’s property.

Lady Hale’s Dissent

Dissenting, Lady Hale pointed out that just as there was nothing saying that the relationship was a contract of employment, there was nothing saying that it was not, so their Lordships could approach the issue with an open mind. 

She observed that the spiritual nature of religious ministry did not prevent there from being a contract of employment, pointing out that rabbis are normally employed by a particular synagogue, and that priests appointed to the Church of England are now engaged on “common tenure” terms which permit them to bring claims of unfair dismissal.

She also pointed out that it has always been possible to be an office-holder and an employee, as in the case of managing directors and university teachers.  To Lady Hale (who, of course, is a former professor), universities had a good deal in common with organised religion.  Indeed, she considered that the constitutional documents of the Methodist Church bore a strong resemblance to those of a university.

Lady Hale said that it would be very odd indeed if a minister who was not paid her stipend or who was threatened with summary eviction from her manse could not rely on the terms of her appointment to enforce the payment or resist eviction.  Her Ladyship said that the problem with leaving the legal redress to the law of trusts was that the Church holds property under any number of different trusts, whereas the stipend is paid centrally and the body which controls her and is responsible for her remuneration and accommodation is the Conference.  Another problem is that there is a distinction between just being a minister in full connexion with the Church and having a particular station or appointment within the Church.  No minister, even retired, can give up the evangelical duty to do what they can for the Church, and no person in full connexion can give it up without permission.  On the other hand, there was a process for assignment to particular posts, confirmed annually by Conference (although this was a rubber stamping process during the five years’ appointment).

The main factor which told against the appointment to a particular station being a contract between the minister and the Church was that the minister had no choice, and must go where Conference stationed her.  The reality, Lady Hale said, was almost certainly completely different.  Ministers had to go where they were put, however, it would be a very foolish stationing committee that put a minister where she was not willing to serve.  Lady Hale noted that they had had very little evidence about this, and did not think that a prior commitment to go where you are sent negates a mutual contractual relationship when you are sent and agree to go to a particular place.

Everything about the relationship looked contractual, Lady Hale considered, just as in Percy.  It was a very specific arrangement for a particular post, at a particular time, with a particular manse and a particular stipend, and with a particular set of responsibilities.  It was an arrangement negotiated at local level but made at a national level.  According to Lady Hale, the Church may well have had good reasons to be concerned about Ms Preston’s performance, but the allegation was that instead of investigating the concerns, the Church had reorganised the Circuits so as to make the investigation unnecessary and deprived Ms Preston of her post by reorganising it out of existence, without any of the safeguards to which she would have been entitled if an employee. 


The Supreme Court used the facts of Ms Preston’s case to distinguish her job for the Methodist Church from the job of Ms Percy for the Church of Scotland (the previous leading case on the employment status of ministers of religion).  Therefore, it seems that whether the UK secular courts will give a minister of religion the right to complain of unfair dismissal in future cases will depend on the specific and individual facts about the working relationship between the minister and her Church. 

It should be noted that the anti-discrimination laws protect a wider class of worker than employees, including workers under a contract personally to do work, who cannot complain of unfair dismissal.  Nevertheless, protection under the Equality Act 2010 against discrimination still requires that the work is done under a legally-binding contract.  Therefore, it appears that, at least at a domestic level, whether the secular courts will give a minister of religion the right to complain of discrimination in future cases will again depend on the specific and individual facts about the working relationship between the minister and her Church.  Some ministers of religion will find themselves in the same vulnerable position as volunteers, whom the Supreme Court recently held in X v Mid Sussex Citizens Advice Bureau [2012] UKSC 59 to be outside the protections of equality law.

Lord Sumption stated that the judgments of the Employment Appeal Tribunal and Court of Appeal (and by implication Lady Hale’s dissent) were problematic for him, because they would mean that almost any arrangements for the service of a minister of religion could give rise to a contract of employment.  As an employment practitioner, it is difficult to understand his concern, given that from 2011 the default position for ministers of the Church of England (the biggest UK Church) has been to hold their office under terms of common tenure, which give very similar rights and protections to those which employees enjoy under the employment statutes, and given that rabbis are generally employed by their synagogues or by the synagogue movement (eg Lew v Board of Trustees of United Synagogue [2011] EWHC 1265 (QB)).  Further, in my experience, ministers of religion generally do their jobs under a complex set of written rules and procedures anyway, much more detailed than in many other cases in which the employment tribunals do not hesitate to imply contracts of employment.  It is hard to see what unfairness or injustice would be caused to religious organisations if their arrangements with their ministers of religion were recognised as contracts of employment, in accordance with the reality as described by Lady Hale.

As there are no bishops in Methodism, this case does not seem to have any implications for the ongoing debate about women bishops in the Church of England.  At present, despite their rights under domestic and EU law, the would-be women bishops seem intent on keeping their dirty linen away from the secular courts.

Harini Iyengar

Failure to comply with the ACAS Code

May 14th, 2013 by James Goudie QC

Section 207A of the Trade Union and Labour Relations (Consolidation) Act 1992, inserted by the Employment Act 2008, is concerned with the effect of failure to comply with the ACAS Code.  In Lund v St Edmund’s School the EAT, presided over by Keith J, has held that, when considering whether “it is just and equitable in all the circumstances”, pursuant to Section 207A, to make an uplift to a compensatory award for an employer’s failure to follow the Code, an Employment Tribunal should not take into account the fact the employee had contributed to his dismissal. 

Mr Lund was a school teacher.  He was dismissed on the basis that the School had lost confidence in him, he had alienated his colleagues and there had been an irreparable breakdown in the employment relationship.  The ET concluded that his dismissal was for “some other substantial reason” and was procedurally and substantively unfair.  His basic and compensatory awards were reduced, however, by 65 per cent for contributory fault. 

The EAT held that there was no reason why a provision which was supposed to penalise employers for failing to comply with a relevant code should be disapplied in a case in which the employee had not contributed to that non-compliance.  Mr Lund had done nothing to contribute to the School’s failure to act in accordance with the ACAS Code. It was not open to the tribunal to deny him an uplift on his award on the basis that he had contributed substantially to his dismissal.  The fact that he had contributed substantially to his dismissal had already resulted in his basic and compensatory awards being reduced by 65 per cent.  To deny him an uplift on what remained of his compensatory award amounted to him being penalised twice and was an example of impermissible double-counting.

Moreover, the fact that Mr Lund was dismissed, not for a reason related to his conduct, but for “some other substantial reason” of such a kind as to justify his dismissal did not mean that Mr Lund’s claim did not concern a matter to which the ACAS Code related.  His claim concerned the conduct on his part which led his employer to consider whether he should be dismissed, even if it was not his conduct, but the effect of his conduct on others, which was the ultimate reason for his dismissal.

The EAT said that the ACAS Code was intended to apply when an employee faced a complaint which might lead to disciplinary action, or where an employee raised a grievance.  The ET had fallen into error by focusing on the outcome of the disciplinary process and not whether it had, or should have, been invoked.  It was true that by finding that the reason for the dismissal was “some other substantial reason” the ET was saying that he had been dismissed for a non-disciplinary reason; but that did not mean that the Code had not applied to the process which resulted in that outcome.  If the School had not invoked the disciplinary procedure, the ET should have asked whether the disciplinary procedure ought to have been invoked. It should have been obvious to the School that once Mr Lund’s conduct had been called into question and it might lead to his dismissal, the disciplinary procedure should have been invoked, even if the School ultimately decided that he was to be dismissed for what the ET found to be a non-disciplinary reason.  That was what distinguished the case from Ezsias v North Glamorgan NHS Trust [2011] IRLR 550.  In Ezsias the Trust never contemplated dismissing Mr Ezsias for the conduct on his part which had caused the breakdown in the working relationships between him and his colleagues.  In Mr Lund’s case, that was clearly in the contemplation of the School, even if it ultimately decided to dismiss him for a reason which the ET found did not relate to his conduct.

Union conference motions on Israel and Palestine: employment tribunal dismisses harassment claim by member

April 3rd, 2013 by Paul Greatorex

The case of Fraser v University and College Union concerned a number of claims of harassment by the Claimant against the Respondent union of which he was a member, under section 57 of the Equality Act 2010. The complaints were based on or stemmed from motions debated at the Respondent’s Congress (annual conference) in the years 2007 to 2011 on proposals for a boycott of Israeli academic institutions

In the tribunal’s words, the Claimant’s dissatisfaction with the Respondents’ handling of this “now finds expression in this enormous piece of litigation in which he charges the Respondent with “institutional anti-Semitism” which, he says, constitutes harassment of him as a Jew” (para 3).

After a 20-day hearing, a 23-volume trial bundle, 23 witnesses for the Claimant and 5 for the Respondent, an employment tribunal dismissed all the claims, finding all but one to be “manifestly unmeritorious” (para 169) and that other to be “clearly unsustainable…[and] hopelessly out of time…in any event” (para 177).

The judgment promulgated on 22 March 2013 (available here) is very lengthy, running to 182 paragraphs over 45 pages, and of course does not have any binding effect.  Nonetheless the following points may be of some interest:

• The tribunal said there is no such thing as “institutional responsibility”, the statutory provisions being limited to fixing employers and principals only with vicarious liability for the acts of their employees and agents. It said that the Claimant’s claim to hold the Respondents liable for harassment said to result from the conduct of fellow-members of the union (not acting as agents) or from motions passed by Congress was wholly untenable (paras 22, 25 and 151)

• The tribunal found that “a belief in the Zionist project or an attachment to Israel or any similar sentiment cannot amount to a protected characteristic”. It said this is not intrinsically a part of Jewishness and it was not open to the Claimant to rely upon what might be termed a “sub-characteristic” (para 150).

• The tribunal considered that the behaviour of the Respondents (rather than that of pro-Palestinian activist fellow-members) was both constitutional and unobjectionable, was not related to the Claimant’s protected characteristic of race or religion or belief, and did it have the effect of violating the Claimant’s dignity or creating the necessary adverse environment for him (paras 152-154)

• In any event, the tribunal said (with reference to section 26(4)(c) of the 2010 Act) that it would not have been reasonable for the matters complained of to have had that effect as the Claimant was a political campaigner who had elected to engage in and persist with a political debate which is bound to excite strong emotions, so it would require special circumstances to justify a finding that such involvement had resulted in harassment (para 156). Further, if the case were marginal (which the tribunal said it certainly was not), the narrow interests of the Claimant would have to give way to the wider public interest in ensuring that freedom of expression is safeguarded (para 156).

The final paragraphs of the decision read as follows:

“178…We greatly regret that the case was ever brought. At heart, it represents an impermissible attempt to achieve a political end by litigious means. It would be very unfortunate if an exercise of this sort were ever repeated.

179. We are also troubled by the implications of the claim. Underlying it we sense a worrying disregard for pluralism,tolerance and freedom of expression, principles which the courts and tribunals are, and must be, vigilant to protect (for a recent example, see Smith-v-Trafford Housing Trust [2012] EWHC 3221 (Ch)). The Claimant and his advisors would have done well to heed the observations of Mr Beloff and Mr Saini concerning the importance which the law attaches to political freedom of expression.

180. What makes this litigation doubly regrettable is its gargantuan scale. Given the case management history, the preparations of the parties and the sensitivity of the subject-matter, we thought (rightly or wrongly) that it was proper to permit the evidence to take the course mapped out for it, provided that the hearing did not overrun its allocation. But we reminded ourselves frequently that, despite appearances, we were not conducting a public inquiry into anti-Semitism but considering a legal claim for unlawful harassment. Viewed in that way, a hearing with a host of witnesses, a 20-day allocation and a trial bundle of 23 volumes can only be seen as manifestly excessive and disproportionate. The Employment Tribunals are a hard-pressed public service and it is not right that their limited resources should be squandered as they have been in this case. Nor, if (contrary to our view) it was proper to face them with any claim at all, should the Respondents have been put to the trouble and expense of defending proceedings of this order or anything like it.”

Paul Greatorex

Bankers’ Bonuses: The EU acts

March 6th, 2013 by Sean Jones QC
  • What is proposed?

The proposals are not a cap in the traditional sense because there is no fixed maximum amount that someone affected by the proposals will be entitled to earn. The proposed rules will require that the ratio of basic salary to bonus should not exceed 1:1. In other words, the value of the bonus should be no greater than the value of the banker’s basic salary.

However, the ratio can be raised to 1:2 with the express permission of the shareholders. The proposals stipulate with some care the majority necessary to pass any proposal to permit the higher level of remuneration. Where permission is obtained for the more generous entitlement, 25% of the bonus must be deferred for at least 5 years.

  • Who has agreed these proposals?

European Parliament and Council negotiators. On 5 March 2013, George Osborne failed to persuade the EU’s Economic and Financial Affairs Council to re-open negotiations. It is thought that some limited further tweaking may be possible. The political agreement will require the agreement of the Member States and the European Parliament in April 2013. The UK will not be entitled to veto the proposals. If the political agreement is ratified, the UK will have to introduce implementing legislation by 1 January 2014.

  • What is the significance of this announcement?

Commentators’ views have covered every part of the spectrum from talk of the cataclysmic destruction of London as a financial centre through to prosaic predictions that amending pay structures may well leave the sector relatively undisturbed. From an employment lawyer’s point of view the notion of direct control of UK workers’ maximum remuneration by Europe is, at first glance, an unsettling one. It is worth bearing in mind, however, that there has already been some limited domestic regulation of bonuses (see the FSA Remuneration Code).

  • Is this an attack on the free market? Are other sectors subject to such limitations?

It depends to some extent on how free the market you are envisaging is. No-one believes that banks and their activities should be beyond the reach of regulators. The background to the package of reforms of which the bonus proposals form part is the widely perceived need (to quote the Bank for International Settlements) to “strengthen the regulation, supervision and risk management of the banking sector”.

The proposals include new requirements in respect of retained capital and transparency which are intended to move banking in Europe towards compliance with the regime developed by the Basel Committee on Banking Supervision and favoured by the G20, known as Basel III.

The controversial question is whether, as part of this package of regulation, there is any need for direct control of bankers’ pay. The European perspective is that the global economic crisis was at least in part caused by bank employees taking on too much risk. It is thought that the emphasis on remuneration by bonus within the sector incentivized irrational risk taking. Neither proposition is uncontroversial. The causes of the crisis are unlikely to be quite so simple and the suggestion that bonuses increase risk-taking seems to be based more on intuition than study.

  • The UK government was the sole voice of dissent, is there any way in which the government could challenge or limit the effect of the decision?

It would be very surprising if the Government were not able to find a lawyer willing to advise them that the rules on bonuses may fall outside the competence of the European Union. A legal challenge to the validity of the rules cannot be ruled out. The length of the shrift that the European Court may give the challenge is a different question.

There has also been talk of the UK invoking the “Luxembourg Compromise”. It sounds like the title of the world’s dullest thriller but refers to a convention, the present scope of which is itself controversial, for there to be a veto where a proposal adversely affected a state’s “very important national interest”. It remains to be seen whether George Osborne would be prepared to risk playing that card. To play it and lose would likely have very considerable political consequences.

  • What impact will this have on remuneration structures in the banking sector?

They will adapt to meet the new regime. The likelihood is that banks will seek shareholder approval for proposals to allow them to use the 1:2 ratio and fixed salaries will increase.

  • What are the relevant merits/downsides of the various options:
    • Higher basic salary

The principal merit of this approach is that it allows the same total remuneration to be implemented as had previously been in place without any requirement for shareholder approval. It should enable employers, therefore, to forestall the possibility of significant desertions. If one accepts the premise that variable pay encourages risk taking increasing the proportion of income that is fixed should cause employees to take fewer chances.

From the bank’s point of view, decoupling remuneration from results may have a number of disadvantages. When an employee’s performance falls off, the impact on income is lessened. When the bank’s overall performance is affected, cost cutting may require re-negotiation of terms and conditions rather than changing the often non-contractual terms of a bonus policy.

  • Shareholder permission to exceed basic cap

This approach does not, by itself, allow replication of previously more generous remuneration arrangements (although it can be combined with increases to basic salary). Arguably, subsequent changes to bonus arrangements may require fresh shareholder approval complicating negotiations with high-value employees in circumstances where competitors based elsewhere may have greater immediate freedom of action.

  • Supplementary (non-cash) benefits

Non-cash benefits may be unattractive to employees, can have complex taxation treatments and are difficult to operate with sufficient flexibility to allow total remuneration to be closely correlated with performance.

  • Do you believe financial institutions will leave Europe?

Whether individual bankers want to leave will depend on whether the amount of money they are paid is the determinative factor for where they work. It has to be admitted that it would not be entirely surprising if the people with that worldview were disproportionately represented amongst the group of highest paid bank employees. A degree of international mobility is already commonplace in the banking industry. If institutions fear the loss of individuals or, worse still, of teams, they may be persuaded that replicating existing business in a less restrictive jurisdiction makes good commercial sense. In the meantime, they may wish to put lawyers specialising in team poaching cases on speed dial.

Sean Jones QC

Telling tales out of school: balancing public authority employees’ duties of confidentiality with their right to freedom of expression

February 27th, 2013 by Paul Greatorex

A dinner lady told a child’s parents that their daughter had been tied to a fence and whipped with a skipping rope by some other pupils, repeated the same to the press and then was dismissed for breach of confidentiality and acting in a manner likely to bring the school into disrepute. An employment tribunal found the dismissal procedurally unfair but dismissed her whistleblowing claim and reduced her compensation for unfair dismissal on the grounds of Polkey and for contributory fault. The tribunal did not, however, determine the question of whether the claimant could lawfully be disciplined for “telling tales out of school” (as it put it).

From these basic facts, and via an appeal against the remedy decision only, has sprung the interesting decision of the EAT (Langstaff J presiding) in Hill v Great Tey Primary School UKEAT/0237/12/SM (judgment here).

The judgment deals with a number of different issues, but fundamentally it concerned the balance to be struck between the school’s right to protect confidential information and its reputation, and its duty as a public body to respect the claimant’s Article 10 right to freedom of expression.

The EAT criticised the tribunal for having recast the terms of Article 10 in its own “homespun and inaccurate words” when dealing with this issue, and said that the proper approach to be taken in such cases was the following (see para 45):

“(i) to ask whether what had occurred could fall within the ambit of the right to freedom of expression and;
(ii) if so, then to hold that the school as a public body would be bound to respect the exercise of that right, unless it could be qualified by Article 10 (2). That would have involved considering whether the restriction on the right to freedom of expression which was complained of could be justified in accordance with Article 10 (2). Accordingly, the Tribunal would have to;
(iii) identify the aim which the restriction on free speech sought to serve – which must be one or more of the aims expressly set out at 10 (2) (“Interests of National Security” etc.). Here, two aims were potentially legitimate – the protection of the reputation or rights of others, and preventing the disclosure of information received in confidence;
(iv) satisfy itself that the restriction or penalty imposed in the light of that aim was one prescribed by law. That does not mean, in the UK context, that it must be provided for by statute: a common law right will suffice. A contractual term requiring respect for confidential communications would, for instance, be sufficient. So, too, would a common law right to confidentiality;
(v) if so, consider if the restriction or penalty was “necessary in a democratic society”. This involves looking to see whether the measure concerned was appropriate to the legitimate aim to which it was said to relate, and that the extent of the interference which it brought to the exercise of the right was no more than proportionate to the importance of the particular aim it sought to serve. This balancing exercise was, in the first place, for the school to perform, or, in the Polkey context, to be considered as if it had performed. However, the test in the present case for the Tribunal is not whether the school would be entitled to take a particular view of the exercise of Article 10 rights but whether that was where the law actually strikes the balance. The Tribunal has to make its own assessment: it does not apply a review test.”

The EAT drew the following relevant factors from decisions of the ECtHR:

• the factual basis for, and accuracy and reliability of, the information
• whether more discreet means of passing on the information are available
• the motive with which it is revealed
• the duty owed by employees to their employer of loyalty, reserve and discretion

With regard to the latter, the tribunal in this case had made the finding in its liability decision that it was “incumbent to the position of midday dinner assistant, that you simply do not discuss with third parties what goes on at school between children, save to report it to the head teacher”. This finding was the basis for its decision on remedy to make an 80% reduction for contributory fault. Resolving in the claimant’s favour an interesting side issue about whether this could be reopened in an appeal against remedy when the liability decision was not appealed, the EAT held that the tribunal had not clearly identified what precisely was confidential about the information that was supplied, nor to whom it was confidential.

However, in a conclusion unsurprisingly overlooked by popular press reports of the case, the EAT did not announce a winner but remitted the matter, saying it was not persuaded that in the circumstances there could be only one conclusion on the question whether a dismissal would be fair in substance:

“Though we consider that the disciplinary proceedings constituted a restriction upon the Claimant’s freedom of speech, it was open to the school to seek to justify the interference by reference to the legitimate aims of protecting the reputation and rights of others, and preventing the disclosure of information received in confidence. It was open to the Tribunal to conclude that the duty of loyalty owed by the Claimant to the school was such, or her contract of employment and understanding was such, that she had accepted a duty to keep confidential information relating to children. Thus it was open to the Tribunal to conclude that the restriction was prescribed by law; and the conclusion whether it was necessary in a democratic society in pursuance of the legitimate aim which was being considered would involve striking a proper balance between the Claimant’s freedom of expression on the one hand, and the interests sought to be protected on the other, so as to evaluate whether dismissal was a step no greater than necessary in pursuance of the aim. We cannot conclude that that decision would necessarily be that any restriction on the freedom of the Claimant to speak out would render a dismissal unfair: there is much to be said to the opposite effect.”


Paul Greatorex

The Dynamic Do-over: The Advocate General’s opinion in Alemo-Herron

February 22nd, 2013 by Sean Jones QC

What’s the point of the TUPE? Other than terrorising HR professionals and inspiring books as good as this one, that is? Its essential function is simple: to protect the employment and the terms and conditions of employees affected by a change in the ownership of the undertaking they work in or (for now at least) by a change in the identity of the provider of a service. The eye-popping complexity for which TUPE disputes are famous arises from trying to apply that simple principle to the messy business that is real life employment. The CJEU is presently pondering one example of the conceptual difficulties that can be thrown up in Alemo-Herron and others v Parkwood Leisure Limited C-426/11 and Advocate General Cruz Villalon has just delivered his opinion.

The employees in the Parkwood case started out working in the Public Sector. More specifically, they worked for Lewisham LBC dealing with leisure activities. As local government employees, their terms and conditions were negotiated by the National Joint Council for Local Government Services. The NJC is a body which gathers together trade union representatives and local government employers. They negotiate the core terms and agreements applicable to local government employees. Those terms are set out in what is known as “the Green Book”. Other terms are then settled by local collective agreements. The contracts of employment issued to individual employees usually provide that where the NJC agrees new terms those terms will be incorporated into the employee’s contract. Thus, if the NJC agrees a pay rise, all employees then have a contractual entitlement to receive that increase.

In 2002 Lewisham contracted out its leisure services. The employees, as a result, found themselves in the Private Sector. A further transfer brought them into the employment of Parkwood Leisure Limited.

In 2004 a dispute arose about pay. At the heart of the dispute was a very simple question: who was to decide what pay the employees should receive? Parkwood had a simple answer: they were the employer so they decided what to pay their own employees. Not so fast! Lurking ominously in the corner was TUPE and TUPE cannot abide simple answers.  The employees countered with their own answer: the NJC continued to set their pay. The argument runs as follows: “Our contracts of employment with Lewisham said that our pay was set by the NJC. When we transferred our terms and conditions were protected. Specifically, the term which provides for our pay to be set by the NJC was protected.” If the employees were right that meant that Parkwood would have to pay its employees at rates set by a negotiation that they could not participate in.

The two different arguments about how TUPE works have been given handy labels. Parkwood’s contention that TUPE takes a sort of “snapshot” of entitlements at the date of transfer and thereafter amendments are for the employees and their new employer to agree is known as the “static” approach. The employees’ argument that TUPE preserved their right to have the NJC set pay on an ongoing basis is known as the “dynamic” approach. The CJEU has been asked by the Supreme Court to decide which approach is the correct one.

The Advocate General favours the dynamic interpretation. He observes that Article 3(3) of Directive 2001/23 (the European Directive that TUPE implements) permits the dynamic approach and notes that there is a line of UK authority giving effect to it. He also points out that the Directive allows Member States to set a limit (subject to a minimum of a year) on the continued effect of transferred collective agreements. The UK did not take advantage of that opportunity. He is further influenced by the fact that the parties, he says, are free to agree to a variation of the contract that would remove the reference to the collective negotiations.

The Advocate General’s last point is a difficult one. Parties are not entirely free to agree to vary contracts post-transfer. Any variation, even if expressly consented to, will be ineffective if “the sole or principal reason for the variation is … the transfer itself; or … a reason connected with the transfer which is not an economic, technical or organisational reason entailing changes in the workforce” (TUPE Reg 4(5)). Removing a reference to a collective agreement with which a transferee has been stuck as a result of a transfer would, on its face, likely be for a “reason connected with the transfer”. It would be difficult to see on what basis it could be said to be for a reason “entailing changes in the workforce”.

The likely effect, therefore, is that should the CJEU do what many expect it to and endorse the Advocate General’s opinion, the ability of private sector employers to take control of their own pay negotiations will depend on the Government stepping in to restrict the protection for employees to the minimum the Directive allows. By happy chance, that is what the Government purports to be determined to do in any event.

NHS reorganisation

February 11th, 2013 by James Goudie QC

Sandford and Parkin v Newcastle Upon Tyne Hospitals NHS Foundation Trust, UKEAT/0324/12/DM were unfair dismissal claims. The issue was the reasonableness of the dismissals.  The dismissals were for “some other substantial reason”. They arose in this way: new, less favourable terms and conditions of employment having been offered to, and refused by, the claimants, their contracts of employment were terminated, on notice, and offers were made to them of re-engagement.  The ET held that the dismissals were fair. The EAT dismissed the claimants’ appeals. 

The background was the Agenda for Change process in the NHS.  The Trust decided to re-band the posts of 22 employees, including the two claimants, who were to be reduced one level in the pay structure.  All were offered two years pay protection if they accepted the proposed change.  20 employees did so. The two claimants refused.

The EAT accepted the submissions of Counsel, Holly Stout, for the Trust, including that the ET took into account 3 relevant factors in reaching its conclusion that dismissal for some other substantial reason, namely that the Trust had shown a good reason for undertaking the reorganisation leading to the re-banding and that both claimants were dismissed for refusing to accept the new terms and conditions, fell within the band of reasonable responses, being (1) that 91% of the affected employees had accepted the new terms, (2) that the Trust had reasonably explored all alternatives to dismissal before dismissing the claimants, and (3) that there was a lack of opposition by the Trade Unions to the proposed changes. 

The legal principles were clear and well established by the authorities. The ET had not misdirected themselves in law.  On the contrary, they had applied the law correctly to the facts as found and reached a permissible properly reasoned conclusion that the dismissals were fair.

Interim relief in the tribunal: a high-risk gamble

February 6th, 2013 by admin

Written by Anya Proops and published in ELA Briefing click here

Ms Eweida wins at ECtHR

January 15th, 2013 by admin

Ms Eweida wins at ECtHR: right to manifest religion by wearing visible cross to work trumps BA’s right to project corporate image. Read judgment click here.

11KBW’s Sarah Moore for Ms Ewieda.


Societe Generale –v- Geys [2012] UKSC 63; how to dismiss an employee – orthodoxy confirmed?

December 21st, 2012 by Simon Devonshire QC

As Lord Sumption observed in Societe Generale –v- Geys [2012] UKSC 63, Mr Geys is “a lucky man”.   He was dismissed from his employment with SocGen in late 2007 or early 2008.  The precise date of termination was critical.   If his contract of employment was properly regarded in law as determining on 29.11.07 (when SocGen gave him a letter terminating his contract with immediate effect and promising that “appropriate termination documentation” would follow, and escorted him from the building) or on 18.12.07 (when SocGen made a payment in lieu of notice into his bank account) the termination payment to which he was entitled was limited to about Euros 7 million.   If his contract did not in law determine until January 2008 (when he received the Bank’s notification that they had exercised their rights under the PILON clause), his entitlements moved comfortably into double figures (at least according to reports of the case that have featured in the popular press). 

It was common ground that had the Bank handed Mr Geys a cheque for his payment in lieu of notice on 29.11.07, his dismissal would have taken effect at once, in accordance with the PILON clause in his contract.   But the Bank made a mistake and did not make the PILON for about 3 weeks – and then paid it into Mr Geys’ bank account without giving him any direct notification.   It was accepted that the Bank had repudiated Mr Gey’s contract on 29.11.07, but (as Lord Sumption observed) this was a repudiation of the most technical kind, because there was no doubt about SocGen’s right to dismiss with immediate effect (i.e under the PILON clause) if they had gone about things in the right way, and SocGen’s mistake caused Mr Geys no loss.

The case raised two questions of “of general public importance” (Lord Hope at para 14) about the termination of contracts of employment.   First, did a repudiatory notice of instant dismissal (the letter of 29.11.07) operate automatically to bring the contract to an end, or was it a ‘thing writ in water’ unless and until accepted by Mr Geys?   And second, if Mr Geys’ contract was still on foot after 29.11.07, had it been determined by the making of the PILON on 18.12.07?   Read literally, all that the PILON clause required to bring about the termination of the contract was the making of the payment.   Was this enough, or was something more required?  These questions (and a couple of other questions of contractual construction specific to the case), were answered in Mr Geys’ favour; he will no doubt be enjoying some Christmas cheer.   This note addresses the two questions “of general public importance”.

Unilateral or Elective?  

Does a repudiation of an employment contract which takes the form of an express and immediate dismissal automatically terminate the contract or does the normal contractual rule that the repudiation must be accepted by the other party apply?   The Supreme Court addressed directly the debate between the elective and automatic theories of contract termination, when applied to contracts for personal service, and confirmed (Lord Sumption dissenting) that the elective theory was to be preferred, both on authority and on principle.  

Lord Wilson gave the principal judgment.   It was common ground that whichever theory was selected “it would apply equally to wrongful repudiations by employers (i.e. wrongful dismissals) and wrongful repudiations by employees (i..e wrongful resignations)” (para 63).   He referred to a number of categories of cases which could only be explained or understood on the basis of the elective theory: e.g. where provisions which did not survive the termination of the contract had been enforced against the repudiator (paras 69 to 72; the competition cases), or where the courts had obliged the repudiator by injunction to implement a contractual disciplinary procedure (paras 73 to 75; the disciplinary cases).   He was satisfied that the preponderance of authority favoured the elective approach.  He concluded that “[i]n proposing … the automatic theory, the Bank invites it [the court] to cause the law of England and Wales in relation to contracts of employment to set sail, unaccompanied, on a journey for which I can discern no just purpose and can identify no final destination.    We should keep the contract of employment firmly within the harbour which the common law has solidly constructed for the entire fleet of contracts in order to protect the innocent party, as far as practicable, from the consequences of the other’s breach” (para 97).

Lord Hope added some observations on the issues of principle.   He considered that the automatic theory could operate to the disadvantage of the victim in a way which allowed the wrongdoer to profit from his own wrong, and the common law should favour the course likely to do the least harm to injured party (paras 15 & 17, 18).    And he expressly disapproved the suggestion (found in Gunton) that the court could more easily infer acceptance in the employment context than in other contractual settings; “[i]f the law requires acceptance of the repudiation, the requirement is for real acceptance –  a conscious intention to bring the contract to an end, or the doing of something inconsistent with its continuation” (para 17).

