Employment law update

Transcription

1 Employment law update April 2004 An update on recent UK caselaw Implied terms: recent caselaw We begin this Employment Update by looking at the Court of Appeal judgment in the case of Crossley v Faithful & Gould Holdings Ltd. In a recent Update we looked at the scope of the implied term owed by any employer to safeguard the health of an employee (see Arriva Retailing PLC t/a Arriva Vauxhall Leamington Spa v Mrs J Heath [2004]). The Crossley case examines the duties employers owe to employees in terms of whether any implied term exists to protect the wealth/financial well-being of an employee. Contents Implied terms: recent caselaw 1 Agency workers and employment status 3 Unfair dismissal and damages for non-pecuniary loss 4 Mr Crossley was a long-standing senior employee and director of his employer's company. Under the terms of his contract of employment, he was a member of the company's Long Term Disability Insurance Scheme ("the Scheme"). Under the Scheme, as long as he remained in the company's employment, he was entitled, as of right, to benefits in the event that he was "totally unable by reason of sickness to follow his occupation". After the termination of his employment with the company, benefits were payable at the discretion of the Scheme provider. Following ill health due to depression, Mr Crossley applied for early retirement. Mr Crossley discussed this course of action with members of the company's management and submitted a letter of retirement. However, under his contract, the effect of the termination of his employment was that he ceased to be entitled to benefits under the Scheme as of right, and became instead entitled to receive discretionary benefits. In the exercise of its discretion, the Scheme provider paid benefits for only a short time following his retirement. Subsequently, the company made it clear that it would have been content for Mr Crossley to remain on its books as an employee, albeit on indefinite sick leave, for the purposes of receiving benefits under the Scheme. Mr Crossley's case came to the Court of Appeal, the previous hearing in the High Court having rejected his claim. Mr Crossley's case rested on the assertion that the company acted in breach of an implied term of the contract of employment requiring it to take reasonable care for his economic well-being. The company had allegedly given him poor advice and had not warned him of the effects of resignation on his Scheme benefits.

2 The Court's decision was based partly on a review of previous caselaw, notably previous decisions of the House of Lords in Scally v Southern Health and Social Services Board [1992] and Spring v Guardian Assurance Plc [1995]. Following this review, the Court of Appeal held that the law has not reached a stage at which it can be said that, in the contractual relationship between employer and employee there is an implied obligation on the employer to exercise reasonable care for the latter's economic well-being. The Court was happy to acknowledge that in recent years the common law has evolved in the area of implied terms. However, these developments had only imposed certain duties on employers beyond the duty to take reasonable care to protect the physical well-being of their employees. The Court of Appeal rejected Mr Crossley's claim on the basis that it would take, in its own words, "a big leap to introduce a major extension of the law in this area when only comparatively recently the House of Lords declined to do so". In addition, such an implied term would impose an unfair and unreasonable burden on employers. The Court pointed out that if an employer assumes the responsibility, for example, for giving financial advice to his employees, he is under a duty to take reasonable care in the giving of that advice (see Lennon v Commissioner of Police of the Metropolis CA, [2004]). It is quite a different matter, the Court said, to impose on an employer the duty to give its employees financial advice in relation to benefits accruing from their employment, or generally to safeguard the employee's economic well-being. This decision is reassuring for employers in that it helps to clarify one aspect of the complex area of implied duties. The Court clearly recognised that the law in this area is evolving but that such an economic duty is as yet beyond its scope. Employers should however be aware of the Lennon principle that if the employer does assume positive responsibility for aspects of pension and investment advice to employees, a duty of reasonable care in such circumstances is to be expected. Agency workers and employment status The arguments over who is or is not an "employee" for the purpose of obtaining access to statutory employment rights, such as unfair dismissal, has intensified over the last few years. Traditionally, employment agency "temps" were not employees under a contract of service. Recently, a series of cases has undermined this presumption. The courts have therefore been faced with several options in deciding the status of agency workers (1) are they an employee of the employment agency? (2) an employee of the client (the end-user) of an employment agency? or (3) not an employee at all? This was the dilemma facing the Court of Appeal in Brook Street Bureau v Dacas CA [2004]. The employment legislation is not at all helpful in deciding whether an individual has a contract of service. The courts have therefore filled the gap in the legislation by devising a series of tests which they apply to each disputed case. In this case, the decision on whether the applicant had a contract of service and was therefore 2

