HR Two Minute Monthly: Holiday pay; LLP members’ employment rights; Post-termination restrictions


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Summary: Our June update includes the ECJ’s landmark decision on holiday pay entitlements, the Supreme Court’s decision about the employment status of LLP members, another new case of an employer successfully enforcing a 12 month non-compete restriction, and a reminder of the June 2014 changes to the right to request flexible working.


ECJ on holiday pay: costs for employers expected to increase


The European Court of Justice’s landmark decision in Lock v. British Gas Trading Ltd raises the prospect of increasing employers’ holiday pay costs. Employers should start reviewing their statutory holiday pay arrangements for staff who are entitled to variable pay such as commission, bonuses, overtime and allowances, to assess whether statutory holiday pay should include sums in respect of those elements of remuneration. See our full legal update for more information.




LLP members entitled to whistleblowing protection and some other employment rights


The Supreme Court’s decision in Clyde & Co. v Bates van Winkelhof means that LLP members are entitled to a number of statutory employment rights. The Supreme Court ruled that the claimant, a former equity partner of an LLP law firm, was a “worker” for statutory employment protection purposes. As a result, she was entitled to claim whistleblowing protection. Having worker status also means that LLP members are entitled to a number of other statutory employment rights.


Partner claims mistreatment was because she blew the whistle


Clyde & Co LLP had a joint venture with a Tanzanian law firm. Ms van Winkelhof, one of the partners in the LLP, reported to the LLP’s money laundering officer that the managing director of the Tanzanian law firm had admitted paying bribes to secure work and to secure the outcome of cases. She alleged that as a result of making these disclosures she was suspended and ultimately expelled from the LLP. She claimed, among other things, whistleblowing protection.


The lower courts have conflicting views about her employment status


Employment law distinguishes between three types of people; (1) employees, (2) self-employed people who are in business on their own account and undertake work for their clients or customers, and (3) workers, who are self-employed but do not fall within the second category. Only employees and workers are entitled to claim whistleblowing protection. Ms van Winkelhof said she was a worker. The employment tribunal disagreed, arguing that a member of an LLP partnership was in business in her own right, receiving a share of the profits in relation to the work carried out. The EAT, however, thought that she was a worker because she was an integral part of the LLP’s business and could not offer her services to anyone else. The Court of Appeal overruled the EAT and said that a worker had to be in a subordinate relationship to the employer, whereas LLP members are in a relationship of equals.


Supreme Court says LLP members are workers


The Supreme Court disagreed with the Court of Appeal. Ms van Winkelhof satisfied the statutory test for a worker. Subordination is not essential for claiming worker status. She was therefore entitled to claim whistleblowing protection.


Implications for employers


LLPs need to take care to ensure that they treat their members in the same way as they would ordinary staff who raise complaints or concerns that might amount to whistleblowing.

The case had wider implications, as workers are entitled to a variety of employment rights, including statutory holiday and other Working Time rights, protection against unauthorised clawback of remuneration under the unlawful deductions from wages regime, and possibly also pensions auto-enrolment.




12 month non-compete restriction was enforceable


A 12 month non-compete clause contained in a “goodwill agreement” was enforceable, according to the High Court in Merlin Financial Consultants Ltd v Cooper. The employee had freely entered into more onerous restrictions and had benefited from more advantageous terms than the employer’s standard employment terms, in exchange for bringing his existing client book and the income stream generated by their funds under management.


Goodwill agreement contained more onerous non-compete restrictions than employment contract


When Mr Cooper, a financial adviser, joined Merlin Financial Consultants Limited (“Merlin”) he signed both an employment contract and a goodwill agreement. The employment contract contained restrictive covenants preventing him from competing with Merlin for 6 months after his employment terminated. Under the goodwill agreement, Mr Cooper was paid a separate sum in return for the goodwill in, and the right to receive future income from clients whom he brought to Merlin. The goodwill agreement included a more onerous 12 month non-compete restriction.

When Mr Cooper left Merlin and set up in competition, Merlin sued for breach of the goodwill agreement. Rather than seeking an injunction preventing Mr Cooper from working for his new venture, Merlin claimed damages for breach of the restrictive covenant in the goodwill agreement.


Damages claim for breach of 12 month non-compete clause was successful


Despite being the most difficult type of restriction to enforce, the High Court upheld the 12 month non-compete provision in the goodwill agreement. Mr Cooper had equal bargaining power when he entered into that agreement, the non-compete restriction sought to protect Merlin’s client connections, and 12 months was a reasonable period for protection in the circumstances. Mr Cooper was ordered to pay damages for Merlin’s loss of profit for 2 years after his departure.


Enforceability of restrictive covenants is fact specific


This is a further example of a case in the financial services sector, where there are often strong and loyal relationships between individual employees and their clients, in which a 12 month non-compete covenant was held enforceable. It also serves as a useful reminder that the law is more willing to uphold onerous restrictive covenants where the agreement is made between parties of equal bargaining power.




Discriminatory comment did not play a material part in employee’s constructive dismissal


The EAT in Clements v Lloyds Banking plc and others has held that because a manager’s age discriminatory comment to an employee was not a material part of the repudiatory conduct that the employee relied on to claim constructive dismissal, the employee’s age discrimination claim about the dismissal failed.


Employer makes discriminatory comment in a performance management context


The claimant, who was in his 50’s, held a senior role. His manager had performance concerns, and thought it time for the claimant to move on. He sought to move the claimant from one role to another without adopting any proper process to do so. At one stage during an initial conversation, the manager said to the claimant “you’re not 25 anymore”. This was age discriminatory, even though it wasn’t intended that way. After a number of subsequent events, which amounted to breach by the employer of the implied duty of trust and confidence, the claimant resigned and successfully claimed constructive dismissal.


Discriminatory comment wasn’t the operative reason for the claimant’s constructive dismissal...


The EAT confirmed the employment tribunal’s decision that age discrimination was not a material part of the employer’s reasons for attempting to move the claimant on from his post. Although the comment said in the initial conversation was age discrimination, and although that in itself might have entitled the claimant to claim constructive dismissal, by the time of the resignation, far more had happened. The effective cause of the claimant’s dismissal was the employer’s subsequent failures to properly performance manage the claimant. This meant his claim for discriminatory dismissal failed.

This case serves as a reminder that whether or not a particular act has caused or materially contributed to a dismissal is a question of fact. However, as a general point, employers should bear in mind that an act of discrimination will itself usually constitute a breach of trust and confidence, entitling an employee to claim constructive dismissal if they choose to resign in response to the discrimination.




Flexible working changes coming into effect on 30 June 2014


This is a reminder that from 30 June 2014 the right to request flexible working is being extended to all employees with 26 weeks’ service. In addition, the current statutory procedure for considering flexible working requests will be abolished and replaced with a requirement to handle requests in a reasonable manner.




Employment tribunal fees judicial review to be heard by the Court of Appeal


UNISON have been granted permission to appeal the dismissal of their judicial review application about the introduction of employment tribunal fees. The union will ask the Court of Appeal to consider the March 2014 statistics indicating that employment tribunal claims dropped by 79% in the first six months following the introduction of the tribunal fees regime.




High Court dismisses judicial review of unfair dismissal compensation cap


The High Court has dismissed an application for judicial review of the statutory cap of one year’s salary on an ordinary unfair dismissal compensatory award. The cap was introduced in July 2013. The judicial review application argued that the cap disproportionately affects older employees who are more likely to be out of work for longer than a year.


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