Exit discussions are no bar to a constructive dismissal claim

As you may be aware constructive dismissal occurs when an employee terminates their employment in response to their employee’s treatment of them. The employee has to show that they have resigned in response to fundamental breach of contract by the employer. The Employment Rights Act essentially say that if the employee terminates their contract in circumstances which they are entitled to do so without notice because of the employer’s conduct that termination constitutes a dismissal.

In the case of Gibbs v Leeds United FC the Court was required to determine liability for breach of contract, considering whether Leeds United FC was in breach of its contract with the Claimant, whether that breach was repudiatory and whether, when the Claimant resigned, he did so at least in partly as a result of that breach.

The Claimant (here photographed when at Tottenham) had worked as an assistant manager at Leeds United Football Club. When the head coach was dismissed it was expected that, as is usually the case, the Claimant would also be dismissed despite working under the terms of a fixed term contract which was due to expire in June 2016.

Following the departure of the head coach the claimant did enter into discussions concerning the early termination of his employment however the Chairman made clear that he wanted him to remain at the club. The Claimant returned to work as requested although discussions continued with the club in an attempt to negotiate the early termination of his contract. During this period the Claimant was not assigned work which fell within his contract to do, although he turned up ready and willing to do it. He complained and said that he had been left with nothing to do and expressed that he was unhappy about this situation. However subsequently on the 23 June he received an email from the club secretary, Graham Bean, which read as follows:

Government launches consultation on simplification of tax treatment of termination payments

One of the most contentious areas in the field of employment law concerns the tax treatment of settlement payments on the termination of employment. In the 20 years plus that I have been dealing with employment law matters the law in this area has never been entirely settled and there has been a long series of often contradictory decisions, such that it is possible to find a decision to match almost any chosen stance. As recently as two months ago I was writing about a decision of the First Tier Tax Tribunal which appeared to suggest that many such payments are not taxable.

Against this background, on 24 July the Government published a consultation document on “Simplification of the Tax and National Insurance Treatment of Termination Payments”. The consultation is open until 16 October and seeks views on:

removing the distinction between contractual (currently taxable) and non-contractual (currently generally non-taxable) termination payments and whether this will make the process easier to understand for employers and employees;
whether the income tax and National Insurance treatment of termination payments should be aligned;
which of the existing tax exemptions should be retained; and
whether new tax exemptions should be introduced.

Research by the Government suggests that there is a widespread but mistaken belief that the first £30,000 of any pay-off is tax free. Many employers do not understand how the current provisions should operate in practice. It is also difficult and time-consuming for employers to work out which parts of a settlement payment are tax free and which are subject to tax.

The research also suggested that the current £30,000 would probably be unaffordable if it applies to both contractual and non-contractual payments.

One potential approach referred to in the consultation is to create a new exemption which increases proportionately with the number of years worked. The minimum service requirement (to qualify for the exemption) would be two years. Qualifying service would have to be with the existing employer or continuing service including a former employer if the employee was TUPE transferred. Such exemptions might only apply in the event of redundancy, compulsory or voluntary. An example provided is that of an employee receiving a termination payment after 10 years’ service of £13,750 comprising statutory redundancy (£4750), pay in lieu of notice (£3000), an ex gratia payment of £5000 and £1000 holiday pay. If the exemption was set at £6000 after two years and then an extra £1000 for each additional year the exemption would be £14,000 and the entire payment would therefore be tax free. In contrast, if someone’s employment is terminated because of poor performance and that triggers a severance payment of £100,000, the full amount would be taxable.

Is a settlement payment taxable?

One of the most frequently asked questions in HR is whether or not a settlement payment is taxable. Several different and apparently conflicting answers can all be correct, depending on the circumstances. In 2014 I wrote about the £30,000 tax exemption which does not apply in all circumstances and in 2011 I highlighted a potential trap for employers.

Now we have a further and significant contribution in the form of a decision by the Tax Chamber of the First Tier Tribunal in the matter of Mr A v HMRC. It is a basic principle of tax law that earnings are taxable. Unsurprisingly HMRC interprets “earnings” widely as including any payments in respect of which earnings are involved (section 62 Income Tax (Earnings and Pensions) Act 2003). As a result severance payments are frequently regarded as taxable (subject to the £30,000 exemption pursuant to sections 401 to 404A of the 2003 Act when applicable).

Mr A worked as a trader for a Bank in London. His job title was managing director and he was on a basic salary of £120,000 plus eligibility for the Bank’s bonus scheme. In the period from 2003 to 2007 he received significant bonuses based on the bank’s overall performance. In 2007 there was a dispute concerning his bonus and when the Bank was bought out he was made aware of imminent redundancies. He raised grievances including allegations of race discrimination (based on inappropriate comments made by the bank’s chairman and vice chairman).

