Employment law update

Transcription

1 Employment law update November/December 2005 Recent cases Unfair dismissal If an employee refuses to sign up to new restrictive covenants, it can be a fair reason for dismissing him. The dismissal would usually be for 'some other substantial reason justifying dismissal' ('the SOSR defence') under s. 98 (1) (b) Employment Rights Act Contents Recent cases Unfair dismissal 1 Employer s liability 3 Compromise agreements 5 Data protection announcement 7 Recently, the EAT has had to look at this issue again. In Willow Oak Development Ltd t/a Windsor Recruitment v Silverwood and others, the employer, which was in the business of recruiting healthcare agency workers, dismissed the three claimants because they refused to sign fresh contracts containing a number of restrictive covenants. The business had already suffered a substantial number of attempts (many successful), to poach staff and business away from it - at a time when it was planning to expand its business from 8 branches to 100. The new contracts were therefore part of an effort to protect the employer from further raids on its business. The key covenants prohibited the employees, for 12 months after termination of their employment, from poaching any other employee or ex-employee who had previously worked for the company. They also banned them from working for 'any business which is or is likely to be wholly or partly in competition' for 6 months after termination. There was no prior consultation about any of this with the employees. They were asked to sign the new contracts within 30 minutes of being first given them, in a busy working environment and without any proper opportunity to read and understand them. When they refused to sign, they were dismissed. The employment tribunal hearing their complaints of unfair dismissal found that the covenants were unenforceable, because they were too wide - the employees were banned from poaching any other employee or ex-employee (whether they had met them while working for the employer or not). Also, they were not simply restricted from competing in the health care sector of the human

2 resources field, but any other sector into which the employer, or a competitor, might branch out into in the future. For this reason, the tribunal decided that the employer could not rely on the 'SOSR' defence in the employees' unfair dismissal claims. The employer appealed to EAT. On 5 October 2005, the EAT gave its judgment, which contradicted earlier decisions, particularly the EAT's own decision in Forshaw v Archcraft Ltd, as to how employment tribunals should approach such cases. The EAT set out the principles by which such cases should, in future, be decided. The EAT said that the issue of whether a restrictive covenant is enforceable or not should only have to be decided after the employee has actually signed the covenant and then only by a High Court judge, not an employment tribunal. It was not therefore relevant to the unfair dismissal issue. An employment tribunal's job is to decide, first, whether the reason for dismissal is potentially fair and, secondly, whether the employer had a genuine belief that dismissal for that reason was justified. In this case, the employer passed both those hurdles. The employment tribunal had found that some form of restraint of trade, restricting staff from competition after ceasing employment, would be necessary in order for the employer to achieve its objective of meeting the competition they were already facing from ex-employees and preventing the risk of further loss of staff and confidential information. The covenants themselves were not extremely unreasonable (they had been drafted on legal advice) and so the tribunal would have been wrong to think that they were just a 'cover' or ruse to get rid of the employees. The EAT concluded that this was potentially a case where the employer could have an SOSR defence to an unfair dismissal claim. However, there was a third stage that the tribunal had to go through in their reasoning and that was whether, in all the circumstances, the dismissal was fair. The EAT set out the steps to be followed at this stage: If the proposed covenant appeared to the tribunal plainly unreasonable, then it would be easy for the tribunal to conclude that there was unfairness; If the proposed covenant was arguably unenforceable, then there would be a greater need to consider 2 the employer's approach, in particular the amount of time given to consider the proposals and the opportunity given, if appropriate, for legal advice; If the covenant was plainly reasonable, then there would still be a need to consider the fairness of the employer's procedure, but the tribunal might well be satisfied that the dismissal was fair. In this case, the EAT agreed with the employment tribunal that the employer's procedure had been unfair. The new contracts had been 'dealt out like a pack of cards' by a manager who was 'very abrupt and irritated' and had refused a request that the employees be given longer than 30 minutes to consider them, even though there were no reasonable grounds to think that these particular employees were planning to leave.. Furthermore, none of the staff had been warned that they would be dismissed if they did not accept the new clauses. Points to note: The EAT was sympathetic to the idea that there will be circumstances in which an employer may have good business reasons for asking employees to sign restrictive covenants, or be dismissed.