Lord Sumption’s Dissent

In Lord Sumption’s view, the employment relationship was dead for all practical purposes after 29.11.07.   Because there had been a technical repudiation on that date, Mr Geys could rely upon the elective theory to argue that “technically the contract limped on as a formal ‘shell’ or ‘husk’ … into January 2008 … [bringing] him a windfall amounting to several million euros.  Rarely can form have triumphed so completely over substance” (para 108).   However, the elective theory of contract repudiation was apt to mislead, because the innocent party to a repudiated contract could not treat it as subsisting if (i) performance on his part depended on the cooperation of the repudiating party and (ii) the contract was not capable of specific performance (para 116).   Employment contracts fell into this class.   Lord Sumption suggested that whilst the employee could not treat the contract of employment as subsisting after a repudiation which terminated the employment relationship de facto, the repudiation would not necessarily bring to an end “collateral obligations” which were not (of necessity) dependent on the existence of the relationship of master and servant (such as express or implied covenants against competition).   In his view “[w]hether collateral obligations of this kind bind after the termination of the contract or the underlying relationship will normally depend on the construction of the contract or the underlying nature of the implication if the obligation is implied … it is not necessary to prolong the life of a repudiated contract of employment in order to justify this body of law” (para 141).

What is required of an employer when giving notice?

The Supreme Court also gave consideration to the steps necessary to give notice of dismissal.    It was not enough to make the PILON (notwithstanding that the PILON clause seemed to stipulate that this was the terminating event).  According to Lady Hale (i) it was “an obviously necessary incident of the employment relationship that the other party is notified in clear and unambiguous terms that the right to bring the contract to an end is being exercised, and how and when it is intended to operate.   Both the employer and the employee need to know where they stand …. the exact date on which the employee ceases to be an employee” (para 57); (ii) in a PILON case ”[i]t is necessary …. that the employee not only receive his payment in lieu of notice, but that he receive notification from the employer, in clear and unambiguous terms, that such a payment has been made and that it is made in the exercise of a contractual right to terminate the employment with immediate effect” (paras 58 & 59); and (iii) “[g]iven that such a notice is a necessary incident of the relationship, a wise employer would take care to give it in writing”, but whilst this was not required unless the contract so stipulated, simply making a PILON into the employees bank account was not enough, because whilst the employee’s bank might be his agent for the receipt of payment, “it is not without more his agent for the receipt of notification of what the payment is for.   That notification has to be given to the employee” (para 60).  

Lord Carnwath expressed himself in similar terms on this question – “it was necessary for the employer to ensure that the payment was unequivocally identifiable as an exercise of power under [the PILON clause]” (para 103).

This question did not arise on Lord Sumption’s analysis, although he did draw attention to the difficulties created by “highly technical questions about the validity of notices” that can arise if the contract is regarded as subsisting after the employee’s exclusion from work (para 140).   He also said that if Mr Geys had been entitled to affirm the contract after 29.11.07, “then all that was required to satisfy [the PILON clause] was the making of the payment in lieu.   That seems to be more consistent with both the reality of the situation and the approach … in Abrahams -v– Performing Rights Society … and … in Cerberus Software Ltd –v- Rowley” (para 143).   The majority, however, were with Lady Hale on this issue.


These judgments would seem to put to bed the debate about the elective and unilateral theories of contract termination in the employment context, and (unless and until the question is revisited in the Supreme Court), Lord Sumption’s dissent is of largely academic interest (wherever one stands on its conceptual purity or practical validity).   Lady Hale’s judgment has revealed a new ‘implied incident’ of the employment relationship in exercising rights to give notice.  

There is some force in Lord Wilson’s view that the competition and disciplinary cases are inconsistent with the automatic theory and that to describe them as examples only of collateral obligations does not engage sufficiently with their significance (para 75).   By way of example, it is difficult to explain or rationalise the garden leave injunction (where the employer does not accept the employee’s repudiation but holds the employee to his good faith duty during a period of unexpired notice) with Lord Sumption’s theory of collateral obligations; the good faith duty is a central incident of the employment contract.   And as Lord Wilson points out, whilst the employment contract is a special case as regards remedies, the embargo on specific performance is not a hard and fast rule (e.g. where notwithstanding a repudiation, trust and confidence has not been forfeit; cf Hill –v- Parsons) and may need to be revisited given “nowadays the more impersonal, less hierarchical relationship of many employers with their employees” (para 77).     

However, the judgments of the majority leave a number of questions unanswered, many highlighted in Lord Sumption’s judgment.  Is the employee entitled to wages after he has been wrongfully sacked and excluded from the workplace, but has declined to accept his sacking?    Is he under any obligation to mitigate?  Conceptual orthodoxy would suggest that the answers to these two questions are (respectively) yes and no.    The contract subsists so he is entitled to the sums he is due pursuant to it, and how (to paraphrase Lord Sumption at para 139(5)) can the employee “be compelled … to mitigate the loss of his bargain when in law it has not been lost”.  However, this is not the result advocated in some of the leading elective theory cases (such as Gunton, suggesting that only damages will be recoverable after an exclusion from work and that the employee must mitigate).  Take the paradigm example of the employee (wrongly) dismissed for gross misconduct.   Can he decline to accept his dismissal and keep the contract alive?   Must the parties await the determination of the court on the gross misconduct question before they know whether the employment contract has been effectively brought to an end?   What is the employee to do in the meantime?   Mitigate (as suggested in Gunton)?   Even if that is right, where does this leave the employer – faced (per Lord Sumption at para 139(5)) with “a penumbral contractual liability, the duration of which is uncertain and the extent of which depends on the inherently uncertain question of whether he can show that the employee has failed to satisfy the relatively light burden of mitigating his loss”.   These questions have considerable practical implications and are not satisfactorily addressed in the judgments of the majority.    Much remains to be worked out.   

The duty of fidelity and penalty clauses; Imam-Sadeque –v- BlueBay Asset Management (Services) Ltd [2012] EWHC 3511 (QB)

December 13th, 2012 by Simon Devonshire QC

In Imam-Sadeque –v- Bluebay Asset Management (Services) Ltd Popplewell J had to consider the scope of an employee’s duty of fidelity.    He was referred to nearly all of the recent cases, but found them of “limited assistance” because whilst they provided “helpful guidance as to the application of the principles to particular cases …. the precise scope and content of the duty … and whether it has been breached, is a question of fact which depends upon the particular circumstances of the case” (para 132).   That said, his judgment is an example of the recent direction of travel in the authorities, which as Hadden-Cave J observed in QBE (covered in an earlier post) has seen a tightening of the standards expected of an employee.

Simplifying the facts somewhat, the claimant was a senior employee with BlueBay, an asset management company.   As at July 2011, he had been granted Fund Units (under a bonus plan) that vested between January and March 2012.   Under the plan, he forfeited those fund units if he left before the vesting dates as a “Bad Leaver”, and he was a bad leaver if he left voluntarily.    In July 2011, the parties made a compromise agreement under which the claimant was placed on garden leave until 31.12.11, but would be treated as a “Good Leaver” (and thus entitled to his Fund Units) provided that he was not in repudiatory breach of his employment contract as at the date of the agreement and had not acted in repudiatory breach of that contract whilst on garden leave.   Unknown to BlueBay, the claimant had agreed to join a new start up asset management company (Goldbridge) at the date of the compromise agreement, and he started working for Goldbridge after 31.12.11.   BlueBay contended that the claimant was not entitled to his fund units because (i) he had assisted Goldbridge in planning and launching its competitive business and had failed to disclose to BlueBay that Goldbridge had the funding, resources and infrastructure in place to launch, (ii) he had encouraged and assisted Goldbridge to recruit one of his BlueBay colleagues, and (iii) he had disclosed various other pieces of information to Goldbridge (such as details of an internal restructuring, the terms of the compromise agreement and  the terms of BlueBay’s employee handbook and bonus plan) whilst on garden leave.

In dealing with the law, Popplewell J rejected three principal submissions made by the claimant:-

  1. First, that the duty of fidelity required in essence no more than a duty to act honestly  – rejected because “an honest but misguided disloyalty is no less a breach than a dishonest one” (para 126).
  2. Secondly, that the claimant’s duty of good faith was attenuated when he was placed on garden leave – rejected because “one of the common purposes of putting an employee on garden leave is to secure his loyalty to the current employer during the notice period, and to delay the transfer of his loyalty to a new employer until after its expiry.  An employer may thereby legitimately seek to restrict the impact of any competitive activity by the employee, and protect the integrity of the employer’s workforce.  There is no reason in principle, or authority, why the aspects of the duty of loyalty which touch upon competitive activity, or the enticing away of employees, should be attenuated so as to interfere with these legitimate purposes of garden leave” (para 145).
  3. Third, that the claimant was not obliged to disclose or report things told to him in confidence by a prospective new employer when exploring the possibility of moving employment – rejected because”if a senior employee, who is seeking to join what he knows to be a potential rival, learns of a competitive threat from that source, of which he would otherwise be under a duty to warn his employer, he can not relieve himself of that obligation by virtue of having entered into a contractual duty towards the rival not to fulfil it.  If he could, the duty of fidelity in such cases could be bypassed or severely emasculated by the expedient of entering into an NDA with the competitor.  It is not unusual for parties to undertake mutually inconsistent contractual obligations.  The existence of one does not excuse non performance of the other” (para 148).

Applying these principles, Popplewell J concluded that the claimant’s duty of fidelity (i) required that prior to 31.12.11 he should not have provided any assistance to Goldbridge in setting up and launching its business beyond agreeing to join, negotiating terms and making and cooperating in the legal, administrative and regulatory arrangements to enable him to start when free to do so, and (ii) obliged him to tell BlueBay that Goldbridge intended to launch a competitive business in October 2011, and had the infrastructure in place to enable it to do so (paras 150 and 151).  

In the Judge’s view “[a]ny discussion about ‘how the business might develop,’ or its ‘philosophy’ would likely be a breach of duty because it would assist Goldbridge in the formation of the shape and direction of the business” (para 155).   On the Judge’s findings of fact, the claimant’s involvement in the Goodbridge launch went much further than this, and this may well have coloured his conclusions on the law, but how realistic is this extremely restrictive approach?   Senior employees are obviously entitled to look for work elsewhere or to respond to approaches from head hunters.    In any employment interview the candidate will have to sell himself to the prospective employer – to identify how he might fit in and what he is likely to bring to the table.   Applying the conclusions expressed in this judgment, that might of itself place the employee in breach of his duty of fidelity, and he would be required to report the competitor’s interest to his employer.   In the Tullett Prebon case, Jack J accepted the validity of an express clause obliging the employee to disclose offers of alternative employment made to him, but this judgment comes close to saying that such an obligation will frequently arise by implication, as an incident of the duty of fidelity.   And if an employee cannot legitimately give a prospective employer some assurances of confidentiality in relation to their discussions, doesn’t this impose a practical inhibition on his ability to seek alternative work – at least without resigning first and placing himself on the open market?      

The claimant also argued that the terms of the compromise agreement that provided for him to forfeit his Fund Units in the event of a breach of the compromise agreement was unenforceable as a penalty clause – the effect of the compromise agreement was to provide for the forfeiture of existing contractual rights (dependent upon performance of contractual obligations) on the occasion of any breach, however trivial, and did not constitute a genuine pre-estimate of loss.   The Judge rejected that the doctrine was even engaged, because (i) “[t]he Compromise Agreement did not provide for forfeiture of his interest in his 2012 Fund Units upon breach of that Agreement, either in form or in substance.  It conferred a conditional benefit in relation to his interest in the Units which never accrued because he failed to fulfil the condition, namely performance of the Agreement” (para 208), (ii) “even if the forfeiture were to be treated as occurring by reason of breach of the Compromise Agreement, what was forfeit were contingent future interests in the 2012 Fund Units.  These are not to be treated as equivalent to the payment of a money sum by Mr Imam-Sadeque upon breach so as to come within the doctrine” (para 210), and (iii) “[t]here is a distinction between contingent rights and accrued rights.  I would not extend the doctrine to apply to such [i.e contingent] rights in the light of the authority I have cited which dictates that because the doctrine is an interference with freedom of contract its application is not to be expanded more widely than its current limits”.  

 In any event, the Judge found that even if the penalty doctrine was engaged, “it would [not] be right to categorise the terms of the Compromise Agreement, taken as a whole, as using the possibility of the Units not vesting in a way which is predominantly intended as a deterrent against breach.  Their treatment is one element of a bundle of rights and obligations which must be viewed as a whole and is commercially justifiable” (para 232).    The Judge was clearly impressed by the fact that the compromise agreement was negotiated at arms length by parties of equivalent bargaining power with legal advice.   His approach echoes that taken by Nelson J in another penalty case (Tullett Prebon –v- El Hajjali [2008] IRLR 760 at patra 74) that “[w]here a bargain has been struck by two parties of equal bargaining power, with each party legally represented, a court should consider long and hard before permitting one of the parties to resile from that agreement.

Policies or Aims, Obnoxious or Otherwise

November 6th, 2012 by Harini Iyengar

The European Court of Human Rights today released its judgment in the case of Redfearn v UK, and held that the UK had failed through its domestic law adequately to protect the right of Mr Redfearn, a British National Party councillor, to freedom of association under Article 11 of the European Convention on Human Rights.

Harini Iyengar summarises the judgment and considers whether the UK must now remove the qualifying period for unfair dismissal or enact a new law prohibiting workplace discrimination because of political affiliation or association.


Mr Redfearn, who was white British, worked as a bus driver for Serco, which provided services to Bradford City Council.  Most of his passengers were vulnerable adults and children with physical and/or mental disabilities, who were of Asian origin.  There had been no complaints about his work or conduct at work, and his Asian boss had nominated him for the award of “first-class employee”.

When Mr Redfearn was reported in a newspaper to be a local election candidate for the British National Party (“BNP”) (a party then open only to white British people, which was wholly opposed to integration between British and non-European peoples, and was committed to restoring the British population to an overwhelmingly white makeup), he was temporarily put on to mail delivery duties.  Upon his election as a BNP councillor, Serco received a complaint from UNISON, took legal advice, and dismissed him.

UK Court Proceedings

Since Mr Redfearn lacked the requisite qualifying period of employment to claim unfair dismissal, he brought claims of race discrimination.  The Employment Tribunal (“ET”) dismissed the claim of direct race discrimination on the basis that the dismissal had not been “on racial grounds” but had been on health and safety grounds: his continued employment could lead to difficulties with other employees; damage Serco’s relationship with the unions; lead to attacks on Serco’s minibuses jeopardising the health and safety of its employees, its vulnerable passengers and Mr Redfearn; cause considerable anxiety to passengers and relatives or carers entrusting vulnerable passengers to Serco’s care; and damage Serco’s reputation so as potentially to place at risk its existing contracts and future work bids in the public sector and elsewhere.  Indirect discrimination was held to be justified as a proportionate means of achieving the legitimate aim of maintaining health and safety.

The Employment Appeal Tribunal (“EAT”) found that the ET had erred in law because “on racial grounds” should have been construed more broadly and the ET had failed to explain its conclusion that indirect discrimination had been justified, including not considering any alternatives to dismissal.

Before the Court of Appeal, Serco succeeded in having the ET judgment restored.  Mummery LJ held that the treatment by Serco had not been “on racial grounds” because the less favourable treatment had not been on the ground of being white but on the ground of a particular non-racial characteristic shared with a tiny proportion of the white population, ie membership of the BNP.  Serco would have applied the same treatment to an employee who had belonged to a similar political party which confined its membership to black people.  As to indirect discrimination, Mummery LJ held that the ET had wrongly identified the “provision, criterion or practice” (“PCP”) too narrowly as membership of the BNP.  This was meaningless because the PCP could never be applied to a non-white person because only white people could join the BNP.  Serco’s real PCP was instead applied to membership of any political organisations like the BNP, which existed to promote views hostile to people of a different colour, and therefore did not put Mr Redfearn to “a particular disadvantage”.

European Court of Human Rights Proceedings

Mr Redfearn argued that the UK had breached his right to freedom of expression under Article 10 of the European Convention on Human Rights (“ECHR”), his right to freedom of association under Article 11, and his right to freedom of thought, conscience and religion under Article 9.  He also complained of breaches of Article 13 concerning access to an effective remedy and Article 14 concerning discrimination in the securing of ECHR rights and freedoms.

His case on Article 11 was that for an employee to lose his job for exercising his right to freedom of association struck at the very substance of the right, so the UK had a positive obligation to enact legislation protecting him.  He complained that, lacking one year’s continuous employment, he had been unable to bring a claim of unfair dismissal, and that, had he been able to do so, the defence of “some other substantial reason” in the form of his political involvement could have been used by Serco.

The European Court of Human Rights (“ECtHR”) was split 4:3, with the majority in Mr Redfearn’s favour.  The majority considered that his complaint was more appropriately analysed under the right to freedom of association than under the right to freedom of expression, but the former must be read in the light of the latter.

It also recognised “the difficult position that Serco may have found itself in when [Mr Redfearn’s] candidature became public knowledge”.  Further, the ECtHR accepted that even without specific complaints from service users about Mr Redfearn, his membership of the BNP could have impacted on Serco’s provision of services to Bradford City Council “especially as the majority of service users were vulnerable persons of Asian origin”.  Nevertheless, it was significant that Mr Redfearn had been a “first-class employee” and no complaints had been received about him until his political affiliation became known.  The ECtHR gave particular weight to the fact that the complaints which were received were about prospective problems rather than anything which Mr Redfearn had done or failed to do in the actual exercise of his employment.  It was also swayed by the fact that he was working in a non-skilled post which did not seem to have required significant training or experience, was aged 56 at the date of dismissal, and was therefore likely to have experienced considerable difficulty in finding new employment.  The ECtHR concluded that the consequences of dismissal were serious and could strike at the heart of Mr Redfearn’s Article 11 right.

The next step was to consider whether the UK had struck a fair balance between his Article 11 right and “the risk, if any, that his continued employment posed for fellow employees and service users”.  According to the ECtHR, it was not required to “pass judgment on the policies or aims, obnoxious or otherwise, of the BNP at the relevant time,” because the BNP was not an illegal party under domestic law and was not performing illegal activities.

In the judgment of the ECtHR, a claim for unfair dismissal would be an appropriate domestic remedy for someone dismissed for his political beliefs or affiliations, because the employer would have to establish that the dismissal had been fair for “some other substantial reason” and the ET must take full account of Article 11 rights in accordance with the Human Rights Act 1998.  Nevertheless, lacking the requisite period of employment, Mr Redfearn could not benefit from the law on unfair dismissal.  The ECtHR avoided condemning the Race Relations Act 1976 as a wholly ineffective remedy, but because it required “a liberal interpretation of the relevant provisions”, as adopted only by the EAT domestically, the 1976 Act had failed to offer Mr Redfearn any protection of his Article 11 rights.

In consequence, the one-year qualifying period for unfair dismissal had been detrimental to Mr Redfearn.  The ECtHR held that it was in principle both reasonable and appropriate for the UK to have bolstered the domestic labour market with a one-year qualification period.  It was troubling to the ECtHR that exceptions to the qualifying period existed for certain forms of discrimination but not for employees dismissed on account of their political opinion or affiliation, and it noted that Article 11 also protects those whose views offend, shock or disturb.

The ECtHR says that it was incumbent on the UK to take reasonable and appropriate measures to protect employees with less than one year’s service from dismissal on grounds of political opinion or affiliation, either through an exception to the one-year qualifying period or a free-standing claim of unlawful discrimination on grounds of political opinion or affiliation.

According to the ECtHR, Mr Redfearn’s case did not disclose any appearance of a violation of his right to freedom of thought, conscience or religion under Article 9 of the ECHR.  It also dismissed the Article 13 complaint.  Although the Article 14 complaint was not manifestly ill-founded, the ECHR declined to examine it further given its judgment on Article 11.


Mr Redfearn’s case arose in 2004, when there was a one-year qualifying period for unfair dismissal, when the Race Relations Act 1976 was in force, when the Employment Equality (Religion or Belief) Regulations 2003 were in force but before the domestic courts had developed a wide definition of philosophical belief.

The current legal landscape is subtly but significantly different.  The qualifying period for claiming unfair dismissal is now two years.  The Equality Act 2010 ditched the problematic requirement for discrimination to be “on racial grounds”.  Mr Redfearn would now have to establish before an ET that he had been less favourably treated “because of” his race or his religion or belief.  The domestic courts have also developed the law on religion or belief discrimination.

What Claims would be Brought Today?

Given the two-year qualifying period for unfair dismissal, it is likely that many of those, like Mr Redfearn, who believe they have been unfairly discriminated against at work because of their political affiliation or association, will find themselves, like him, in the terrain of discrimination law because they have less than two years’ continuous employment.  In light of the changed test for direct discrimination and the EAT caselaw on religion or belief discrimination, it is likely that such claims will in the future be argued as claims of both race discrimination and religion or belief discrimination.  Indeed, given the opportunity to recover much greater compensation than that available for unfair dismissal, it is likely that even an employee who had requisite service to claim unfair dismissal would also bring discrimination claims in this context.

Since the BNP has now extended its membership to people who are not white nationals, it is doubtful whether a claim for direct race discrimination would succeed even with a liberal interpretation of the “because of” test in the Equality Act 2010.

Although the BNP now admits non-white members, it seems probable that most of its members are white, and so an argument of indirect race discrimination could be developed by an employee.  The ECtHR was unimpressed with the protections provided by the law on indirect discrimination, and the provisions on indirect discrimination in the Equality Act 2010 closely resemble those which were in the Race Relations Act 1976.

Nevertheless, because the facts of new cases will inevitably differ from those in Mr Redfearn’s case, it is likely that an employer who dismisses an employee because of BNP membership will face claims of both direct and indirect race discrimination.  It would be strenuously argued by the employee that the ETs, in the light of Redfearn v UK, have to interpret the law on direct race discrimination and indirect race discrimination differently in future in cases involving BNP membership, in line with the EAT’s approach.

Something mysterious about the ECtHR’s judgment is the conclusion that the law on unfair dismissal, including the defence of “some other substantial reason” provides adequate protection for freedom of political affiliation and association, but the law on indirect discrimination including the defence of justification as a “proportionate means of achieving a legitimate aim” does not provide adequate protection.  In practice, the evidence and arguments for both defences would be very similar.

Given the recent evolution of the law on religion or belief discrimination, the employee would probably also bring claims of direct and indirect religion or belief discrimination.  Domestic caselaw has recently widened the concept of philosophical belief to include any belief with sufficient cogency, seriousness, cohesion and importance which is worthy of respect in a democratic society.  The EAT’s watershed judgment in Nicholson v Grainger plc held that belief in man-made climate change was capable of amounting to a philosophical belief protected by the 2003 Regulations.  In Hashman v Orchard Park Garden Centre, the EAT held that a belief in the sanctity of life including a belief that fox-hunting and hare-coursing were incompatible with the sanctity of life was likewise a protected philosophical belief.

Is a New Law preventing Workplace Discrimination because of Political Affiliation or Association Required?

How does the current domestic law on religion or belief square with the ECtHR’s view that the treatment accorded to Mr Redfearn did not engage his rights to freedom of thought, conscience and religion under Article 9 of the ECHR?  Can a meaningful dividing line be drawn by the ECtHR between religious and philosophical beliefs and political beliefs?  In South Africa, the Dutch Reformed Church used to use theological arguments in favour of apartheid, just as in the American South, the Bible was used to justify segregation and anti-miscegenation laws.  On the other hand, the Equality and Human Rights Commission has suggested that a religious belief in the racial superiority of a particular race would fall outside the scope of the UK protections against discrimination because of religion or belief, as it would be incompatible with the rights and freedoms of others.

It remains to be seen whether the UK courts in a future case will extend the law on the protection of philosophical beliefs to cover political beliefs such as those of Mr Redfearn.  If so, it would still remain to be seen whether the ECtHR would be prepared to accept that such a conflation in UK law of protection for religious and philosophical beliefs and protection of political beliefs constituted adequate protection of the right to freedom of political affiliation and association.

If the UK courts decline to extend the law on religion or belief discrimination to cover political beliefs which offend, shock or disturb, then it must follow from the ECtHR’s judgment today that it is incumbent on the UK to protect freedom of association either with a removal of the qualifying period for unfair dismissal (surely unthinkable given its recent extension to two years) or with a new law concerning discrimination because of political affiliation or belief.

In the light of Redfearn v UK, we must await the ECtHR judgments in the cases of Eweida and Chaplin v UK and Ladele and McFarlane v UK with even greater anticipation.

The judgment can be found here.

Apparent Bias

November 2nd, 2012 by James Goudie QC

In  Bhardwaj v First Division Association and others, UKEAT/ 0157 & 0158/11/2T, Judgment on 1 November 2012, the EAT (Wilkie J presiding) held that, although one of the circumstances complained of may have required the ET members to have recused themselves on grounds of “apparent bias”, had such an application been made, in fact, the agreement of the parties, including the Appellant, that the hearing should continue, notwithstanding the revelation of those circumstances, was effective to act as a waiver of any such “apparent bias” and so the hearing of the claims by the ET, as then constituted, was lawful and effective.

The apparent bias ground concerned the fact that two of the Respondents to the Appellant’s claim, C and W, had been offered appointments as members of the ET shortly before the hearing began and were appointed as members after the hearing had begun. In addition, W had some contact with one of the Lay Members of the ET in the context of training for ET members on a date when the hearing, though continuing, was adjourned.

The Appellant was employed by the CPS. She is a member of the First Division Association (FDA). She began discrimination proceedings against the CPS which the FDA declined to support. That claim was settled.  She then began proceedings against the FDA for its lack of support in her case against the CPS. Those were settled.  Later she became a Trade Union representative with FDA. Her relationship with FDA representatives in the London branch deteriorated. There came a time when the Appellant was suspended from the London branch. She then issued proceedings against the FDA for racial discrimination and unjustified discipline. Those proceedings were also issued against C and W, being London Branch Members, as well as two other officials of the Union.   Other proceedings were commenced against the FDA and a National Officer.   All the Appellant’s claims were dismissed by the ET.

Wilkie J stated (para 33) that the modern approach to the issue of apparent bias was stated in re Medicaments (No 2) [2001] 1WLR 700 CA and approved in Porter v Magill [2001] UKHL 67, [2002] 2 AC 357 HL in the following terms: “The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”.   Wilkie J observed (para 34) that in the employment law context and in the context of a party or representative also being a part time member or chairman of an ET or EAT, the same approach has been affirmed in Lawal v Northern Spirit [2003] ICR 856 HL; and (para 35) that the Court must ascertain all the circumstances having a bearing on the suggestion that the ET was biased and then ask whether those circumstances would lead a fair minded and informed observer that there was a real possibility that the ET was biased.

However, as Wilkie J remarked (para 39) a party can waive an objection to the possibility of bias where he or she is aware of all the material facts and of the consequences of the choice offered to him and where he or she has been given a clear opportunity to reach an unpressured decision.

 The EAT concluded:-

 “45.       In our judgment, the crucial issue on this aspect of the case is the fact that, whether in training or as a member subsequently sitting, a lay member within one of the regions may reasonably expect to sit with any of the other lay members appointed to that region. In those circumstances the lay members sitting on an ET could reasonably be expected to have a different attitude towards a person, with whom they might expect to sit as a colleague in future, when considering their credibility or the quality of their conduct. This was the case in respect of in the present case. In our judgment, a fair minded and informed observer, in these circumstances, would conclude that there was real possibility that the Tribunal members would treat such a person differently, even unconsciously, from the way they would treat somebody on the other side making allegations or criticisms. Accordingly, whilst without deciding the matter, as necessary to our decision, in our judgment, had the Appellant asked the Tribunal to recuse itself, it would have been right for it to have done so.

 46.        However, in our judgment, the Appellant waived her entitlement to ask the ET to recuse itself in circumstances where she cannot go back on that waiver.”

No more appeals for Dr. Mattu

November 1st, 2012 by Clive Sheldon QC

The Supreme Court has refused Dr. Mattu permission to appeal against the Court of Appeal judgment, which held that the procedure by which he was dismissed did not attract protection under Article 6 of the European Convention of Human Rights: see Mattu v. The University Hospitals of Coventry and Warwickshire NHS Trust [2012] EWCA Civ 641. (I blogged about this decision on May 18th 2012: ‘Dismissing a doctor does not engage Article 6 of the Convention’).

Lady Hale, Lord Mance and Lord Carnwath held that Dr. Mattu’s ‘Article 6 point is not arguable’.

This decision was plainly right. (John Cavanagh QC, of 11kbw, represented the NHS Trust).

Employee Share Ownership: Proposals For The De-Regulation Of Share Buybacks By Companies With Employee Shareholders

November 1st, 2012 by Julian Wilson

The Nuttall Review commissioned by the Department for Business Innovation and Skills and published on 4 July 2012 identified key barriers to the uptake of employee ownership and made a number of recommendations on how to reduce these barriers.

The barriers identified as disincentivising the uptake of direct employee ownership included the Companies Act provisions regulating the share buy back process.

On 18 October 2012, DoBIS published a Consultation Paper seeking views on how the government should implement employer owner status and a specific consultation document upon de-regulating share buy backs.

The problem

Where employee ownership is achieved by direct employee share ownership, rather than by an employee trust model, in order to avoid loss of ownership by the existing workforce, employee-owned companies need a mechanism by which to buy back shares owned by employees who are leaving or who have left the company in order to re-distribute them to new starters.

Buy back arrangements depend on the selling shareholder agreeing a price with the buying company either on departure or pursuant to a buyback agreement entered into at the commencement of employment as a condition of the employee being awarded shares by the company.

Although a number of former restrictions on a company purchasing its own shares -in particular those in s.151 CA 1995 – were repealed in Part 18 CA 2006, buy back still requires compliance with a number of provisions which regulate the process.

Companies may only buy back shares off-market if they have a buy back contract authorised by a special resolution of the shareholders in General Meeting (i.e. with 75% agreement, excluding the votes of the seller) (ss.693-695 Companies Act 2006). This provides protection to existing shareholders by preventing company directors from entering into share buy backs that are not in the company’s or other shareholders’ interests.

Whilst the finance for the purchase may come from either distributable profits or from the proceeds of issuing new shares, if a private company wishes to finance the buy back out of capital, the requirements include a declaration of solvency, auditors’ report, special resolution of shareholders and advertisement to creditors.

In addition, there are a number of other regulatory safeguards such as the director’s statutory duties and the ability of shareholders by special resolution to alter the company’s Articles to prevent buy backs.

The Nuttall Review concluded that these provisions were overly burdensome, and recommended that Government simplified them. The Government has accepted this recommendation and hence, the consultation.

Service Provision Changes; Court of Appeal confirms that client must stay the same

October 30th, 2012 by Simon Devonshire QC

The Court of Appeal has today handed down judgement on the appeal against Slade J’s decision in Hunter –v- McCarrick  [2012]EWCA Civ 1399.   The Court of Appeal confirmed that the statutory concept of service provision change requires “the same client throughout” the change in service provider.   This was the natural consequence of the words used and there was no need to import a purposive construction in domestic legislation that did not seek to give effect to EU law; paras 37 & 38.

 The appellant had also argued that there had been a business entity (old style) transfer.   This was rejected for a number of reasons that do not really advance the jurisprudence (paras 42 to 47), but does contain one point of interest.    At the conclusion of his judgment, Elias LJ noted (para 48) that the appellant assumed that “if he could show that there was a regulation 3(1)(a) transfer, it would not matter that there had been a change in the client receiving the service”.   Whilst Elias LJ thought that this may be right, he said that the point was arguable and not covered by any authority.   He ventured the observation that “it may be that where the business is in the nature of a service provided to a particular client, the identity of the client is an essential element in description of the undertaking”, with the result that if the post transfer service was carried on for a new client, there could not be an old style transfer either.    However, according to Elias LJ that was “an argument for another day”, so watch this space.