In early 2008 he raised further grievances including the fact that other directors had received bonuses and he had not. A questionnaire was sent to the employer in accordance with the relevant provisions of the Race Relations Act (as it then applied). On March 2008 the Bank informed Mr A that he was to be made redundant and he was offered £1650 in statutory redundancy pay and a further ex gratia redundancy payment of £48,898. A couple of days later Mr A was offered a further payment if he agreed to sign a compromise agreement (now referred to as a settlement agreement). The agreement provided that in addition to the payments already offered he would receive a further payment of £600,000 in settlement of all outstanding claims. The terminology used will be familiar to those who have dealt with settlement agreements:
The parties have entered into this Agreement to record and implement the terms on which they have agreed to settle all outstanding claims which the Employee has or may have against the Employer…arising out of or in connection with or as a consequence of his employment and/or its termination. The terms…are without any admission of liability on the part of the Employer…
Unsurprisingly HMRC queried the £600,000 payment and asked for a detailed breakdown of what it consisted of.

actions from years ago can return to haunt employees

Evan Glyn Williams was employed by Ken Bates as a technical director with Leeds United FC from 2006. He was on a salary of £200,000 per year, terminable on 12 months’ notice. On 23 July 2013 he was given 12 months’ notice of termination, pursuant to the contract. This arose as part of a redundancy exercise. However, it subsequently came to light that, in March 2008, Mr Williams had used the Club’s email system to send an email with pornographic images attached to a male friend at another football club, Mr Dennis Wise. Photographs included “the fans”, “pictures from the club house, the shower” and included numerous images of female genitalia. As a result, on 30 July 2013, he was dismissed for gross misconduct, without further payments.

Following the summary dismissal it came to light that Mr Williams had sent the same email to a junior female employee at the Club and another male friend at another club, Mr Gus Poyet. In resisting Mr Williams’ claim the Club sought to rely on this additional information that had come to light following the dismissal.

Mr Williams contended that the conduct, while inappropriate, was not sufficient to justify summary dismissal and claimed the balance of his unpaid salary and other benefits.

The case was heard by Mr Justice Lewis, sitting in the High Court, on 9 to 11 February.

to what extent is an employer liable for psychiatric injury?

In Yapp v Foreign and Commonwealth Office the Court of Appeal was asked to consider to what extent an employer can be held liable for injuries suffered by an employee, in this case depressive illness and associated symptoms.

Mr Yapp was, with effect from January 2007, the British High Commissioner in Belize. In June 2008 he was withdrawn from his post on operational grounds and disciplinary proceedings were commenced. He received a written warning. His suspension was lifted but in the meantime he suffered from a depressive illness and had heart surgery. He did not take up any other post in the FCO until his retirement in January 2011.

In May 2011 he commenced proceedings against the FCO. He maintained that his withdrawal from the post of the High Commissioner and the handling of the disciplinary proceedings had brought about the depressive illness which in turn caused his inability to work and consequential financial losses.

At a liability hearing in February and March 2013 Mr Justice Cranston found that the withdrawal from the post was a breach of contract and a breach of the common law duty of care owed to him by the FCO. However claims relating to the disciplinary process were dismissed.

Mr Justice Cranston also found that Mr Yapp was entitled to recover damages in connection with his depressive illness, subsequently agreed in the sum of £320,000. However there was a dispute about whether interest on that sum should also be paid. At a further hearing in June 2013 it was held that Mr Yapp was also entitled to interest.

The appeals in the Court of Appeal concerned:

– the FCO’s appeal from the finding that the withdrawal from post constituted a breach;
– that, even if there was a breach, Mr Yapp should not be entitled to damages for depression and its consequences on the basis that they were not caused by the breach and/or that they were not foreseeable consequences;
– Mr Yapp’s additional grounds for upholding the Judge’s order; and
– the award of interest.

The allegations that had led to disciplinary action against Mr Yapp included that he was arrogant and had a bullying style. Complaints about him were also made by the former Belizean Minister for Foreign Affairs, Eamon Courtenay, including that he behaved inappropriately with women, including touching Mrs Courtenay’s bottom, so that people were no longer willing to invite him to events, that he was having a relationship with a member of staff at the Ministry of Foreign Affairs of Belize, that he was not joining diplomatic events, that he had adopted an inappropriate tone with the Belizean Prime Minister and numerous other allegations. He was withdrawn from post because it was considered that, in light of the allegations it was untenable for him to remain in post and he was suspended pending the outcome of the disciplinary process.

tax treatment of settlement payments

In all the time that I have been dealing with employment claims (quite a long time!) there has been a permanent confusion concerning the tax treatment of settlement payments. Should tax be deducted from notice payments? Is there a “payment in lieu” clause in the contract of employment? Should the £30,000 exemption apply? Why should damages be taxed? Almost everyone who deals with employment claims will confront this issue at some point or another and will find people who are adamant that their respective yet conflicting positions are correct.

