Redundant Employees were Unfairly Dismissed

In the EAT case of Contract Bottling Ltd v Cave (1) and McNaughton (2) it was held that the reason for the Appellants’ dismissals was, indeed, redundancy even though the jobs they had both performed continued to exist after their dismissals. How so?

The key statutory provision is section 139(1) of the ERA 1996, which defines redundancy in the following way:

“For the purposes of this Act an employee who is dismissed should be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to—

(a) the fact that his employer has ceased or intends to cease—

(i) to carry on the business for the purposes of which the employee was employed by him, or

(ii) to carry on that business in the place where the employee was employed, or

(b) the fact that the requirements of that business—

(i) for employees to carry out work of a particular kind, or

(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer,

Have ceased or diminished or are expected to cease or diminish.”

In this case the employer’s case was that it had a reduced requirement for employees to carry out work of a particular kind. However, strangely, although the cuts were only needed amongst administration and accounts staff, it decided to put ALL its staff in the pool and apply a generic selection matrix in order to determine who would be dismissed. What this meant was that people were retained in administration and accounts and others from other departments where such a reduction in headcount was not required, were dismissed. The Employment Tribunal mistakenly held that, because the individuals who were dismissed were not from the departments where the reduction in headcount was needed, their dismissals could not have been by reason of redundancy. However, the EAT overturned this decision on the basis that it was perfectly clear that there was a reduced requirement in the company for employees to carry out work of a particular kind. It was irrelevant, for the purpose of the definition, whether the pool from which the staff were selected went beyond the areas where reduction in headcount was needed. What the pool for selection does is help determine whether or not the decision to dismiss for redundancy was fair.

As a result, the EAT upheld the company’s appeal against the Tribunal’s finding that the reason for the dismissals was not redundancy. However, it agreed with Tribunal’s finding that the dismissals were, nevertheless, unfair. It then remitted the case back to the original Tribunal for it to assess whether the compensation awarded to Cave and McNaughton should be subject to a Polkey reduction on the basis that they would likely have been dismissed anyway even if a fair procedure had been followed.

Interestingly, the original tribunal’s finding of unfair dismissal was not centred around the somewhat unusual (to put it mildly) pool for selection, but was instead highly critical of the process for selection from that pool. This case is therefore also useful as an illustration of how difficult it is for an employment tribunal to criticise the pool from which employees are selected for redundancy provided the employer can (a) show it has given real consideration to the pool and (b) provide evidence to establish that it was not outside the range of reasonable responses to select from such a pool.

Employment Tribunal Fees – Part 2

I attended an employment law master class this week given by Daniel Barnett of Outer Temple Chambers and one of the topics covered related to the introduction of fees in the Employment Tribunal.  As those of you who read my January post will know, I was initially very much in favour of their introduction, but I have now had a chance to reflect and I am not quite so positive in my views.  It now seems apparent that, whilst the introduction of fees will certainly act to significantly reduce the number of claims being pursued,  it is unlikely that the reduction will be as a result of those with unmeritorious claims simply deciding not to pursue them.  What is more likely is that those with highly meritorious but low value claims will simply not be able to afford to pursue them given that the issue and hearing fees may exceed the value of the claims and those with unmeritorious discrimination claims (i.e. those who believe their perceived claims have significant value) will still bring them in order to try and wrestle a pay off from their (former) employer.  That, regrettably, is unlikely to change.

I also said in January that those who cannot afford the fees will be able to invoke the Civil Fees Remission Scheme.  However, this is a hugely complex scheme which has been described by the Citizens’ Advice Bureau as not fit for purpose.  A Claimant will be entitled to a full remission of fees if he or she is on non-means tested Income Support.  However, anyone who loses a job and claims benefits will be on a means-tested benefit.  Furthermore, if an individual resigns (even if that resignation is because of a constructive dismissal), or gets a bad reference, there is no entitlement to Job Seekers’ Allowance for 28 weeks.  Therefore, in practice, it is going to be extremely difficult, if not impossible, for individuals to qualify for a full remission of fees.

The introduction of fees, coupled with the introduction of compulsory early conciliation (prior to claims issue), will undoubtedly reduce the number of claims by an estimated 25% – 33%.  However, there is no evidence that the Tribunals are currently over-burdened and there is similarly no evidence to suggest that it is the unmeritorious claims which will be filtered out.

So here you have it, a complete U-turn from me.  Something which my husband and friends will tell you is an event rarer than hens’ teeth.

Discovering Gross Misconduct after Redundancy Dismissal

The recent Court of Appeal case of Cavenagh v William Evans Limited raises a very interesting issue for employers when considering what provisions to make for termination without notice in their contracts of employment.

