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.

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.

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.

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

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).

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.

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.

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.”

JAMES GOUDIE 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.

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.

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.

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.

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.

 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.

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
why 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
cases;

(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
conveniens 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.

JULIAN MILFORD

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 31^st 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
justified.

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.

Analysis

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
National [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.

Conclusion

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.

PAUL NICHOLLS

11KBW

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.

Sean Jones talks to People Management about where witnesses go wrong, at the CIPD Annual Conference and Exhibition 2011 in Manchester- click here

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 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 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.

DANIEL OUDKERK QC, JULIAN WILSON, SEAN JONES, AMY ROGERS, 11KBW