Now, the Office of Tax Simplification (did you know it existed?) has published a report in which it seeks to resolve these dilemmas once and for all. It has taken a while bearing in mind that it was announced in the Chancellor’s Autumn Statement in 2012. The report recognises that there is a commonly held misconception that all pay-offs fall within the £30,000 tax free exemption and similar misunderstandings concerning which parts of a settlement are tax free. The proposals are summarised as follows:
We believe that payments made in connection with a termination of employment should remain subject to income tax in principle, that certain exemptions should apply, but that these should be designed in a simpler way. We think the simplest way forward is for income tax relief to be only available in circumstances where the employee qualifies for a statutory redundancy payment. We also propose a government review of the existing exemptions, reliefs and reductions for termination payments, in order to establish in each case whether they should be retained as part of the wider reform of income tax and NICs treatment of termination payments.

Under this new relief, we propose that the level of the exemption would be a multiple of the statutory redundancy payment that the relevant individual is entitled to (or alternatively, a flat amount). All payments linked to the termination payment received by the relevant individual (including his/ her statutory redundancy payment) would be aggregated and then the income tax exemption would be applied against the value of these. Subject to this value limit, this relief could extend to any termination payments that he/ she receives – regardless of the nature of the payment.

The proposal would lead to simplification by making it easier to understand the circumstances to which the tax exemption applies (i.e. cases of statutory redundancy). Eligibility would not depend on the terms of the employment contract, as now, which favours the well-advised and can catch people out. Furthermore, there is a recognised statutory definition of redundancy, and a case to suggest that a common approach between employment and tax law is sensible.
But does this really make the tax treatment of settlement payments easier to understand and apply and any fairer?

data protection versus data access

It never ceases to surprise me that employees can be so horrified when action is taken against them following the misappropriation and/or misuse of information belonging to an employer. All employment contracts incorporate an implied duty to keep confidential  information belonging to the employer and not in the public domain. Confidential information in the nature of a trade secret, such as financial information, customer lists, production processes and sales strategies is protected. Further, any decently drawn contract of employment will include express protection of confidential information, both during and after employment.

If an employer has good reason to believe that confidential information has been misused, for example by disclosure to a competitor or by a former employee diverting business away from the company, there is a clear risk that serious damage could quickly follow. Consequently, it is often thought appropriate to apply for an injunction requiring the current or former employee (and any of his or her associates) to stop using the information and to deliver up the information in whatever form it has been taken. In order to prevent action being taken to thwart the employer’s efforts (e.g. by hiding away the information) injunctions are often granted without notice to the party to be served.

I recall some years ago making a home visit to a suburban address early one morning. The purpose of the visit was to carry out the terms of an injunction order requiring the delivery up of property belonging to the employer. A supervising solicitor from another firm was in attendance to ensure that correct procedures were followed. The recipient of the order was shocked to find out that the order covered delivery up of all physical documents at the house and, in addition, all electronic devices that could hold information belonging to the company including PCs, mobile phones and even the children’s laptops. Technological advances have served to widen even further the scope of disclosure to include, for example, documents stored in the cloud through Google, OneDrive, Dropbox or any number of other providers. It has also come to the attention of many employers that, particularly in the online world we nearly all inhabit, relevant data is one of their most important assets.

The recent High Court case of Warm Zones v Thurley and Buckley includes a useful summary of the relevant factors to be taken into consideration when considering such an application and confirms the willingness of the court to make an order in appropriate cases.

Warm Zones is a not-for-profit company that provides energy efficiency and related advice for domestic users, targeting principally low income and vulnerable households throughout the UK. Ms Thurley was a zone director from January 2007 until she was dismissed in March 2013. She covered addresses in North Staffordshire and Cheshire West. Mr Buckley worked as an IT and project manager, also based in North Staffordshire. Both had access to the employer’s database for the region containing, according to Warm Zones, “important, unique confidential information and property belonging to it”.

“keep music live” – unless you’re producing War Horse

In Ashworth and Others v The Royal National Theatre the question for Mr Justice Cranston (sitting in the High Court) was whether to grant an injunction pending trial requiring the Theatre to continue employing musicians, notwithstanding that part of the music for the show has always been recorded and the Theatre wanted to move to fully recorded music with a view to saving costs.

Injunctions are an emergency remedy and, as such, they need to be applied for promptly and with good cause. While a temporary injunction can be granted on the basis that a claim is made out with a real prospect of success, even though there has not been a full trial of the issues, the court must consider the balance of convenience between the parties and the risk of irremediable prejudice to a party if it turns out that the injunction should not have been granted.

