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

Posted on April 17, 2011 by Martin Malone

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

Posted on November 23, 2010 by Martin Malone

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.

choose your words carefully

Posted on May 13, 2010 by Martin Malone

In Arkley -v- Sea Fish Industry Authority the Employment Appeal Tribunal was asked to consider the construction of a contract of employment with particular reference to the terms which applied on termination of the employment.

Mr Arkley was made redundant at the age of 51 and after 22 years’ service with the Authority. Clause 2(e) of the contract stated:

“…staff with not less than 5 years contributory service aged 50 or more and currently members of the Authority’s Superanuation Scheme will be entitled to an immediate payment of pension benefits based on reckonable service enhanced by not more than 10 additional years”

In other cases the Authority had offered a choice of either 10 years’ enhancement and a reduced lump sum or an enhancement of 6.6 years with a full lump sum.

However, prior to Mr Arkley’s retirement, pensions law was changed so that employers could not offer reduced lump sum deals. As a result, he was offered only the second option (6.6 years / full lump sum).

The employment tribunal found that the employer had acted fairly because the term “not more than 10 years” could be read as meaning less than 10 years could be paid on occasions and also because others had accepted the shorter period. However, this was a “split decision” of the tribunal and the employment judge took the view that “entitled” meant exactly that, i.e. entitled to receive (an enhancement of 10 years) and that the use of the words “not more than” did not confer on the employer a discretion to offer less.

The Employment Appeal Tribunal has agreed with the dissenting employment judge. In a nutshell, on a strict interpretation of the words used, the entitlement to 10 years’ enhancement was mandatory, not discretionary. If the employer wanted to change the terms of the contract to reflect the change in the law it could have done so at the time but did not.

You can view the full judgment here.

Needless to say, the judgment reinforces the point that employers must keep the terms of their contracts of employment (and related documents) under regular review. That is a key aspect of the CLB Employment Solutions service. If you are concerned about your contracts of employment or other employment documents, please call now on 08000 320 974.

TUPE – employers can thank the European Court

Posted on March 23, 2010 by Martin Malone

Under the TUPE regulations, on acquisition of a business or undertaking employers automatically take on employees working in that business or undertaking. Their employment contracts “have effect after the transfer as if originally made between the person so employed and the [new employer]“. As a general rule the new employer cannot change the terms of those contracts. So what happens when the employment contracts provide for salaries to be as negotiated from time to time by the original employer (or an employer’s organisation) with a particular trade union?

The Court of Appeal has recently given a definitive answer to this question. A Mr Alemo-Herron and his fellow claimants worked for Lewisham LBC. Their terms and conditions of employment were subject to collective agreements made from time to time between Lewisham and the National Joint Council for Local Government Services (NJC). In 2002 their employment transferred under TUPE to a company called CCL and again in 2004 to Parkwood Leisure. CCL awarded pay increases in line with post-2002 NJC agreements and (without acknowledging any liability to do so) so did Parkwood in 2005. However, Parkwood refused to award pay increases in line with a 2007 agreement negotiated between Lewisham and the NJC.

Mr Alemo-Herron and other employees sued. When their case came before the EAT, they won. The EAT held that Parkwood was obliged to give effect to the pay increase agreed between Lewisham and the NJC in the 2007 collective agreement despite the fact that it was negotiated after the date of the transfer and despite the fact that Parkwood had nothing to do with the negotiations. The EAT reasoned that it was a contractual term that successive collective agreements would increase pay. There was no basis for discontinuing this practice, the TUPE regulations clearly applied and so the employees won.

Parkwood appealed to the Court of Appeal. The judges there took a different view. They considered that the relevant part of the TUPE regulations could be given either a “static” interpretation, as had been given by the EAT, or a “dynamic” interpretation. They favoured the latter. The Court of Appeal pointed out that in a similar case in 2006 the European Court of Justice had given a “dynamic” interpretation to the relevant part of the EC Acquired Rights Directive, pursuant to which the British TUPE regulations were made (Werhof v Freeway Traffic Services GmbH and Co KG ECJ 2006 in which the ECJ ruled that changes in a collective agreement between a worker’s organisation and the transferor employer made more than 12 months after what in the UK would be called a TUPE transfer were effectively not covered by the Acquired Rights Directive).

Although it is possible for British regulations to “gold plate” EC rules and thus provide employees with more protections than the minimum required by EC directives, the Court of Appeal found there was nothing to require the TUPE regulations to be interpreted in such a way in this case. Accordingly it followed the lead of the European Court of Justice (which, incidentally, pursuant to the recent Lisbon Treaty, is now technically called the “Court of Justice of the European Communities”). Overruling previous decisions to the contrary the Court of Appeal thus held in effect that if an employee’s employment is transferred to a new employer by reason of a TUPE transfer and his or her terms of employment incorporate terms of a collective agreement to which the new employer is not a party, the new employer does not need to give effect to subsequent pay increases agreed under that collective agreement.

So this time British employers, who traditionally worry about the impact of EU law on British employment law, will want to give at least two cheers for the European Court. It clearly paved the way for a decision by our Court of Appeal which employers will applaud.