3 an employee under the Employment Rights Act 1996 ("ERA"), was a preliminary question prior to deciding whether a claim for unfair dismissal could proceed. The case concerned the status of a cleaner, Mrs Dacas, who obtained, through the Brook Street employment agency, four years of regular paid work with one end-user, Wandsworth Council ("the Council"). Initially, the Employment Tribunal ("tribunal") held that (a) the applicant's written contract with the employment agency was not a contract of service and (b) there was no contract between the applicant and the Council. Mrs Dacas appealed against finding (a), not against finding (b). The Employment Appeal Tribunal ("EAT") disagreed with the tribunal on finding (a), holding that the applicant worked under an express written contract with the agency, which was properly construed as a contract of service. The Court of Appeal reviewed the facts of the case. Mrs Dacas worked exclusively at a mental health hostel run by the Council. The Council, via the management at the hostel, exercised day-to-day control over her, supplied her with cleaning materials, equipment and an overall. Mrs Dacas worked prescribed hours from 8.30 am to 5.30 pm five days a week on a two week rota. Brook Street's responsibilities related to payments made for time actually worked on site and calculated in accordance with an agreed schedule of rates. Staff supplied by the agency had to follow the work routine set out for them by the person in charge of the establishment where they worked, carry out designated tasks as instructed and adhere to safe working practices. Punctuality was essential. The agency was also responsible for ensuring that the staff supplied should know the exact location of the workplace, starting and finishing times and the name of the person to report to on arrival. The Court of Appeal then examined some general principles that should be considered in cases involving employment status, including: in deciding whether it has jurisdiction to hear and determine a claim for unfair dismissal, a tribunal must decide whether the applicant has a contract with the named respondent (in this case, the agency) and, if so, whether it contains the key element of "mutual obligation" (see below). In the absence of a contract, or of a contract having those features, the applicant cannot qualify as an employee, even though it may well seem surprising on the other evidence, not to regard the applicant as an employee; if there is an "irreducible minimum of mutual obligation necessary for a contract of service", i.e. an obligation to provide work and an obligation to perform it, coupled with the presence of control (e.g. the work of the employee is directed and controlled by the employer): see Carmichael v National Power Plc [1999]. In the Brook Street case, the court held that the objective fact and degree of control over the work done by Mrs Dacas at the hostel over the years was crucial. The Council in fact exercised the relevant control over her work and over her. As for mutuality of obligation, (i) the Council was under an obligation to pay for the work that she did for it and she received payment in respect of such work from Brook Street, and (ii) Mrs Dacas, while at the hostel, was under an obligation to do what she was told and to attend 3

4 punctually at stated times. As for the dismissal, it was the Council that was entitled to take and in fact took the initiative in bringing to an end the work done by her at the hostel. But for the Council's action she would have continued to work there as previously. The Court also looked at caselaw such as Montgomery v Johnson Underwood [2001], which supported Brook Street's position in the current case. The court in Montgomery held that the applicant was not employed by the employment agency which exercised no control over the work to be done by the applicant as a part time receptionist/ telephonist for the end-user. Applying the criteria laid down in Ready Mixed Concrete v Minister of Pensions [1968], the court held in Montgomery that, in the absence of a framework of control, direction or supervision by the agency, there was no contract of service with it. Thus, the court in Brook Street decided that there was no contract of service between the agency and Mrs Dacas. Though not asked to make the decision as to whether the Council as end user was the employer in this case, the Court of Appeal strongly suggested that this was the position by virtue of an implied contract for service existing between the agency worker and the end user, as it stated in its judgment: "the general outcome of such cases, which would accord with practical reality and common sense, would be that, if it is legally and factually permissible to do so, the applicant has a contract, which is not a contract of service, with the employment agency, and that the applicant works under an implied contract, which is a contract of service, with the end-user and is therefore an employee of the enduser with a right not to be unfairly dismissed." This case clearly highlights to employers the continuing risks in this area. Using agency workers as a means of avoiding the legal requirements of an employer/employee relationship is no longer a safe option in many circumstances. Given the developments in flexible working practices and the new employment regulation in this area, it is important that employers obtain legal advice on the make-up of their workforce and the legal formalities required, as well as having an eye to possible liabilities to that workforce. Drawing a line between those who are employees (and so have statutory employment rights) and those who are not entitled to statutory employment protection has become more, rather than less, difficult as relationships within the workplace become more complex and diverse. Unfair dismissal and damages for non-pecuniary loss The debate around the scope of damages for unfair dismissal has taken another turn following the decision of the Court of Appeal in Dunnachie v Kingston upon Hull City Council [2004]. Under s.123(1), ERA 1996, compensation for unfair dismissal is to be "such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer". 4

