HR Two Minute Monthly - December 2013


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Summary: This month's summary of employment law developments includes cases on the duty to make reasonable adjustments for disabled employees, TUPE and enforcing a 12-month garden leave clause, as well as our BLP: Looking Ahead on the government's response to its consultation on the administration of the new shared parental leave right.

No duty to make reasonable adjustments where employer is prevented from obtaining a medical report

An employer is under a duty to make reasonable adjustments for disabled employees only if it knows, or could reasonably have been expected to know, that the employee is both disabled and likely to be at a substantial disadvantage compared with non-disabled people.  In Cox v Essex County Fire and Rescue Service, the EAT held that Essex Fire Service did not have that knowledge as Mr Cox did not allow Essex Fire Service to obtain a medical report on him.

Mr Cox told Essex Fire Service that he had bi-polar disorder. However Essex Fire Service didn’t have a definitive diagnosis about his condition and Mr Cox refused to allow his doctors to answer Essex Fire Service’s questions about his health.  As a result, the EAT held that Essex Fire Service did not and could not reasonably have been expected to know that Mr Cox was disabled.

However, employers should not assume that they can deny knowledge of an employee’s disability or avoid their duty to make reasonable adjustments just because they do not have a definitive diagnosis, or an employee refuses to provide medical information or undergo a medical examination. This case largely turned on its specific facts, which included Essex Fire Service having obtained occupational health reports which did not suggest that Mr Cox was disabled.

An employer doesn't have to have actual knowledge of an employee’s precise diagnosis to know, or reasonably be expected to know, that an employee is disabled. There will often be sufficient evidence available from which an employer can be imputed to know about an employee’s disability.

Dismissals made to allow for continued trading were for an ETO reason notwithstanding that the ultimate objective was to sell the business

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), where the sole or principle reason for a dismissal is a reason connected with a relevant transfer, the dismissal will be automatically unfair unless there is an economic, technical or organisational reason entailing changes in the workforce (an “ETO reason”).

In Crystal Palace FC Limited and another v Kavanagh and others, the insolvent football club’s administrator dismissed several employees shortly before the business was sold. The issue for the Court of Appeal was whether the dismissals had been carried out to achieve a sale of the business or to reduce costs so that the club could continue to trade. A desire to make a business more attractive to buyers and achieve a sale will not generally amount to an ETO reason, so any dismissals will be automatically unfair, whereas dismissals made to enable continued trading are likely to be for an ETO reason.

The Court of Appeal held that, even though the administrator’s ultimate objective was to sell the business as a going concern, the dismissals were carried out for an ETO reason – namely because the club had run out of money and had to reduce costs in order to continue to trade. The objective of the dismissals was not to achieve a sale of the business. Accordingly, the dismissals were not automatically unfair.

In its recent consultation on changes to TUPE, the government considered whether a transferor should be allowed to rely upon a transferee’s ETO reason when making dismissals before a transfer. However, it decided against implementing such a change.

Service provision change exception for a single specific event or task of short term duration

In Swanbridge Hire & Sales Limited v Butler and others, the EAT held that a tribunal had applied the wrong test when it found that there was a service provision change under TUPE, which transferred employees to an incoming contractor. The EAT gave guidance on the correct test.

Swanbridge took over a contract to insulate and clad boilers at a power station, after the original contractor fell out with the client.  At that stage, the original contractor had been carrying out work on the boilers for ten months.  Swanbridge then took a further eight months to complete the work.

TUPE provides that there is no service provision change where a client intends that the relevant activities will be carried out by the new contractor in connection with a single specific event or task of a short-term duration.

The EAT held that the Tribunal had failed to consider the client’s intention as to the duration of Swanbridge’s task in completing the boiler insulation work. The tribunal had also been wrong to consider the entirety of the boiler insulation work (which took the original contractor and Swanbridge 18 months in total to complete) rather than Swanbridge’s specific task of completing the remaining work, which took eight months. Accordingly, it remitted the case to a different tribunal to consider the client’s intentions when it awarded the contract to Swanbridge, in particular whether the client intended that the activities to be carried out by Swanbridge in connection with the task of completing the boiler insulation contract were of short term duration.

Importantly, the EAT confirmed that, in its view, both a single specific event and a task must be of short term duration in order to be exempt from the service provision change rules.

Draft TUPE regulations published

The Government has now published the draft TUPE regulations, which will amend TUPE and the Trade Union and Labour Relations (Consolidation) Act 1992.  The draft regulations follow the government’s response to its consultation on changes to TUPE, when it announced that it would not go ahead with its proposed repeal of the service provision change regulations, following overwhelming opposition to its plan.

Our BLP: Looking Ahead on the government's response to the consultation on TUPE sets out details of the proposals. These include:

  • amending the regulations that protect employees against dismissal and restrict changes to terms and conditions so that they apply only where the reason for the dismissal or change is the transfer itself, not a transfer-related reason;
  • allowing changes to location to amount to an economic, technical or organisational reason entailing changes in the workforce;
  • requiring activities carried out after a service provision change to be fundamentally or essentially the same as those carried out before in order for TUPE to apply;
  • clarifying that the static approach applies to collective agreements and that changes can be made to terms of a collective agreement after a year;
  • allowing those business with less than ten employees to inform and consult directly with employees (rather than through representatives);
  • increasing the period before the transfer when employee liability information has to be provided by the transferor to the transferee from 14 days to 28 days; and
  • where the transferor agrees, allowing collective redundancy consultation by the transferee to start before the transfer.