The usual situation is for contracts of employment to stipulate that employment can be terminated with a specific period of notice or, in cases of gross misconduct, without any notice at all.   Sometimes contracts of employment provide that employment can be terminated without notice provided that a payment in lieu of notice is made instead.  However, I have never come across a contract of employment which deals with what happens to a payment in lieu of notice if, subsequent to the dismissal, the employer discovers that the former employee had committed an act of gross misconduct which would have entitled the employer to dismiss summarily.  Reading this case, however, I may advise my clients to consider this situation when drawing up their contracts and to make specific contractual provision for payments in lieu of notice not to be payable if subsequent gross misconduct is discovered. 

Mr Cavenagh’s employers made him redundant and, as per its entitlement to do so under his contract of employment, paid him in lieu of 6 months’ notice rather than requiring him to work his notice.    However, after Mr Cavenagh’s employment was terminated, but before the payment in lieu was made to him, the employer discovered that he had committed an act of gross misconduct which would have entitled the company lawfully to dismiss him without notice, or pay in lieu of notice (or indeed, without any entitlement to a redundancy payment).  The company therefore withheld the notice pay.   Mr Cavenagh sued.

The Court of Appeal held that, as Mr Cavenagh’s contract had been terminated by reason of redundancy and not by reason of gross misconduct, and because the contractual provision to exercise the right to make a payment in lieu of notice had been exercised and not the right to dismiss summarily for gross misconduct, Mr Cavenagh had acquired an accrued right to the payment and the company was therefore not entitled to withhold it.  Specific mention was made of the fact that there was no provision in the service agreement denying him the right to the payment in lieu if the company subsequently discovered that he had committed a prior act of gross misconduct.   Something that the company (like most companies) had probably not even contemplated when drawing up the contract of employment but which it will probably ensure is dealt with in subsequent contracts.

This contrasts with the position where a former employee sues for unfair dismissal and the employer is able to show that conduct discovered post-dismissal amounted to gross misconduct.  In that situation, even if the dismissal at the time was unfair, any award can be reduced to zero because the conduct subsequently discovered mitigates any entitlement to compensation.

Seldon and the Issue of Retirement

Much is being made of the recent Supreme Court decision in the case of Seldon v Clarkson Wright and Jakes as many commentators believe that it paves the way for the re-introduction of a default retirement age.  I am not so sure.

Mr Seldon qualified as a solicitor in 1969 and joined the Respondent firm in 1971.  He became an equity partner in 1972.  A term of the Partnership Deed was that all partners must retire at the end of the year in which they reached the age of 65 and Mr Seldon was retired automatically at the end of December 2006.  The Employment (Equality) Age Regulations came into force on 1 October 2006 and therefore Mr Seldon commenced proceedings, arguing that his explusion from the partnership was an act of direct age discrimination.   It is important to note that Mr Seldon was able to pursue his claim on the basis that he was a partner and not an employee as until the abolition of the default retirement age in employment, it was lawful to retire employees at 65.  It is also important to remember that even direct age discrimination can be justified if the act complained of is a proportionate means of achieving a legitimate aim.

The Supreme Court considered carefully the six aims which were put forward by the partnership as justification for their requirement that equity partners must retire at 65 and held that, in fact, only three of them were legitimate from a social policy and not just an individual business perspective:

1.  staff retention

2.  workforce planning

3.  allowing an older, less capable partner to leave without the need to justify his departure on performance grounds which would damage his dignity

The Court also held that requiring a partner to retire would be a proportionate means of achieving these aims.  However, the case has been remitted to the Employment Tribunal to consider whether the choice of a mandatory age of 65 was, in fact, a proportionate means of achieving the legitimate aims which were set out by the Partnership.  It will, in my view, be more interesting to see the outcome of that hearing.  The ultimate findings of the Tribunal in this case will effectively determine whether a default retirement age can be reintroduced through the back door. 

In my view, it will be extremely difficult for an employer to choose a specific retirement age, even if it has legitimate aims such as those put forward in this case.   Why 65?  Why not 64 or 66?   And if a particular age can be justified now, will that age remain static as the population ages or will companies be required to review any retirement ages, say every 5 years or so?  I, for one, am looking forward to seeing the final outcome of the Seldon case but until then my advice to employers will continue to be that they should not have a default retirement age at all.

What makes an Employee an Employee? The Lap Dancer and the Nightclub…

The question of what makes an employee an employee is a very important one as employees have statutory rights and protections that other workers and those genuinely in business on their own account do not have.  Arguably, the most important of these statutory protections is the right not to be unfairly dismissed which arises after 1 year’s continuous employment (or 2 years for people engaged after 6 April 2012).