3 Even if the employer has a genuine business interest to protect, restrictive covenants are only enforceable if they are reasonable in extent and duration. The wording of the covenants is crucial and must be tailored to the facts of each case. Legal advice should be sought to ensure that the wording is clear and effective. If there is any doubt about the wording, that will usually be enough for a court to decide that the covenant is unenforceable. In deciding whether the employee was justified in resigning and claiming unfair dismissal rather than sign a restrictive covenant, the way in which the request is made and the procedure followed by the employer will be as important to a tribunal as the reasonableness of the covenant itself Employer's liability Vicarious liability is imposed by law on an employer for the mistakes of its employees made during their work, even though the employer may not be at fault. Where an employee is seconded, or 'lent', by one employer to another, and causes damage, which employer will be responsible for the employee's mistake? The findings of a new case are set to have implications for secondments, joint ventures and outsourcings. In Viasystems (Tyneside) Ltd v Thermal Transfer Ltd and others, the Court of Appeal recently decided that, in certain circumstances, responsibility should be shared between two employers. Viasystems was a customer that had contracted with Thermal to have air conditioning installed in their factory. Thermal subcontracted the ducting work to S&P, who engaged a selfemployed fitter (Mr Horsley) to do the work and contracted with another company, Hall & Day, to provide a fitter and a fitter's mate (Mr Megson and Darren Strang) to work with Mr Horsley and under his instruction. All three men were working in the roof space of the factory when Darren Strang, while crawling through some ducting, fractured the fire protection sprinkler system, causing a serious flood which caused extensive and expensive damage at the factory. Viasystems sued both S&P and Hall & Day in the High Court. The judge found that Hall & Day, being his employers, were vicariously responsible for Darren Strang's lack of care. Hall & Day appealed to the Court of Appeal, arguing that at the time of the accident, Darren Strang was working under the supervision of Mr Horsley of S&P. Hall & Day argued that they had no say in the manner in which he was used once he was on the site. The court reviewed the rules on vicarious liability where one employer 'borrows' an employee from another employer as laid down by the House of Lords in 1947 in the case of Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd. In that case someone had been injured by a negligently driven crane. The crane and its driver were employed by the Board but had been hired out to Coggins & Griffith to help load a ship. The House of Lords had decided that the relevant questions to be asked were: Who employed the negligent employee? Who paid him? Who had the power to dismiss him? Who had immediate direction and control of the work upon which he was engaged at the time of the accident? What was the negligent act and whose responsibility was it to prevent it? 3

4 The House of Lords had noted that the employer by whom the employee was employed ('the general employer') would usually be vicariously responsible for all acts of its employee while he was at work; a transfer of employment from one employer to another could only take place with the employee's consent; and, if one employer was in some degree at fault, that employer was the one which should take legal responsibility for the accident. In the Viasystems case it was agreed that neither employer was at fault. S&P argued that Darren Strang's employment had not transferred to them and Darren was working principally under the control and supervision of Mr Megson of Hall & Day. Hall & Day argued that their contract was for provision of labour only and Mr Megson and Darren Strang were both working under the supervision of Mr Horsley. The Court of Appeal thought that it was wrong, in a vicarious liability case, to look to see whether there had been a transfer of the contract of employment. The inquiry should concentrate on the negligent act and ask whose responsibility it was to prevent it. The court considered High Court cases going back to 1826 and cases from other jurisdictions. Although it had never been done before, the Court of Appeal decided that, in this case, there was nothing to prevent it from saying that both employers, S&P and Hall & Day, were vicariously liable for the accident, and should share legal responsibility for it 50/50. In coming to this decision, the court noted that cases in which dual vicarious liability will be imposed in this way are likely to be cases where the employee in question, at any rate for all relevant purposes, is so much a part of the work, business or organisation of both employers that it is just to make both employers answer for his negligence. This doctrine will only apply where there has been no fault on the part of either employer. Points to note: When employees are seconded to another employer, two important legal issues need to be considered but there is a distinction to be drawn between them. Both need to be addressed, and can be addressed, by ensuring that there is a carefully drafted agreement between the two employers: Firstly, who is to be the employer? The general employer and the 'borrowing' employer should agree as to whether the employee is to remain an employee of the general employer or transfer to become an employee of the 'borrowing' employer for the duration of the secondment. A transfer of employment will need the consent of the employee. Secondly, and separately, is the general employer or the 'borrowing' employer to be vicariously liable for any damage caused by the employee while he or she is on secondment? In practice, they should agree that only one of them will be responsible, and may make further provision regarding employer's liability insurance. If such an agreement is in place, there will be no need for the injured third party (Viasystems in this case) to take legal action against both but, if they do, one employer will have a complete indemnity against the other under the terms of their contract. 4