12-month garden leave was a reasonable period to protect stockbroking firm’s legitimate interest in retaining its clients

In JM Finn & Co Ltd v Holliday, the High Court extended an interim injunction to enforce a garden leave provision that allowed JM Finn to exclude Mr Holliday from the workplace for his full 12-month notice period.  This effectively prevented Mr Holliday from joining a competitor, or soliciting or dealing with any of JM Finn’s clients during this period.

Mr Holliday was employed by JM Finn as stockbroker.  He had been employed by JM Finn for over 12 years and had a 12-month notice period in his contract of employment. When he resigned to join a competitor, JM Finn put Mr Holliday on garden leave as it was entitled to do under his contract of employment.  JM Finn applied for an injunction to enforce the garden leave when Mr Holliday claimed repudiatory breach of his contract and said he was joining the competitor immediately.

The Court considered that the injunction went no further than was reasonably necessary to protect JM Finn’s legitimate business interest in retaining its clients. Mr Holliday had already flouted an interim injunction by attempting to divert business to his new employer and undermined JM Finn’s attempts to foster new relationships with its clients. The Court took into account that Mr Holliday had agreed to the 12-month notice period and garden leave provision on legal advice, at the same time as receiving a three-fold salary increase.

The Court gave short shrift to Mr Holliday’s claim that by refusing to forward to him its daily market knowledge update during his notice period, JM Finn had committed a repudiatory breach of contract that released Mr Holliday from his unexpired notice period and post-termination restrictions.

When a key employee who works closely with his employer’s clients leaves, it often takes his successor some time to establish and develop relationships with those clients. This case serves as a useful reminder of the importance and value to businesses of having express contractual provisions to protect its business interests, including client connections and confidential information. Careful consideration must be given to the appropriate duration of the provisions that restrict an employee from working in their chosen field. This case is fact specific and in many cases a 12-month garden leave provision may be deemed unduly onerous and therefore unenforceable.

Clause entitling employer to recover recruitment costs was not a penalty and could therefore be lawfully deducted from employee’s wages

In Cleeve Link Limited v Bryla, the EAT held that a clause allowing Cleeve to recover the monies it had paid out when recruiting Ms Bryla, including travel, agency recruitment fee and training, was a genuine pre-estimate of Cleeve’s loss.  Therefore it was not a penalty clause and could be deducted from Ms Cleeve’s final salary.

Ms Bryla was recruited in Poland. Her employment contract provided that if she resigned or was dismissed for misconduct within the first six months of her employment, Cleeve could recover the costs of recruiting her, her travel costs from Poland to the UK and training costs. After six months’ employment, the amount that Cleeve could recover was reduced by one sixth for each further complete month of employment so that after one year’s employment, no costs could be recovered from her. Ms Bryla was dismissed for misconduct within the first six months of her employment and Cleeve reduced her final pay by the amount due under the repayment clause.

The EAT held that whether a clause is a penalty depends on the construction of the clause, which should be construed at the time that the contract was entered into, not when the breach of contract occurred. The tribunal should assess whether the repayment clause would deter the employee from breaking the contract, in which case it is a penalty and unenforceable, or a genuine pre-estimate of loss suffered by the employer, which is not a penalty and is enforceable. In this case, the clause in Ms Bryla’s contract was a genuine pre-estimate of loss and not a penalty clause. Therefore, Cleeve was able to recover the monies from Ms Bryla under her contract.

It is not unusual for employers to seek to recover such costs from employees if they leave employment before a certain date. However, this case serves as a useful reminder that for such clauses to be enforceable, they must represent a genuine pre-estimate of the loss the innocent party is likely to suffer, rather than simply acting as a deterrent against leaving employment. A significant gap between the amount to be recovered under a repayment clause and the loss actually suffered is indicative of an unlawful penalty, as is the setting of a fixed amount to be repaid irrespective of the level of loss suffered. To maximise the chance of repayment provisions being enforceable, employers should consider reducing the amount to be repaid in proportion to the length of service from which the employer benefits after the cost has been incurred.

Judicial review of unfair dismissal compensation cap

An application for judicial review has been lodged to challenge the introduction of a statutory cap of 52 weeks' salary on the compensatory award for dismissal, which came into effect on 29 July 2013. The basis of the challenge is that it indirectly discriminates against older people who are more likely to be out of work for more than a year.

Response to the consultation on shared parental leave published

On Friday 29 November 2013, the government set out more details on shared parental leave (SPL) in its response to its consultation on the administration of the new leave.  SPL will allow parents to share up to 50 weeks leave to be taken before the child’s first birthday.  Both parents can take the leave at the same time or separately.

The announcement does not change the government’s original proposal fundamentally but provides more information on how SPL will work in practice.  It includes matters such as how much notice employees will have to give their employer of their plans, how many times they can change those plans and how many keeping in touch days employees will be entitled to.  The changes are due to come into effect in April 2015.

Our BLP: Looking Ahead factsheet on the government's response to the consultation on shared parental leave sets out details of the proposals.

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