The recent EAT case of Quashi v Stringfellows Restaurants Ltd examined this question in detail and in this article I set out the salient points which came out of the Judgment.  In this case Ms Quashi had been working as a lap dancer at Stringfellows.  At the time of her engagement both parties believed that the agreement being entered into was a contract for services – i.e. the dancer would be self-employed – as that was what was stated to be the case in the contract which was entered into between them.   However, as time went on Ms Quashi began to question the validity of this and, when she was ultimately dismissed, she claimed unfair dismissal, arguing that she had, in fact, been an employee of the Club for almost two years.

The case also dealt with the issue of “umbrella contracts” as Ms Quashi had several breaks between periods of work.  The EAT considered whether, despite these breaks, Ms Queshi maintained the continuity necessary to found an unfair dismissal claim on the basis that she argued that there was an overreaching contract of employment which governed the entire period that she worked at the Club.

What are the essential ingredients for a contract of employment?

A  Tribunal is required to look at the whole picture to determine whether an individual is employed under a contract of employment or is self-employed.  Whilst the written agreement entered into between the parties is an important document for consideration, it is only one factor to be taken into account.  Just because a contracts states that it is a contract for services not a contract of service is not, of itself, determinative.

There are three elements which MUST be present in any contract of employment:

1.  There must be an obligation on a person to provide work personally.

2.  There must be mutuality of obligation between the parties.  Mutuality of obligation arises in any contract, whether that is a contract of employment or otherwise.  The mere existence of a contract (which consists of an offer, acceptance of the offer and “consideration” (normally payment) ) is sufficient to show mutuality of obligation.

3.  There must be sufficient control over the person engaged to perform the work by the person doing the engaging.

In this case, Stringfellows conceded that there was a contract in place between the parties on each occasion that Ms Quashi danced at the Club and therefore the EAT Judge held that there was de facto mutuality of obligation.  Ms Quashi was also required to attend personally to perform at the Club.  She was not allowed to send a substitute if she was sick or on holiday.  As such, the first condition of the test was also fulfilled.  The final question, therefore, was whether there was sufficient control over Ms Quashi in how she performed her work.  In examining the evidence, the Judge found that there was.  Ms Quashi was subject to strict rules and regulations in the performance of her duties.  For example, she was obliged to turn up for work when she appeared on the rota and was fined if she didn’t turn up or was late.   She was also required to attend weekly meetings (for which she was not paid) and, again, would be fined if she didn’t attend.  There were strict standards of dress and grooming and, in fact, there was a company handbook which set out in detail the expectations placed on individuals working at the Club.

The EAT therefore held that the Tribunal had been entirely wrong in finding that there had been no contract of employment in place and it therefore substituted its finding for that of the original Tribunal.  However, the Claimant was not yet home and dry as, in order to found her claim, she had to show that she was employed under a contract of employment for at least 12 months continuously.  In order to do this, she had to establish that there was an “umbrella contract” which governed her employment between periods where she actually performed work.

In this case, it was specifically found on the facts that there was an expectation on both sides of continued engagements.   There was a rota which Ms Queshi was given which informed her when she was next expected to work and, if she didn’t turn up, she was fined.  In addition she was expected to attend weekly meetings even during weeks where she did not perform work and, again, was fined or could be “dismissed” if she didn’t turn up.   In light of this expectation, the EAT held that there was, indeed, an umbrella contract of employment and that, as such, Ms Queshi had sufficient continuity of employment to found a claim of unfair dismissal.

This case is an important reminder of the importance, not only, of the words contained in any contract but also of the factual nexus which governs the relationship between the parties.  If an “employer” wishes to ensure that an employment relationship is not being created then it must be very careful to ensure either that it doesn’t exert any real control over the person engaged to do the work or that it allows a substitute to be provided if the worker is unavailable to perform the work for any reason.

A Refusal must be Explicit

One would have thought that an employer dismissing employees for being asleep on the job would be a fairly safe thing to do. As it turns out, the employer in the case of Ajayi and another v Aitch Care Homes (London) Ltd UKEAT/0464/11 got away with it, but had to fight the employees’ claims all the way to the EAT.

As the employees concerned had less than a year’s service, their lawyer had to come up with a plan to enable them to bring their claims as, ordinarily, with employees with less than the requisite level of service, an employer can dismiss with impunity. The exception to this is if the dismissal is for one of a number of automatically unfair reasons.

In this case, the employees argued that they had been dismissed because they refused to forgo a right conferred on them by the Working Time Regulations 1998 (“WTR”). They argued that the employer had not allowed them the right to a statutory rest break as conferred under the WTR and that as such, their taking a nap whilst at work was indication of their refusal to forgo that right.