5 Compromise agreements It is widely assumed that compromise agreements are final and binding to prevent future claims in all cases. As recent cases have shown, this is not always the case. A further cautionary tale from the EAT was recently reported in Hilton UK Hotels Ltd v Cecilia McNaughton. Mrs McNaughton's employment with Hilton Hotels began in April 1974 and terminated in May 2003 and she signed a compromise agreement which contained the following terms: 'You agree to accept the arrangements contained in this letter and any sums paid under its terms in full and final settlement of any and all present and future claims, rights of action, remedies, costs and expenses whatsoever and howsoever arising which you have or may have in any jurisdiction against the Company arising from or in connection with your employment with the Company or any other matter including any common law or statutory claims whatsoever whether under English law, European Law, or any other applicable law such as (but not limited to) compensation for breach of contract, wrongful dismissal and all or any of the Statutory Claims' 'Statutory Claims' were defined as 'the claims that you believe you have against the Company for breaches of [all the English employment protection and unlawful discrimination Acts and Regulations including the Equal Pay Act 1970 were listed here] all of which claims you have raised with the Company but which the Company and its officers dispute.' The compromise agreement also contained the declaration required by s. 203(3) of the Employment Rights Act 1996 (and by s.77 of the Sex Discrimination Act 1975 ('SDA') in so far as claims under the SDA or the Equal Pay Act 1970 are concerned) to the effect that the employee had received independent legal advice as to its terms and effect. In fact, before signing it, she had twelve or so telephone conversations or meetings with her solicitor at which the terms of the compromise agreement were discussed. However, at the time she was unaware that she had a potential claim under the Equal Pay Act 1970 for lost pension rights arising out of a period of her employment (between April 1974 and April 1981) when she was working part-time but was excluded from the employer's pension scheme on account of her part-time status. Her solicitor had been unaware that she had ever worked for the employer on a part-time basis. It was only in August 2003, after the compromise agreement had been signed, that Mrs McNaughton read a newspaper article and became aware that she might have a claim. The employment tribunal decided that she was entitled to proceed with a claim under the Equal Pay Act, notwithstanding her having signed the compromise agreement, because her claim was not one to which the agreement applied. The employer appealed to the EAT. It argued that, even though Mrs McNaughton did not know that she had a claim under the Equal Pay Act, her solicitor ought to have found out that she had worked on a part-time basis before advising her to enter into the compromise agreement. They went on to argue that the agreement itself complied with the statutory requirements and with the recent guidelines, laid down by the Court of Appeal in the case of Hinton v University of East London, to the effect that it was sufficient that the claim being compromised was covered 5