October 4th, 2012 by Simon Devonshire QC

Simon Devonshire QC delivered this paper on Whistleblowing at the LexisNexis Conference. Click here to read the paper.

Signing on Payments, Termination Without Cause and Repayment Conditions: a rare victory for the Collateral Warranty

October 3rd, 2012 by Julian Wilson

In its recent judgment in Thinc Group-v-Armstrong [2012] EWCA Civ 1227, the CA has upheld a rare victory for that endangered species beloved of Lord Denning – the Collateral Warranty.

The CA upheld a finding at first instance that an oral assurance given to the respondents when they were recruited by the appellant to join it as financial advisers overrode subsequent express written terms.

Thinc sought to recruit the Armstrongs as independent financial advisers and take over their existing client base. In oral negotiations, Thinc offered the Armstrongs an upfront payment based on 50% of their last year’s gross income and assured them that the only condition attaching to this payment was that the Armstrongs stayed with Thinc for 3 years.

Subsequently, the parties entered into written agreements including a supplemental contract which provided for the Armstrongs to receive as a “disturbance allowance” or “supplemental payment” the sum based on 50 per cent of their last year’s gross income. The supplemental contract provided that this payment would become repayable if a repayment event occurred within three years of payment. The definition of repayment event included termination of the contracts with Thinc for whatever reason. The principal written contract gave Thinc the right to terminate without cause at any time.

Thinc terminated the Armstrongs’ contracts within 3 years and demanded repayment of the upfront payment.

The CA upheld the judge’s finding that the oral assurance amounted to a collateral warranty that as long as the Armstrongs did not terminate within 3 years, they were entitled to keep the upfront payment.  

As a matter of construction, that collateral warranty overrode the inconsistent signed written contracts because its effect was to misrepresent the primary contract. Relying on Mendellsohn-v-Normand Ltd and J. Evans & Son (Portsmouth) –v-Andrea Merzario (both printed condition cases), Rix L.J. found that:

 It would be illusory for Thinc to say: “The only condition for our recovery of the supplemental payment is if you do not stay with us for 3 years” and then for its printed contract to enable it to reclaim the money at will within that period by mere dint of terminating the contract without cause.”

“Ultimately the question of construction, therefore, is whether the “no other

conditions” assurance meant that Thinc could recover the supplemental payment

because, even though the Armstrongs were willing to stay, they had been told to

go: or whether the words of the assurance “as long as they remained with [Thinc]

for 3 years there would be no other conditions” …entailed that the decision to go or stay was the Armstrongs’. In my judgment, in a choice between those two alternatives, there is no contest: the latter alternative must prevail. A construction that would permit Thinc to recover the supplemental payment on a whim (or, as bad, for lack of performance when the Armstrongs had been assured that there were no minimum performance requirements, and there were none) would be absurd. It would undo the very basis on which the Armstrongs were willing to join Thinc. It would, in the words of Devlin J, approved in subsequent cases in this court, make the assurance wholly illusory. Such a construction is so unreasonable, so uncommercial, that it is to my mind impossible.”

Notable points are that: 

  • The written contracts did not contain an “entire agreement” clause though they did contain a “no reliance” clause regarding prior representations. It was said to have been conceded that this did not exclude the possibility of a collateral warranty. There was a finding of reliance.
  • The court could not address whether the Interfoto onerous clauses rule could apply to the case of the signed written contract because it was not a part of the appeal. 
  • The CA considered that the court was entitled to have regard to the business sense of the arrangements as a whole and was influenced by the facts that the supplemental payment was in effect the price for the goodwill of the Armstrongs’ business brought to Thinc and that the written agreements did not address the transfer of commission rights so that they could not in fact represent the whole agreement.  
  • The Supplemental Agreement contained an unusual term that if there was a conflict between its terms and any other agreements between the parties, Thinc had the right to determine reasonably which terms should prevail. Dismissing the contention that this entitled Thinc to say that the written terms prevailed over the collateral warranty, Rix L.J. found Thinc’s reliance on the clause to be an “own goal” because the term itself contemplatred the existence of collateral contracts and it would be impossible for Thinc to “reasonably” determine that the written terms prevailed over the collateral warranty.

Collective Agreements

July 30th, 2012 by James Goudie QC

In Anderson v London Fire & Emergency Planning Authority, UKEAT/0505/ 11/SM, the EAT considered whether a term in a Collective Agreement with respect to the third year of a three year pay deal was apt to be incorporated in the contracts of employment of the Authority’s employees, and, if so, how that term should be interpreted. The Authority’s Collective Agreement with the Trade Unions gave the employer two options for the pay increase in the third year. It did not state which tookprecedence. The EAT held that the term had been incorporated.

The term was not insufficiently certain, either because it provided for a pay increase to be determined partly by reference to a sum to be agreed between third parties, or because it provided for the paying party to choose between two alternative methods of calculation.

The EAT however upheld the ET’s dismissal of the employees’ claims. The ET did not err in holding that the subjective intentions of the parties to the Collective Agreement were irrelevant when considering its interpretation. Nor did they err in having regard to the wording of the Collective Agreement rather than the negotiations which led up to it, even if paying the higher of the two options had been discussed. Nor was it material that the Union negotiator told the ET that he would not have agreed that management could choose the pay increase option which was most advantageous for them.

The EAT regarded the meaning of the relevant provision of the Collective Agreement as being clear. “Or” meant what it said. The Authority fulfilled their contractual obligation by paying in accordance with one
alternative. The Authority was not obliged to pay whichever alternative would give the higher increase.

NHS Leeds v Larner

July 27th, 2012 by Sean Jones QC

I am going to miss Lord Justice Mummery. His judgments are models of clarity and his instincts are flawless. When you lose, as I did comprehensively in Larner, you know exactly why and the merits of the alternative analysis are put so persuasively you struggle to disagree even when you are paid to.

The critical question in the appeal is identified in the opening paragraph of the judgment:

“In what circumstances is a worker, who has not taken paid annual leave in the relevant leave year because of absence from work on long term sick leave, entitled to payment in lieu?”

After a meticulous analysis of the European and Domestic legislation (and a graceful if merciless dissection of my submissions on behalf of the Appellant) the question is answered in the final paragraph:

“(1) The claimant was entitled to paid annual leave in the leave year 2009/10;

(2) She was prevented from taking her paid annual leave because she was sick;

(3) She was entitled to carry her untaken paid annual leave forward to the next leave year in 2010/11 without making a prior request to do so;

(4) As her employment was terminated in that year, before she could take the carried forward leave, she was entitled to payment on termination for the paid annual leave she had been prevented from taking”

It was the third point that was the core issue in the appeal. reg 13 of the WTR does not appear to allow untaken leave to be carried over at all. It was clear from Stringer (C-520/06), Schultz-Hoff (C-350/06), Pereda (C-277/08) and other cases before the ECJ that carry over had to be allowed if sickness prevented the employee from having the opportunity to take the leave during the year in which it accrued. It was argued, however, that Pereda required that a specific request to carry over be made in the absence of which the entitlement was lost. Their Lordships concluded that references in Pereda to carry over requests merely reflected the particular facts of the case and were not an articulation of a general principle that a request was always necessary.

The claimant was able to rely on the Working Time Directive (as NHS Leeds was an emanation of the State). However , the Court concluded that the Domestic Law would in any event have had to be read in such a manner as to reach the same result in private sector cases.

The Court left open the question whether the period of additional leave conferred by Reg 13A had to be dealt with in the same way. The CJEU case of Neidel (C-337/10) suggested that it did not but the Appellent was refused permission to take the point as it had not been taken below.

The importance of distinguishing contractual and fiduciary duties: Ranson v Customer Systems plc

July 13th, 2012 by Paul Nicholls QC

Julian Wilson has recently blogged about Ranson v Customer Systems plc and what it says about the circumstances in which employees may owe fiduciary duties. In addition, the case is important for what it says about the different duties owed by ‘ordinary’ employees (i.e. those who owe just contractual duties) and fiduciaries. 

The case concerned allegations about a senior employee undertaking illegitimate steps to compete. It was alleged that these included meeting clients in the run up to the employee’s departure. There was a suggestion that in doing so the employee was seeking to encourage the clients to send him business once he had left and set up on his own. However, the employer’s principal case was not that the fact of the meetings and discussions was unlawful but that the employee’s duties, alleged to be fiduciary as well as contractual, required him to report to the employer that he had such meetings. 

The Court of Appeal held that Mr. Ranson did not owe fiduciary duties. There appears little doubt that, if he had done so, Mr. Ranson would have been obliged to report not only his discussions with clients but also that he was planning to leave. That is the effect of a series of cases such as British Midland Tools v Midland International Tooling [2003] 2 BCLC 523 and Shepherds Investments v Walters [2007] IRLR 110. A fiduciary owes a duty to act in the best interests of the beneficiary of the duty (a duty of single-minded or exclusive loyalty, per Ranson at paragraphs 41-2). That includes a duty to inform the beneficiary of the duty of matters which could damage those interests. The departure of a senior executive could damage those interests and so should be something that is reported. Further a fiduciary owes a duty not to allow his interests to come into conflict with his duties. Where a fiduciary decides to leave, that creates a conflict between the duty to act in the best interests of the company and the fiduciary’s interests in competing with it. Once that conflict arises, the fiduciary must either resign or disclose the intention to compete. 

However, since Mr. Ranson was an employee and not a fiduciary, the Court of Appeal held that he did not owe a fiduciary obligation to report his contacts with clients. 

Further the Court held that he did not owe a contractual duty to report his activities. Mr. Ranson did of course owe an obligation to act with fidelity. However, the duty of fidelity did not require him to report his contacts with clients. Importantly, the Court stressed that the scope of the contractual obligation depended on the terms of the employee’s contract (paragraph 34). Thus whether the employee owed an obligation to report his acts (even his misconduct) would depend on those terms. The Court held that there was no general obligation on an ‘ordinary’ employee to report their own misconduct. However, there might be such an obligation if the terms of the contract required it. Lewison LJ referred to some cases where such an obligation was imposed (paragraph 55). 

As I have indicated, the case advanced by the employer was primarily that there had been a breach of duty by Mr. Ranson in not reporting his activities. In the absence of such an obligation, that allegation failed. 

The case should not be seen as one relaxing the duties of fidelity nor the duty not to solicit clients during employment. Whilst there had been meetings with clients, it was accepted on the facts that Mr. Ranson was on the right side of the line because he had been (quoting Wessex Dairies v Smith)           

‘as agreeable, attentive and skilful as it is in his power to be to others with the ultimate view of obtaining the benefit of the customers’ friendly feelings when he calls upon them if and when he sets up business for himself.’ 

However, he had not, on the facts, canvassed customers for their business

What is most important about this case is that it is a timely reminder of the substantial differences which exist between contractual and fiduciary duties. I have commented on the importance of those differences in another context, namely the case where employees decide to leave together, and I have suggested that in some recent cases the Courts have erroneously treated those who are employees owing only contractual duties as if they owed fiduciary duties: click here 

It will be interesting to see whether the Court’s reminder of the different scope of contractual and fiduciary duties in Ranson has wider effects.

Court of Appeal further defines circumstances in which employees will be subject to fiduciary duties

July 2nd, 2012 by Julian Wilson

When and how an employee may be subject to fiduciary duties is a question which both Judges and practitioners and have found it difficult in practice to discern.

In its judgment in Ranson v Customer Systems plc [2012] EWCA Civ 841, last week, the Court of Appeal addressed how a court should go about ascertaining, in the circumstances of each case, whether an employee owed fiduciary duties and the scope of any such duties owed. It did so by a careful analysis and application of the existing case law but I concentrate below on the approach it derived from those cases.

The proper approach

The CA disapproved of drawing analogies with Company Directors and using the Director cases to discern the duties owed. Companies are artificial persons which can only act through human agents – the Directors. The Directors exercise the Company’s powers and are treated as trustees of its property.  For those reasons, they are in a fiduciary capacity in which they have to put the interests of the Company, for which they act as agent, before their own interests. 

Employees are not in such a fiduciary capacity. Any powers imposed on the employee are conferred by the employer under the employment contract. Whether they give rise to a fiduciary duty depends on the terms of the contract. It is the contract which should be the starting point of the analysis. The question is whether there are any specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes a fiduciary duty, rigorously restricting his freedom to act in his own interests by requiring him to put his employer’s interests first, in addition to the contractual obligation.

No surrogates

Neither the implied duty of fidelity nor the implied duty of trust and confidence can be used as surrogates for fiduciary duties because:

The scope of the duty of fidelity derives from the terms of the contract.  Unlike the fiduciary duty of loyalty, the duty of fidelity is not a duty to act in the interests of another. It is one where each party must have regard to the interests of the other, but not one where either must subjugate his interests to those of the other.

The trust and confidence term is an incident of every contract of employment by implication of law. As not every contract of employment gives rise to a fiduciary relationship, it is clear that reliance on the trust and confidence duty cannot of itself give rise to fiduciary obligations.


Take the matter of business opportunities coming to a person’s attention. Whilst a director’s fiduciary capacity dictates that he must put the Company’s interests first and give to it the benefit of every opportunity he learns of falling within the scope of its business, an employee does not in general promise to give his employer the benefit of every opportunity falling within the scope of its business unless he owes a specific contractual duty to secure the work for the employer.

Take the duty to disclose one’s own misconduct. Whilst a director’s fiduciary capacity may dictate that he must disclose his own wrongdoing as part of his fiduciary duty to act in what he considers in good faith to be the best interests of his Company, an employee is not generally obliged to disclose his own misconduct.

Whether the employee has duties to bring business opportunities to his employer’s attention or to disclose his own wrongdoing will depend on the terms of the contract.


The decision in Ranson is likely to lead to a far more analytical approach to the question of employee duties in Business Protection cases in future.

UK prevails over Germany

June 27th, 2012 by James Goudie QC

Denise Simpson lived in Frankfurt.  She worked from there.  She had a written contract of employment (which began before the Rome 11 Regulation came into effect).  The contract gave her address, correctly, as Frankfurt.  It stated that her place of work was Frankfurt, as indeed it was.  It stated that she could be transferred to other offices or places in Germany.  It stated that of the two language versions of the contract the German would prevail.  It stated that any disputes were to be governed and construed exclusively in accordance with German law.  It provided that the place of jurisdiction was Frankfurt. 

There were some connections with the UK.  She could be required under the contract to travel outside Germany.  She occasionally did come to the UK.  The employer’s registered office was in London.  The contract of employment was written in English as well as German.

Notwithstanding the tenuous nature of the UK connections, and the cumulative weight of the German factors, the President of the EAT, Langstaff J, held, in Simpson v Intralinks, UKEAT/0593/11/RN, that an Employment Tribunal in the UK had jurisdiction over claims under the Equal Pay Act 1970 and the Sex Discrimination Act 1975.  How did this come about?  It was the effect of the employer being registered in the UK and the Brussels 1 Regulation.  German law, however, remained applicable, under the Rome Convention.  It would be for the ET to determine the German law, as a matter of fact.  Nonetheless the UK statutes would be applicable. German law would not apply on any issue upon which the provisions of the UK statutes are mandatory.

Langstaff J said, at para 58:

 “Though it may seem at first blush counter-intuitive that where parties agree both that the law which will govern their employment relationship is foreign, and that the courts in which any employment dispute are to be heard are also foreign, nonetheless the employee is permitted to choose to litigate the issues in the United Kingdom.  Once, however, the policy of the international conventions is understood to be that employees need protection, as being generally in a weaker position than employers when negotiating their contracts of employment, such that the law should redress the imbalance by providing the employee with a choice of which otherwise the unequal terms of a contract would deprive him, then the consequence (in general) is not counter-intuitive, but may be seen as (in general) tending to justice.”

When can employees club together in a plan to leave

June 22nd, 2012 by admin

Recent cases have come to conflicting views about whether employees who plan to leave and set up a competing business are entitled to encourage others to leave with them. Paul Nicholls QC analyses the cases and offers a view of the correct legal position.

Read Article


June 6th, 2012 by admin

In CEF Holdings Ltd & Anor –v- Mundey & Ors [2012] EWHC 1524 (QB), Silber J has added his voice to the growing judicial disquiet at the unnecessary and inappropriate use of without notice applications, and at the need for evidence in seeking  interim injunctions to restrain alleged unlawful competition by ex-employees  (cf O’Farrell –v- O’Farrell [2012] EWHC 123 (QB) and the Caterpillar litigation [2012] EWCA Civ 156, both covered in earlier posts on the 11KBW Employment Law Blog).   In a postscript to a comprehensive judgement (para 255), Silber J has stressed that (i) moving without notice is an exceptional step only to be followed in very limited circumstances “where to give notice would enable the defendant to take steps to defeat the injunction …. or where there is some exceptional urgency, which means literally there is no time to give notice”, (ii) an application without notice will need to be carefully justified by more than a “bland statement that the defendant might do something if warned ”, (iii) a witness statement on a without notice application “should contain a statement setting out the duty to give full and frank disclosure perhaps along the lines set out by Bingham and Mummery LJJ in [Siporex and Memory Corpn –v- Sidhu] and then indicating how the duty has been complied with”, and (iv) “[a]ny application for an injunction must bebased on facts and … mere suspicion is not enough”.  These were all “serious lessons” which (as the Court found) the Claimants had failed to observe or heed, it seems by some margin. They were ordered to pay indemnity costs.

Silber J dismissed the Claimants’ application for interim springboard relief against 19 individual (employee) Defendants and the new employer that they had joined, and discharged earlier injunctions made by Collins J – effectively ex parte on half a day’s notice to the Defendants.    The Claimants had resisted the discharge application on the basis that they had given some notice, that Counsel had attended on behalf of the (employee) Defendants, and that thisattenuated the full and frank disclosure obligation.   Silber J rejected this argument: the ordinary requirement to give 3 days notice was “the minimum period specified to ensure that proper legal and factual submissions of the respondent [could] be put before the Court” (para 181); if shorter notice was given, the respondent could not be expected to be fully prepared and the full and frank disclosure obligation remained engaged, unless notwithstanding the short notice the respondent said all that could be said (paras 182-183); if this was not the case, the applicant was required to “explain all legal and factual issues which were relevant to [the respondent’s] submissions …to bridge the gap between what fell within his duty of full and frank disclosure and what [the respondent] said ” (para 184).

The Court also considered the right of the employee to be sued in his own domicile under the Judgments Regulation and the UK equivalent provisions in Schedule 4 to the Civil Jurisdiction and Judgments Act 1982 (“the 1982 Act”).   In essence, the Court said that this could not be circumvented by framing claims in tort, where the employment relationship was legally relevant to those claims.   This meant that the claims against 10 of the19 employee Defendants who were domiciled in Scotland and Northern Ireland were unsustainable.

Simon Devonshire Q.C appeared for 14 of the employee Defendants (including the 10 employees domiciled outside England) at the hearing before Silber J, instructed by Gateley LLP.

Read judgement – http://www.11kbw.com/judgments/detail.php?jid=194

Gross Misconduct

May 28th, 2012 by James Goudie QC

The decision of the Court of Appeal in Boston Deep Sea Fishing v Ansell (1888) 39 Ch D 339 is a leading authority for some of the basic principles governing dismissal of an employee for gross misconduct: (1) where an employee is guilty of gross misconduct, he may be dismissed summarily, even before the end of a fixed period of employment; (2) dismissal may be justified by reliance on facts not known to the employer at the time of the dismissal, but only discovered subsequently, even after the proceedings began; and (3) the dismissed employee is not entitled to any wages or salary for the broken period of employment immediately preceding his dismissal, because his entitlement had not accrued by then.  

In Cavenagh v Williams Evans Ltd [2012] EWCA Civ 697 the employee was guilty of gross misconduct.  This was not known to the employer when they dismissed him for redundancy and he became entitled to six months pay in lieu of notice, which the employer agreed to pay.  Subsequently the employer discovered the pre-dismissal gross misconduct.  Had it known of it at the time it would have accepted his repudiatory breach of his service agreement and regarded itself as discharged from liability for pay in lieu of notice. 

The employee sued for his pay in lieu.  In the Court of Appeal he succeeded.  The after-discovered gross misconduct did not enable the employer to avoid the payment of an accrued debt.  Boston Deep Sea Fishing was distinguished.  

Mummery LJ said, at para 39: 

            “Boston Deep Sea Fishing did not go as far as to say that after-discovered misconduct provided an employer with a defence to an action for payment of an accrued debt.  The principle for which that case stands is that an employer can defend a claim for damages for wrongful dismissal by using at trial, in its defence of justification, evidence of misconduct by the employee that was not known to the employer at the time of dismissal. … his appointment was terminated … in a fashion that was lawful: … The consequence of the lawful termination was that the Company became contractually bound to Mr Cavenagh for pay in lieu.  All of that happened before the Company knew of, or was in a position to accept, Mr Cavenagh’s prior repudiatory breach.  The lawful termination had already triggered the liability for pay in lieu, which was, as a matter of legal analysis, quite a different situation than that facing the Court of Appeal in Boston Deep Sea Fishing.”

Tomlinson LJ said, at para 54: 

            “… the Boston Deep Sea Fishing principle is … of no relevance here, since the employer is not seeking retrospectively to justify a termination which was impermissible upon the grounds put forward at the time. “

Employment Litigation’s implications for the fitness and properness of Approved Persons

May 21st, 2012 by Julian Wilson

For many years, the most prominent inter-dealer broking firms have engaged in serial litigation over staff poaching. Some of these cases resulted in lurid tales being told at trial of amoral conduct.  Despite its role in judging the fitness and properness of Approved Persons, the FSA appeared to take no real interest and was slow to intervene.  The word was that it regarded the conduct as insufficiently related to any regulated activities.

Recent developments suggest that the FSA is now taking a broader view and that Approved Person litigants generally may be well advised to bear in mind the potential regulatory consequences of judicial findings relating to their integrity.

The developments I refer to are of course the decision of the FSA, published on 16 May 2012, to issue a Prohibition Order against Anthony Verrier of BGC, a decision, which has now been referred to the Upper Tribunal (Tax and Chancery Chamber). 

Readers of this blog will be familiar with the fact that in Tullett Prebon plc (and two others) v BGC Brokers LP (and 13 others including Mr Verrier) [2010] EWHC 484 (QB) Anthony Verrier was found by the High Court to have participated in an unlawful means conspiracy which included the inducement of brokers to breach their contracts with Tullett Prebon by unlawfully leaving their employment. In the course of Jack J.’s judgment, the Judge made findings that Mr. Verrier had departed from the truth in the course of his oral evidence at trial, had lost or disposed of his Blackberries containing potential evidence and had deleted a relevant report.

On 28 March 2012, the FSA issued a Decision Notice against Mr. Verrier stating that it was taking action under s. 56 FSMA to make a prohibition order against him. The Order prohibits him from performing any function in relation to any regulated activity because it appears to the FSA that Mr Verrier is not a fit and proper person due to concerns over his honesty, integrity and reputation. The Decision Notice points out that the FSA’s Fit and Proper Test for Approved Persons (“FIT”) states at 2.1.3G that, in determining a person’s honesty, integrity and reputation, the FSA will have regard to:

“(2)    whether the person has been the subject of any adverse finding … in civil proceedings, particularly in connection with investment or other financial business, misconduct, … or management of a body corporate;

 “(10)    whether the person, or any business with which the person has been          

             involved, has been … criticised by a … court …, whether publicly or


The Notice states that having regard to the FSA’s regulatory objectives, including the severity of the risk that Mr Verrier posed to the confidence in the financial system, the FSA considered it necessary and proportionate to exercise its powers to make the prohibition order.

Mr. Verrier’s lawyers  made representations on his behalf including that the FSA was extending its reach by basing a decision on conduct which was not itself a regulated activity. The Decision Notice addressed this by stating that the matters to be taken into account by the FSA in assessing whether a person is fit and proper extend beyond regulated activities as is apparent from FIT 2.1.1G: “In determining a person’s honesty, integrity and reputation, the FSA will have regard to all relevant matters …”

Approved Person litigants should beware.

Dismissing a doctor does not engage Article 6 of the Convention

May 18th, 2012 by Clive Sheldon QC

The Court of Appeal has today announced judgment in Mattu v. The University Hospitals of Coventry and Warwickshire NHS Trust [2012] EWCA Civ 641, a dispute between a consultant in non-invasive cardiology and general medicine and his employer NHS Trust. Dismissing Dr. Mattu’s appeal, the Court held that the procedure by which Dr. Mattu was dismissed did not attract the protection of Article 6 of the European Convention of Human Rights (“the Convention”). The Court answered the question “does a decision by an employer whether to dismiss an employee under a contract of employment determine a civil right of the employer of the employee within the meaning of Article 6” with a resounding “no”. That is the most significant aspect of the Court’s decision, applying as it does to all employers, private and public, when exercising contractual powers. The case is also of specific interest to those advising doctors or Trust’s on employment rights and processes; and of general interest to those who like to read about employees accused of being “patronising, condescending and disrespectful” to their bosses. It also provides a cautionary tale for employees who have managed to secure six adjournments of a disciplinary hearing, but fail to secure the seventh!!

The facts of the case can be set out briefly. Dr. Raj Mattu worked for the Trust as a consultant since 1998. He was contracted to provide clinical services, and was also required to carry out research. He had been suspended by the Trust in 2002 for disciplinary reasons, but his hearing did not take place until five years later, in 2007! The disciplinary hearing did not result in his dismissal. However, as Dr. Mattu had not been working for some considerable time, it was recognised that he needed re-skilling to enable him to return to safe practice. Re-skilling was arranged, but there was disagreement as to its scope. Dr. Mattu refused to sign the Trust’s action plan, as it did not make provision for academic re-skilling. This led to disciplinary action being taken against Dr. Mattu.

The case against Dr. Mattu was not that he was not entitled to query aspects of the re-skilling programme – Dr. Mattu wanted six months academic re-skilling connected to research, with the possibility that this be spent in the United States – but ‘the way in which Dr Mattu goes about doing this . . . renders him unmanageable’. Instead of meeting or writing to the appropriate person raising matters politely, Dr. Mattu ‘will write lengthy letters of complaint, lodge grievances or deal with matters through incorrect channels.’ It was said that ‘The tone of Dr Mattu’s letters are often patronising, condescending and disrespectful to those assisting with the reintegration process’, including the Chief Executive and Chairman of the Trust.

Three particular disciplinary allegations were made against him for consideration by a disciplinary hearing:

(1) refusal to comply with the reasonable requirements of his employer in signing up to the Action Plan and failing to co-operate with the re-skilling process; refusing to accept or comply with reasonable instructions; acting in such a way as to render himself unmanageable.

(2) leaking confidential information about the Trust and its employees; making false allegations to the media and third parties.

(3) whilst on sick leave, claiming to have a severe illness, and therefore unable to attend investigation meetings of an occupational health review, he attended social events. This amounts to misrepresentation and a breach of trust and confidence.

The disciplinary hearing was adjourned on six occasions! A further postponement was sought on account of Dr. Mattu’s health. This request was rejected. The hearing was held in Dr. Mattu’s absence. The panel considering the matter included the Trust’s Chief Executive, but did not consist of an independent medically qualified person, which would have been required under the contractual arrangements if professional misconduct was being alleged against a doctor. The Trust’s disciplinary procedures were modelled on the Department of Health’s document Maintaining High Professional Standards in the Modern NHS (“MHPS”). The panel found that Dr. Mattu was guilty of gross misconduct and that he should be dismissed without notice. An appeal was heard by a panel which consisted of senior doctors and health service personnel, none of whom was employed by or had any involvement with the Trust. His dismissal was upheld.

Dr. Mattu issued proceedings in the High Court. He complained that the Trust’s Chief Executive was not entitled to dismiss him, either under the contract or in light of Article 6 of the Convention. His claim was dismissed: see [2011] EWHC 2068 (QB).

On appeal to the Court of Appeal, Dr. Mattu contended that allegation (1) (refusal to comply with reasonable requirements) amounted to an allegation of “professional misconduct”. If so, then the decision to dismiss him was unlawful as it had been made by a panel which had not been properly constituted. A majority of the Court of Appeal (Stanley Burnton, Elias LJJ) dismissed this argument. Not every allegation against a doctor would be regarded as one of professional misconduct. For Stanley Burnton LJ, under the MHPS the distinction between professional and non-professional misconduct was the disciplinary panel needed to consist of an independent medically qualified member. Professional misconduct must, by definition, require the attendance of such a member and so must require medical expertise. Allegation (1) which was related to the requirement that Dr. Mattu return to work without academic re-skilling ‘did not involve any medical skill or expertise for its resolution: it was an employment, a managerial issue.’

Each of the judges in the Court of Appeal held that the decision not to permit Dr. Mattu a seventh adjournment of the disciplinary hearing did not render the dismissal unfair. The obligation of fairness did not, according to Stanley Burnton LJ, require the Chief Executive to adjourn proceedings for the seventh time, into an uncertain future, and in circumstances where it was appropriate for the matter to be determined expeditiously.

As for Article 6 of the Convention, each of the judges were in agreement as to the outcome, but arrived there by different routes.

The potential ramifications of the Article 6 argument made by Dr. Mattu were spelt out by Stanley Burnton LJ at [48]: ‘If Article 6 is engaged by a public employer’s contractual disciplinary procedures . . . any decision to dismiss an employee must be taken by a tribunal compliant with Article 6, with procedures, which are likely to include the right to legal representation, that are implicit in Article 6.’ In addition, as Member States have a positive obligation to secure the enjoyment of Convention rights under the domestic law, ‘the UK Government may be obliged to enact legislation requiring private employers to comply with Article 6 when considering whether to dismiss their employees.’ Unsurprisingly, Stanley Burnton LJ’s analysis led in a different direction: Article 6 was not engaged at all.

Whilst recognising that ‘The right to carry on one’s profession is undoubtedly a civil right’ (following Le Compte, Van Leuven and De Meyeure v. Belgium (1982) 4 EHRR 1), Stanley Burnton LJ held that the decision of the Trust to dismiss Dr. Mattu ‘did not affect his right to practice his profession. He could lawfully do so either in private practice or as an employee of another NHS Trust or of private hospital. His civil right, lawfully to practice his profession, was not engaged.’ It was contended that Dr. Mattu’s right to work as doctor was ‘in practice’ affected because the practical consequence of dismissal by one NHS employer was that he could not find employment with another. On the facts, however, it was noted that Dr. Mattu could still practice privately as a consultant and there was no evidence that he had been refused employment by an NHS Trust. In any event, however, the applicability of Article 6 ‘cannot depend on whether in fact a doctor or other professional can obtain work in his field as a result of his dismissal by an employer.’ Stanley Burnton LJ disapproved the obiter remarks to the contrary of Smith LJ in Kulkarni v. Milton Keynes Hospital NHS Foundation Trust [2010] ICR 101. Smith LJ had noted – in a case concerning professional misconduct by a doctor – that she would have found Article 6 engaged ‘where the NHS doctor faces charges which are of such gravity that, in the event they are found proved, he will be effectively barred form employment in the NHS.’