In general injunctions which require someone to do something (mandatory) rather than not do something (prohibitive) are less readily granted particularly when, as in this case, there are financial implications for the party required to act in the manner directed by the Court.

War Horse is a very well known and celebrated National Theatre production which opened in the Olivier Theatre in 2007 and transferred to the New London Theatre in the West End in 2009, where it remains. It has been a great money spinner for the National Theatre but income has dwindled in the last few years. It is an expensive play to stage with its cast of 36 plus five musicians (the Claimants) and their deputies (who cover in their absence).

The composer of the musical score described it as an orchestral epic. Nonetheless, from the outset most of the music has been recorded. The live musicians have added to the recordings, including an opening trumpet solo and briefly appearing on stage during one scene. Productions in other parts of the world have not included live musicians, instead relying wholly on recorded music. In December 2012 the musicians used for the London production were told that it would go the same way and that, as a result, they would be made redundant in March 2013. Following conciliation involving the Musicians’ Union they remained employed but their participation was significantly reduced.

On 4 March 2014 they were sent letters providing notice of termination of employment on 15 March. They were told that they were being made redundant in order to bring the London production into line with other productions. However, on 15 March they turned up for work as usual but they were turned away, hence the application for injunctive relief.

Having considered the contractual terms Mr Justice Cranston concluded that there was a serious issue concerning whether the National Theatre was entitled to terminate the contracts in the way that it did. However he was much more concerned about the question of any resulting remedy and this was also a relevant consideration when determining whether an injunction should be granted.

is it any wonder that incompetence thrives?

Employers necessarily gather, store and use personal data about applicants and employees and so must comply with the Data Protection Act 1998. Halliday v Creation Consumer Finance Ltd considers what sort of compensation should be awarded if that information is misused. It arose in the context of consumer credit finance. After Mr Halliday bought a new television on credit, there began something of a saga. The credit company, CCF, was ordered to delete the information they held on Mr Halliday and pay him £1500 compensation and costs for breaches of the Act. Initially they mistakenly paid the sum into the wrong bank account, but then made the payment correctly and attempted to get the money back from the bank. When the bank refused, they started proceedings to try to claw back the double payment from both the bank and Mr Halliday. Next, they made a further mistake and passed information to Equifax, with the result that anyone checking Mr Halliday’s credit rating for a period of four months would have seen a debt of £1500 owed to CCF without a credit agreement governing it.
Mr Halliday successfully counterclaimed for these further breaches of the Data Protection Act but was awarded only nominal damages. On appeal to the Court of Appeal, he argued that nominal damages, or even nominal damages plus damages for distress were not an effective remedy. He also proposed that damages for distress should be assessed in the same way as compensation for injury to feelings in discrimination cases (applying Vento guidelines).
Lady Justice Arden, while confirming that that an individual can be awarded damages for distress arising from a contravention of the Act, pointed out that it was “not the intention of the legislation to produce some kind of substantial award”. She remarked that that the breach complained of was a single episode, had not led to any actual damage to Mr Halliday’s reputation and that there was no evidence of injury to feelings or distress over and above what might normally be expected “from frustration at these prolonged and protracted events”. In the circumstances nominal damages of £1 plus £750 for distress were “appropriate and sufficient”. She went on to reject any analogy with discrimination claims which, she said, are liable to involve distinct and well-known distress to the complainant.
In the meantime the Information Commissioner is doling out swingeing fines for data protection breaches.

settling TUPE claims

Two recent cases have considered the effect of compromise agreements in TUPE cases where claims are made against more than one employer.
In Optimum Group Services Plc v Muir the Employment Appeal Tribunal looked at the situation in which an employee with a claim arising out of a TUPE transfer reached a settlement with one transferee (in a case where he was claiming against the transferor and a number of other potential transferees), while carrying on against other respondents. At the tribunal hearing he did not disclose the settlement, which the Employment Tribunal decided should not be deducted from the compensation he was awarded. It included a compensatory award of £23,668.84, after applying a 50% deduction to reflect the possibility he would have been made redundant in any event.
The Employment Appeal Tribunal overturned this decision, remarking that the compensatory award “should not over compensate the claimant. To do so could hardly be said to be just or equitable“. It ordered the claimant to disclose the £20,000 he had received under the compromise agreement, and ruled that it should be deducted from the figure he could recover for loss of earnings. It did, however make it clear that under Norton Tool Co Ltd v Tewson, notice pay would continue to fall outside the principle that there should be no double recovery of loss of earnings.
Lady Smith summarised the principles governing the award of compensation as follows: