Category Archives: contract terms

pay cuts and dismissal

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In the current economic climate, it is an unfortunate fact of life that employees are facing numerous constraints concerning pay and benefits. Pay freezes are commonplace and several councils have made the news by requiring employees to accept pay cuts or face dismissal. As a general principle, the unilateral imposition of material contract variations which are detrimental to employees can entitle the affected employees to resign and claim breach of contract and constructive unfair dismissal.

In a decision which will be welcomed by employers, the EAT has recently clarified that when deciding whether or not dismissal of an employee for refusing to accept a pay cut does constitute “unfair dismissal”, the question to be considered is NOT the reasonableness of the stance adopted by the employee. Rather it is whether the employer acted reasonably in dismissing the employee for refusing to do so. Continue reading →

employee or self-employed

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Many employment law rights (such as unfair dismissal and statutory redundancy pay) are restricted to “employees” as defined. It is usually obvious whether a person has a contract of employment (i.e. a contract of service between an employer and an employee) or a contract for services (i.e. made by an employer with an independent contractor/self-employed person). Perhaps a simple and straightforward example of the difference is the contrast between the jobs of chauffeur and taxi-driver.

In some ways, the debate over whether someone is an employee (or worker) or self-employed has perhaps become something of an “old chestnut”. Yet no matter how many cases give guidance on how to approach the question, grey areas remain. One such common grey area has been the extent to which any written contract should provide the answer. Many outside the law would be surprised to learn that the contract is, in itself, by no means determinative. Continue reading →

termination payments: a trap for employers

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A Ms. O’Farrell worked for Publicis Consultants UK Ltd. Her contract provided for three months’ notice.  She was made redundant in May 2009 and was provided with statutory redundancy pay and holiday pay. Her dismissal letter also said that she would receive an ex-gratia payment equivalent to three months’ salary (£20,625) free of Tax and NI deductions. Continue reading →

do you need to pay an employee who is held in custody?

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The normal rule is that an employee who is ready and willing to work but is unable to do so by reason of sickness, injury or other unavoidable impediment will, if his contract continues and subject to its terms, still be entitled to pay.

In a recent case an employee, perhaps somewhat cheekily, argued that this meant he was entitled to pay for a period when he was prevented from coming to work because he had been remanded in custody Continue reading →

Termination of employment status, or termination of employment contract, or both? A conundrum.

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Strange as it might sound, it is possible for one’s status as an employee to end in circumstances that do not terminate one’s contract of employment. This was the thorny issue in Société Générale London Branch v Geys, decided by the Court of Appeal on 30 March 2011.

In that case, it was crucial to establish upon which of three potential dates Mr Geys’s contract ended, because it was only if it lasted until the latest possible date in January 2008 that a contractual entitlement to a huge bonus (the substance of his claim) could arise.

Société Générale had terminated his employment at a meeting on 29 November 2007, but Mr Geys had written back indicating that he was affirming his contract. Nonetheless, Société Générale made a payment in lieu of notice (in line with his contract) on 18 December 2007, and formally notified him of this by letter on 6 January 2008. The Court of Appeal overturned a previous ruling by the High Court and found that Mr Geys’s contract of employment ended on 18th December – thus he had no entitlement to the extra bonuses.

From Mr Geys’s point of view that, no doubt, was the most interesting (if disappointing) part of the judgment. However, of more general interest is what happened on 29 November 2007, because it highlights the conflict between “pure contract law” and statutory concepts of dismissal which underlie other claims such as unfair dismissal.

There was doubtless a repudiatory breach of contract by Société Générale – they made clear that Mr Geys’s no longer had a job. Yet such a unilateral breach cannot terminate a contract if – as happened here – the other party refuses to accept it. Hence the contract must continue, until ended in accordance with its provisions. However, Mr Geys’s status as an employee was clearly ended on that date – so for statutory purposes, it would be the Effective Date of Termination (EDT).

At first glance this is hard to get one’s head around – how can a contract of employment exist when (arguably) the essential mutuality of obligation has gone and one party is no longer an “employee”? Understandably, perhaps, the Court of Appeal wants the Supreme Court to consider whether an unaccepted repudiatory breach should, in fact, be able to terminate the contract.