Looking at the Supreme Court’s judgment in R (G) v. Governors of X School [2011] ICR 1033 (concerned with disciplinary proceedings involving a teaching assistant: accused of inappropriate relationship with a child), Stanley Burnton LJ was noted that the disciplinary proceedings did not themselves determine a civil right, because they only determined a contractual right. The Supreme Court had held that a ‘civil right’ might be determined by disciplinary proceedings if they had a ‘substantial influence or effect on the determination of the civil right or obligation’ in later proceedings. In that case, it was held that the disciplinary proceedings did not have that effect, because the Independent Safeguarding Authority – which could determine the right to practice in the teaching profession, and therefore determine civil rights – made its own findings of fact and were not bound by the earlier proceedings of the employer. Similarly in Dr. Mattu’s case. Stanley Burnton LJ held that the Trust’s disciplinary proceedings did not influence the outcome of the General Medical Council’s proceedings; an employment tribunal hearing an unfair dismissal claim would still consider the issue of fairness; and a Court hearing a wrongful dismissal case could still determine whether or not the misconduct had occurred.

Ultimately, therefore, Stanley Burnton LJ held that Dr. Mattu’s dismissal ‘was the exercise, or purported exercise of a contractual right, not the determination of a civil right within the meaning of Article 6.’

Elias LJ reached the same conclusion on the question of categorisation of allegation (1), holding that even if there was an issue ‘as to whether academic re-skilling was a necessary requirement to the proper performance of clinical duties,’ which was not the case here, the question would then be whether the Trust was giving a reasonable and lawful instruction to say that Dr. Mattu should first undertake clinical duties and that academic re-skilling could come later. That question did not involve an issue of professional conduct requiring the expertise of a qualified doctor on the panel.

With respect to Article 6, Elias LJ rejected the fundamental premise of the argument mounted by Dr. Mattu that the decision of the Trust rendered him unemployable, thereby preventing him from practising his profession. In any event, according to Elias LJ there was no ‘determination’ by the employer of the right to practice a profession. Properly characterised, the decision of the employer was an assertion of its own contractual right, rather than determining Dr. Mattu’s right. The obiter remarks of Smith LJ in Kulkarni were disapproved.

Elias LJ also rejected the contention that the Trust was determining an Article 8 claim (right to respect to private life) by somehow determining Dr. Mattu’s right to reputation (which may fall within Article 8: Pfeifer v. Austria (2009) 48 EHRR 8). Rather, the employer was exercising its own contractual powers, even if this may have damaged Dr. Mattu’s reputation as a consequence.

Elias LJ was also inclined to the view that the overall set of procedures and remedies available to Dr. Mattu would have satisfied Article 6 of the Convention in any event, with the effect that the first stage disciplinary hearing did not need to be Article 6 complaint in any event: see e.g. Alconbury [2003] 2 AC 295. Elias LJ was prepared to accept that various stages were not Article 6 compliant — the original decision to dismiss, the Appeal Panel, and even a hearing of an unfair dismissal claim before an employment tribunal. Elias LJ noted that tribunals cannot review the finding of primary facts for itself (see BHS v. Burchell [1980] ICR 303). However, for Elias LJ. the right to challenge the decision for breach of contract in a wrongful dismissal claim would be likely to constitute ‘full jurisdiction’, thereby providing the Article 6 complaint forum for Dr. Mattu, although he did not reach a definitive view on this matter.

Sir Stephen Sedley disagreed with the majority of the Court of Appeal with respect to the categorisation of allegation (1), and would have allowed the appeal. For him, there was no necessary correspondence between ‘professional’ and ‘clinical’ misconduct, and the disciplinary panel should have included a medically qualified person. With respect to Article 6, the answer was straightforward. The procedure by which Dr. Mattu was dismissed did not attract the protection of Article 6 of the Convention, for the simple reason that an employer dismissing an employee is not determining the employee’s civil rights, but is exercising a contractual power. The outcome of the decision may lead to civil rights coming into play: common law right not to be unlawfully dismissed and the statutory right not to be unfairly dismissed. There are Article 6 compliant bodies to deal with this.

All in all, the decision of the Court of Appeal in Mattu makes for interesting reading. I won’t be surprised if the matter is taken further: if not the Supreme Court, then Strasbourg. Until then, however, employers should feel relieved that they are not required to constitute Article 6 compliant panels before making dismissal decisions.

Dresdner guaranteed bonuses

May 14th, 2012 by Julian Milford

Julian Milford

Late last week the High Court (Owen J) delivered its eagerly-awaited judgment in Attrill & ors v (1) Dresdner Kleinwort Limited (2) Commerzbank AG [2012] EWHC 1189 on whether 104 investment banking employees of Dresdner were entitled to share in a minimum guaranteed bonus pool of EUR 400 million. The claim is unusually valuable in the employment field: it is worth a total of around £52 million euros.

Dresdner announced a minimum bonus pool of 400 m euros in August 2008. The financial crisis of late 2008 followed. On 19 December 2008, Dresdner sent a “bonus letter” to employees stating that a discretionary bonus had been provisionally awarded in a specified sum, but subject to a “material adverse change” (MAC) clause. On 12 January 2009, the sale of Dresdner to Commerzbank was completed. On 18 February, the new CEO of Dresdner Kleinwort Investment Banking wrote to employees stating that bonus awards would be cut by 90%. Dresdner’s position was that this was consistent with the MAC clause, because there had been a material deterioration in Dresdner’s revenue over the relevant period.

In brief summary, the issues arising for the High Court were (1) whether the announcement of a guaranteed minimum bonus pool of 400 million euros amounted to a contractual obligation owed to those to whom it affected; and (2) whether Dresdner was entitled to introduce the MAC clause, and to rely upon it to cut bonus awards. Issue (2) only arose if the Court found in favour of the Defendants on issue (1), because all parties accepted that if the Claimants had a contractual right to share in a minimum bonus pool, the MAC clause could not properly be relied upon to remove it.

The High Court found resoundingly in the Claimants’ favour on all issues:

(1)    They had a contractual right to share in a minimum bonus pool of 400 million euros;

(2)    In any case, Dresdner’s introduction of the MAC clause amounted to a breach of the implied term of trust and confidence in the Claimants’ contracts; and moreover, the MAC clause had not been validly invoked.

In short, the tenor of the Court’s judgment was that Dresdner could not rely on the impact of the financial crisis – and whatever political or presentational issues flowed from that – to tear up contractual obligations owed to employees, however badly those might play politically.

The case largely turns on its facts, rather than on novel issues of legal principle. However, some interesting legal points emerge. One was the Court’s willingness to find that the introduction of a MAC clause itself amounted to a breach of the implied term of trust and confidence. That was because the true reason for its introduction was simply to enable Dresdner to go back on the promise that it had made, rather than to use it for the more limited purpose for which on its proper construction it could be used. What had driven the clause was political pressure from Commerzbank, borne of sensitivity to the public perception of the payment of bonuses on such a scale. There was no financial motive, in that the price that Commerzbank had agreed to pay for Dresdner already reflected the accrual for the guaranteed minimum bonus pool. In other words, the MAC clause was a political stratagem, not a financial imperative.  As the Sharon Shoosmith litigation against the Department for Education has recently illustrated in a very different context, making employment law decisions on the basis of political or presentational imperatives is a risky business.

Indirect age discrimination in the Supreme Court

April 26th, 2012 by Paul Nicholls QC

The judgments of the Supreme Court in Homer v Chief Constable of West Yorkshire contain the Supreme Court’s analysis of the law relating to indirect age discrimination.

The case concerned an officer who worked for the Police National Legal Database. Some time after he commenced employment, a requirement was introduced that, in order to reach the highest grade in the organisation, it was necessary for employees to have a law degree. Mr. Homer was not appointed to that highest grade because he did not have a law degree. At the time of this decision he was 62. He would not have been able to obtain a law degree before reaching the age when he would have had to retire.

Mr. Homer alleged that the requirement that anyone who wished to be appointed to the highest grade, as applied to him, was indirectly discriminatory on the grounds of his age.

The ET held that he had been indirectly discriminated against on the grounds of his age and that this was not justified. Both the EAT and the Court of Appeal held that he had not been indirectly discriminated against but that if he had been, any such discrimination was not justified.

The EAT and Court of Appeal accepted the argument that the reason for Mr. Homer’s treatment was not related to his age but to the fact that he would shortly be leaving work. Anyone, in any age group, who was nearing the end of their employment, would be unable to obtain a law degree in time and so would be unable to progress to the highest grade. This did not therefore put any particular age group at a disadvantage. It put those who were nearing the end of their employment, for whatever reason and at whatever age, at a disadvantage.

The Supreme Court took a different view. It held that Mr. Homer had been put at a disadvantage on grounds of age. The reason why he would not be able to obtain his law degree was that he would have to retire and the reason he would have to retire was his age. Therefore the requirement put his age group at a disadvantage. Lady Hale rejected the suggestion that there was a valid comparison between those who would cease working because of retirement and those who would cease for other reasons. Employees in these two camps were not in the same situation because the former had no choice about the termination of their employment whereas the latter did.

It is interesting that judges in the EAT and Court of Appeal on the one hand and the Supreme Court on the other were able to come to these different views. On the face of it, both analyses are respectable. (Indeed Lord Mance indicates that he changed his view.) There is no obvious a priori reason why the Supreme Court was right and the lower courts wrong. Perhaps the difference between them was the readiness of the Supreme Court to treat factors attributable or related to age – here retirement – as being part of age, such that treating a person in a particular way because that person was about to retire is the same as treating that person on grounds of age. It will be interesting to see whether other, more stereotypical, traits could be relied on as referable to age. Could a person say that a job advertisement requiring an excellent ability to remember names was referable to age because, at least in my case, the older I become, the fewer names I am able to remember. Perhaps, however, it would be better to regard Homer as a case specifically about the link between age and retirement.

Having concluded that Mr. Homer had been subjected to discrimination, the Supreme Court also took a different view on the question of justification and remitted that issue to the tribunal.

The judgment makes use of the familiar, but so difficult to apply in practice, language of proportionality and appropriate means of achieving legitimate ends. It does, however, contain some more helpful , practical language. Lady Hale spoke of a comparison between the impact of the criterion on the affected group and the importance of the aim to the employer. She did not, and perhaps could not, provide guidance as to how these two quite different things could be compared.

The judgments also contain some helpful kernels which may fall to be further considered in later cases. What is the position where eliminating a PCP which is discriminatory on grounds of age puts others at a disadvantage? Lord Hope said that discrimination could not be justified just because eliminating it would put others at a disadvantage for a reason not related to a protected characteristic. However, he also accepted that the fact that there might be such an effect could have an impact when justification is looked at ‘more broadly’.

Lord Mance was more forthright. He expressed the concern that if an exception to the requirement to have a law degree was made for Mr. Homer or those within 4 or 5 years of retirement, this could discriminate against others who would say they were equally well qualified for the job, although they lacked a law degree, and that the requirement should also be waived for them.

It will be interesting to see how the tribunal grapples with that question.

Clive Lewis QC appeared for the Chief Constable.


April 26th, 2012 by James Goudie QC

In the context of agency relationships, was Ms Corrie Pegg an employee of an employment agency (“EA”), a worker for a local authority (“LA”), or neither?  This was the preliminary jurisdictional issue that arose in Camden LBC v Pegg, UKEAT/0590/11/LA, a disability discrimination claim.

Ms Pegg is a specialist in the transport field and particularly in school travel planning. She was on the books of EA.  EA put her forward when LA sought to recruit a temporary School Travel Planning Officer.  The LA interviewed her, and offered here the role of Senior School Travel Planning Officer, which she accepted.  While she worked for LA Ms Pegg was under contract to, and was paid by EA, under terms and conditions described as a contract for services between EA and a temporary worker.  However, she was fully integrated with, and was held out as fully integrated with, other members of staff at the LA as part of a team in the LA’s organisation which included both employees and other agency staff.  She could not choose her hours.  She could not field a substitute. 

The EAT upheld the ET’s decisions that during the relevant period Ms Pegg was employed by EA, within the extended meaning of s68(1) of the Disability Discrimination Act 1995 (“the DDA”), employment includes a contract “personally to do any work”, and was supplied by EA to work for LA as a contract worker in circumstances where LA was the “principal” within the meaning of s4B of the DDA, which makes it unlawful for a “principal”, in relation to contract work (as defined), to discriminate against a person who is a “disabled contract worker”, or to subject such a worker to harassment, and subsection (9) of which defines “principal” as a person (“A”) who makes work available for doing by individuals who are employed by another person who supplies them under a contract made with “A”, and defines “contract worker” as any individual who is supplied to the principal under such a contract.

As the EAT observed, these provisions closely followed provisions in other discrimination legislation, and they, like that other legislation, have now been repealed and replaced by provisions, especially Sections 41 and 83, in the Equality Act 2010.

The LA’s case on appeal was that Ms Pegg was not party to a contract “personally to do any work”, because she was not bound to accept any assignment, and it was not sufficient that she was subject to an obligation personally to do work if she chose to accept an assignment. Distinguishing the Court of Appeal’s decision in Mingeley v Pinnock [2004] ICR 727, this argument was rejected.  The EAT found that the contractual arrangements were different, and ruled that once Ms Pegg accepted the assignment with the LA she owed express contractual duties to the EA which required her to do the work personally and that was sufficient to bring her within s68 and thereby within s4B.  The EAT could see no warrant in the wording of s68 for excluding Ms Pegg from its provision merely because she was not bound to accept the assignment.  The critical point in the view of the EAT was that when she accepted the assignment with the LA she owed a contractual duty to the EA to do the work for the LA personally.  To the EAT it was plain that Ms Pegg was under an obligation to do work personally, whether or not the absence of a power of substitution were taken into account.

The EAT stated that the arrangements under which Ms Pegg came to work for the LA are common arrangements, and that there was no doubt that Parliament intended the protection for contract workers to apply to such workers.


March 23rd, 2012 by Simon Devonshire QC

As Julian Wilson’s earlier post on  Force India F1 Team -v- 1 Malaysia F1 Team [2012] EWHC 616 mentioned, in this case Arnold J had to consider the correct approach to the computation of damages (or equitable compensation) in cases of breach of contractual (or equitable) obligations of confidence.     His judgment gives some encouragement to employment lawyers seeking to use Wrotham Park (and similar cases) to recover what Arnold J chose to style as “negotiating damages”.  After an extensive review of the authorities, he concluded that such damages were available for breaches of both contractual and equitable obligations of confidence.   He summarised the availability for damages or equitable compensation for breaches of obligations of confidence in terms as follows (para 424):-

 “Where the claimant exploits confidential information by manufacturing and selling product for profit, and his profits have been diminished as a result of the breach, then he can recover his loss of profit.   Where the claimant exploits his confidential information by granting licences to others, and his licence revenues have been diminished as a result of the breach, he can recover his lost revenue.   Where the claimant would have ‘sold’ the confidential information but for the breach, he can recover the market value of the information as between a willing seller and a willing buyer.   Where the claimant cannot  prove he has suffered financial loss in any of these ways, he can recover such sum as would be negotiated  between a willing licensor and a willing licensee acting reasonably as at the date of the breach for permission to use the confidential information in the manner in which the defendant has used it [Emphasis Supplied]”.

The Judge also made some general observations about the basis of assessment.   He said that (i) the assessment should be made as at the date of the breach, (ii) where nothing like a negotiation had taken place between the parties, it was reasonable to look at the eventual outcome and to consider whether or not that was a useful guide to what the parties might have thought at the time of their hypothetical negotiation, and (iii) the court could take into account delay by the claimant in asserting his rights (para 386).   Moreover, in assessing the licence fee, “the availability or otherwise of the information from an alternative, lawful source was a highly material consideration … The more inaccessible the information, and thus more difficult it would have been for the defendant to obtain it by lawful means, then the higher the fee that will be payable, other things being equal” (para 426 & 427).

Arguably, this shows a more permissive approach to the availability of such damages that taken in the QBD in conventional post termination restrictive covenants cases (see, e.g., Jack J’s judgment in BGC –v- Rees), and accords with the approach taken in Jones –v- Ricoh (another recent Chancery Division case).   Both these cases are considered in earlier posts.   Given that Arnold J applied his analysis to contractual and equitable obligations of confidence without distinction, it is hard to see why (in principle) it should not be adapted to (say) breach of a conventional non-compete clause designed to protect confidential information or police observance of obligations of confidentiality.

It seems to remain the position, however, that even where Wrotham Park or “negotiating” damages are awarded, they are likely to be conservatively assessed.   In Vercoe -v – Rutland Fund Management Ltd [2010] EWHC 424 (Ch) Sales J had said (at para 292) that what was required from the Court was an assessment of a fair price for the release or relaxation of a contractual restriction, having regard to (i) the likely parameters given by ordinary commercial considerations bearing on each of the parties; (ii) any additional factors affecting the just balance to be struck between the competing position of the parties; and (iii) “the Court’s overriding obligation to ensure that an award of damages for breach of contract … does not provide relief out of proportion to the real extent of the Claimant’s interest in proper performance judged on an objective basis by reference to the situation which presents itself to the Court …”.   In Force India –v- I Malaysia, the claim was that Lotus had misused some of Force India’s confidential information in the development of its car.    The negotiating damages were said to run into millions.   The Court awarded Euros 25,000.


March 22nd, 2012 by Akhlaq Choudhury

The Court of Appeal (Rimer LJ, Arden LJ and Ryder J) today handed down its judgment in Woodcock v Cumbria Primary Care Trust [2012] EWCA Civ 330, a case dealing with the issue of when the consideration of costs or economic factors may justify an act of age discrimination. The judgment does not represent any radical development or departure from orthodoxy, and the Court of Appeal accepted the established guidance that an employer cannot justify discriminatory treatment solely because of the cost involved in taking steps to avoid that treatment. However, the Court of Appeal does confirm that just because the saving of costs forms part of the reason for a particular act does not mean that that act cannot be justified.

Mr Woodcock was the Chief Executive of the Trust. He was given 12 months’ notice of dismissal on the grounds of redundancy just days before his 49th birthday. There was no formal period of consultation before notice was given. The timing of the notice was key: Had it come after his 49th birthday, Mr Woodcock would still have been employed by the Trust as he turned 50, at which point he would have become entitled to take early retirement on enhanced terms and that would have cost the Trust an additional £500,000. The Employment Tribunal found that a comparator not approaching his 49th birthday would have been consulted first before being given notice and that the timing of Mr Woodcock’s notice was in order to avoid the additional cost of the enhanced retirement benefits. Although that amounted to a discriminatory act, the Tribunal found that it was in pursuit of a legitimate aim which was to avoid conferring an unnecessary windfall on Mr Woodcock in circumstances where he was clearly redundant and there was no alternative position that would have been acceptable to him.

The EAT (Underhill J presiding), whilst expressing some doubt as to correctness of the orthodox interpretation of Cross v British Airways plc [2005] IRLR 423 – that costs alone cannot be a legitimate aim for the justification of discrimination – decided that it did not need to depart from that established position since the Trust in the present case had not relied solely upon costs as the only justification for its actions. The EAT found that in the particular circumstances of Mr Woodcock’s case, where his job had ceased to exist over a year earlier and where he could not have had any legitimate expectation that notice would not already have been served some time before it in fact was served, any further delay in serving notice would indeed have resulted in a windfall for him, and that “the prevention of that windfall, and the avoidance of the corresponding loss to the Trust, was a legitimate aim going beyond the mere wish to reduce costs.

The Court of Appeal accepted that the guidance of the Court of Justice in Hill v Stapleton v Revenue Commissioners [1999] ICR 48 is that an employer cannot justify discriminatory treatment ‘solely’ because the elimination of such treatment would involve increased cost. However, the Court went on to say, “that guidance cannot mean more than that the saving or avoidance of costs will not, without more, amount to the achieving of a ‘legitimate aim’.”  (para 66). The question therefore was whether the Trust’s treatment of Mr Woodcock could be characterised as no more than treatment aimed at saving or avoiding costs; if it could be so characterised then it was not a means of achieving a legitimate aim and was incapable of justification. The Court of Appeal agreed with the Courts below that “on the unusual facts of this case”, the dismissal notice was not served simply to avoid costs and that it was legitimate for the Trust, in considering the timing of the steps it needed to take to effect Mr Woodcock’s dismissal, to take account of the additional costs that it would bear as a result of the windfall from which Mr Woodcock would benefit if notice were delayed (para 68). The Court of Appeal acknowledged that the timing of the notice had resulted in the discriminatory failure to consult. However, as to that it was held that:

that consideration goes… only to the proportionality of the treatment adopted by the Trust. That required the striking of an objective balance between the discriminatory effect of the treatment of Mr Woodcock and the needs of the Trust.” (para 70)

In other words, a costs-based discriminatory act is capable of being objectively justified. This is especially significant given that the Court also noted (as had Elias J in Redcar & Cleveland [2007] IRLR 91) that almost every decision taken by an employer is going to have regard to costs. (para 66). In Mr Woodcock’s case, consultation would not have served any useful further purpose and that meant that it was not disproportionate to deprive him of that procedural step. On the other hand, the benefit to the Trust of ensuring that termination took effect before Mr Woodcock’s 50th birthday was substantial and it would have been “irresponsible” not to have had such considerations in mind when acting as it did.

The judgment is potentially beneficial to employers seeking to run costs-based justification arguments in age discrimination complaints. It certainly cannot now be said that just because a decision is substantially driven by costs considerations, it cannot be justified. However, the outcome in this particular was (as the Court of Appeal was at pains to emphasise) based on its somewhat unusual facts, and there will still be heavy burden on employers seeking to win the proportionality argument where costs are relied upon as justification.

What Part Of Its Confidential Business Information Can A Client Protect From Exploitation By An Employee Of His Contractor Post-Contract Or Post-Termination Of The Employee’s Employment By His Contractor?

March 22nd, 2012 by Julian Wilson

That was one of the issues facing Arnold J. in  Force India F1 Team -v- 1 Malaysia F1 Team [2012] EWHC 616 (Ch) (Judgment given on 21 March 2012). As neither counsel was able to cite any authority directly in point, Arnold J had to consider the matter on principle.

The central facts were that Italian wind tunnel aerodynamicist contractors at Aerolab had worked on the design of a half-size wind tunnel model of ForceIndia’s F1 car. After terminating their contract with ForceIndiafollowing non-payment, they began work developing a model for the then Lotus (now Caterham) team.

ForceIndia’s principal claim was that, in doing so, they and Lotus had misused confidential information relating to ForceIndia’s design.

ForceIndiahad entered into an Aerodynamic Development contract with Aerolab containing extensive confidentiality provisions over a wide range of information and material both during and post contract. In addition, ForceIndiahad entered into Confidentiality Agreements with Aerolab’s own employees whereby the employees (who as regards ForceIndiawere contractors providing services):

(a)  acknowledged that the agreements between ForceIndiaand Aerolab contained confidentiality clauses and that Aerolab would be communicating with them to inform them of their obligations to Aerolab under these agreements.

(b) agreed to keep information entrusted to them or discovered by them in the course of their work on Force India’s projects in complete confidence and not use or attempt to use the information in any manner except for the purposes for which it was disclosed to them;

(c) agreed that their confidentiality obligations to ForceIndiawould continue for 2 years post their employment by Aerolab or post Aerolab’s retainer by ForceIndia.

One issue falling for determination was whether the Aerolab employees’ obligation to ForceIndiain the post-retainer period extended to the wide range of information covered by the Aerodynamic Development Contract or only trade secrets (i.e. Faccenda class 3 confidential information).  

Arnold J. found that the law relating to employees was that a covenant against post-employment use of confidential information is unenforceable as being in restraint of trade in so far as it purports to prevent the ex-employee from using for his own benefit or that of a subsequent employer information which has become part of his general skill, knowledge and experience: Balston; Ixora Trading. Thus, in the absence of a restrictive covenant in the strict sense (i.e. a non-compete) the position of an ex-employee was the same whether his contract contained an express confidentiality clause or only an implied term, namely that he could only be restricted from using information which was a trade secret or akin thereto. 

Arnold J. held that the post termination confidentiality obligations of contractors providing services were the same as those of employees. Therefore, Aerolab’s employees could not be prevented from using information which had become part of their skill, knowledge and experience, even if it was learnt during the course of their work for ForceIndia, when working for Lotus, as opposed to trade secrets.

The question then became what aspects of the information ForceIndiaclaimed to be protected amounted to trade secrets. Amongst the information for which Force India claimed protection was the precise dimensions of the aerodynamic surfaces of parts; details of the modularity of the relevant parts (that is the precise way in which they relate to other parts); and details of the aerodynamic system of the relevant parts (that is the spatial relationship between the parts). In relation to dimensions, the court found that in so far as Computer Aided Design draftsmen used Force India CAD files to take a short cut in designing the Lotus model, they had misused confidential information akin to a trade secret. That information was generally separable from the employees’ skill, knowledge and experience, even if some individual dimensions were memorable and could be regarded as forming part of the employees’ skill, knowledge and experience. As to modularity, the court found even if certain aspects of the modularity were not in the public domain, this was the kind of information falling squarely within the skill, knowledge and experience of the contractors’ employees. As to features of spatial relationship, this was also the kind of information which mainly fell within the employees’ skill, knowledge and experience.

The Judgment also provides a useful guide to the authorities on the manner of assessing damages for breach of confidence.


March 20th, 2012 by Simon Devonshire QC

In the recent Caterpillar Logistics case (covered in an earlier post on this site), the Court of Appeal sounded a number of warnings against the deployment by an employer of over-aggressive litigation strategies in cases of suspected employee disloyalty.   In O’Farrell –v- O’Farrell [2012] EWHC 123 (QB) Tugendhat J (the Judge in Charge of the Queen’s Bench Non-Jury list) has deprecated “the number of spurious ex-parte applications that are made in the Queen’s Bench Division”.   He also expressed “real concern” at the frequency with which the requirements of CPR 25.3 and PD 25A para 4(3) were ignored.   These provisions require the applicant to explain why notice has not been given, and provide that except where secrecy is essential, the applicant should take steps to notify the respondent informally of the application.    According to the Judge (paras 66 and 67):-

In these days of mobile phones and emails it is almost always possible to give at least informal notice of an application. And it is equally almost always possible for the Judge hearing such an application to communicate with the intended defendant or respondent, either in a three way telephone call, or by a series of calls, or exchanges of e-mail. Judges do this routinely, including when on out of hours duty. Cases where no notice is required for reasons given in PD 25A para 4.3(3) are very rare indeed.

The giving of informal notice of an urgent application is not only an elementary requirement of justice. It may also result in a saving of costs. The parties may agree an order, thereby rendering unnecessary a second hearing on a return date”.

The usual justifications for without notice relief in employee disloyalty cases are urgency and secrecy.   This judgment is a timely reminder that mere urgency does not justify proceeding without notice.   Applicants should expect O’Farrell  to be prayed in aid on return dates if they cannot justify a failure to give at least informal notice.   And as the judgments in Caterpilllar Logistics have already demonstrated, an unnecessarily “heavy handed approach” to litigation against defecting employees can colour the Court’s approach to the availability of substantive relief.


March 14th, 2012 by Simon Devonshire QC

In Jones –v- Ricoh UK Limited [2012] EWHC 348 (Ch), the High Court has recently delivered a judgment that contains important guidance for employment lawyers in breach of confidence cases, on 3 key questions: (i) the nature of the interest the claimant must establish in confidential information before he can maintain a claim for breach of confidence; (ii) the availability of lost chance damages; and (iii) that availability of Wrotham Park damages.

Background to the litigation

Simplifying the facts somewhat, the claimant (“C”) entered into a confidentiality agreement with the defendant (“D”) under which D agreed to keep confidential and not to use or disclose any information supplied to it by C with a view to the conclusion of a possible agency agreement between them.   By that agreement, D also accepted a non-compete obligation, pursuant to which any one of its employees still in receipt or possession of C’s confidential information were not to contact any other ‘relevant person’ (including prospective mutual clients).    D in fact won a tender for business from a ‘relevant person’ which C alleged involved breaches of the non-compete and confidentiality obligations.   C sought to compute damages on the hypothesis that had D not breached those obligations, it would not have bid on its own but would successfully have bid together with C.

In a judgment handed down in July 2010 ([2010] EWHC 1743 (Ch)) Roth J struck out the claim for breach of the non-compete restriction on the basis that it contravened European competition law.   In doing so, he reiterated the important point that “once EU completion law applies and either strikes down or permits the restriction involved, the court is not permitted to reach a different result … under the domestic law of restraint of trade” (para 49).   

As a result, when the case went to full trial, it preceded only on the basis of the allegations of breach of confidence.    As to remedies, Roth J had concluded that a claim for an account was unsustainable in the absence of a fiduciary relationship (paras 88 & 89) but allowed an amendment to add a claim for Wrotham Park damages, which D “very properly did not seek to suggest that [C] cannot claim” (para 89).  

Breach of confidence

At trial, the judge rejected the claim that the confidentiality obligations had in fact been broken.  However, an issue arose as to the necessary nature of C’s interest in that information before he could claim protection over it.    C argued that to qualify for protection, C had to be entitled to the information  as principal, not as agent for a third party.   The Court accepted C’s contrary submission – the notion of title to confidential information is a red-herring; a duty of confidence is about the protection of the imparting of information in particular circumstances that give rise to a duty not to use or disclose it; “the appropriate inquiry should be directed to considering whether [C] had demonstrated that [it] had made a sufficient contribution to the creation of the relevant confidential information, in the furtherance of its own commercial interests, to justify the imposition of a duty …” (para 40); it was not about showing some ‘property’ in that information.

Lost Chance Damages

C’s damages hypothesis depended on assertions as to what a third party would have done but for D’s alleged breaches.   Did C have to establish its case as to the third party’s reaction on the balance of probabilities or could damages be assessed by reference to the lost chance principle?  The Judge cited Chitty on Contracts (2008) 30th Ed at para 26-044 for the proposition that “where the claimant claims that, in the absence of the breach of contract by the defendant, a third party would have acted in a particular way, so as to benefit the claimant, he need not prove the hypothetical action on the balance of probabilities.   Provided that the claimant can prove that in the absence of the breach there was a ‘real’ or ‘substantial’ (not a speculative chance) of the third party’s action, the court must assess the chance of that action resulting (usually a percentage) and then discount the claimant’s damages for his loss by reference to that percentage ”.   He would have applied this approach to the assessment of loss for the alleged breach of the confidentiality agreement – the principle in Laverack –v- Woods has “no application where the assessment of damages for the loss of a chance is dependent upon the hypothetical actions of a third party, rather than the contract breaker” (paras 86 & 87).   On the facts, however, the claimant could show no more than a speculative chance that the third party would have conferred the benefit contended but for the defendant’s alleged breach (para 95).

This is potentially very helpful to employment lawyers – e.g in breach of PTRC cases.   But what degree of probability qualifies as a real and substantial (as opposed to a speculative) chance?   This was not addressed in terms addressed in Ricoh, and there are dicta to the effect that it is unhelpful to seek to express a threshold degree of probability in percentage terms.  However, some guidance can be mined from earlier cases.    In IDC v Cooley [1972] 1 WLR 442, the Judge concluded that the Defendant’s wrongful diversion of a gas board contract had only deprived the Claimant of a 10% chance of winning that contract, but appeared to accept that that chance was sufficiently real and substantial to support a damages claim.  In Sanders v Parry [1967] 1 WLR 753, the Court assessed damages at 25% of one year’s net profits from a client’s estimated fees, after the client had been unlawfully poached by a departing employee.    A similar percentage approach was applied by Bell J. (painting with a fairly broad brush) in SBJ v Mandy [2000] IRLR 233 at paras 81-83.