5 Until recently the caselaw authority followed the approach that such statutory compensation covered quantifiable pecuniary losses. This shadows the approach taken by the common law (see Addis v Gramophone Co Ltd [1909]) to damages for breach of contract. The House of Lords, in the Johnson v Unisys [2001] judgment, opened the door to changing this approach as regards statutory compensation and the Court of Appeal has followed their reasoning. In this case, Mr Dunnachie's resignation on a month's notice in March 2001 was brought about by a prolonged campaign of harassment and undermining on the part of a colleague and line manager. The tribunal had found that there was the clearest evidence of a breach of the implied term of mutual trust and confidence and that Mr Dunnachie had been constructively and unfairly dismissed. The Court of Appeal summarised it as "a bad case of workplace bullying, compounded by an equally serious refusal by management to deal with it". The Court of Appeal studied the relevant precedents closely and came to the following conclusions: compensation for non-economic loss brought about by the manner of an unfair dismissal (NB. not the fact of such a dismissal) is, in principle, recoverable; section 123(1) should be construed as empowering tribunals to award compensation for non-pecuniary damage flowing from the circumstances of an unfair dismissal; such a construction of section 123 should not open the floodgates to a tide of claims for the recovery of such compensation, provided that the tribunals are firm in requiring proof that an applicant has suffered nonpecuniary loss. Such damages would only be awarded, for example, where there is real harm done to the employee's self-respect. In this case the award for noneconomic loss covered: the employer's conduct in driving the applicant from his employment; the employer's conduct in undermining the employees health; loss of work in the area, leading to extra travelling and loss of family time; and the employer's conduct in undermining the applicant's selfconfidence and self-esteem, leading to the need for professional counselling. Given the division of opinion within the Court of Appeal as to the effect of Johnson v Unisys Ltd and other authorities, the court granted Hull City Council leave to appeal to the House of Lords in order that a definitive answer may be given on this question. In any event, this case should encourage employers to reassess what procedures they have in place to spot and deal with workplace harassment and bullying. Failure to do this could, on the evidence of Dunnachie, be expensive. Nothing in this Update constitutes legal advice. Always consult a suitably qualified lawyer on any specific legal problem or matter. Bird & Bird assumes no responsibility for information contained in this Update and disclaims all liability in respect of such information. 5

6 Brussels Düsseldorf The Hague Hong Kong Rue de la Loi Brussels Belgium Tel: +32 (0) Fax: +32 (0) Karl-Theodor-Strasse 6 D Düsseldorf Germany Tel: +49 (0) Fax: +49 (0) Parkstraat JD The Hague The Netherlands Tel: +31 (0) Fax: +31 (0) /F Asia Pacific Finance Tower Citibank Plaza 3 Garden Road Hong Kong Tel: Fax: London Milan Munich Paris Stockholm 90 Fetter Lane London EC4A 1JP UK Tel: +44 (0) Fax: +44 (0) Via Montenapoleone, Milan Italy Tel: Fax: Pacellistrasse Munich Germany Tel: +49 (0) Fax: +49 (0) Centre d Affaires Edouard VII 6 rue de Caumartin Paris France Tel: +33 (0) Fax: +33 (0) Norrlandsgatan 15 Box 7714 SE Stockholm Sweden Tel: +46 (0) Fax: +46 (0)