However, what if the Supreme Court follows this route? The whole doctrine of constructive dismissal (which is a contractual concept which can be the basis for statutory unfair dismissal) relies on an employee promptly resigning in acceptance of a fundamental breach of contract by an employer. Where does it leave the employer’s defence that the employee affirmed the contract if the contract can be terminated by that unilateral breach alone? Will the EDT (so important for strict time limits) be at the date of resignation (as now) or the date of the breach?

The current situation is the product of conflicting legal concepts – but removing that conflict could generate just as many problems. In a case in which the date of dismissal, constructive or actual, is an important consideration proper resolution of the point could be vital, thus underlining the need for expert legal advice in any such situation.

newsletter – pay reductions

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Especially when times are tough, employers sometimes seek to impose wage reductions or other substantial adverse changes to terms of employment of staff.  Of course from an employment law point of view there is generally no problem if the employees concerned agree, however reluctantly, to accept the change(s) – which of course they may well do if the alternative is likely to be redundancy and accepting the change is the lesser of two evils.

An employee who does not agree adverse change(s) of any significance which are imposed anyway will be entitled to resign and bring a constructive dismissal claim (which may be a claim for unfair dismissal or breach of contract or both).  As a general rule compensation awarded in that type of situation will be less than it might otherwise have been on the basis that by rejecting the offer of continued or renewed employment the employee had not done everything that he or she could reasonably be expected to do to mitigate his or her loss.

However a recent case has shown that employers must not just assume that compensation will be reduced in such circumstances.

A Mr Banks won a constructive unfair dismissal claim against his then employer, Bloxwich Fencing Ltd.  Bloxwich appealed to the EAT.  One ground for appeal was that the tribunal had not reduced the compensation it awarded for the unfair dismissal to take account of the fact that Bloxwich had offered to reengage Mr Banks, albeit on worse terms than those on which he had previously been employed. Bloxwich argued that this showed that Mr Banks had failed to take reasonable steps to mitigate his loss and that therefore compensation should be reduced.

The EAT dismissed this argument. The EAT found that on the facts of this particular case relations between Mr Banks and Bloxwich Fencing had deteriorated to such an extent that it had been open to the original tribunal to conclude that it was not reasonable to expect Mr Banks to go back to work for them. That was enough to dispose of the employer’s argument.

For those who may want to read a transcript of the full judgment it is available here – Bloxwich Fencing Ltd v Banks, EAT.

Newsletter – circumventing statutory compensation limits

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Mr Edwards was a consultant surgeon working for the Chesterfield NHS Trust. He was dismissed for gross misconduct and subsequently was unable to find employment within the NHS.

Rather than claiming unfair dismissal at an employment tribunal, where compensation is limited by statute (currently to an absolute maximum of £76,700), he brought a breach of contract claim in the High Court where there is no limit on the amount which can be awarded. He claimed a huge amount, a little under £4.3m including a sum in excess of £3.8 million for loss of future earnings.

He was able to go to the High Court rather than an employment tribunal because he was able to show that the Trust was in breach of contract. It had failed to follow the disciplinary procedures which were set out in his employment contract. In particular his employment contract provided that a person with legal qualifications should have chaired the panel which considered his case, that a clinician of the same medical discipline as himself should have been on the panel and that he should have been allowed legal representation at the hearing. The disciplinary procedure operated by the Trust in his case suffered from defects in all those areas. He claimed that if the procedure had been handled correctly, in accordance with his contract, no finding of misconduct would have been made and he would not have been dismissed.

At first instance he won a pyrrhic victory (the Court said his claim could proceed but intially ruled that damages would be limited to loss of earnings for the contractual three months’ notice period, later varied to include damages in respect of the period during which he would have remained employed while a disciplinary procedure which complied with the terms of his contract ran its course).

He has now won a more substantial victory in the Court of Appeal. The Court of Appeal has agreed with him that damages should include compensation for loss of the chance of staying in employment.

That is quite significant. It means that an employee can, in appropriate cases, be eligible to win damages far in excess of the amount an employment tribunal can award for unfair dismissal. However this will not be an open door to huge claims. Thus in a misconduct case the employee would have to show that he had been dismissed after a disciplinary hearing conducted in a way which was seriously out of line with his contractual entitlement and that there was a genuine chance that he would not have been dismissed had the hearing been properly conducted.