Wrotham Park Damages

Whilst the judge found that (on the facts) a hypothetical negotiation would have yielded no (or at most a nominal) licence release fee, he did not suggest that this sort of case was per se inappropriate for such a Wrotham Park assessment of loss.   On the contrary, he regarded it as “now well established that in an appropriate case damages for breach of contract may be measured by the benefit gained by the contract breaker from the breach … the court may award damages to the claimant to represent  the price he could reasonably have extracted for requiring a licence payment in return for permitting the defendant to do what he has done” (para 97).   As already observed, this view as to the potential availability of such relief appears to have been accepted by Roth J at an earlier stage of the same litigation , and is worth contrasting with the more restrictive and dismissive approach taken by Jack J in BGC –v- Rees (covered in an earlier post).    However, the Court did observe that the consideration of the hypothetical negotiation had to be “founded upon the underlying realities of the situation against which it falls to be undertaken” (para 108) and would only be appropriate where it was manifestly unjust to leave the claimant with no award (para 109).   On the facts, the negotiation would have yielded no fee.    This is clearly an area to watch.


March 13th, 2012 by James Goudie QC

A fixed-term employment contract is converted into an employment contract of indefinite duration.  What amendments can then be made to the terms of the previous contract without infringing the Framework Agreement on fixed-term work annexed to Directive 99/70 (“the Directive”)?

According to the Judgment of the ECJ on 8 March 2012 in Case C-251/11, Huet v Université de Bretagne Occidentale (“UBO”), in order not to undermine the practical effects of, or the objectives pursued by the Directive, Member States must ensure that such a conversion is not accompanied by material amendments to the clauses of the previous contract in a way that is, overall, unfavourable to the employee, when the subject-matter of his tasks and the nature of his functions remain unchanged.

Martial Huet (“MH”) occupied the post of Researcher at UBO for 6 consecutive years.  He was employed there on a number of successive renewed fixed-term contracts for a continuous period from 1 March 2002 until 15 April 2008.  All the contracts mentioned his duties as a Researcher.

When the last of these fixed-term contracts expired, UBO offered MH an employment contract of indefinite duration.  However, his remuneration would be lower than that previously received by him.

The new contract described his post as Research Officer.  According to MH, however, his duties remained unchanged in practice.

The ECJ restated general principles in relation to fixed-term contracts.  Limits must be placed on successive recourse to such contracts.  They are a potential source of abuse to the detriment of workers.  Therefore there are a number of protective provisions designed to prevent the status of employees from being insecure.  The benefit of stable employment is viewed as a major element in the protection of workers.  It is only in certain circumstances that fixed-term employment contracts are liable to respond to the needs of both employers and workers.  The protection measures include that there must be objective reasons justifying the renewal of such contracts, and limits on the total duration of successive fixed-term contracts and on the number of renewals of such contracts.

There are, however, no specific conditions in relation to the conversion of fixed-term contracts into contracts of indefinite duration.  Nonetheless the ECJ considered that if a Member State were to permit the conversion of a fixed-term contract into an employment contract of indefinite duration to be accompanied by material amendments to the principal clauses of the previous contract in a way that is, overall, unfavourable to the employee under contract, when the subject-matter of that employee’s tasks and the nature of his functions remain unchanged, it is not inconceivable that that employee might be deterred from entering into the new contract offered to him, thereby losing the benefit of stable employment, viewed as a major element in the protection of workers.

Mixed Messages from Court of Appeal on Reasons Appeals

March 12th, 2012 by Daniel Stilitz QC

What right, or indeed duty, does an advocate have to seek to influence judicial reasoning after a judgment has been produced in draft?

This question which often arise in employment law cases (particularly in the High Court), as in many other areas of the law.  But two recent Court of Appeal decisions suggest a lack of commonality of view on the point amongst the appellant judges themselves.

In In Re A (Children) [2012] 1 WLR 595, the Court of Appeal held unanimously that, where there is concern about the adequacy of a judge’s reasoning, it is the responsibility of the advocate, whether or not invited to do so, to raise this with the judge and draw to his attention any material omission, any genuine query or ambiguity which arises, and any perceived lack of reasons or other perceived deficiency in the judge’s reasoning process. 

The judgment in question was given by Judge Compston in the course of care proceedings.  The children’s mother sought to appeal his finding that she had been involved in their sexual abuse by third parties, on the grounds that his reasoning was insufficient.  Munby LJ, giving the lead judgment, said that the approach to be adopted in such circumstances was that in English v Emery Reinbold & Strick Ltd [2002] EWCA Civ 605 [2002] 1 WLR 2409.  In other words, where an application for permission to appeal on grounds of lack of reasons is made to the trial judge, he should be given the opportunity to consider whether to remedy the defect by providing additional reasons.  Where the appeal is made to the appellate court, that court should consider whether to remit the case to the judge for additional reasons to be provided.

Munby LJ emphasised that: (1) It is the responsibility of advocate to raise with the judge any material omission in the judgment, whether or not invited to do so; and (2) Where permission is sought to appeal on grounds of lack of reasons, the judge should set out to remedy any defect in reasons by providing additional reasons:see [16]-[17].

Contrast the judgment of Rix LJ in Mercedes Travis Brewer v Stanley Mann[2012] EWCA 246,  a complex case about the sale and hire purchase of a vintage Bentley.  The judge in that case, HHJ Thornton QC, substantially amended his draft judgment in the light of the parties’ applications for permission to appeal, which included the ground that the judge had failed to address submissions which had been made to him.

Rix LJ distinguished English v Emery Reinbold on the basis that the judgment in that case was a short judgment on a relatively straightforward issue, where an appeal might be avoided altogether by the provision of additional reasons.  He concluded that, “where a judge … has received grounds of appeal and an application for permission to appeal on the basis of the alleged inadequacies of his judgment, then it would be most unwise for him to rewrite his judgment (other than purely editorially) and it would take the most extraordinary reasons, if any, to justify such a course on his part.

We are left, then, with startlingly contrasting approaches.  In Re A (Children) [2012] 1 WLR 595 appears to require advocates proactively to raise with the judge apparent deficiences in reasoning in a draft judgment.   Mercedes Travis Brewer appears to deprecate such an approach, in so far as it strongly discourages judges from supplementing the reasons given in a draft judgment in the light of submssions made by the parties.  The latter approach seems more consistent with the Court of Appeal’s previous decision in R (Binyam Mohamed) v Secretary of State for the Foreign & Commonwealth Office[2010] EWCA Civ 158, which re-emphasised the very limited circumstances in which it may be appropriate for a party to seek to correct more than typographical errors in a draft judgment: see [4].

Faced with these contrasting approaches, what is the advocate to do?  Whilst there is no easy answer, the following general points can be made: (1) In will be more appropriate to point out an apparent omission in a draft judgment where the matter is relatively straightforward, the omission is obvious, and the rectification may avoid the need for an appeal; (2) It will not be appropriate to request additional reasoning in circumstances where to do so is in effect to challenge the substance of the judgment, or further a potential ground of appeal; (3) Given that it is ultimately up to the judge to decide what to do, a “safety first” approach may be to draw these contrasting authorities to his attention.

As for the position of the judges, whilst the genuine further elucidation or explanation of a judgment would appear to be permissible, any attempt to buttress the reasoning in a judgment in anticiption of mooted grounds of appeal is unlikely to meet with approval from the Court of Appeal.  Subject to minor corrections and truly exceptional circumstances, a draft judgment should not be regarded as up for further debate, either by the parties or by the judge.

Daniel Stilitz QC



March 6th, 2012 by Simon Devonshire QC

There are potential tactical advantages to framing claims for tortious conspiracy against disloyal, departing employees.   In tort claims, damages are said to be ‘at large’; exemplary and punitive damages are available; the conspirators are jointly and severally liable for their wrongdoing.   But what is the position of a sole employee defendant, who leaves and diverts business to his own one-man company or corporate alter ego?   Can he be said to conspire with himself in such circumstances?    In Barclays Pharmaceuticals & Ors –v- Wayfarm LP & Ors [2012] EWHC 306 (Comm), Gloster J answered this question in the affirmative.   Her reasoning was as follows.  

Inducing breach of contract or causing loss by unlawful means required positive action by the defendant in relation to the claimant.   This was not the case in conspiracy, where liability might be grounded by the agreement between two persons, aimed at another, to use unlawful means, pursuant to which action was taken, resulting in damage to the victim.   There was no requirement that the defendant had to be the one taking the action, providing that he is party to the agreement (para 222).   It was a persuasive proposition that “agreement to cause injury by unlawful means is an actionable conspiracy notwithstanding that the parties to the agreement might be the natural person and a limited  company under his control, or two or more persons under the control of a single person” (para 227).   On this basis, the principal wrongdoer and the companies of which he was the controlling mind were jointly and severally liable in conspiracy (para 229).


March 5th, 2012 by Simon Devonshire QC

In the Eddie Stobart case (see the last TUPE post on this site), the EAT declined to construe the Service Provision Change (“SPC”) regime purposively with a view to extending its reach.    In Meter U Ltd –v- Ackroyd & Ors [2012] UKEAT/0206/11/CEA, a different division of the EAT has identified a business model which may enable contractors legitimately to dismiss transferring employees in change of contractor situations, without incurring liability for automatic unfairness.

The transferee (“Meter U”) provided meter reading services across the UK to electricity suppliers, through a network of one man limited company franchisees.   Siemens won two contracts to supply such services to Scottish Power and N Yorkshire Power, beating the incumbent contractors in a re-tendering process.   Siemens in turn sub-contracted the meter reading work to Meter U.   This was held to constitute a SPC from the incumbent contractors to Meter U.   After a process of consultation, Meter U dismissed the transferred workers, who were offered (but in the main refused) the opportunity of forming franchise companies and becoming Meter U franchisees.    Were those dismissals automatically unfair (as connected with a TUPE transfer) or was Meter U able to invoke the ETO exemption?

Reg 7(2) provides that a dismissal will not be automatically unfair where the reason for dismissal is an economic, technical or organisational reason entailing changes in the workforce.   It is settled law that this must involve more than just a change in the terms and conditions or identities of the workers employed to do the work, and requires a change in the numbers and/or functions of those employed; Berriman -v- Delabole Slate [1985] ICR 546.   In Meter U, the EAT (Slade J) concluded that these requirements were met by Meter U, rejecting the suggestion that the franchisees were part of the workforce for this purpose.    Meter U had always operated a franchise business model, and (subject to a remission in some of the cases for a consideration of whether those franchises were a sham, concealing a true employment relationship) the transferred employees had been dismissed for redundancy.   The workforce for the purpose of reg 7(2) did not include individuals providing their services through sub-contracted franchise companies.

It is trite law that the question of employee status is determined by reference to substance rather than the label the parties attach to the relationship.   Seeking to characterise an employee as a franchisee will not enable a transferee to invoke reg 7(2) if that does not represent the true reality of the relationship.   But for transferees who genuinely operate a franchise business model, this decision may give them an edge over ‘employer’ competitors in tendering processes.

O’Brien v Ministry for Justice (ECJ, 1 March 2012): is a judge a worker?

March 5th, 2012 by Julian Milford

Julian Milford

The ECJ has just issued its judgment in O’Brien v Ministry for Justice C-393/10, concerning whether part-time fee-paid judges have any right to membership of the judicial pension scheme. Although it is a classic example of Euro-opacity, the judgment has interesting things to say about the relationship between EC and domestic employment law.

The Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (“PTWR”) define “workers” by reg. 1(2) as individuals who work under a contract of employment, or “any other contract, whether express or implied…whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”. This contract-based definition of “worker” will be familiar from domestic anti-discrimination law generally.

Regulation 17 PTWR specifically states that part-time fee-paid judges are not “workers”. But in fact, quite apart from reg.17, judges would not be workers within reg.1(2) PTWR anyway on a pure application of domestic law. That is because, as is very well-established, judges are not employed under a contract: and reg.1(2) PTWR defines “worker” in contractual terms.

That meant that, under domestic law, Mr O’Brien, a retired recorder, could not assert his rights under the PTWR to membership of the judicial pension scheme in the same way as full-time (or indeed, part-time salaried) judges.

Mr O’Brien argued that the PTWR was in this respect contrary to the EC Directive it implemented (the Part-Time Workers Framework Directive 97/81/EC, “PTWD”).

One knows that in other contexts, judges certainly are “workers” for the purposes of EC law: for example, they are “workers” for the purposes of the Equal Treatment Directive – thus, workers for the purposes e.g. of sex discrimination claims – see Perceval-Price v Department of Economic Development [2000] IRLR 380.

However, the term “worker” does not have a uniform definition in EC law. Moreover, there is a crucial difference between the Equal Treatment Directive and the PTWD. In the Equal Treatment Directive, “worker” has an autonomous EC meaning. In the PTWD, “worker” is specifically defined in terms of national law. Clause 2(1) PTWD says: “This Agreement applies to part-time workers who have an employment contract or employment relationship as defined by the law, collective agreement or practice in force in each Member State”. Furthermore, recital 16 of the PTWD states: “with regard to terms used in the Framework Agreement which are not specifically defined therein, this Directive leaves Member States free to define those terms in accordance with national law and practice…”

Nevertheless, under usual EC principles, domestic law cannot oust or “trump” the principles underlying EU legislation in such a way as to frustrate them. The first and crucial question referred to the ECJ by the Supreme Court, therefore, was whether it was for national law to determine whether judges were “workers” within the PTWD; or whether there was a Community norm by which the matter was to be determined. Would it frustrate EC law if judges were not to be “workers” under the PTWD?

Anyone hoping for a clear answer from the ECJ to that question will be disappointed. However, there are interesting indications from the ECJ’s judgment of the extent to which the ECJ will bind the hands of national courts, even in a matter such as this, which is explicitly stated to be within the competence of individual Member States.

The ECJ stated as follows:

(1)   Member States cannot apply rules which are “liable to jeopardise the achievement of the objectives pursued by a directive…”: judgment §35.

(2)   That means that a Member State cannot “remove at will, in violation of the effectiveness of Directive 97/81, certain categories of persons from the protection offered by that directive…”: judgment §36. What this seems to mean (albeit opaquely expressed) is that it is not open to Member States to define “worker” in such a way as to include some categories of person, and exclude others, if in fact there is no real difference in the relationships between the notional employee and the notional employer in the different categories.

(3)   The fact that judges are treated as “office holders” is not sufficient to exclude them from the PTWD. Nor is judicial independence, or the particular status of judges: judgment §§41, 47.

(4)   It is for the national court to examine the nature of the relationship between judges and the MOJ, to see whether it is different from an employment relationship: judgment§43.

(5)   However, the ECJ mentioned various criteria which the national court “must take into account” when making that assessment: §§44-47. Those included:

–          The rules for appointing and removing judges;

–          The way in which their work is organised. The ECJ pointed out that they were expected to work during defined times and periods, albeit with some flexibility;

–          The fact that judges were entitled to sick pay, maternity or paternity pay and similar benefits.

Importantly, the ECJ did not refer to the contractual status of the judiciary as a matter of significance in determining the nature of the relationship between judges and the MOJ, and whether that relationship was one of employment. The ECJ gave a strong “steer” that the national court should look at the practical effect of judicial work; and not at its legal status in domestic law. So the PTWD’s statement that “worker” should be defined by national law and practice is, in effect, given a very significant caveat. In reality, the meaning of “worker” becomes an issue to be decided against a given conceptual framework (i.e. what is the nature of the relationship?), in accordance with certain mandatory criteria. Is this leaving the matter up to national courts? It hardly appears so.

The second question referred by the Supreme Court in this case was whether, if judges were workers under the PTWD, it was permissible for national law to discriminate between full and part-time judges, or between different categories of part-time judges. Here, at least, the ECJ gave a clear answer: any difference in treatment would require objective justification, and budgetary considerations would not provide such justification.


February 28th, 2012 by Simon Devonshire QC

In Metropolitan Resources Ltd v Churchill Dulwich Ltd [2009] IRLR 700, the EAT observed that in construing the service provision change (“SPC”) regulations there was “no need for an employment tribunal to adopt a purposive construction … as opposed to a straightforward and common sense application of the relevant statutory words to the individual circumstances before them … [or] for a judicially prescribed multi-factorial approach … such as that which has necessarily arisen in order to enable the tribunal to adjudge whether there was a stable economic entity which retained its identity after what was said to be a transfer falling within what is now reg. 3(1)(a)”.   These observations have been approved and applied by other divisions of the EAT (see, e.g., Hamshaw; UKEAT/0037/11/JOJ).   The same approach is apparent from the recent decision of the EAT in Eddie Stobart –v- Moreman & Ors (UKEAT/0223/11/ZT).  

Eddie Stobart employed a number of employees at a site in Manton Wood to store and deliver meat on behalf of its supplier clients.    By the time that it came to close that business, Eddie Stobart serviced just two clients (Vion and Forza), whose requirements were in practice addressed (respectively) by the day and night shifts.   Eddie Stobart alleged that there had been a SPC of Vion’s logistics requirements to another logistics company, which inherited responsibility for the day shift employees.   But were those employees even an organised grouping for the purposes of the SPC regime?

As Underhill J observed (para 18), the SPC regulations did not merely say that it was sufficient that employees should in their day to day work in fact carry out the activities in question; they required that those activities should be the principal purpose of the organised grouping, and “that necessarily connotes that the employees be organised in some sense by reference to the requirements of the client in question”.   It was not enough that a combination of circumstances meant that this happened in practice “but without any deliberate planning or intent”.    Underhill J was unimpressed by the argument that this would move a lot of employees in the logistics industry out of the protection of TUPE, where it was rare to have identified, client dedicated teams (para 19).   Whilst the broad intent of TUPE was that employees should go with the work, “it remains necessary to define the circumstances in which a relevant transfer will occur, and there is no rule that the natural meaning of the language of the Regulations should be stretched in order to achieve transfer in as many situations as possible”.    On the contrary (para 20), the policy considerations pulled the other way – if the putative grouping did not reflect any existing organisational unit there were liable to be real practical difficulties in identifying which employees belonged to it, and employees should know where they stood, whereas “if the touchstones was whether a particular employee was assigned to a recognised team principally serving a particular client, the answer would normally be evident”.

In the 90s, TUPE seemed to extend to every contractor change, with even an office cleaner and her broom being treated as a business entity capable of transfer.   One of the ironies of the SPC regime is that it has gone some way towards reversing this trend domestically.  It has discouraged Tribunals from ‘discovering’ old style business entity transfers in change of contractor cases – resort to artificial constructs is no longer necessary in the light of the bespoke domestic legislation for SPCs.   Yet the SPC regime is not being construed purposively or with a view to extending its reach.   For those of us who have to advise on the application of TUPE in transactional situations, an emphasis on certainty and clarity of application is to be welcomed.


February 23rd, 2012 by Simon Devonshire QC

The Court of Appeal has recently handed down judgment in Caterpillar Logistics Services (UK) Limited –v- de Crean [2012] EWCA Civ 156.   Unsurprisingly, the Court rejected the suggestion that an employee’s post-termination obligations of confidentiality to her ex-employer could support an injunction preventing an ex-employee from working for one of the employer’s important clients.   The case is perhaps more interesting for highlighting the obligations on employers seeking urgent injunctive relief in cases of alleged employee disloyalty and defection,  and as a reminder that an over aggressive litigation strategy can often backfire.

The employer supplied logistics services to the Caterpillar group (of which it was part) and to various clients in the automotive industry.   The employee had been employed as account manager in its Land Rover commercial team.   Her contract contained no post termination restrictive covenants, but a fairly conventional express obligation requiring her to respect the employer’s trade secrets and confidential information both during and after termination of employment.   She resigned on notice, to join one of the employer’s important customers (QH), with whom she had dealt during her employment.   The employer alleged that by accepting her new position, she put herself in a mirror image role with QH to that which she had carried out for the employer, on the opposite side of many of the issues she had previously been dealing with for it.   It was said that QH had employed her to exploit her confidential information about the employer’s business.  It was said that this placed her in breach of fiduciary obligation “in that there was an extremely strong likelihood (if not and inevitability) that you will use (even if not disclose) [the employer’s] confidential information …”.   The employer sought an injunction restraining the use or disclosure of confidential information and a “barring-out order”, preventing the employee from undertaking any task with her new employer that touched on its commercial/client relationship with her ex-employer.   An order in these terms made by consent on the first return date (September 2011) was discharged by Tugendhat J in November 2011, who also struck out the claim as disclosing no cause of action.   The Court of Appeal upheld Tugendhat J’s decision, in a judgment handed down a couple of days ago.

The Court adopted the proposition in the employer’s Counsel’s own text book on the subject, that (save in the most exceptional circumstances) barring out relief was not available to prevent an ex-employee from joining one of the ex-employer’s rivals as a means of protecting against the future misuse of confidential information, absent a reasonable post termination restrictive covenant (e.g paras 56, 60 & 61, 65).   The position was not improved by seeking to characterise the employee as a fiduciary – “The word fiduciary was brandished a cure for all ills.   Certainly …. the [employee] owed certain fiduciary duties.   But that did not make her a fiduciary in the sense that a trustee or solicitor is to his beneficiary or client” (para 58).   It was only in such cases that barring-out relief might be appropriate.    Whilst a conventional injunction restraining breach of confidence might have been appropriate, the employee had been prepared to give a contractual undertaking, and there was no evidence of threatened breach – “an employer is not entitled to injunctive relief simply because he seeks it” (paras 66-68).    The case had been properly struck out (para 70; Maurice Kay LJ dissenting on this point; see below).

As already observed, none of this is much more than a statement of the orthodoxy.    The Court went on to sound a number of warning shots to over aggressive employers.   First, the allegation that the employee might deliberately misuse the employer’s confidential information in the future “was wholly unsupported … and … should not have been made” (para 39).   Secondly, the Court was highly critical of the failure to explore an amicable solution before engaging in aggressive correspondence and then litigation – “particularly … where there is on one side a large corporation and on the other a former employee whose annual salary would be a small fraction of the costs of the litigation.   Many Defendants, faced with such a claim, would simply concede rather than risk bankruptcy” (para 71).   Thirdly, the Court endorsed Tugendhat J’s criticisms in delays in serving the Particulars of Claim, particularly given the serious allegations made (on Tugendhat J’s analysis, tantamount to criminal conspiracy).     As Stanley Burnton LJ put it: “[The employer’s] Counsel told the Judge that it was normal practice in claims for confidentiality injunctions for the service of the particulars of claim to be deferred until after the application for an interim injunction has been dealt with.   If that is the normal practice … it should be discontinued … it is the interests of justice and the efficient and fair conduct of proceedings that the claimant’s case be defined and pleaded as soon as possible, so that the defendant knows precisely what is the case against her, and so does the judge … particularly … where, as here, allegations of misconduct are made against a  defendant ”.

Applicants for freezing and search and seizure orders are used to the requirement that they must produce their Particulars of Claim with expedition, after obtaining urgent relief.   This judgment seems to proscribe a similar approach in confidential information and employee disloyalty cases.   As such cases (almost inevitably) depend upon inference, the early production of Particulars is not always an easy task, particularly when judgement calls have to be made about applying for relief on sparse or incomplete information.

It is also possible that this judgment will encourage submissions that injunctive relief should be refused, because insufficient attempts have first been made to explore an accommodation, particularly in alleged ‘David and Goliath’ disputes.   The Court’s judgment certainly seems to have been influenced by its distaste for the employer’s aggressive tactics.  It is worth pointing out that Maurice Kay LJ seemed to accept that the evidence raised at least an inference that the employee had a case to answer and that some limited injunctive relief might have been appropriate, notwithstanding “its [the employer’s] initially heavy handed approach to this litigation”, and he would have allowed the appeal against the strike out  (para 78).   It would seem that an employer who unnecessarily or over vigorously rattles the sabre, does so at his peril.


February 17th, 2012 by Simon Devonshire QC

In late 2009, Towry acquired the UK business of Edward Jones (an American financial advisory).    Towry sought to introduce a new business model, which led to the departure of a number of the most successful financial advisers and (in turn) their clients.   Towry sued 7 of the financial advisers and their new employer (Raymond James), alleging that the employees had acted in breach of post termination non-solicitation and confidentiality clauses and accusing them of an unlawful means conspiracy, both with each other (in various combinations) and with Raymond James.   The conspiracy was said to involve a pre-existing plan to poach Towry’s clients.   Raymond James was also accused of procuring the employee Defendants to breach their contracts.   Towry sought damages and/or accounts.  No claims were (or had been) made for injunctive relief.

Cox J has now dismissed all of Towry’s claims, and ordered it to pay the Defendants’ costs – reportedly on an indemnity basis in relation to the allegations of unlawful means conspiracy.    Three features of the judgment are of particular note.

First, this was not a case where any of the employee Defendants had walked out on contractual notice periods.   The employee Defendants were subject to non-solicitation and confidentiality clauses.   The Judge found these to be enforceable.  The judge held that solicitation required “that ex-employees must not directly or indirectly request, persuade or encourage clients … to transfer their business top their new employer.   Employers are entitled to prevent employees from exerting influence of this kind over their clients” (para 440).   On the facts, the judge found that solicitation had not been made out.   Whilst it was not as simple as asking who made the first approach, this was a relevant factor (para 903), and there would be no solicitation if the client “was exercising an independent decision to transfer, without any encouragement or persuasion to do so by the [employee]” (para 905).   It was not surprising that they wished to retain their personal financial adviser (para 905).  Tellingly, there were no non-dealings clauses in the defendant’s contract, which would have obviated these probative difficulties (at least in relation to liability).

Secondly, the Judge had found that the Defendants had waived the privilege in their legal advice, by seeking to rely positively on its substance, rather than merely on the fact that it had been taken.   She ordered disclosure of that advice at the outset of the trial (paras 13 & 14).   In the event, this proved to be the Defendants’ advantage.  The Judge noted that Raymond James had sought advice from an early stage, which it had then followed “by taking a series of steps designed to ensure that advisers complied with their contractual obligations” (para 922).    This demonstrates just how powerful such evidence can be, and can be contrasted with BGC’s refusal to disclose the substance of its advice in the well known Tullett Prebon litigation ([2010] EWHC 484 (QB)), where it was found guilty of both unlawful procurement and unlawful means conspiracy.   Cf too BGC –v- Rees & Anor [2011] EWHC 2009 (QB) , where Tullett voluntarily disclosed its advice and was acquitted of unlawful procurement.

Third, Towry had put in witness statements from some of its advisers recording discussions they had had with defecting clients (whilst attempting to keep them on board).    The Defendants made an application to cross-examine a number of those clients under CPR 33.4 (which permits a party to apply to cross-examine the maker of a hearsay statement tendered in evidence by the other party).   The judge acceded to that application in relation to 5 clients (paras 15 to 22).   Those clients were (of course) loyal to the Defendants, who enjoyed a ‘free hit’ in cross-examining them.   Towry was left having to disassociate itself from that evidence (paras 22-25 and 32).   This is clearly a trap for the unwary.

The case demonstrates that team recruitment can be lawfully achieved, particularly from a disaffected workforce.   If there is a moral in the case for employers, it is to ensure adequate protection through post termination restraint.   There is generally no difficulty in justifying a non-deal clause as necessary to police the observance of a non-solicitation obligation (as the judge here appeared to accept; para 438).   Non-dealing restrictions would have made Towry’s task an easier one.

Compromise Corrected

February 16th, 2012 by Daniel Stilitz QC

With the Equality Act 2010 (Amendment) Order 2012 (“the Regulations”) the Government has, somewhat belatedly, amended the compromise provisions contained in the Equality Act 2010 (“the EA”).  Section 147 of the EA sets out the conditions which must be fulfilled in order for a settlement agreement compromising a discrimination claim to be a “qualifying compromise contract”.  Only a “qualifying compromise contract” is effective to compromise a claim brought under the EA.

One of the stipulated conditions is that the complainant has, before entering into the contract, received advice from an “independent advisor” about its terms and effect (section 147(3)(c)).  Unfortunately, the definition of “independent advisor” was poorly drafted.  It excluded (at sections 147(5)(a) and (d)) “a person who is acting for a person who is party to the contract or the complainant” from being a qualifying “independent advisor”.  On a narrow, literal reading, this definition is wholly self-defeating, since it prevents a lawyer or other representative who is advising the complainant from providing the requisite advice for the purposes of the compromise agreement.

Most took the view that this construction of the section was so manifestly absurd that no court or tribunal would countenance it.  However, written advice obtained by the Law Society suggested that section 147 might indeed be ineffective.  This naturally made those advising the parties to discrimination complaints and their advisors somewhat nervous.

The Government has finally rectified the problem with the introduction of the Regulations.  Now, only persons who are acting for “a person who is a party to the contract or the complaint (other than the complainant)” are excluded from the definition of “independent advisor” under section 147(5)(d) of the EA (see regulation 2(3) of the Regulations, amending section 147(5)(a) of the EA).  This is clearly what was intended all along.

The Regulations will come into force on 6 April 2012.  However, since the Explanatory Note to the Regulations makes clear that the amendment has been introduced merely to “clarify” that a complainant’s legal adviser may be an “independent advisor”, it would perhaps be wrong to assume that the section is defective as it stands.



February 14th, 2012 by James Goudie QC


In HM Land Registry v Benson, UKEAT/0197/11/RN,
Judgment on 10 February 2012, HM Land Registry offered employees a voluntary
redundancy/early retirement scheme, with enhanced benefits.  It had more
applicants than could be accommodated within the available budget, and a
selection exercise was undertaken.  The Claimants were applicants who had
not been selected for release under the scheme.  HM Land Registry selected
for release (other things being equal) those applicants whose entitlements
under the scheme would be lowest, thus maximising the numbers who could be
released within the constraints of the budget.  The Claimants who alleged
age discrimination were all aged between 50 and 54, and their entitlements were
particularly costly because they would have been in receipt of an immediate
unreduced pension.  They claimed that the use of a selection criterion
related to the amount of their entitlements constituted indirect age
discrimination.  The ET accepted that the criterion used was the only
practicable criterion if it was necessary to select, but it found that it was
“affordable” for HM Land Registry to release all of those who had applied,
albeit that that would have meant spending an additional £19.7m over the £12m
budgeted; and it held that accordingly selection (necessarily employing a
discriminatory criterion) was not a proportionate means of achieving its
(legitimate) aim of reducing headcount.

The EAT, Underhill J presiding, held, allowing the appeal and
dismissing the claims, that the ET should have proceeded on the basis that the
HM Land Registry’s decision as to what resources to allocate to the exercise,
i.e. £12m, constituted part of its “real need” or “aim”, and that it was not
relevant that it could in an absolute sense have “afforded” to allocate a
larger amount; and that, although the ET was entitled to assess the
proportionality of the means chosen to achieve that aim, its finding that there
was no other practicable alternative meant that on the facts of the present
case it was obliged to hold that the selection criterion chosen was a
proportionate means of achieving that aim.

The EAT distinguished its observations in Pulham v Barking
& Dagenham LBC
[2010] ICR 333, in which Underhill J had presided, to
the effect that employers “cannot automatically justify a failure to eliminate
discrimination by allocating the costs of doing so to a particular budget and
then declaring that budget to be exhausted”.
At paragraph 40 of its Judgment in the Land Registry case the EAT said
that they did not believe that what they said about “unaffordability” in that
case was in any way inconsistent with the decision in Pulham.  Underhill J said:

“The assessment of
affordability discussed in Pulham
(see in particular para. 43, at p. 355H) was clearly not concerned with
“absolute” affordability: otherwise the claimants would necessarily have
succeeded.  As for our observation that the size of an employer’s
budget for a particular purpose could not be decisive of the question of
justification, that must be read in the context of the issue in that
case.  The employer was there seeking to justify the continuation of a
directly age-discriminatory pay provision.  Its only justification was
that it was too expensive to remove it: that question could not be closed off
by the employer’s own decision as to what budget to allocate for that
purpose.  By contrast, the “budget” that we are concerned with in the
present case is the budget for a particular project – namely a redundancy
programme – which is not directly discriminatory, but which, as it turned out,
required a selection exercise which, as it turned out, could only practicably
be done on a basis involving some indirect age discrimination.”



The Scope of Section 94: Anything Goes

February 9th, 2012 by Christopher Knight

Ever since the judgment of Lord Hoffmann in Lawson v Serco Ltd [2006] UKHL 3; [2006] ICR 250, the territorial scope of the protection from unfair dismissal contained in s.94(1) of the Employment Rights Act 1996 has been a matter of some debate. Lord Hoffmann famously drew distinctions between those who worked in GB and those who worked abroad (the latter being outside the scope of s.94); peripatetic employees who were based in GB (within the scope); and expatriate employees who are posted abroad for a GB company or who work in an enclave abroad, such as an embassy, who are also caught by s.94.

The difficulty, as tribunals quickly found, is where the facts of a case do not meet any of those categories. What then? This was the issue before the Supreme Court in Ravat v Halliburton Manufacturing and Services Ltd [2012] UKSC 1. Lord Hoffmann, in Lawson at [40], had suggested that his categories were not exclusive, but that other cases would need “equally strong connections”. Lord Hope, in Ravat at [25], noted the complaint of the tribunal below that little appellate guidance had been provided and rather optimistically suggested that the judgment of Lady Hale in Duncombe v Secretary of State for Children, Schools and Families (No 2) [2011] UKSC 36; [2011] ICR 1213 had provided clarity when she said, at [8], that one need not torture cases to fit the existing categories.

If Duncombe was of little use in providing tribunals with assistance, it is unfortunately the case that the judgment of Lord Hope in Ravat will not be much more helpful. The Court has provided a new test: “whether the connection between the circumstances of the employment and Great Britain and with British employment law was sufficiently strong to enable it to be said that it would be appropriate for the employee to have a claim for unfair dismissal in Great Britain”: at [29].

Tribunals might be forgiven for thinking that they have simply been swapped one vague test – strong connections equal to those of an expatriate posted abroad or in an enclave – for an even vaguer one. The Supreme Court has, in effect, abandoned the field. Indeed, Lord Hope expressly disavows it being a test at all, stating that it is a question of fact for the tribunal. The question of law is simply whether s.94(1) applies or not. One suspects that there is going to be a fairly regular flow of appeals to the EAT to work out whether or not particular factors relied on by the tribunal are appropriate to take into account at all, let alone the weighting which should be given to particular factors over others.

What factors might be relevant? Following Ravat, it seems as though more or less anything is in play. Being paid in £sterling into a GB account, with tax and NI deducted is relevant. Being designated as a commuter worker (in Ravat’s case, to Libya), with travel costs paid by the employer is relevant. Being part of the GB pay structure, HR control and pension scheme is relevant. Working in Libya for a German company and being dismissed by a manager in Cairo are also relevant, although apparently outweighed in Ravat. Rather more debatably, the location of the employee’s home is apparently also relevant, despite this being an unusual factor to take into account in an employment analysis, as is whether the employee is a British national, despite the protection of s.94 never having been restricted by nationality.

Moreover, the proper law of the employment contract and assurances given the employer about the application of UK law are also relevant: at [32]-[33]. This is a quite startling proposition, on two bases. The first, which Lord Hope acknowledged, is that parties cannot estop a matter of jurisdiction. The second, which the Court completely ignored, is that s.204 of the 1996 Act expressly provides that “For the purposes of this Act it is immaterial whether the law which (apart from this Act) governs any person’s employment is the law of the United Kingdom, or of a part of the United Kingdom, or not.” This must surely remove choice of law (of any sort) from the analysis altogether. Although Lord Hope asserted that parties cannot contract in (or out) of the jurisdiction of the tribunal, this is precisely the effect of the Ravat judgment.

The approach in Ravat has imported by the back door an analysis which looks rather like a forum conveniens enquiry into deciding whether a case falls within s.94. Not only is this a method of statutory interpretation which is difficult to justify, but Lord Hoffmann himself expressly ruled out the application of a forum conveniens analysis to s.94 in Lawson at [24]. It is certainly true that the Ravat decision is employee-friendly – the majority of overseas worker cases will now most likely be caught by s.94 if a long enough list of factors can be produced – but it is open to question whether this is quite what Parliament had intended. Instead, the tribunals are left with a lengthy fact-finding exercise combined with a distinct lack of clarity as to what the relevant facts they should be finding are. From now on, when establishing the scope of s.94(1), anything, it seems, goes.

John Cavanagh QC appeared for Halliburton.

Springboard Injunctions – the jurisdiction extended?

February 7th, 2012 by Simon Devonshire QC

Haddon-Cave J has just handed down judgment in QBE Management services (UK) Ltd –v- Dymoke & Ors [2012] EWHC 80 (QB), and granted an extended springboard injunction following a fully contested trial.   What does this judgment tell us about the nature and extent of employee’s duties and springboard relief?

Simplifying somewhat, QBE carries on business as a marine insurer.  The first 3 defendants (all senior employees) tendered the resignations in April 2011, with the express intention of joining a new competitive business (D4).   Over the next 3 months, 8 junior employees resigned, also expressing a wish to join D4.   In August, QBE obtained interim injunctions enforcing garden leave obligations and post termination restrictive covenants against Ds 1-3, to expire variously between October 2011 and January 2012, and orders for early disclosure.   That disclosure revealed that Ds 1-3 had been instrumental in setting up D4, had acted as recruiting sergeants for the new business, had solicited QBE’s clients whilst still employed, had abused confidential information, and had concealed their activities from their employer.    In October 2011, QBE obtained a springboard injunction restraining D4’s launch pending a speedy trial.   That trial took place over some 12 days in November 2011.   Judgment was handed down at the end of January 2012.

The disclosure was obviously key in this case.    As the judge observed, Ds 1-3 “did not envisage that many of their candid exchanges would see the light of day.   These contemporaneous documents tell their own story … which accords closely with [QBE’s] case” (para 44).   Their oral testimony simply could not live with the contemporaneous documents (para 46).   They recognised that their new start up would only work if it had “critical mass” – which included “sufficient numbers of experienced and suitably qualified personnel to provide the right standard of service to compete with the two established players ….” (para 55) – and that “it was going to be crucial to recruit impressive underwriting and claims teams in order to have credibility with the right financial backers and vice-versa” (para 56).    Ds 1-3 embarked on a campaign of targeted staff recruitment to this end.   They used only home e mail addresses and pay as you go mobiles (colourfully described as “bat phones”) to keep their activities from the gaze of QBE.   They used head-hunters to disguise their involvement in the recruitment process.

In considering the scope of the employee’s duties, the judge disagreed with the permissive approach taken by Hickinbottom J in Lonmar Global –v- West [2011] IRLR 138, and doubted that any reliance could be placed on the well-worn dictum of Cumming-Bruce LJ in Searle –v- Celltech [1982] FSR 92 (to the effect that there was nothing in the general law to prevent a number of employees deciding to leave in concert) given the way teams moves are generally planned and effected (paras 177-183).   He identified “a tightening in the law” on the obligations of disclosure impose on directors and senior employees to disclose action that if taken will lead to competitive activity and any action of their own as soon as an irrevocable intention to compete is formed (paras 191 & 192).   He did not accept that the non-compete covenants in the contracts of the 8 junior employees could be enforced against them (as they had no access top real confidential information) but this did not matter given the court’s conclusion on springboard relief.

The judge regarded the availability of springboard relief (to grant an injunction to deprive the worng-doer of the fruits of his wrong-doing) as well-established, and available for all breaches (not just breaches of confidence); paras 239-247.   Such an order could only be granted whilst the springboard advantage was still being enjoyed, but he regarded this an as an overwhelming case on the facts, and had enabled D4 to get up and running before the crucial renewals window for some 70% of the marine insurance business in February 2012.   He made a final springboard injunction to prevent D4 from starting up in competition with QBE, expiring 12 months after the resignations of Ds 1-3.

This is a useful judgment for claimants/employers.   It is consistent with the trend of the authorities (‘bucked’ in the Lonmar Global case) tightening the standards of good faith and loyalty expected of an employee.   The judge had no difficulty in concluding that a springboard injunction was available as a final remedy.   Arnold J had expressed some doubts about this in Vestergaard –v- Bestnet [2010] FSR 29, and although this decision was not discussed in the judgment in QBE, Vestergaard is clearly out of step with the flow of authority.   For another recent case adopting the same approach as applied in QBE, see Clear Edge & Anor –v- Elliot & Ors [2011] EWHC 3376 (QB).   In the instant case, the Judge was prepared to make an injunction stopping the operation of the new business at all.   The period of the injunction appears to have been informed by the time it had taken to set up the competitive venture, and by the new business’ need to be up and running before the critical renewals window.

Reasonable Adjustments

February 3rd, 2012 by Richard Leiper

In Roberts v North West Ambulance Service (UKEAT/0085/11) the EAT considered the language of s 4A of the DDA and ruled that it is not necessary for a provision, criterion or practice (PCP) to have been applied to the claimant in order that a duty to make reasonable adjustments may arise: the questions are simply (1) whether the employer applied a PCP and, if so, (2) whether that PCP placed the disabled person concerned at a substantial disadvantage in comparison with persons who are not disabled. It is not a requirement that the substantial disadvantage arises from the application of the PCP to the disabled person.

The facts of the case help to explain this. The claimant was an emergency medical dispatcher. The dispatchers worked various, overlapping shift patterns and as a result the employer asked them to hot-desk. The claimant suffered from social anxiety disorder and after a period of work indicated that his condition was exacerbated by his sitting in the middle of the room. He therefore asked to be placed by the wall and next to a window. His employer agreed and the arrangement worked well, save that on three separate occasions the claimant arrived at work and had to wait whilst others were moved from his chosen desk. After the third occasion he resigned, claiming a breach of the s 4A duty and constructive dismissal.

The Employment Tribunal decided that “the alleged policy of hot-desking” was not applied to the claimant, since he was not required to sit in any place other than his preferred seat. It added that, in any event, “the respondent acted reasonably in the steps it took to accommodate the claimant’s wish to sit in his preferred location”.

The EAT identified two errors of law.

First, the ET required that the PCP be applied to the claimant and that this application led to the substantial disadvantage. The EAT said that this was an unnecessary requirement: all that the statute requires is that a PCP be applied by the employer and that that PCP should place the employee at a substantial disadvantage. Hot-desking was clearly a PCP. It was not applied to the claimant, but the fact that the PCP existed could at least arguably be said to be the cause of a substantial disadvantage to the claimant: “he continued to be affected by ‘hot desking’ because other people who were required to hot desk were still sitting in and intending to use his preferred seat when he arrived for work” (¶ 33).

Secondly, the ET was wrong to ask whether the respondent had acted reasonably: the effect of s 18B(1) is that if it was a reasonable adjustment to ensure that the seat was free for the claimant, then the respondent was bound to make that adjustment, not merely to take reasonable steps to do so.

The EAT remitted the case to the same ET.

Another appeal on reasonable adjustments, Burke v The College of Law [2012] EWCA Civ 27, was rejected on the basis that the E T had made adequate findings of fact. This meant that the Court of Appeal did not address a rather more interesting question. Mr Burke suffers from MS. He wanted to sit the LPC exams and asked for additional time to sit the various papers. The College of Law did allow him more time, though he contended not enough. The ET found that the requirement that the exams be sat under time pressure was itself a competence which was tested, namely the ability to work under a time constraint. Paul Nicholls and Christopher Knight acted for Mr Burke (instructed through the Bar Pro Bono Unit). Permission to appeal had been granted to consider whether there was a distinction to be drawn between the competence – the ability to work under time pressure – and the mode of assessment. Mr Burke’s case was that, even on the footing that the ability to work under time pressure was a competence, nonetheless the respondents were under an obligation to make reasonable adjustments to the requirement that the exam be completed in three hours. This was accepted at the permission stage to raise an issue of general application. However, the point remains undecided.


January 26th, 2012 by Julian Wilson

by Julian Wilson 

The publication last week of the Joint Case Management Statement for today’s hearing in the High-Tech Employee Anti-Trust Litigation Class Actions brought in the US District Court for the Northern District of California, in San Jose, reveals publicly for the first time some of the evidence which was gathered by the US Department of Justice’s investigation into Anti-Competitive Employee Non-Solicitation Agreements between High Tech Companies.

 The DoJ investigation led to a civil antitrust complaint in the U.S. District Court for the District of Columbia and a settlement in September 2010 by which Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar were prohibited from engaging in anti-competitive non-solicitation agreements which prevent soliciting, cold calling, recruiting, or competing for employees.

 As a result of the settlement, details of the non-poaching agreements which had arguably been made by some of the companies involved were not made public, but subpoenas in the Class Actions have resulted in disclosure of material collected by the DoJ including emails passing between some of the companies at senior management, and on occasion CEO level, describing agreements not to solicit or hire each other’s employees.

 According to the Joint Case Management Statement, the material includes an email dated 28 May 2005 from Adobe’s CEO, Bruce Chizen emailed to Apple’s Steve Jobs forwarding an email from Adobe’s Senior Vice President of Human resources to others at Adobe regarding “Recruitment of Apple Employees” stating:

 “Bruce and Steve Jobs have an agreement that we are not to solicit ANY Apple employees, and vice versa.” 

 In England, non-poaching agreements between employers have long been found to be subject to the Restraint of Trade doctrine and prima facie unenforceable. Famously, in Kores Manufacturing Co. v. Kolok Manufacturing Co the courts struck down what was described as a “non-poaching agreement” between two companies engaged in high tech chemical process product manufacturing by which they agreed not to employ any person who had been an employee of the other during a prior period of five years. In Esso Petroleum Co. Ltd. v. Harper’s Garage (Stourport) Ltd. two members of the House of Lords expressed the view that Kores could best be explained as a case concerning an agreement contrary to the public interest.

 The Defendants to the US Class Actions contend that the material disclosed shows no overarching conspiracy but only bilateral business arrangements. This is rather reminiscent of the losing argument run in Kores for the employers that as only one other employer was bound by the agreement and there were many other potential employers in the same industry who were not affected by it, the agreement was not an unreasonable restraint of trade. The court declined the invitation to distinguish the case of Mineral Water Bottle Exchange and Trade Protection Society v. Booth in which a trade association, which had 179 members throughout the United Kingdom, had a rule that no member should employ an employee who had left the service of another member until two years had elapsed from the end of his employment. The rule was struck down by Chitty J. as being in unreasonable restraint of trade, because it could have the effect of preventing former employees of any member from finding new work within the industry in which they were skilled. See similarly Eastham v. Newcastle United Football Club Ltd in which the transfer and retention system in relation to the employment of professional footballers in the Football League, which operated to prevent poaching of players between clubs, was held to be subject to the restraint of trade doctrine and to be unenforceable as a result.



Coulson v NGN

December 21st, 2011 by admin

On the day when  Glen Mulcaire succeeded in arguing that News International should pay his legal costs under the terms of his contract with the organisation, Andy Coulson did not.

Coulson’s claim turned on the construction of a clause in a compromise agreement he signed when he left News International. The clause obliged his former employer to pay

 “[t]o the extent that it is lawfully able to do so…any reasonable professional (including …legal…) costs and expenses properly incurred by  [him] …which arise from his having to defend, or appear in, any administrative, regulatory, judicial or quasi proceedings as a result of his having been Editor of the News of the World

It was not disputed that this covered, for example, his participation in  the  Leveson  Enquiry. But did it cover police investigations into alleged personal criminal wrongdoing by Coulson relating to payment to police officers and interception of communications?

News international said not. Supperstone J agreed. The clause protected Coulson against  proceedings into which he was drawn by virtue of his responsibilities as Editor. It did not cover alleged personal criminal misconduct.

Further Coulson had not been charged and so there were as yet no “proceedings” in any event.

Pannu and ors v Geo W King Ltd and ors UKEAT/0021-23/11/DA

December 21st, 2011 by Holly Stout

The EAT has delivered judgment in this the first case to consider the “supply of goods” exception to the service provision change rules in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).  The case concerned the supply of axle assemblies for vans built by a company within the General Motors group.  James Goudie QC and Holly Stout appeared for two out of the three respondents.

The EAT held that in deciding whether there has been a service provision change within reg 3(1)(b) of TUPE the focus must be on the activities of the relevant organised group of employees.  However, the question is not what activities those employees are carrying out for their employer, but what activities the employer is (through the particular organised grouping of employees) carrying out on behalf of the client.  One must ask whether the activities carried out on behalf of the client in fact consist “wholly or mainly” of the supply of goods.  If so, there is no service provision change under reg 3(1)(b) of TUPE.  Whether activities are “wholly or mainly” the supply of goods is a question of fact for the Tribunal.  In this case the EAT considered that the Tribunal had been entitled to conclude that the activities that the transferor employer was carrying out on behalf of the client was wholly or mainly the supply of goods.

The EAT further held that changes in payment arrangements prior to the putative transfer did not mean that the activities ceased to be the supply of goods and became a provision of services. As a result of the financial difficulties of the transferor, arrangements had changed so that the client paid the transferor’s parts suppliers direct (and took title to the parts) rather than simply paying the transferor for the completed axle assemblies.  The EAT held that the Tribunal had rightly concluded that the activities carried out by the transferor on the client’s behalf remained the same, however the goods were paid for.

Update on deferred variable remuneration

December 20th, 2011 by Julian Wilson

Parliament’s Draft Financial Services Bill Joint Committee has issued its First Report recommending that the new PRA and FCA should take an active interest in staff remuneration and should rigorously enforce the Remuneration Code.

The Committee also recommends that the Government and the Regulators should consider increasing the share of executive remuneration that is deferred and conditional on medium term outcomes, or introduce a concept of ‘strict liability’ of executives and Board members for the adverse consequences of poor decisions, in order to ensure that bank executives and Boards strike a different balance between risk and return.

Edwards v Chesterfield – Orthodoxy and the Exclusion Area

December 19th, 2011 by Christopher Knight

The House of Lords in Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518 and Eastwood v Magnox Electric plc [2004] UKHL 35; [2005] 1 AC 503 made clear that an employee is not entitled to attempt to circumvent the statutory unfair dismissal regime and bring a claim at common law for damages where it is alleged that his dismissal breached the implied term of trust and confidence. Such a claim falls within what has become known as the Johnson exclusion area: to be adjudicated in the Employment Tribunals and not the ordinary courts.

The decision in Edwards v Chesterfield Royal Hospital NHS Foundation Trust & Botham v Ministry of Defence [2011] UKSC 58 extends the Johnson exclusion area to cases in which the breach relied upon is of the contractual disciplinary procedure. Only Lady Hale was unwilling to accept that Johnson extended beyond the implied term of trust and confidence to express contractual terms too.

Lord Dyson’s judgment for the majority, with which Lord Walker agreed and with which Lord Mance concurred, places Edwards squarely within the rationale of Johnson and Eastwood, relying heavily on the reasoning of Lord Hoffmann in the former at [60]-[66]. To allow an employee who has been dismissed to bring proceedings for breach of contract based upon a failure to follow contractual disciplinary procedures would be to undermine the carefully constructed statutory unfair dismissal regime. Neither Parliament nor the parties can be taken to have intended that such a failure, where it leads to dismissal, will give rise to a common law claim for damages. This does not mean that a breach of such an express term can never sound in contract – such as a claim for an injunction during the disciplinary process (a distinction which the dissenters ridiculed, but which Lord Dyson defended as being different because it did not cut across the statutory dismissal scheme) – but where it becomes inextricably linked with dismissal, the Tribunal’s jurisdiction takes over.

A dissenting judgment from Lord Kerr, with whom Lord Wilson agreed, challenged the refusal of the majority to separate out the fact of the dismissal and the loss which flows from the reasons for the dismissal. As a result, they would have permitted Mr Edwards’ claim (although not Mr Botham’s) because the reasons given for his dismissal were reached following a procedure which breached the contractually provided process. Lord Mance attacked this distinction in his concurring judgment, noting that not only were the reasons part and parcel of the dismissal itself, but if the minority were correct damages would have to be assessed on an entirely hypothetical basis which ignored the fact of dismissal, posing difficult problems of causation and quantum.

Lord Phillips agreed with the majority, and his judgment contains a number of references and oblique statements that appear to accept the reasoning of Lord Dyson. However, he based his agreement on a slightly different basis: namely that the damages sought were too remote from the contemplation of the parties and were precluded by Addis v Gramophone Co Ltd [1909] AC 488. Lady Hale’s response to that was that it seemed unlikely that where the breach was of an express contractual term the parties had not intended such a breach to mean anything.

What can one take from Edwards? Three things perhaps.

First, orthodoxy rules. The Johnson exclusion area is both upheld and widened to include express terms which encompass the fact of a dismissal. Only Lady Hale seemed to expressly wish to re-open Johnson and Eastwood and neither the Court nor the parties showed much appetite for that prospect. Lords Dyson, Mance and Phillips all took a fairly black-letter approach, with the latter focussing on characterising the issue in ordinary contractual language (Mance as causation, Phillips as remoteness).

Second, a slim majority of the Court wished to retain the clear distinction between the statutory unfair dismissal scheme and common law breach of contract, in favour of employers. The dissenting pair of Lords Kerr and Wilson, by finessing a difficult distinction between dismissal and the reasons for dismissal, were clearly in a much more pro-employee camp (as was Lady Hale, on a wider basis).

Third, the recovery of damages for the reasonable period in which the disciplinary process could properly have been carried out – stemming from the decision in Gunton v Richmond-upon-Thames LBC [1981] Ch 448 – remains very much open to question at the highest level. All of the majority judgments declined to approve that aspect of the Court of Appeal’s approach and reserved their view. The battleground will have to be returned to in due course.

Finally, a brief mention should be given to Lady Hale’s comment, at [110], that she was the only member of the Court to have been an employee. The relevance of this – even if it is true – is unclear. Presumably it was not meant to imply that only ex-employees can sit on employment cases? Let us hope not.

The Supreme Court hands down judgment in Edwards v Chesterfield and Botham v MoD on 14 December 2012

December 8th, 2011 by admin


December 7th, 2011 by James Goudie QC

 In Russell v Transocean International Resources Ltd [2011] UKSC 57 the Supreme Court made short work of unanimously dismissing the appeal and refusing a reference to Luxembourg.  The hearing was on 26 and 27 October 2011.  Judgment was given on 7 December 2011.

The case concerned the Working Time Directive 2003 and the Working Time Regulations 1998.  They of course contain provisions which lay down minimum health and safety requirements for the organisation of working time, with ‘minimum rest periods’ consisting of daily rest, weekly rest and annual leave.  They provide that the worker is entitled to paid annual leave of at least four weeks (at the time the Appellants made their claims).   They provide that a worker may take leave to which he is entitled on such days as he chooses by giving notice to his employer, but that the employer may require him to take leave on particular days.

Mr Russell and others were all employed to work in various capacities on offshore oil and gas installations.  The Respondents are their employers. With the exception of one, all were contracted to work to a pattern of two weeks offshore followed by two weeks onshore (called a ‘field break’). Whilst offshore the Appellants generally worked a 12 hour shift each day during which rest breaks were taken. This was followed by 12 hours off duty living offshore on the installation. They did not have any days off while they were offshore. For the most part the Appellants were free from work-related obligations during the entire period of their field breaks.

The issue in the case is whether the period spent onshore should count towards the workers’ entitlement to four weeks’ paid annual leave.

The Employment Appeal Tribunal held that the time available during field breaks, after allowing for compensatory rest to take account of the fact that the Appellants worked offshore without a weekly rest period, was more than sufficient to cover the entitlement to annual leave. The Inner House of the Court of Session refused the Appellants’ appeal, holding that what was required was that there be provided to the worker within the year at least four remunerated weeks in which he was free from working commitments. There was nothing in the Directive to suggest that employers might not arrange matters so that annual leave was taken during the school holidays or such similar industrial equivalent.

Giving the reasons for dismissing the further appeal, Lord Hope, Deputy President, with whom Lords Brown, Mance, Kerr and Wilson agreed, said that, under the Directive, every worker must be entitled to a rest break, a daily rest, and a weekly rest period.  Each period must be measured separately from each other. They cannot intrude upon each other or overlap. Where necessary because of special working patterns, workers must be afforded equivalent periods of compensatory rest. In the Appellants’ case, it was agreed that the first two days of each period of their field break is accounted for as compensatory rest, to make up for the fact that they work a 12 hour shift every day during their two weeks offshore. With regard to the annual leave entitlement, the Directive does not require that those four weeks must be taken consecutively or that those weeks cannot be interrupted. As, however, a period of leave is not a period which is defined as working time, it must be taken to be a rest period. It is an annual period of rest.

The Directive does not imply any qualitative requirement to test whether a given period can be accounted as rest. The exercise that must be carried out is simply one of counting up the relevant hours, days or seven-day periods and ensuring that the worker is not required to work during those periods. There is no indication anywhere that the Directive was concerned about the quality of the minimum periods of rest, other than to make it clear in the definition of ‘rest period’ that it means a period which is not working time.

The contract in question is a contract for the whole of the year, in which the employees were required to work for 26 weeks. The purpose of the entitlement to annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure. The ECJ has not said that a pre-ordained rest period, when the worker is free from all obligations to the employer, can never constitute ‘annual leave’. On the contrary, the term ‘rest period’ simply means any period which is not working time, and ‘any period’ means every such period irrespective of where the worker is at that time and what he is doing, so long as it is a period when he is not working. It is plain that any period when the Appellants are on field break onshore will fall into that category. The Respondents are therefore entitled to insist that the Appellants must take their paid annual leave during periods other than their 26 working weeks when they are onshore on field break. This is permitted by the Regulations, read in conformity with the Directive.

John Cavanagh QC of 11KBW and Sandy Kemp of Simpson & Marwick appeared for Transocean.



Unsuccessful challenge to change from RPI to CPI in public sector pensions

December 5th, 2011 by Jane McCafferty

R (ota) The Staff Side of the Police Negotiating Board and others v The Secretary of State for Work and Pensions and others

A Divisional Court of three judges (Elias LJ, McCombe and Sales JJ) has by a majority rejected the judicial review challenge brought by a number of public sector in R (ota) The Staff Side of the Police Negotiating Board and others v The Secretary of State for Work and Pensions and others [2011] EWHC 3175 (Admin).

Nigel Giffin QC acted for a number of the public sector trade unions. Clive Sheldon QC and Amy Rogers acted for the Government defendants.

The decision under challenge

The challenge was to the Government’s decision to change the basis upon which public service pensions are adjusted to take account of inflation. Such adjustments had been made in line with the Retail Price Index (“RPI”). From April 2011 they are to be made in accordance with the Consumer Price Index (“CPI”). Some of the schemes fix pensions by reference to an employee’s final salary and newer schemes fix it by reference to the average salary over the employee’s career. In both cases the change affects the value of pensions in payment, and in the case of career average schemes, it also affects the way in which the career average is calculated.

It was common ground that the move to CPI has had, and will have, a detrimental effect on pensioners because although there may be some years where CPI will yield a higher increase than RPI, the overall picture is that RPI is typically in the region of 0.75-1% higher than CPI. It has been estimated that the change from RPI to CPI may, through the compounding effect over time, reduce the value of benefits to pension scheme members by as much as 15% on average. The change will affect both pension income and the lump sum which pensioners may take by commuting part of their pension as soon as they retire.

The four grounds of challenge

The public sector unions argued that the decision to change from RPI to CPI was unlawful on the following four grounds: –

(1) the statutory provision for uprating did not permit the use of CPI (CPI uses a ‘geometric mean’ for part of its calculation; RPI uses only the ‘arithmetic mean’);

(2) the financial savings to be made from the switch to CPI was an irrelevant consideration to the statutory scheme for uprating;

(3) the decision was made in contravention of substantive and procedural legitimate expectations of members of public sector pension schemes, and in breach of Article 1 Protocol 1 rights; and

(4) there had been a failure to have due regard to the gender equality duty under the Sex Discrimination Act 1975 (“SDA”).

The Divisional Court dismissed all of the grounds of challenge. McCombe J dissented on the irrelevant considerations ground point.

(1) CPI method was not ultra vires the statutory language

The unions challenged the whole exercise by arguing that the CPI is not an index which the Secretary of State was entitled to adopt in compliance with the obligation under section 150(1) and (2) of the Social Security Administration Act 1992. It was submitted that the obligation under the statute is to compare prices directly. The effect of adopting CPI, because it uses the geometric mean, is that the comparison is not simply as between prices but also takes account – albeit at a low level within the aggregation process (namely, within each category of goods and services in the basket) – of consumer reaction to the increase in price.

The Court rejected this ground of challenge. The Court did not accept that the weighting based on use of the geometric mean involved in the CPI methodology was at odds with Parliament’s intention. It held that the obligation is to make a comparison of the general level of prices and that is what is being done; like is being compared with like. The Court held –

Moreover, in fact all the items in each category of product in the basket are being valued: the price of each item in the category at the beginning of the relevant period is compared with its price at the end to identify the rate of change in price for that item – no item is treated as dropping out of the category in that period, nor is any item added to it. The use of the geometric mean does not affect this; it just means that the rate of change in price of each item is not weighted equally. If it appears to the Secretary of State that this is a proper way to ensure that pensions retain their value, without pensioners receiving either too much or too little, we can see no reason why he should not adopt that index.”

(2) Saving money was not an irrelevant consideration

As to the second ground, the Court was divided.

The unions submitted that the statutory obligation was to determine what as a matter of fact is the increase in the general level of prices over the year. The Secretary of State was said to have “put the economic cart before the statutory horse” in using the need to make savings as the dominant factor in choosing the methodology.

The majority (Elias LJ and Sales J) rejected this ground of challenge, holding that the Secretary of State can perfectly properly say that there are at least two indices which significant bodies of experts say properly measure the change in the general level of prices and will protect the purchasing power of benefits and pensions, and that he accepts that either index will achieve that objective. Once that decision is reached, he can lend his support to one rather than the other for any rational reason. Further, even if the even if the Secretary of State was wrong to have regard to economic considerations when deciding which of the two available indices to adopt, the majority was satisfied that to the high standard required he would have chosen CPI in any event.

McCombe J however dissented on this ground of challenge alone, holding that in identifying the best methodology the Minister is only entitled to have regard to the express purpose identified in section 150(1). “It was not lawful for the Minister to search out the means of measuring price movements with the express purpose of procuring savings. It is not a correct exercise to search out generally acceptable methods of estimation and to make the selection guided by exterior considerations such as a desire to make savings.” McCombe J also dissented on the question of whether, absent irrelevant considerations, the same decision would have been made at the time (on the issue of lawfulness) or today (on the issue of relief). For these reasons, McCombe J would have granted the application for judicial review and quashed the orders.

(3) No legitimate expectation that RPI would remain in use

The unions’ challenge based on legitimate expectations failed on the facts. The Court found that there was never any promise or assurance given, or any practice adopted amounting to any such promise or assurance, which was “clear, unambiguous and devoid of relevant qualification” that RPI would be the index of review in perpetuity.

However, of potentially wider interest was the Court’s obiter remarks about what the consequences would have been had there been a legitimate expectation.

First, the Court saw “considerable force” in the unions’ submission that, if there was in fact a legitimate expectation in law, it was not a proper compliance with the Government’s legal obligation simply to have some regard to the fact that others believed that the expectation existed. Where a legitimate expectation exists, it must be properly and fully taken into account. The Court held that –

The weight given to a promise generating a legitimate expectation would naturally be expected to be greater than the weight, if any, given to the fact that the Government recognises that some may think (wrongly, in the Government’s view) that there was a promise.

