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Key employment law developments: restrictive covenants; whistleblowing; employment status


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Summary: Our September blog outlines the key employment law developments over the last month, with cases covering topics including restrictive covenants, whistleblowing, discrimination and gig economy employment. We also outline other points of note this month, including revisions to discrimination compensation and SMCR developments.

Calculation of a week’s pay should include employer pension contributions  

The EAT has held that a week’s pay under the Employment Rights Act 1996 must be calculated taking into account employer pension contributions. 

Whilst this decision goes against long-established practice, the EAT was satisfied that the wording of the Employment Rights Act (under which a week’s pay is calculated) was wide enough to include payments made by the employer into an employee’s pension fund.  Pension contributions are no less a reward for service than basic pay and can therefore properly be said to be ‘remuneration’ that should be taken into account when calculating a week’s pay.

Why this matters?

The judgment pushes up the value of potential unfair dismissal awards for employees earning less than the statutory cap on a week’s pay (currently £489 pw), as well as the amount of the protective award on collective redundancy and compensation for failing to inform and consult under TUPE, both of which are calculated based on actual weekly earnings (now including employer pension contributions).  Employers who ‘buy-out’ protective awards under a settlement agreement may wish to ensure that buy-out payments reflect the higher amount that the tribunal can award.

University of Sunderland v Drossou  

Restrictive covenant that prevented an employee being “interested in” any competing business was too wide

The Court of Appeal has held that a restrictive covenant which prevented an employee from being “concerned or interested in” any competing business for a period of six months from termination was unenforceable.

The covenant did not contain any carve-out that would have allowed the employee to hold a minority shareholding in a competing business for investment purposes. The Court of Appeal held that the inclusion of words “interested in” without this express carve-out wording would have prevented the employee from holding a single share in a publicly quoted company that competed with her former employer. As a result, the covenant was impermissibly wide and void as a restraint of trade. Furthermore, the Court refused to delete the “interested in” provision in order to leave a valid non-compete covenant.

Why this matters?

The case is a useful reminder of the need for restrictive covenants to be carefully drafted so as not to fall foul of the restraint of trade doctrine.  Covenants must protect an identified legitimate business interest and must not go further than necessary to protect that interest. If a covenant does not have appropriate limitations in place, then the courts will not redraft the provision to make it enforceable.

Tillman v Egon Zehnder Ltd

NEDs personally liable for their roles in dismissing a whistleblower

The EAT has held that two Non—Executive Directors (“NEDs”) subjected a whistleblower to an unlawful detriment as a result of their role in his dismissal.

The claimant CEO had made various protected disclosures relating to corporate governance matters. Some months later, one of the NEDs emailed the other to tell him to dismiss the claimant from his role. The second NED duly carried out that instruction.

The EAT held that there was nothing to prevent the NEDs from being personally liable for unlawful detriments for their actions in dismissing the claimant. Further, the EAT also held that the NEDs were personally liable to pay compensation for the losses that flowed from those unlawful detriments. 

Why this matters?

This case paves the way for dismissed whistleblowers to bring claims for unfair dismissal against their employer, and for detriment against the dismissing manager(s). This may be deployed by claimants as a litigation tactic, in order to put pressure on the organisation to settle.  Detriment claims against managers will also mean that a  successful claimant could potentially recover an additional injury to feelings award against the manager, an award which is not available in a whistleblowing dismissal claim.

International Petroleum Ltd and others v Osipov and others

Cycle courier was a worker and not self-employed

In the latest ‘gig economy’ case, an employment tribunal has found that a cycle courier working for Addison Lee was a worker rather than a genuinely self-employed independent contractor.

The tribunal disregarded the contractual documentation which it said did not correctly reflect the reality of the relationship.  Key in this case was the fact that the courier was required to provide personal service under the company’s direction and control.  The fact he could turn down a job on occasions (for example, if he had a puncture) did not negate the existence of a contract, as the company claimed.

Notably, the tribunal was highly critical of the inclusion in the contractual documentation of an obligation on the courier to indemnify the company against any liability, including costs, resulting from any claim made by him based on employee or worker status.

Why this matters?

This case reinforces the general direction of travel that dependant individuals working in gig economy businesses may well be workers rather than genuinely self-employed. We wait to see what the government will do in this space, including when it decides to consult on the recommendations made earlier this summer in the Taylor Review of Modern Working Practices.

Gascoigne v Addison Lee Ltd ET/2200436/2016

Suspension of a teacher constituted a repudiatory breach of the contract

The High Court has held that a teacher was entitled to treat herself as constructively dismissed when she was suspended pending an investigation into her conduct and the alleged use of unreasonable force on a child.

The High Court rejected the school’s argument that the suspension was in support of the school's overriding duty to protect the children, noting that it had failed to consider any alternatives to suspension before deciding to suspend. The school has also failed to establish why the investigation would be prejudiced had the teacher remained at work. In these circumstances, the act of suspension constituted a repudiatory breach of trust and confidence and the teacher could treat herself as constructively dismissed.

Why this matters?

Suspension pending a disciplinary investigation is not a neutral act and should not be an automatic or knee-jerk reaction.  Employers should be able to show that they have considered alternatives and, having done so, suspension remains the only appropriate way of proceeding in the particular circumstances of the case.  

Agoreyo v London Borough of Lambeth

New approach to burden of proof in discrimination claims

The EAT has held in a direct discrimination claim there is no initial burden of proof on the claimant. This runs contrary to what had been the generally accepted approach in discrimination cases for several years. The historic approach required the claimant to prove facts from which you could infer that discrimination had taken place, at which point the burden shifted to the employer to prove that there had been no discrimination.

Instead, this new EAT decision says that the tribunal is required to consider all of the evidence, from all available sources, to determine whether or not there are facts from which it is possible to conclude that discrimination has occurred.  If such facts exits, and the employer has put forward no reasonable explanation, then the tribunal must find that discrimination has occurred.

Why this matters?

Although the case concerned direct discrimination, the principle will apply to all types of discrimination claim.  There will be no initial burden on the claimant to prove anything in evidence and the tribunal will need to consider all of the facts as a whole. In defending discrimination claims, an employer must ensure it places sufficient evidence before the tribunal to be sure to robustly defend the claimant’s allegations.  

Efobi v Royal Mail Group Ltd

Round up of other developments

Modern slavery: a new Modern Slavery Bill has received its first reading in parliament.  The bill seeks to require further transparency in supply chains in respect of human trafficking. 

Pensions loss: Presidential Guidance has been issued together with Principles to be taken into account by employment tribunals when assessing and compensating pensions loss.  This took effect from 10 August 2017. 

Senior Managers and Certification Regime (SMCR): the Banking Standards Board has issued a consultation paper on draft guidance to assist firms in assessing fitness and propriety of their certification regime staff.  Comments can be made on the draft guidance until 29 September 2017.

Vento bands: the Presidents of the Employment Tribunals have confirmed an increase in the bands for injury to feelings compensation in discrimination claims.  The new bands are £800 to £8,400 (less serious cases); a middle band of £8,400 to £25,200 (cases that did not merit an award in the upper band); and an upper band of £25,200 to £42,000 (the most serious cases). These will be reviewed in March 2018 and annually thereafter.

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