No doubt in the real world it is unlikely that these conditions would often be fulfilled but even so this is a salutary warning to employers. Advice should be taken from us in good time and always before disciplinary proceedings take place, to ensure that the risk of “getting it wrong” is minimised.

Newsletter – rewards for failure

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It’s not only private sector bank chiefs who can be handsomely rewarded even though they have presided over disasters. One reason for what can sometimes appear to be unwarranted generosity is of course self-interest: senior directors are usually aware of any dirty linen there may be in their employers’ cupboards and an important part of the compensation packages they negotiate is often their agreement to keep quiet, euphemistically referred to as a “confidentiality clause”. That, of course, can be worth a lot.

In a recent public sector example, the former chief executive of Maidstone and Tunbridge Wells NHS Trust (a Ms Rose Gibb) resigned from her job in October 2007. This was just a few days before publication of a report on an outbreak of the clostridium difficile “super bug” which had caused the deaths of 90 people. Ms Gibb was not, of course, personally responsible but the outbreak occurred on her watch and the report said there had been ‘a significant failing on the part of the Trust which failed to protect the interests of patients’.

To the outrage of many, including Alan Johnson who was then Secretary of State for Health, the Trust had agreed to pay Ms Gibb a “compensation package” of around £250,000. As normal, the agreement included confidentiality clauses. Given the public outcry when the amount became known, the Trust quickly changed its mind. Although it had agreed to pay around £250,000 it refused to hand over more than the “pay in lieu of notice” part of it. That was £75,000 but was not enough to satisfy Ms Gibb. As the Trust had agreed to pay more it was perhaps understandable that she sued for the £175,000 balance.

The High Court rejected her claim, holding that the agreement was so unreasonable that it was void (see for example BBC News of 28 April 2009 “Bug scandal boss loses pay fight“). Ms Gibb appealed to the Court of Appeal. Not surprisingly, as the case concerned legal rights rather than moral ones, she has won.

Basically, the Court of Appeal’s reasoning was simply that the agreed payment was not irrational (the Trust’s lawyers had advised that Ms Gibbs could win up to £250,000 if she was dismissed) and that the High Court must not act as auditor or substitute its own view as to what was reasonable for the view of the Trust. In any event, and perhaps rather more controversially in the circumstances, the Court thought that “…£240,000 was not on its face outlandish compensation for the arbitrary termination of a career which it was unlikely Ms Gibb would be able to resume or resurrect“.

Parts of the Court of Appeal’s unanimous judgment of 23 June 2010 make wonderful reading. Lord Justice Sedley referred in passing to the execution of Admiral Byng in 1757, saying “It seems that the making of a public sacrifice to deflect press and political obloquy, which is what happened to [Ms Gibb], remains an accepted expedient of public administration in this country“.

Even though he agreed that Ms Gibb should have the full £250,000 Sedley LJ pointed out that profligate expenditure by a public body is not beyond the reach of the courts. He referred to an entertaining 1894 example of judicial auditing of civic expenditure. Councillors had been inspecting a waterworks in the Wicklow Hills and had had a rather good picnic lunch at public expense. They were appealing against a surcharge imposed on them as a result but got little sympathy from the judge who said:

“I think it is relevant to refer to the character of this luncheon. I have before me the items in the bill. Amongst the list of wines are two dozen champagne – Ayala 1885 – a very good branch – at 84s a dozen; one dozen Marcobrunn hock – a very nice hock; one dozen Chateau Margaux – an excellent claret; one dozen fine old Dublin whiskey – the best whiskey that can be got; one case of Ayala; six bottles of Amontillado sherry – a stimulating sherry; and the ninth item is some more fine Dublin whiskey… There is an allowance for brakes; one box of cigars, 100; coachmen’s dinner; beer, stout, minerals in siphons, and ice for wine. There is dessert and there are sandwiches, and an allowance for four glasses broken – a very small number broken under the circumstances …”

damages for breach of contract – £4.3 million claim

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It is widely thought that a claim for damages resulting from a breach of the terms of a contract of employment is limited to what would be recoverable if the contract was lawfully terminated. This generally equates to the value of pay and other benefits for the contractual notice period.