6 in the agreement by a generic description or by reference to a section of the Act giving rise to the claim. Mrs McNaughton argued that her solicitor could not have been expected to know the material facts of her parttime employment at the time when he advised her to sign the agreement. The EAT agreed with her and laid down the following principles: No compromise agreement can exclude a future claim under the Equal Pay Act unless it complies with s.77 of the SDA. The statutory requirement that a compromise agreement 'must relate to the particular complaint' does not limit it to cover only claims that have already been presented to an employment tribunal. A 'blanket' agreement, simply signing away all the employee's tribunal rights, will not do. There is nothing to prevent a person from contractually compromising a future claim of which he or she has no knowledge. However, the actual or potential claim must at least be identified by a general description or a reference to the section of the Act giving rise to the claim. To cover future claims of which the employee does not and could not have had knowledge, the terms of the agreement must be absolutely plain and unequivocal. When interpreting the agreement, it may be permissible to look at the state of the parties' knowledge at the time the agreement was made. Whether Mrs McNaughton's solicitor knew or ought to have found out about her period of part-time employment might be relevant as to whether or not he was negligent in the advice that he gave her, but was not relevant to the issue of whether the agreement covered the Equal Pay Act claim or not. On its wording, the agreement only covered claims that she believed that she had and had raised with her employer. That wording did not cover the Equal Pay Act claim, of which, at the time of signing the agreement, she had no knowledge. It followed that the terms of the agreement did not stop her from bringing such a claim now. Points to note: A compromise agreement is a valuable tool for employers, being the only effective means of ensuring that, on termination of an employee's employment, that the employee can bring no further claims against the employer arising out of his or her employment or its termination. An employee can give up the right to make a future claim, provided that they are absolutely clear as to what it is that they are giving up and it is recorded clearly in the compromise agreement. Compromise agreements must always be carefully tailored to the circumstances of each case. Tribunals assume that the employer takes legal advice on every agreement. The agreement will not fulfil the statutory requirements unless arrangements have been made for the employee to receive independent legal advice as well. In McNaughton, the agreement only covered 'claims that you believe you have all of which claims you have raised with the Company' and so it could not cover a claim which she did not know she had. The EAT said that alternative wording might have helped the employer to avoid the difficulty that it found in trying (unsuccessfully) to get her Equal Pay Act claim struck out. 6

7 Data Protection Announcement We are pleased to announce that Francis Aldhouse, the Deputy Information Commissioner for the UK, will be joining Bird & Bird as a consultant after his retirement from office. Francis will be with us from 1 February Francis' role at Bird & Bird will be combined with his work as a consultant for the OECD on data protection matters during If you are interested in meeting Francis to discuss UK or European data protection issues and developments, please contact Warren Wayne (warren.wayne@twobirds.com) or Ruth Boardman (ruth.boardman@twobirds.com). If you wish to discuss further any of the issues raised in this update, please do not hesitate to contact any member of the Bird & Bird Employment Department. 7

8 Beijing 3614 China World Trade Centre, Tower 1 1 Jianguomenwai Dajie Chaoyang District Beijing , PRC Tel: Fax: Brussels Avenue d'auderghem Brussels Belgium Tel: +32 (0) Fax: +32 (0) Düsseldorf Karl-Theodor-Strasse Düsseldorf Germany Tel: +49 (0) Fax: +49 (0) The Hague Parkstraat JD The Hague P.O. Box GH The Hague The Netherlands Tel: +31 (0) Fax: +31 (0) Hong Kong 6/F ICBC Tower Citibank Plaza 3 Garden Road Hong Kong Tel: Fax: Frankfurt London Madrid Milan Taunusanlage Frankfurt am Main Germany Tel: +49 (0) Fax: +49 (0) Fetter Lane London EC4A 1JP UK Tel: +44 (0) Fax: +44 (0) Temporary address: Forum Business Center C/ Capitán Haya, 1 Planta 15 Edificio Eurocentro Empresarial Madrid Spain Tel: Fax: Via Montenapoleone, Milan Italy Tel: Fax: Munich Paris Rome Stockholm Pacellistrasse Munich Germany Tel: +49 (0) Fax: +49 (0) Centre d Affaires Edouard VII 3 square Edouard VII Paris France Tel: +33 (0) Fax: +33 (0) Via di San Sebastianello, Rome Italy Tel: Fax: Norrlandsgatan 15 Box 7714 SE Stockholm Sweden Tel: +46 (0) Fax: +46 (0)