Secondly, the Court rejected the unions’ argument that, if a legitimate expectation existed, they were denied the right to be consulted before their substantive expectations based on such promises were defeated. This also failed on the facts. The Court held that, if there had been an obligation to consult, it would have been satisfied by the process of debate with the unions which did in fact occur before the orders were made.

(4) No failure to have due regard to the public sector gender equality duty

The primary challenge was based on the fact that the Secretary of State himself never had regard to the equality impact assessment; only the Chancellor did so. The Court held that the Secretary of State may rely on workings and a review of effects carried out within his department to satisfy the “due regard” requirement, without having personally to read an impact assessment, so long as the task has been assigned to officials at an appropriate level of seniority or expertise. Equally, a Minister may rely on a relevant equality assessment carried out by another Government department as well or better placed than his own to undertake the task, particularly where that other department has policy responsibility in relation to the effects under review.

The Government submitted that the public sector gender equality duty was simply not engaged by the making of the orders under challenge for two reasons.

First, because the making and laying before Parliament of the statutory instrument which effected the change from RPI to CPI were acts connected with “proceedings in Parliament” and therefore were exempt by section 76A(4)(a) SDA.

The Court gave only provisional views on this issue as it had not heard full argument but expressed a view to assist in future cases or on any appeal from its judgment. The Court concluded that, if it were necessary to do so, it would have been minded to find that the exemption in section 76A (4) (a) applied so that the making of the orders under challenge were not subject to the gender quality duty.

Secondly, the Secretary of State submitted that, because section 21A SDA excludes various acts of public bodies concerned with the making of legislation from liability for discrimination, the public sector equality duty in section 76A was also disapplied in these circumstances. The Court rejected this submission holding that there was nothing intrinsically inconsistent with requiring the Secretary of State to have to comply with the “due regard” duty in section 76A(1) when considering the potential impact of subordinate legislation whilst at the same time not being subject to the non-discrimination duty himself when making the legislation. The scope of that duty may be restricted because section 76A(1)(a) requires the Secretary of State to have regard to the elimination of unlawful discrimination, but section 21A prevents the legislative proposals from being unlawful. But that does not mean that the duty is wholly disapplied.

However, interesting as the Court’s analysis of the exemptions to the gender equality duty under the SDA was, it will be of limited practical application to future challenges. This is because there is no general exemption for proceedings in Parliament in the Equality Act 2010. As the Court held, “for the future, the difficult arguments with which we are engaged in this case will not arise and the courts will not have to trace the potentially awkward dividing line between different types of subordinate legislation when determining the application of section 76A.”

Permission to appeal

The Court granted permission to appeal on the first ground of challenge, whether the statutory language permitted the use of the CPI.


November 30th, 2011 by Julian Milford

The casual observer might have wondered how things could get
any worse for Birmingham City Council in its defence of equal pay claims by
thousands of mainly female employees. They just have. The Court of Appeal in Birmingham City Council v Abdulla & ors [2011] EWCA Civ 1412 has confirmed that the claimant employees, who were out of time
to bring equal pay claims in the Employment Tribunal (“ET”), were permitted to
bring those claims in the civil courts. Not just the result, but the reasoning
of the Court of Appeal, will send a shiver down the spine of other employers
faced with the prospect of mass equal pay claims.

In the ET, equal pay claims must be presented on or before
the “qualifying date”, which means in
most cases 6 months after the last date on which the claimant was employed in
the relevant employment. The ET has no power to extend that period, whether
under the Equality Act 2010 or (previously) under the Equal Pay Act 1970.

However, a claim for equal pay is a claim for breach of an
employee’s contract, as modified by the statutory equality clause. That claim
may be brought like any other contract claim in the civil courts. In such a
case, the limitation period is the normal limitation period for breach of
contract claims i.e. 6 years.

The interplay between the two possible avenues of claim was
previously dealt with by s.2(3) Equal Pay Act 1970, and is now contained in
s.128 Equality Act 2010, which is to similar effect. Section 128 Equality Act
2010 states:


“(1) If it appears to a court in which
proceedings are pending that a claim or counter-claim relating to an equality
clause or rule could more conveniently be determined by an employment tribunal,
the court may strike out the claim or counter-claim.


(2) If in proceedings before a court a
question arises about an equality clause or rule, the court may (whether or not
on an application by a party to the proceedings)-

(a) refer the question, or direct that it
should be referred by a party to the proceedings, to an employment tribunal for
determination, and

                (b) stay or sist
the proceedings in the meantime.”


The Abdullah claimants brought their claims in the High
Court. The Council’s case before the High Court was that the equal pay claims
should be struck out, as they could more conveniently be disposed of by the
expert and specialist ET. The Council said that the expiration of the time
limit applicable to equal pay claims in the ET was an irrelevant factor in the
exercise of the court’s discretion under s.2(3) Equal Pay Act 1970. The judge
rejected the Council’s case that the ET time limit factor was irrelevant to the
exercise of the court’s discretion, and allowed the cases to proceed.

In the meantime, the High Court issued another judgment on
claims against Birmingham Council brought in the civil courts: Ashby v
Birmingham City Council [2011] IRLR 473. In Ashby, Slade J similarly allowed
equal pay claims to proceed, which had been brought in the county court by
claimants who were out of time to claim in the ET.

However, the High Court in Ashby stated that the reason
claimants had not brought their claims in the ET could be relevant to
the exercise of the court’s discretion whether to strike out the claims. The
EAT relied on Spiliada Maritime Corporation v Consulex Ltd [1987] AC 460 HL,
arguably the leading domestic case on forum non conveniens, in which Lord Goff
stated (at 483G) that “a strong theoretical argument can be advanced for the
proposition that if there is another clearly more appropriate forum for the
trial of the action, a stay should generally be granted even though the
plaintiff’s action would be time barred there.”  Reasoning from Spiliada, Slade J stated at
para 78 of the judgment in Ashby:

“Claimants cannot rely on letting the
limitation period for claims to an employment tribunal go by in order to ensure
that their equal pay claims are heard in the courts. It cannot be said that
because such claims to an employment tribunal would be out of time a judge
could not decide that it would be more convenient for them to be disposed of in
the employment tribunal and to strike out the claims in the county court or
High Court. In my judgment applying the approach of Lord Goff in Spiliada
practical justice would require the reason for not commencing employment
tribunal proceedings to be taken into account”.

Here was at least a crumb of comfort for employers. If
claimants simply sat on their hands with no good excuse, let the ET limitation
period drift by, and whacked in a county court claim for equal pay 3 years down
the line, then the employer might have a strong argument that the claim should
be struck out. Conversely, if claimants had a reasonable excuse for missing ET limitation
periods, their claims should proceed in the civil courts.

Before the Court of Appeal in Abdullah, the Council modified its case to take account of the
reasoning in Ashby. It no longer
contended that the court should ignore the expiry of the ET time limit. Rather,
it said that a number of factors should be taken account of, including the
specialist expertise of the ET, and the interests in the administration of
justice in the allocation of court resources. Complex equal pay cases, said the
Council, really belong in the ET. The fact that the ET would dispose of them on
time bar grounds rather than on the merits was not a decisive factor in the
exercise of the court’s discretion whether to strike out the claims. Claimants
should not be able to go forum shopping. The burden was on them to show they
did not act unreasonably in letting the ET time limit expire.

Unfortunately for the Council, and for other local
authorities in a similar position, the Court of Appeal in Abdullah has adopted a rather different approach from the High
Court in Ashby, and one which is significantly
more favourable to claimants.  According to the Court of Appeal:


(1)  The expiration of the ET limit was not merely a factor in favour of allowing claims
to proceed in the civil courts, but a factor of considerable weight in most


(2)  Importantly, the claimants’ reasons for not bringing claims in the ET were unlikely to make
any difference. That is because on the face of it there would be no abuse of
process in claimants simply exercising their undoubted right to institute
proceedings in the civil courts instead of the ET.


(3)  The analogy with Spiliada was not
helpful. These were not forum non
cases. Parliament had given claimants the right to choose
whether to bring claims in the ET or civil courts. The claimants were simply
exercising that choice.


(4)  Following on from (2) above, the reason why claimants had not brought ET claims would be relevant
only in “exceptional cases”, in which
it was contended that it would be an abuse of process for a claimant to present
an equal pay claim in the civil courts.


The practical result of Abdullah is that claimants who have
missed the ET time limit for equal pay claims will in the vast majority of
cases be able to bring those claims in the civil courts. The Court of Appeal
has mentioned “abuse of process” as
an exception to that rule. Nevertheless, it is difficult to imagine what might
amount to “abuse” for these purposes: and certainly, merely missing the ET time
limit will not.


Long-Term Compensation in Dismissal Cases

November 28th, 2011 by Paul Nicholls QC

One question of great practical difficulty which arises in employment cases is over
what period of time should a tribunal award compensation for dismissal. This is
relevant to unfair dismissal claims but in particular to discrimination claims
because of the absence of a cap. In theory tribunals can – and sometimes do –
award career long loss. Until recently, however, there has been little guidance
as to the correct approach to take.

The judgment of the Court of Appeal in Wardle v Calyon [2011] IRLR 604,
provides valuable guidance and in doing so makes significant changes to the law
relating to compensation.

The case concerned an allegedly discriminatory failure to promote and dismissal.
The claimant claimed that he had not been promoted by a French bank because he
was English and that a French employee had been preferred on racial grounds. He
was dismissed on 31st July 2008 and alleged that his dismissal was
an act of victimisation.

These claims succeeded and the tribunal had to award compensation.

In doing so, it adopted several stages. First,
it assessed the length of time for which the claimant would have continued to
be employed by the respondent. It used this as a means of identifying the end
point of his loss on the basis that the date by which he would have left
represented the full extent of his loss. The tribunal did not make an absolute assessment
of this. It determined that there was an 80% chance that he would be gone by
April 2010, a little under 2 years after his employment in fact ended. They
then applied an 80% deduction to his compensation after the date when they
found he would have left.

Second, the claimant had in fact found alternative, albeit less well-paid, employment. The tribunal awarded
the Claimant his loss in full up to the point when he found his new job and his
loss based on the difference in pay between his new and old jobs up to the date
when it held there was an 80% chance he would have left the respondent’s
employment. From that date, April 2010, it awarded 80% of the difference
between the two rates of pay to reflect
the likelihood that he would have left the respondent anyway.

Third, however, the tribunal also found that there as a high chance that, after spending time in
the new job, he would have left and gone back to a job comparable to that which
he previously enjoyed and in this way brought his loss to an end. They found
that there was a 70% chance that he would have returned to equally well-paid
employment, by January 2012, 3½ years after his dismissal.

Fourth, the tribunal then awarded career long loss to the date when the claimant would have retired, but reducing
his compensation by (a) 80% to reflect the likelihood that he would have left
the employment of the respondent in any event by April 2010 and (b) by a
further 70% to reflect the likelihood that he would have left to find a new
job, so eradicating his loss, by January 2012.

The end result was therefore:

(a)  an award of career long loss to the date the tribunal found the claimant would
have retired, but

(b)  where the loss was reduced by 80% after the date when the tribunal found he would
have left the respondent’s employment in any event; and

(c)  where the loss was reduced by a further 70% after the time when the tribunal held
there was a 70% chance he would go back into equally well-paid employment as
that from which he had been dismissed.

The end result was an award of £375,000 for career long loss.

Both sides appealed to the EAT and then the Court of Appeal. There were issues about
the whether deductions were legitimate at all, the rate at which the deductions
were made, but also, and more fundamentally, whether career long loss was

The Court of Appeal came to a number of conclusions which are of great significance
to the determination of compensation claims and which do seem to change the
law. It held:

(i) The tribunal was wrong to make any deduction
to reflect the likelihood that the claimant would have left the respondent’s
employment in any event.

(ii) The tribunal had been wrong to award career
long loss at all in this case.

(iii) In cases where long-term loss is awarded it
will not be appropriate to apply the same percentage deduction regardless of
the length of time under consideration.


Each of these conclusions warrants analysis (a) to see the extent to which they
change the law and (b) to consider the impact on future cases

(i) No reduction to reflect likelihood that employee would have left

The Court of Appeal held that it was wrong in principle to determine loss by
reference to the time by which the employee would have left of his own volition
if he had not been dismissed. (This is to be contrasted with the legitimacy of
reducing compensation to take account of a later dismissal.)  The reason for this is that, if there had
been no discriminatory dismissal, the employee would only have left the
employer for equally well-paid employment. Therefore he would not have suffered
any of the loss he in fact suffered had the discriminatory dismissal not
occurred with the consequence that the employee was on the job market at a time
he would not have chosen.

This view reflects the approach taken by the Court of Appeal in Chagger v Abbey
[2010] IRLR 47. However, that was a case where the employer had,
according to the tribunal, destroyed the employee’s career in that industry.
What is interesting about Wardle is that it applies the same principle
to any dismissal case.

Three points emerge from this. First, this
analysis applies only to the case where the issue is whether the employee would
have left of his or her own volition. The Court of Appeal holds that that is
irrelevant. However, in any case where the employer can show that it would have
dismissed even if it had not acted unfairly / in a discriminatory way, loss
would still come to an end at the point when the employer would have ended the
contract: Chagger.

Also, if the employer can show that the employee would have voluntarily left in any
event, whether or not with a job to go to, that can serve as an end to the loss
because the employee would have terminated the employment otherwise than in the
anticipation of getting another job and maintaining the same rate of pay.
However, these will be rare cases.

Second, this is a change to the law. Previous cases – Chief Constable of W Yorks. v Vento [2003] ICR
318  and Cannock v Min. of Defence
[1999] IRLR 509 – had held, admittedly without great analysis, that loss was to
be assessed to the time when the employment from which the employee would have
been dismissed would have come to an end. That date was regarded as the end
date. The Wardle analysis means that, in any case, it is irrelevant to
consider whether the employee would have left in due course to get another job.

Third, the consequence of this is that, on one view, the employee may be able to recover loss over a
longer period since loss will no longer be circumscribed by the time when
employment would have ended – subject to the points below – unless the employer
can show that it would have terminated the employment at some future date. In
particular if the employee can show that there is doubt about getting another
job, that may lead to long-term awards of compensation.

(ii) Career long loss

The decision that career long loss was inappropriate is of potentially great
significance because it may limit employees’ ability to recover long term loss.

The Court held that loss should come to an end when it was more likely than not
that the employee would gain another job at a comparable level of pay.

This is a change to the law. In previous cases it had been held that compensation
should not be assessed on a balance of probabilities basis but that the
tribunal should reflect chances by way of percentages – as this tribunal had by
applying its 70% prospect of finding another job.  This in cases like Cannock it was
emphasised that in assessing future imponderables it was wrong to apply a
balance of probabilities approach.

However, the Court of Appeal took a different view in relation to this question with the
consequence that at as soon as it was more likely than not that the claimant
would get a job which paid as well as the old job, the loss came to an end. The
Court of Appeal estimated that point as being 6 months earlier than the point
at which there was, according to the tribunal, a 70% likelihood of finding
equivalent employment.

This still leaves open the possibility, of course, that the employee might not be
able to secure a job with comparable pay. On this basis, the employee’s loss
may be awarded on an open-ended basis up to the point when it is held to be
more likely than not that the employee will secure a job at comparable pay.

(iii) Approach to percentage deductions

In the event, this issue was of limited significance. However, since it may arise
in other contexts, it is relevant to consider the Court’s approach.

In Wardle, once the tribunal had found that there was a percentage chance of something
happening, it preserved that percentage in aspic. So, for example, when it held
there was a 70% chance of the claimant leaving by December 2011, it applied
that same percentage up to retirement.

The Court accepted the view that if something was so likely by a given date it had,
by definition, to become more likely as time went by.


The combined effect of the Court’s decision is unclear. On the one hand, it may
mean that long-term loss claims are less likely in the event that it can be
shown that the employee will be able to secure other employment at a comparable
level of pay. However, those who are not likely to be able to do so may recover
longer term damages without the loss ceasing at the date when they would have
left but for the dismissal.



Protected Conversations

November 22nd, 2011 by Sean Jones QC

The Governing Coalition is presently proposing to introduce the concept of a “protected conversation” into employment law. The following is taken from a speech given by David Cameron on 10 November 2011:

But if employers are so concerned about the prospect of being taken to tribunal that they don’t feel they can have frank conversations with their employees many companies just won’t feel able to create those jobs in the first place.

That’s why I want to deregulate and cut back on bureaucracy. Not simply to help business but to create fair, simple processes that are good for business and good for employees too.
So we will be consulting on the introduction of protected conversations, so a boss and an employee feel able to sit down together and have a frank conversation – at either’s request.”

The proposal is favoured by Nick Clegg who has said that protected conversations would allow employers and employees:

“to treat each other like human beings and not like potential litigants”

He echoed the suggestion that the employers felt the need for such a measure:

“Employers tell us they’re afraid to have frank discussions with staff… or fear of those exchanges being used against them unfairly, should a dispute end up at tribunal.”

Whilst the CBI has expressed enthusiasm, it is worth noting that this does not seem to be something that organisations representing employees are calling for. For that reason, I am going to concentrate in this post on whether the proposals make sense from an employer’s point of view.

What is a Protected Conversation?

We presently know very little about what the Government has in mind beyond the essential idea that employers should, in certain circumstances, be able to say what they like to employees without having their words quoted back at them in tribunal proceedings. For a lawyer, the immediate analogue is a “without prejudice” (or “WP”) discussion. Where two parties to a legal dispute wish to negotiate with a view to compromise they can do so on a WP basis. They can be as “frank” as they wish in the knowledge that, subject to some narrowly drawn exceptions, the court will not be told about what they have said. The “protected conversation” seems to be an attempt to extent the WP principle into the heart of the employment relationship, covering situations where there is no legal dispute to resolve. Of course, since the policy that underpins WP privilege is the public interest in resolving legal disputes without recourse to the courts, extending the principle to cases where there is no legal dispute to be resolved means that a different policy justification is required.

What is the policy justification? It has yet to be precisely articulated, but David Cameron’s speech suggests that it is something along the following lines: Tribunal cases are an expensive inconvenience and a disincentive to job creation. I do not propose to deal with whether that premise is correct. I want to concentrate instead on more practical issues.

When would an employer want to have a “protected conversation”?

The example most frequently cited has been a situation in which an employer has concerns about an employee’s performance. The employer, it is proposed, will invite the employee to a meeting, express dissatisfaction with a great frankness and send them off to improve. It is difficult to understand why an employer would want to have that conversation on a “protected” basis. A protected conversation would only make sense if employers were regularly getting into trouble by being too frank with employees about performance concerns. In fact, the opposite is true. Where an employer relies on poor performance as the reason for termination, the most likely ground of unfairness is a failure to warn the employee early enough and explicitly enough that they are under-performing and that their job is at risk. The protected conversation makes that problem worse because the employer would not be allowed to tell the tribunal about the warning that they had given the employee. In performance cases, the more open an employer is the better.

One situation in which having a conversation on a protected basis would make sense is where the message the employer wants to communicate is not “you need to improve or you’ll be sacked” but rather “we’ve decided to sack you. Do you want to go quietly or do I have to push you through a performance procedure?” That sort of conversation frequently does get employers into trouble with the Tribunal. Speaking personally, my problem with giving that kind of conversation protected staus is that I think employers should get into trouble. There is no good policy reason for allowing employers to conceal the fact that their procedures are a sham.

How effective would the protection be?

Here is a bit of advice I give the Government for free: Attempts to exclude things from the Tribunal’s jurisdiction will result in more hearings. It is a phenomenon known to gleeful lawyers as “satellite litigation”. Employers who thought that they were protected from the costs of tribunal proceedings will find that they have to spend time and money trying to persuade the tribunal that they can rely on the protection.

Although the proposals need fleshing out, it is fantastically unlikely that an employer will be able to rely on merely invoking the “protected conversation” process to keep the Tribunal’s nose out of what was said. It is unlikely, for instance, that the employer will be entitled to rely on the cloak of secrecy to do any of the following:

(1) Conceal an act of discrimination;
(2) Conceal an act of bullying or harassment; or
(3) Prevent the employee from relying upon a protected disclosure made during the course of the conversation.

On the first point, one of the specific situations in which Nick Clegg appears to have thought a protected conversation might be useful is where an employer wants to talk about retirement. That suggests that he may have in mind protecting employers against age discrimination claims. If he does, he is likely to be disabused rapidly. The anti-discrimination measures are under-pinned by European legislation which requires that there should be an effective remedy for acts of discrimination. It is unlikely that the UK courts and tribunals are going to conclude that an employer will be free to discriminate provided he does so having uttered the magic words “this is a protected conversation”.

Other matters that will need to be settled

Beyond the cases identified above, there is a whole range of other difficult practical questions including the following:

(1) Can an employee refuse to have a protected conversation?
(2) Is there any limit to the number of conversations that an employer can require?
(3) Will an employee be entitled to be accompanied at a protected conversation meeting?
(4) Will the mere invocation of the process be enough or will an employer have to show that the conversation meets qualifying criteria?
(5) Will the employee be precluded from relying on an employer’s behaviour to found a constructive dismissal claim even where it is clear that the conversation resulted in a breakdown of trust and confidence?
(6) Can an employer convert a conversation into a “protected” conversation as it is happening?
(7) Can an employer convert a conversation from a “protected” conversation as it is happening?

The Government will no doubt say these issues will be thrashed out in consultation. However, it is worth taking a step back and asking whether a measure that poses so many practical difficulties is worth pursuing when the benefits it can deliver are so uncertain.

Where witnesses go wrong

November 11th, 2011 by Sean Jones QC

Sean Jones talks to People Management about where witnesses go wrong, at the CIPD Annual Conference and Exhibition 2011 in Manchester- click here

Legal aid in employment cases and Lists of issues

October 31st, 2011 by Richard Leiper

The EAT has made some interesting observations about the usefulness of legal aid in employment cases: Price v Surrey County Council (UKEAT/0450/10, 27 October 2011).

In an unusual foray into the Appeal Tribunal, the panel was presided over by a Lord Justice of Appeal, Carnwath LJ. It said (paragraph 59),

“Provision of basic legal help to unrepresented litigants is important in the interests of the efficiency and economy of the justice system for the public, as much for its accessibility to the individual parties.”

Perhaps slightly hopefully, the EAT expressed the view that, had lawyers been involved at an early stage, they would not have allowed the case to develop as it did, with a number of peripheral allegations, exaggerations and an unsustainable allegation of corruption. Furthermore, the emphasis on a long list of individual ‘detriments’ distracted attention from the issues of substance.

This focus on the alleged detriments also led to observations on the drawing up of a list of issues. First, the EAT noted, an Employment Judge should not simply accept a list of issues presented to the Tribunal, even if agreed. The Judge has a duty to ensure that the case is clearly and efficiently presented. The Tribunal hearing the case is not required to follow the list of issues slavishly (paragraph 23).

The failing of the list in this case was that it had focused too much on the detailed factual allegations said to support the claimant’s case, rather than on the central issues of dispute between the parties (paragraph 24).

The EAT went so far as to append the list of issues as an example of What Not To Do.

NHS Manchester v Fecitt [2011] EWCA Civ 1190 (25 October 2011)

October 26th, 2011 by Richard Leiper


At a time in which the coalition government is focussing hard on employment rights and, in particular, the right of unfair dismissal, the Court of Appeal has issued an important judgment on the scope of those rights. It confirms that in whistleblowing cases, the burden of proof for dismissal from employment differs from that for claims of any other detriment.

Burden of proof

The EAT had considered that it was bound to follow the approach in Igen v Wong [2005] ICR 931. The Court of Appeal did not agreed that Igen was binding but it accepted that the same approach is to be applied (paragraph 43):

“… the reasoning which has informed the EU analysis is that unlawful discriminatory considerations should not be tolerated and ought not to have any influence on an employer’s decisions.  In my judgment, that principle is equally applicable where the objective is to protect whistleblowers, particularly given the public interest in ensuring that they are not discouraged from coming forward to highlight potential wrongdoing.”

Thus, notwithstanding that there was not the underpinning legislative context of the European directive, that approach should inform the reasoning in relation to the entirely domestic law on whistleblowing.

That the approach is similar is perhaps not so surprising, given that:

(a)                 The burden is expressly placed upon the employer to show the ground upon which an act is done (ERA s 48(2));

(b)                 In relation to the discrimination provisions prior to the implementation of the (now) Equal Treatment Directive (as expounded in Nagarajan), the question was whether the proscribed ground had a material influence on the decision, material being more than trivial. In Igen itself, the Court of Appeal found it “hard to believe that the principle of equal treatment would be breached by the merely trivial”, suggesting that this was consistent with the Directive’s language of “no discrimination whatsoever”.

The combination of these features means that it is for the employer to demonstrate that the grounds upon which it acted were not materially influenced by the protected disclosure.

On the facts, the Tribunal had decided that the employer’s act in redeploying the claimants was the only feasible way of dealing with a dysfunctional situation. This was not on the ground of the protected disclosure, albeit that the protected disclosure may have been the root cause of the dysfunction.

Elias LJ’s judgment referred to concepts familiar in the discrimination context, in particular the idea of subconscious reasons and drawing inferences from a false, or less than full, explanation by the employer.

He also noted at paragraph 51 that:

“The detrimental treatment of an innocent whistleblower necessarily provides a strong prima facie case that the action has been taken because of the protected disclosure and it cries out for an explanation from the employer.”

This appears different from the discrimination field, in which it has repeatedly been emphasised that a difference in treatment and a difference in sex is not sufficient to satisfy stage 1 of the Igen test: see for example Madarassy v Nomura International plc [2007] IRLR 246, paragraph 56.

Where the individual is an employee and his complaint is about dismissal, that complaint is removed from ERA s 47B (by sub-section (2)) and into s 103A. There, the question is whether the protected disclosure was the reason or principal reason for the dismissal. The Court of Appeal recognised that this meant that there was a different approach to dismissal cases than to cases involving another detriment. This creates an anomaly, but one which was intended by the legislature (see paragraph 44).

One perhaps strange implication of the Court of Appeal’s ruling is that where a worker is removed from work, this will be a detriment and the respondent will need to show that the protected disclosure had no material influence upon the decision: the worker enjoys the more generous approach under s 47B than the dismissed employee does under s 103A.

Vicarious liability

The other aspect of the case was the ruling that an employer will not be vicariously liable for the acts of its employees where those acts are themselves not wrongful. This was applying Majrowski v Guy’s and St Thomas’ NHS Employer [2007] 1 AC 224 and overruling the EAT’s decision in Cumbria County Council v Carlisle-Morgan [2007] IRLR 314, which was based on a misreading of Majrowski.

Thus, in the context of whistleblowing, an employer is not liable for the acts of its employees even if they amount to victimisation on the ground of making a protected disclosure. This is because (in contrast with the discrimination provisions: see the Equality Act 2010 s 109(1)) the legislation does not render such acts unlawful; it is only the acts of the employer done on that ground which are unlawful. Of course, an employer will act through its agents, generally managers, and those acts may render it liable; but it is not vicariously liable for the lawful acts of its employees.

Endnote: reasons

For parties seeking to uphold the reasons of an employment tribunal, the Court of Appeal made observations about the nature of the reasons required. Elias LJ said (at paragraph 62):

“There is no need for a blow by blow rehearsal of the evidence, and indeed such an approach often obfuscates the issues rather than assisting the Tribunal to reach its conclusion. In addition, a Tribunal is entitled – and indeed should be encouraged – to explain its legal conclusions crisply and succinctly as this Tribunal did.”

Nevertheless, it considered that the Tribunal in that case could have said a little more on certain issues of the case, both to assist the Court of Appeal’s understanding of the tribunal’s reasoning, but also in order to demonstrate that the Tribunal had fully understood the claimants’ sense of grievance. The last point is perhaps a salutary reminder to Employment Judges that where they decide that no legal wrong has been done to an individual, there may still be a justified sense of grievance which warrants recognition.

Staying Tribunal Proceedings; Paymentshield Group Holdings Ltd –v- Halsted (2011) UKEAT/0470/11/DM

October 13th, 2011 by Simon Devonshire QC

Tribunals have usually been prepared to stay the statutory proceedings where the claimant has launched a parallel action in the High Court, and there is a considerable overlap between the two sets of proceedings.    Typically, it is said that the High Court is the more appropriate forum for the resolution of complex factual matters, and should not find itself embarrassed or constrained by the findings of the tribunal, particularly where the High Court action is the more valuable of the two claims.     Given the substantial expansion of the Tribunal jurisdiction over recent years, these ‘traditional’ assumptions will not always hold true, but the conventional approach recently received substantial endorsement by the EAT in Mindimaxnox LLP –v- Gover & Ors (HHJ McMullen; UKEAT/0225/DA), a case where the ex-employer relied on proceedings it had launched for declaratory and other relief in the High Court, to stay tribunal claims for unfair dismissal.  

In Paymentshield Group the same judge has gone a step further.   A tribunal claimant had also served a letter before action and draft particulars on his former employer.  By agreement, the tribunal proceedings were stayed.   The Claimant applied to have the stay lifted – he had not started his High Court Action and argued that he could only afford to do so with his tribunal award.   The Tribunal lifted the stay.   The EAT reinstated it.   It said that there was no difference in principle between a case where tribunal proceedings had been issued and a case where they had been threatened ina pre-action letter in accordance with the CPR.   The position would have been different had he not ‘uttered’ the letter before action – “he could have gone ahead with his employment tribunal case and the issues of concurrence, and embarrassment of the High Court would not have arisen, because it would be simply hypothetical” .

Can this really be right?   The EAT acknowledged that a respondent couldn’t keep the claimant out of the Tribunal for 6 years “just because he might possibly issue proceedings”.   Why should it make a decisive difference that he has issued a letter before action?   Why is this any different to the statutory claimant who expressly reserves the right to pursue his (valuable) contractual claims in the High Court in his ET1, but proceeds in the statutory forum first?   The High Court proceedings are more than ‘a glint in his eye’ (to use one of the touchstones identified by the EAT), but it is unlikely that the tribunal would stay in those circumstances.   Theoretically at least, the tribunal is intended to provide a forum for the prompt resolution of statutory employment claims, whereas the Limitation Act affords the employee a 6 year waiting period for pursuing his statutory claim.

What, then, are the ‘morals’.   An employee who wants to preserve his right to litigate in the tribunal first should be wary of taking any pre-action steps under the CPR to pursue his civil claim.   An employer who wishes to litigate in the High Court first, by contrast, might be well advised to consider forcing the issue by issuing some form of declaratory proceedings.   No doubt an employee would argue that a stay of tribunal proceedings should not be granted where the employer’s action is an obvious ‘spoiler’ (see, e.g., Charles Reynolds & Associates Ltd –v- Dand (1999) EAT/585/99).   However, such an argument would be more difficult to sustain where the employee had indicated an intention to launch High Court proceedings and the employer might justify his initiation of a civil action on the basis that he wanted to ensure that the resolution of the ‘senior’ claim was not compromised or embarrassed by the tribunal action.

Employers’ motives and the burden of proof

October 10th, 2011 by Patrick Halliday

In Gay v Sophos plc UKEAT/0452/10/LA Underhill P held that, while an employment tribunal had failed to refer to the burden of proof provisions in a claim for age discrimination, its positive findings meant that if the burden had been on the employer to show that its treatment of an employee was for reasons other than her age then that burden had been discharged.