However, this basis of assessment was challenged in the case of Michael Edwards -v- Chesterfield Royal Hospital NHS Foundation Trust which was recently considered by the Court of Appeal.

Mr Edwards is a surgeon and he appealed against a decision of the High Court concerning the amount of damages recoverable for his wrongful dismissal claim. He was dismissed for gross professional and personal misconduct. However, he maintained that the disciplinary procedure was not correctly applied in his case and that, had it been, a finding of misconduct would not have been made. He claimed £4.3 million comprising losses to the date of the the proceedings, future loss of income to retirement and loss of pension benefits. The High Court decided that losses should be restricted to losses arising during the contractual notice period of three months.

On appeal, it was held that he was entitled to losses for the notice period plus the time it would have taken for the disciplinary process to run its course.

On further appeal to the Court of Appeal the question was whether he could recover “damages at large” (i.e. not restricted to the time taken for the disciplinary process and the notice period provided for in the contract of employment). The court was asked to take into account the extent of damage and loss of status resulting from the dismissal as a basis for a much greater award of damages. It was submitted that because the contract of employment did not expressly exclude the type of damages he was seeking to recover, he should be awarded compensation “in full”. Mr Edwards also relied on the Human Rights Act, taking into account that public authorities as monopoly employers, were obliged to treat their employees fairly.

The Court of Appeal considered the leading judgment of the House of Lords in Johnson -v- Unisys Ltd. This decision provides that the common law does not imply a term into a contract of employment that an employer will not act unfairly towards an employee concerning the circumstances of dismissal. However, the appeal judges noted that it was recognised in Johnson that if a breach of contract was established, damages are not necessarily limited to payments due under the contract. Accordingly, assuming that Mr Edwards was successful with his substantive claim, the scope of damages should not be restricted as submitted on behalf of the Trust.

Further, the judges noted damages could take account of the loss of opportunity to hold the post of surgeon with the NHS.

The decision has a potentially wide application, particularly in respect of employees who may suffer a loss of status as the result of a dismissal. As demonstrated in this case, the value of such claims can far exceed the statutory limit on compensation for unfair dismissal (currently £65,300).

As with so many cases the decision emphasises just how important it is for employers to make sure that contractual documentation is properly drafted (and kept up to date) and that procedures are scrupulously applied. CLB Employment Solutions is designed to ensure that you have the peace of mind which comes with knowing that your employment and HR procedures are applied with the continuing assistance of specialist employment lawyers.

You can read the judgment here.

sacked for stopping shoplifter

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[picappgallerysingle id="4773122" align="left"]This article in the US Columbus Dispatch reminded me of many a lively day when I managed the Virgin Megastore in York in the mid 80s. Walmart employee Heather Ravenstein has been sacked after challenging a man who walked out of the store with a $600 computer without paying for it. Although she was thanked at the time, she was called in the following day and given her cards because she violated company policy about how to treat people in stores.

[picappgallerysingle id="289790" align="left"]When I was working for Virgin in York (and this ages me!) our main sales were 33rpm albums which were shrink-wrapped with a big machine on the top floor. In those days there were not the scanner checks which you find at store entrances so it was down to us to spot them. I remember two occasions (both on Saturdays) when we lost the entire Who collection and another when we lost half the Reggae selection (approximately 50 albums). The instruction in those days was to pursue the felon and do what you could to retrieve both him/her and the albums. This often led to chases through the city centre and I remember one occasion when the woman who took the albums ran to the Lendal Bridge, threw all the albums into the river and then jumped in herself!

In our current health and safety aware society this type of escapade is clearly no longer acceptable but I do have sympathy for Ms Ravenstein who was doing what she (reasonably) thought was the right thing. It is essential for employers to provide guidance for employees about how to deal with the situations they may encounter in the course of their duties. This is why a staff handbook is essential. As part of our subscription package we provide a customised staff handbook which is tailored to suit your specific business and corresponding requirements. If you are a subscriber, you have probably already seen the benefit of this in practice. If not, please call 08000 320 974 and we will let you know how you can deal with this type of situation (and many others).