The EAT disagreed and upheld the tribunal’s decision. It expressed the view that a “refusal” must be more than simply “non-compliance”. It must be explicit and not something which the employer might be able to infer from the employee’s conduct.
The EAT gave the following reasons for its decision:

1.  Parliament specifically used the terms “refused” or “proposed to refuse”.  Had it intended non-compliance to be sufficient, it would have used words such as “failed” or “did not comply”.

2.  Without the requirement for an explicit refusal, it would not always be clear to an employer that the employee is refusing to comply.  For example, in this case, the employer might never have actually discovered the employees asleep.

3.  Regulation 12 of the WTR 1998 provides for minimum rather than precise rights. It does not, for example, provide that a worker is entitled to a break after working six hours. A worker with an eight-hour day will be entitled to a rest break, but whether that break comes after three, four or six hours is a matter for discussion between employer and employee. The regulation sets out a structure within which rest break rights will be negotiated and agreed in the workplace. There is a need for communication, and the word “refusal” in section 101A reflects this.

Had the employees had sufficient service to bring ordinary unfair dismissal claims, the tribunal may well have found in their favour on the basis that the employer was in flagrant breach of the provisions of the WTR in refusing them rest breaks.

When is the Last Day of Employment not the Last Day of Employment?

The recent case of Horwood v Lincoln County Council is a salutary lesson to employees and their representatives and, perhaps, gives employers a crafty (if somewhat underhand) way of avoiding being sued. This case involved a long-standing employee of the Council who resigned by way of a letter dated 27th January 2010. The letter was posted on 28th January and was date stamped as having been received by the Council on 29th January. In her letter, the Claimant stated clearly that she was resigning in response to the Council’s fundamental breach of contract. As such, she stated, she did not need to serve notice and therefore her employment would be terminating immediately. She also told the Council that she would, in due course, be issuing proceedings for unfair constructive dismissal. The Council responded to the Claimant confirming that it accepted her resignation and stating that it would be treating the 2nd February as being the last day of her employment. It paid her up to that date.

In evidence given to the Employment Tribunal, the Council stated that it chose 2nd February purely for administrative purposes and both the Council and the Claimant confirmed that the date of termination had not been discussed by them prior to that letter having been sent.

The Claimant’s representative posted an ET1 on the Claimant’s behalf on 28th April 2010 and it was received by the Employment Tribunal the following day. The Respondent argued that the Claimant’s claim had been submitted out of time, the time limit for submission of unfair dismissal claims being 3 months from the Effective Date of Termination of employment (EDT), and that as such the Tribunal did not have jurisdiction to hear her claim. The last date for submission of the Claimant’s claim, it stated, was 28th April (i.e. three months from the date the Claimant’s resignation letter had been received by the Council) and not 1st May, as the Claimant’s representative was asserting. The Employment Tribunal agreed.

In his judgment, the Employment Judge addressed the issue of the EDT. He referred to the provisions of section 97(1) and section 111 of the Employment Rights Act 1996 and he identified the issues as being (a) When was the effective date of termination? and (b) Was it varied by agreement and, if so, what was the new date? He found that the EDT was the date that the Council receive the resignation letter, i.e. 29th January as the EDT operates as a matter of law and he found also that the letter purporting to vary the date was sent by the Council of its own volition and that there had been no agreed variation to that date between the parties. As such, he held, the EDT could only be the date that the Claimant’s unequivocal letter of resignation had been received. He went on to say that he could not allow an extension of time to serve the ET1 as it was plain that there was no extenuating circumstance which prevented the Claimant from being able to issue in time.

The lesson to be learned from this by Claimants and their representatives is obvious – be very clear of the EDT and ensure that any claim is issued well in advance of the time limit – preferably by e-mail or fax. However, a canny employer could use ambiguity in relation to the EDT to his advantage. Say, for example, an employee was to resign in similar circumstances to Mrs Horwood. A devious employer could do exactly as the Council did in this case and respond saying that it would be treating the termination date as being some time later, paying the employee up to that new date. It could then instigate settlement negotiations with the former employee, stating that it would like to resolve any potential claims amicably and without the need for proceedings to be issued. There would, of course, be no obligation on the employer to actually reach a settlement but it could continue to negotiate in the hope that the former employee would hold off issuing a claim whilst those negotiations were ongoing. Clearly, at some point, the employee would need to issue a protective claim to ensure he or she was in time to do so should the negotiations break down. However, hopefully, the decoy of the “new EDT” would mean the employee ended up issuing too late and having his or her claim struck out. This is clearly a devious ploy, is not guaranteed to work and is morally questionable. However, they say all is fair in love and war (and litigation) and who am I to argue?

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