Ms Gay was a senior employee aged 55.  She was dismissed for redundancy following a restructure.  She was not considered for any alternative roles; by contrast, younger colleagues affected by the restructure were offered alternative employment.  She claimed her dismissal was an act of direct age discrimination.  Her submissions before the Tribunal relied heavily on the reverse burden of proof:  where a complainant “proves facts from which the tribunal could… conclude in the absence of an adequate explanation that the respondent” has committed an act of discrimination then the tribunal shall uphold the complaint unless the respondent proves that he did not commit that act.  She submitted that age discrimination could be inferred from the more advantageous treatment received by her younger colleagues.

The Tribunal rejected her claim for age discrimination.  It made no reference to the burden of proof provisions in its reasons.  It did, however, reach positive findings as to various non-discriminatory reasons for Sophos’ failure to consider her for alternative employment:  her seniority meant she was an expensive employee; Sophos did not think she would be willing to consider a more junior role; and she had a bad working relationship with her manager.

Ms Gay appealed on the ground that the Tribunal had failed to apply the “reverse burden of proof”; it had not structured its decision by reference to the “two-stage” approach described in Igen v Wong [2005] ICR 931.  Underhill P was critical of the Tribunal for failing to refer to the burden of proof provisions, despite their centrality to Ms Gay’s submissions.  But he found that this failure did not render its decision wrong in law.  It is now well-established that a tribunal is not obliged to following the two-stage approach:  see Laing v Manchester City Council [2007] ICR 1519, at [71] – [77].  If, as here, the Tribunal makes a positive finding that the acts complained of were motivated by other considerations to the exclusion of the proscribed ground, that necessarily means that the burden of proof, even if it had transferred, has been discharged.

As long as the Tribunal reaches positive findings about the employer’s motives, then it matters little on whom the burden of proof may rest.

BIS hides their hand again

September 28th, 2011 by Sean Jones QC

One of the key passages in the BIS Second Statement of New Regulation contains one or two “drafting errors”. It now reads:

 “[The Government has] Consulted on changes to employment law that will give business the confidence to take on staff. We are proposing to increase the qualifying period for employees to be able to bring a claim for unfair dismissal from one to two years and we will be introducing fees for lodging employment tribunal claims to transfer the cost burden from tax payers to the users of the system.”

So, we are told, no final decision has been taken as to whether or not to increase the qualifying period. Form your own conclusions as to how meaningful any forthcoming consultation is likely to be. At the same time (and mysteriously) the justification for introducing fees for commencing tribunal claims has changed from discouragement of vexatious litigation to redistribution of the cost burden. That justification is the one that the Government led with when formulating the proposal for consultation. Note that there is no question that fees “will be” introduced.

Thanks to Daniel Barnett who winkled the information out of BIS.

BIS reveals its hand

September 28th, 2011 by Sean Jones QC

BIS has published its Second Statement of New Regulation. It can be found here: http://goo.gl/bD9aO (many thanks to Paul Callaghan at Taylor Wessing for the tip off). There are two points bound to catch the eye of Employment Lawyers. The first is a reinstatement of the two year qualifying period for unfair dismissal:

“To cut the regulatory burden facing British businesses the Government has …consulted on changes to employment law that will give business the confidence to take on staff. We are increasing the qualifying period for employees to be able to bring a claim for unfair dismissal from one to two years and introducing fees for lodging employment tribunal cases to tackle vexatious claims.”

 The one year period was introduced because the longer period was found indirectly to discriminate against women. It seems likely that there is going to be some close statistical scrutiny to be done in the near future. Indeed, the excellent agediscrimination.info are already on the case: http://goo.gl/DQASu.

Note, also the introduction of fees. This is supposed to “tackle vexatious claims”. One would need to know how much it was proposed to charge in order to assess the extent to which the fees will discourage commencement of claims but one can see an immediate difficulty with the rationale: the effect of a fee is to discourage claims from those who cannot afford the payment rather than specifically those who have unmeritorious claims. That means its greatest impact will be on the low-paid and recently dismissed; precisely those that the “informal” tribunal process was supposed to assist.

The second proposal of interest is:

 “[Consultation] on removing Equality Act requirements for businesses to take reasonable steps to prevent harassment of their staff by third parties. This is something that businesses have no direct control over and will save them £0.3 million.”

This is a puzzle. First, £300k seems a paltry saving to justify taking a step that will result in people being exposed unnecessarily to harassment in the course of their work. It’s the cost of an individual banker’s bonus spread across all employers in the country. Secondly, it is far from clear what BIS means by “this is something that businesses have no direct control over”. The point of the duty (EA 2010, s. 40(2)) is compel an employer to act where there is a sufficient degree of control. The duty is, in any event, set very low and only requires an employer to take such steps as are “reasonably practicable”.

The ECJ’s judgment in Williams v British Airways: light or confusion?

September 16th, 2011 by Julian Milford

The ECJ yesterday (15 September 2011) delivered its eagerly-awaited judgment in Williams v British Airways C-155/10 on the meaning of the phrase “paid annual leave” in the Aviation Directive (Directive 2000/79/EC) and the Working Time Directive (Directive 2003/88/EC). Christopher Jeans QC of 11KBW appeared for British Airways in the ECJ (as he had in the domestic courts). The judgment is potentially of huge importance. Unfortunately, it is also a classic example of ECJ opacity.

The particular dispute in Williams concerns how payment for annual leave should be calculated for British Airways pilots under the Civil Aviation (Working Time) Regulations 2004 SI/2004/756 (“the Aviation Regulations”).  Nevertheless, the issues at stake in Williams go much wider than the calculation of leave payments for pilots. The relevant wording of the Aviation Directive, to which the Aviation Regulations give effect, is identical to that of the Working Time Directive (“WTD”). Both the Supreme Court (referring the matter to the ECJ, [2010] IRLR 541), and now the ECJ itself, have accepted that the phrase “paid annual leave” must have an identical meaning in both Directives. So the ECJ’s judgment is of the widest significance for workers and employers across the piece.

The claimant pilots in Williams had 3 elements to their pay: basic pay, a flying pay supplement (“FPS”) varying according to the time spent flying, and a “time away from base allowance” (“TABS”), some of which is treated as referable to expenses, and some of which is treated as remuneration and is taxable. British Airways calculated holiday pay on basic pay only. The claimants said that FPS and the taxable element of TABS should be taken into account too under the Aviation Regulations. Their pay during annual leave should, they said, correspond to their pay while at work.

This issue arose in the aviation context because the Aviation Regulations state simply that pilots should receive “paid annual leave”, without stating how payment should be calculated. So British Airways said that all the Aviation Regulations and Aviation Directive required was for workers to be paid at a level which did not discourage them from taking annual leave, which had happened. Alternatively, if the Aviation Directive did require pilots’ pay for annual leave to be comparable to pay during periods of work, the question of comparability was left to national states to determine. The Aviation Regulations did not define what “comparable” pay would be: so, said BA, there was no basis for the court to write in its own definition.

The Supreme Court referred to the ECJ questions about whether the Directives required pay at any particular level, and if so, at what level, and how it should be calculated.

The ECJ, giving judgment, says that the phrase “annual leave” means that a worker should receive his or her “normal remuneration” for the period of rest (applying dicta in Robinson-Steele C-131/04 [2006] ECR I-2531): see [19]. That means the worker should be put in a position as regards pay which is “comparable to periods of work”.

However, the question of what “normal remuneration” means in practice for workers whose pay is composed of a number of different elements is in many respects unclear from the judgment.

The ECJ said, first of all, that pay for annual leave should include “any inconvenient aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration”: see [24] of the judgment. It is not clear what the Court means by “any inconvenient aspect”. Nevertheless, it would seem that payments for time spent flying (e.g. FPS) would count: [24].

The ECJ then said that by contrast, elements of remuneration need not be taken into account if they are “intended exclusively to cover occasional or ancillary costs arising at the time of the performance of the tasks which the worker is required to carry out under his contract of employment, such as costs connected with the time that pilots have to spend away from base”: [25]. This paragraph appears to relate to TABS. It is, however, not clear whether it relates only to the expenses element of TABS, or to TABS as a whole.

Finally, the ECJ said that it was for the national court to assess the “intrinsic link” between the various components making up a worker’s remuneration, and the tasks he was required to carry out. That assessment, said the court, must be carried out on the basis of a “reference period which is judged to be representative”: [26]. But the court did not specify what such a reference period might be – 12 weeks, a year, or something else.

It is amply apparent from the judgment that a lot remains up for grabs both generally as regards the interpretation of the Directives, and in the Williams litigation. True it is, the ECJ’s judgment implies that FPS (and arguably the non-expenses element of TABS) should be factored into pay for annual leave. However, British Airways may be expected to argue on remission to the Supreme Court that devising detailed rules on what paid annual leave should consist of for the purposes of the Aviation Directive is a matter for Parliament, not the courts, and that the interpretative principle in Marleasing[1] does not enable the courts to invent a scheme when so much has been left unclear by the ECJ.

For those outside the airline industry, the more urgent question is what the Williams judgment means for the calculation of annual pay under the Working Time Regulations 1998 (“WTR”), which implement the WTD in domestic law.

Regulation 16 of the WTR states that a worker is entitled to be paid in respect of any period of annual leave to which he is entitled under the WTR at the rate of “a week’s pay in respect of each week of leave”. Regulation 16(2) WTR applies ss.221-224 Employment Rights Act 1996 (“ERA”) for the purposes of determining what “a week’s pay” consists of.

Williams casts doubt on whether the application of the detailed statutory scheme in ss.221-224 ERA is consistent with the overarching requirement that a worker receive “normal remuneration” for annual leave, which is “comparable to periods of work”. There are several areas where it could potentially be argued that reg.16 WTR does not meet the test of comparability. For example:

(1)   Where an employee has “normal working hours”, only overtime that is compulsory and guaranteed counts in computing a week’s pay for the purposes of reg.16 WTR: see Bamsey v Albon Engineering and Manufacturing plc [2004] IRLR 457. But workers who customarily work long periods of non-contractual overtime may say that this is part of their “normal remuneration” on the basis of Williams.


(2)   Where an employee is paid on the basis of commission, substantial elements of actual remuneration may not be included in the calculation of a “week’s pay” for the purposes of reg.16 WTR. This will happen, for example,  when commission is not paid on the basis of the amount of work done, but on sales achieved: see e.g. Evans v The Malley Organisation (t/a First Business Support) [2003] ICR 432. Query, however, whether this is consistent with Williams.


(3)   Discretionary bonuses will also be excluded from the calculation of a “week’s pay”. Again, it may be argued that this fails the test of comparability.


Plainly, therefore, complex questions arise on the interplay between Williams and the domestic law on payment for annual leave, contained in reg.16 WTR. The answers to those questions, too, may differ for the private and public sector. Even if Williams is inconsistent with reg.16 WTR, private sector employers would have strong arguments that the detailed scheme in reg.16 WTR could not be interpreted consistently with the WTD on Marleasing principles. For the public sector, however, the question may arise whether Article 7 of the WTD is directly effective against emanations of the state. The parties in Williams both agreed that it was not: but the issue was not argued out. It would be surprising if it did not rear its head again. Williams is likely to be the beginning of a long-running saga with potentially very significant financial consequences: watch this space.

Peter Walington QC and Julian Milford

[1] I.e. the principle that courts and tribunals are required, so far as possible, to interpret national law in the light of the wording and purpose of any relevant EU directive: Marleasing SA v La Comercial Internacional de Alimentacion SA C-106/89 [1992] 1 CMLR 305.

Misconduct dismissal

September 15th, 2011 by James Goudie QC

Employees are dismissed for serious misconduct by their private employer.  If the State does not annul the dismissal, may the State be liable to the employees for breach of the European Convention of Human Rights (“the ECHR”)?

This is the question which arose in Sanchez v Spain, in which the Grand Chamber of the Strasbourg Court gave Judgment on 12 September 2011.  The majority of the Court held that the Spanish State had not failed to fulfil its obligations.

Mr Sanchez and five other applicants worked for a company in Catalonia.  They published a cartoon and an article in a Trade Union newsletter.  They complained unsuccessfully to the Barcelona Employment Tribunal and on appeal that, on the pretext of the content of the newsletter being offensive about other employees of the company, they were being dismissed for Trade Union activities.

They alleged breach of Article 10 of the ECHR: freedom of expression; and also of Article 11: freedom of association.

The Strasbourg Court considered not only the relevant Spanish law and its own ECHR jurisprudence, but also relevant International Instruments and Practice, from the International Labour Organisation and the Inter-American Court of Human Rights, and elements of comparative law.

The Strasbourg Court noted that the facts of the case were such that the question of freedom of expression was closely related to that of freedom of association in a trade-union context.  The Court reiterated in that connection that the protection of personal opinions, as secured by Article 10, is one of the objectives of freedom of assembly and association, as secured in Article 11.

However, the Employment Tribunal and the High Court on Appeal had concluded that the applicants’ trade union activities did not play a decisive role in their dismissal.  The Strasbourg Court therefore found it more appropriate to examine the facts under Article 10, which would nonetheless be interpreted in the light of Article 11.

The Court set out the general principles in matters of freedom of expression.  Freedom of expression constitutes one of the essential foundations of a democratic society and one of the basic conditions for its progress and for each individual’s self-fulfilment. It is applicable not only to “information” or “ideas” that are favourably received or regarded as inoffensive or as a matter of indifference, but also to those that offend, shock or disturb. Such are the demands of pluralism, tolerance and broadmindedness without which there is no “democratic society”. This freedom is subject to exceptions, which must, however, be construed strictly, and the need for any restrictions must be established convincingly. Moreover, Article 10 protects not only the substance of the ideas and information expressed but also the form in which they are conveyed.

The Court continued, however, that account must nevertheless be taken of the need to strike the right balance between the various interests involved. Because of their direct, continuous contact with the realities of the country, a State’s Courts are in a better position than an International Court to determine how, at a given time, the right balance can be struck. For this reason, in matters under Article 10, States have a margin of appreciation in assessing the necessity and scope of any interference in freedom of expression, in particular when a balance has to be struck between conflicting private interests.  That margin goes hand in hand with European supervision.   The Court’s task in exercising its supervisory function is not to take the place of the national authorities but rather to review, in the light of the case as a whole, whether the decisions they have taken pursuant to their power of appreciation can be reconciled with the ECHR provisions relied upon.

The Court said that a Trade Union that does not have the possibility of expressing its ideas freely would be deprived of an essential means of action. Consequently, for the purpose of guaranteeing the meaningful and effective nature of trade union rights, the national authorities must ensure that disproportionate penalties do not dissuade Trade Union representatives from seeking to express and defend their members’ interests. However, Article 10 does not guarantee an unlimited freedom of expression.  The protection of the reputation or rights of others, in the present case the reputation of the persons targeted in the drawings and texts at issue, constitutes a legitimate aim permitting a restriction of that freedom of expression.

The Court then went on to consider the positive obligations of the respondent State under Article 10, read in the light of Article 11.  The genuine and effective exercise of freedom of expression does not depend merely on the State’s duty not to interfere, but may require positive measures of protection, even in the sphere of relations between individuals. In certain cases the State has a positive obligation to protect the right to freedom of expression, even against interference by private persons   Although in the present case, the measure complained of by the applicants, namely their dismissal, was not taken by a State authority but by a private company, and the disciplinary measure of dismissal for serious misconduct was taken against the applicants by their employer, and was not the result of direct intervention by the national authorities, the responsibility of the authorities would nevertheless be engaged if the facts complained of stemmed from a failure on their part to secure to the applicants the enjoyment of the right enshrined in Article 10.   In those circumstances, the Strasbourg Court found that it was appropriate to examine the applications in terms of the positive obligations of the respondent State under Article 10, in the light of Article 11. The Court therefore ascertained whether, in the present case, the Spanish judicial authorities, in dismissing the applicants’ claims, adequately secured their right to freedom of expression in the context of labour relations.

Applying those principles to the case, the Court noted that the principal question was whether the respondent State was required to guarantee respect for the applicants’ freedom of expression by annulling their dismissal. The Court’s task was therefore to determine whether, in the light of the case as a whole, the sanction imposed on the applicants was proportionate to the legitimate aim pursued and whether the reasons given by the national authorities to justify it were “relevant and sufficient”.

The Strasbourg Court took the view that the grounds given by the domestic Courts were consistent with the legitimate aim of protecting the reputation of the individuals targeted by the cartoon and texts in question, and that the Courts’ conclusion that the applicants had overstepped the limits of admissible criticism in labour relations could not be regarded as unfounded or devoid of a reasonable basis in fact.  The Strasbourg Court also took the view that the sanction of dismissal was proportionate to the degree of seriousness of the impugned remarks.  In the particular circumstances of the case, the measure of dismissal taken against the applicants was not a manifestly disproportionate or excessive sanction capable of requiring the State to afford redress by annulling it or by replacing it with a more lenient measure.

James Goudie QC

The Trust and Confidence test, “reasonable and proper cause” and repudiation

August 23rd, 2011 by Julian Wilson

The meaning and application of the words “without reasonable and proper cause” in the Malik formulation of the implied term of trust and confidence continue to cause confusion.

In The Hira Company Limited –v- Daly UKEAT/0135/10/RN, the EAT was faced with an appeal by the employer from a majority Tribunal decision where the Employment Judge had been in the minority.  The majority had held that a salesman had been constructively dismissed in breach of the implied trust and confidence term when his ability to earn commission from his customers had been seriously damaged by the conduct of his employer.  

The employer had delivered faulty goods to one of the employee’s customers as a result of supplier fault. The employer had made late deliveries to one of the employee’s customers because it had delayed an order to avoid an unfavourable exchange rate. The employer had diverted a delivery intended for a customer of the employee to another customer to avoid a penalty. The employer had transferred a major customer account of the employee to his colleague when the customer had requested it.  Each of these acts were done for good business reasons and had not been motivated by any ill will towards the employee but they were seriously damaging to the employee’s ability to earn commission. 

The Employment Judge, in the minority, had considered that because there were sound commercial reasons for the employer’s conduct and it was not directed against the employee and was not in breach of any express contractual term, there had been no breach of the implied trust and confidence term because the employer’s acts had “reasonable and proper cause”. The employer argued on appeal that the Employment Judge had adopted the correct approach and the majority had been wrong.

The EAT dismissed the appeal, holding that the Employment Judge had been in error in focusing on the employer’s intention and motive. The minority had directed themselves correctly as regards the Malik/Mahmud test and had been right to focus on the objective effect of the employer’s acts on the employee and their impact on his remuneration. The Employment Judge had been wrong to find that the commercial reasons for the employer’s conduct and absence of any contractual obligation requiring the employer to keep the employee on the major customer account and requiring the employer to pay commission in respect of late deliveries, goods returned as faulty or orders postponed, established “reasonable and proper cause” for the conduct. The Judge had failed to consider objectively the impact of the employer’s conduct on the employee.

Employees, Shams and the Supreme Court

July 28th, 2011 by Christopher Knight

One of the most vexed questions Tribunals have to deal with on a regular basis is the characterisation of the claimant in front of them: are they an employee, a worker or are they self-employed? Interpreting the situation where the contractual documents have left the issue of status unanswered is one thing, but it is instinctively more difficult to go behind clear terms of an agreed contract. Where the business and the individual have agreed particular terms, such as the right to substitute performance or the right to decline offered work, why should the Tribunal rewrite that agreement?

The Supreme Court has answered that question very firmly. In Autoclenz Ltd v Belcher [2011] UKSC 41 Lord Clarke, giving the only judgment, stressed that the inequality of bargaining power in the employment context means that a purposive approach is necessary: at [33]-[35]. Employment contracts are different to ordinary commercial contracts, and the principles do not read across: at [21]. This conclusion will come as no surprise to watchers of the Court, because precisely the same refusal to apply ordinary contractual case law to the employment concept of the effective date of termination was seen in Gisda Cyf v Barrett [2010] UKSC 41; [2010] ICR 1475.

Practitioners faced with a potential ‘sham agreement’ case will still wish to focus their attention on the triumvirate of cases consisting of: Consistent Group Ltd v Kalwak [2007] IRLR 560, EAT; Firthglow Ltd (t/a Protectacoat) v Szilagyi [2009] EWCA Civ 98; [2009] ICR 835; and Autoclenz in the Court of Appeal [2009] EWCA Civ 1046; [2010] IRLR 70. The Supreme Court essentially quoted large parts of the Court of Appeal judgments in Autoclenz and added the words “I agree”. However, by virtue of status, Lord Clarke was able to formally approve the reasoning of Elias J in the EAT and disapprove that of Rimer LJ in the Court of Appeal in Kalwak, resolving a clear disagreement which Smith LJ had had to fudge in Protectacoat. All three of those earlier cases were expressly approved by Lord Clarke, along with their willingness to approach ‘sham clauses’ with a broader brush than simply applying the well-known decision in Snook v London and West Riding Investments Ltd [1967] 2 QB 786.

The question for the Tribunal is always what the true agreement between the parties was: at [29]. In order to discover this, the Tribunal must look to the realities of the situation and the actual legal obligations of the parties: at [30], [32]. The written agreement is just one of the circumstances of the case to be considered: at [35]. The Court agreed that the findings of the Tribunal meant that certain terms had been agreed, and those terms were indicative of a contract of employment rather than being a worker or self-employed. The prior suggestion of HMRC to the contrary was not a factor to be given any significant weight.

So where are we after Autoclenz in the Supreme Court? In terms of the development of the law, not a great deal further than after the Court of Appeal decision. No significant new reasoning appears out of the appeal. However, the law is clearer in that the highest court has given very clear approval to the line of reasoning in Kalwak, Protectacoat and Autoclenz. Employment contracts are not commercial contracts. A more inquisitive approach must be taken by the Tribunals to establish the true agreement between the parties, and whether the outcome of that agreement is the status of employee, worker or self-employment.

For those wishing to match this discussion with the relevant analysis in Tolley (2010), please refer to paragraphs 17.3 and 47.2c.

BGC v Tullett, number 2

July 27th, 2011 by Simon Devonshire QC

In the widely reported case of Tullett Prebon & Ors –v- BGC & Ors [2010] EWHC 484, the High Court concluded that BGC had unlawfully poached some 10 brokers form Tullett Prebon’s Treasury Division in London, including four brokers from Tullett Prebon’s Forward Cable Desk.   Mr Justice Jack’s judgment was upheld on appeal ([2011] EWCA Civ 131), and Tullett’s damages claim was settled on confidential terms following some 4 weeks of contested evidence in March of this year.    Sir Raymond Jack has now given judgment in a follow on claim by BGC ([2011] EWHC 2009 (QB)), accusing Tullett of procuring breaches of contract by one of BGC’s employees, Peter Rees.

At the time of BGC’s poaching raid on Tullett’s Treasury Division (March 2009), Mr Rees was working as a forward Swiss trader for BGC in Nyon, Switzerland.   He was (as the Court found) the disaffected head of a failing and disintegrating ‘Swiss’ desk.   At the end of March 2009 he had his salary cut by 66%, under a performance adjustment clause in his contract.   He received advice from Swiss lawyers that this cut was unlawful and resigned on 6th April 2009.   He was recruited by Tullett Prebon to work on its Forward Cable Desk (filling vacancies created by BGC’s poaching raid), where he started in mid May 2009.    BGC alleged that Mr Rees had breached his contract in leaving early (he had 29 months of his Initial Term still to run) and had breached his PTRCs by working for Tullett.   BGC alleged that Tullett had procured those breaches.

The Court found that the salary cut was lawful and Mr Rees was not justified in resigning; he had been unfortunate to be wrongly advised by his Swiss Lawyers.   However, his early departure had caused BGC to suffer no loss, and he had not acted in breach of his PTRCs to any material extent, applying Swiss Law.   He was, however, obliged to repay a ‘forgivable loan’ (effectively a loyalty or signing payment he received on joining, but repayable in the event of early termination).

Of more interest in the context of business protection and recruitment disputes is the Judge’s handling of the procurement claims against Tullett.   He rejected the claim that Tullett had procured Mr Rees breaches in recruiting and employing him.   Tullett “only took him [Mr Rees] on once [it] had established, to the best of its legal department’s ability, that [it] was free to do so”.   So Tullett did not have the necessary intention, following the guidance given by the House of Lords in OBG.    In any event, BGC had failed to show any loss (a constituent element of the procurement cause of action).   The Judge rejected BGC’s claim that it was entitled to Wrotham Park or transfer fee damages for Tullett’s recruitment of Mr Rees – these were “not available as a substitute for conventional damages to compensate a claimant for damages he has not suffered.   Nor should it be used to award a larger sum than a conventional calculation of loss provides”.   Given his other findings, the Judge did not need to address the dispute between the parties as to the extent to which the alleged procurement had been causative of the breach, but expressed the (obiter) view that “if a contract would have been broken by a party to it whether or not the conduct relied on as inducement had taken place, it cannot properly be said that the breach was induced or procured by the conduct.   Neither can the other party say that his losses were caused by that conduct because they would have occurred in any event”.   

Public Service Appointments

July 19th, 2011 by James Goudie QC

In Permanent Secretary and Prime Minister Patrick Manning v Ramjohn and Prime Minister Patrick Manning v Kissoon the Privy Council on 18 July 2011 upheld Judgments of the Trinidad and Tobago Court of Appeal that the Prime Minister had acted unfairly in appointing Ms Ramjohn to a posting to the High Commission in London and then, before she had assumed the duties of the office, and without giving any reasons, revoking the appointment; and that the Prime Minister had acted contrary to the rules of natural justice in vetoing Mr Kissoon’s appointment, proposed by the Public Services Commission, as a Head of Department.  In neither case was the process by which the respective decisions came to be taken a fair one.

             In Ms Ramjohn’s case Lord Brown said, at para 31:

             “On the face of it, nothing could be clearer than that the sudden revocation of a person’s foreign posting on grounds of suspected criminality without the person concerned being told of the allegation and given an opportunity to respond … is unfair.”

             The Privy Council distinguished the Court of Appeal decision in R (Tucker) v Director-General of the National Crime Squad [2003] ICR 599.  Lord Brown said, at para 39:

             “Almost always … if a decision is to be taken against someone on the basis of an allegation such as that made here, fairness will demand that they be given an opportunity to meet it.”

             As regards the Prime Minister exercising his veto against Mr Kissoon’s proposed promotion, the Privy Council accepted that the power of veto is subject only to comparatively narrow limitations and that the obligation to act fairly must be viewed in that light.  However, Lord Brown said, at para 45:

             “Clearly the veto power is subject to constitutional rights – the right to equal treatment, for example – and clearly it must not be used for a collateral purpose. … the veto could properly be exercised to prevent the promotion of a candidate whom the Prime Minister regarded as unsuitable for appointment on other than political grounds. If, obviously, the ground of objection was some specific allegation – as in Ms Ramjohn’s case – then fairness would require that it be put to the candidate. But if the Prime Minister was objecting on general grounds involving no particular “case” against the candidate, fairness would not demand any advance notice of the veto.”

             Lord Brown continued, at para 46:

             “It follows from this that the challenge to the fairness of the Prime Minister’s decision process here cannot be on the basis of a failure to give Mr Kissoon the opportunity to meet the ground of objection in advance. Rather it is that to this day Mr Kissoon does not know what, if any, ground of objection the Prime Minister had to his appointment … That seems to the Board clearly unfair …”

             The Privy Council distinguished McInnes v Onslow-Fane [1978] 1 WLR 1520, on the basis (para 48) that Mr Kissoon’s case concerned “the exercise of a veto against the proposed appointment of a candidate successful in a competitive selection process for promotion to senior public office.  …such a person must surely have an expectation of being fairly treated, not least where, as here, he knew that he had topped the promotion interviews and been recommended for the office”.

             Lord Brown concluded, at para 52:

             “There is no question here of the Prime Minister having acted otherwise than in good faith in each case. The Board’s decision is simply that in the very particular circumstances of these two cases, on the evidence put before the reviewing courts, the decision-making processes can be seen to have been unfair to the respective officers concerned. This judgment should certainly not be regarded as a charter for those disappointed in their applications for public service appointments routinely to challenge the process. On the contrary, only exceptionally is it likely that such challenges will succeed.”


News of the World: a closure without closure? Will the stigma last?

July 8th, 2011 by admin

The closure of the News of the World leaves its employees facing an uncertain future. It does not take News International’s own Mystic Meg to predict that that future will inevitably involve litigation. But what is the legal landscape and what claims can we expect?

The publicly reported position of News International is that it “failed to get to the bottom of repeated wrongdoing that occurred without conscience or legitimate purpose”. In a statement to NOTW staff yesterday, James Murdoch announced that the NOTW appeared to have been “sullied by behaviour that was wrong”, even “inhuman”. If the ongoing police and internal investigations confirm that there was serious wrongdoing at the NOTW, the Courts will need to decide whether the wrongdoing was so serious, substantial and systematic that the NOTW’s business as a whole was tainted.

The case-law is clear. If senior employees systematically carry on dishonest operations within what is otherwise a lawful and legitimate business, their conduct may amount to a fundamental breach of all employees’ contracts and thus give rise to claims for damages.

The starting point is the ground-breaking Malik v BCCI litigation in the late 1990s. The House of Lords found that employers owed an implied contractual obligation to their employees not to run a corrupt and dishonest business, as an aspect of their overarching obligation to foster mutual “trust and confidence” (which is a feature of all employment contracts in the UK). This opened the door for the first time to claims for “stigma damages”. If an employer did run a corrupt and dishonest business, and if it was reasonably foreseeable that innocent employees would suffer a measurable handicap in the job market as a result of the cloud of corruption and dishonesty hanging over them, those employees could seek “stigma damages” as compensation for any proven continuing financial loss.

If the allegations of widespread wrongdoing at the NOTW are proven in the inquiries, criminal and civil cases to follow, employees may assert that the NOTW has conducted a dishonest and corrupt business and claim damages if the stigma of that corruption blights their attempts to seek new employment. For NOTW’s part, it will want to head off any such claims by, amongst other things, taking steps at an early stage to mitigate any risk of stigma to former employees.  

Stigma claims are not the only legal avenue likely to be explored. If media rumours as to a “Sunday Sun” prove true some lucky staff may be redeployed and need do no more than scratch out “News of the World” on their business cards and write in the name of the new paper. If the new venture turns out to be the old paper with a new name, it raises difficult questions as to whether other staff can argue  that they become employees of the “Sunday Sun” automatically under a TUPE transfer.

Alternatively, the employees may face a period of collective redundancy consultation followed by unemployment or – if media rumours are true – a pay-out in respect of the 90 day period during which the NOTW was obliged to consult openly with its employees. It may be difficult to see how any consultation could be conducted with an open mind now that it has been announced that the NOTW will definitely close. But if employees don’t sign up to compromise agreements, and if the NOTW ignores its obligations under long-established redundancy legislation there will be some interesting legal questions. Was there an alternative to closing the paper entirely? Would it have been sufficient if senior heads had rolled? Can the NOTW say that exceptional circumstances made consultation impossible? These issues may also have an impact on the likely success of individual unfair dismissal claims.

The extraordinary circumstances which have given rise to the closure of the NOTW will provide fertile ground for lawyers. That will come as little comfort to those NOTW employees facing the prospect of imminent unemployment.



July 8th, 2011 by admin

Welcome to the new 11KBW Employment Law blog. We appreciate that the blogosphere is not short of sources for Employment Law news, so what makes us worth a bookmark? We aim to offer you detailed commentary on the most important cases from barristers who are acknowledged leaders in the field. You will also find links to podcasts each of which carry CPD accreditation and come entirely free of charge. Finally, for those of you who rely, as we do, on Tolleys Employment Handbook as your Tribunal weapon of choice you will find articles cross-reference d to the relevant chapter in Tolleys, helping you put developments  in their larger context.

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