Employment Review - December 2006
In this Review we report on how a dismissal due to ill health caused by the employer may not be unfair; a case involving undertakings to stop a new employer from using confidential information obtained from a former employer; an important case clarifying the law on making Polkey deductions from compensation; and a look at the seminar work we have undertaken for our clients this month.
A Fair Ill Health Capability Dismissal
Bonuses, Employment Contracts and UCTA
Speculating Allowed In Compensatory Awards
Annual Increase In Tribunal Award Limits
Confidential Information Undertakings
Reasonable Adjustments On A Redundancy
Flexible Working For Carers
Statutory Grievance Procedure And Time Limits
Recent Work
A Fair Ill Health Capability Dismissal
The Employment Appeal Tribunal (EAT) has held that an employer can fairly dismiss an employee for ill health capability despite the fact the employee’s stress-related illness was caused by the employer’s conduct.
In this case, Mrs McAdie (an employee with 20 years’ service) took sick leave because of a stress-related illness which the Employment Appeal Tribunal found was attributable to the conduct of one of her managers. This illness was exacerbated by the delay caused by the employer when handling her grievances, and she was off work for a total of 15 months. Medical evidence obtained during that period indicated that further treatment was unlikely to resolve the situation, and, in the absence of redeployment, Mrs McAdie was likely to remain away from work for the foreseeable future. She was dismissed on the grounds of ill health.
The Tribunal held that the dismissal was unfair because no reasonable employer would have dismissed in the circumstances as no reasonable employer would have bullied or mismanaged the employee.
On appeal, the EAT overturned the decision and made the following points:
- The fact that the employer has caused the illness does not automatically render the dismissal unfair
- It must be asked in any case whether the employer has acted reasonably in all the circumstances. These circumstances include the employer’s responsibility for the illness
- If the employer is responsible for the illness, they would normally be expected to “go the extra mile infinding alternative employment for the employee or put up with a longer period of absence than would otherwise be reasonable”
There is logic to this decision. If the tribunal’s decision had been upheld, employers who cause their employee’s illness would be obliged indefinitely to retain them, even if those employees are incapable of any further work. Employers who cause such ill health will instead find their conduct factored into the tribunal’s assessment of what is a reasonable response and in order to avoid an unfair dismissal finding they will need to show that they have gone the extra mile.
McAdie v Royal Bank of Scotland plc [2006] AII ER (D) 393
Bonuses, Employment Contracts and UCTA
The Court of Appeal has made two important decisions in the same case. Firstly, the Unfair Contract Terms Act 1977 (UCTA) does not apply to contracts of employment and secondly, an employee wishing to challenge the amount of a discretionary bonus has a high evidential burden to clear.
- The employer in this case chose to rely on what has now become a standard clause in bonus schemes providing that the employee has to be in employment at the date of the bonus to receive any bonus. Mr Keen claimed that this clause was in fact an unreasonable exclusion clause and was void under UCTA.The Court of Appeal rejected his claim and confirmed that UCTA does not apply to employment contracts (generally) because, simply, the employee does not contract with his employer as a consumer.The result is sensible. It is stretching the point to argue that an employee deals with his employer as a consumer and that an employment contract constitutes written standard terms of business for the purposes of UCTA (although the provision of additional services to employees, such as health plans, may still fall under UCTA).
- Mr Keen also challenged the amount of the discretionary bonus offered by the employer. He argued that the bonus was less than his line manager’s recommendation and did not reflect the success of the employee’s team.The court confirmed that the burden was on the employee to establish that no rational employer in the same field would have paid such a low bonus. This burden was evidentially high because the employer had a wide discretion in a fluctuating labour market. The employee would need to show that the employer’s decisions on discretionary bonuses were irrational or perverse and this would need a raft of independent supporting evidence.
The outcome is very useful for those drafting, negotiating and applying bonus clauses. However, there is a small warning: the Court also confirmed that under the duty of trust and confidence the employee is normally entitled to know the reasons behind the discretionary bonus award and employers should therefore make sure that any reason given is objective and market based only.
Commerzbank AG v Keen [2006] AII ER (D) 239
Speculating Allowed in Compensatory Awards
In Thornett v Scope, the Court of Appeal has held that after finding unfair dismissal, tribunals may continue to make a Polkey deduction to the compensation, even where its assessment of whether employment would have terminated fairly in any event may involve speculation.
Existing law provides that an unfairly dismissed employee is entitled to compensation for lost earnings on a just and equitable basis.
The important case of Polkey v AE Dayton Services Limited [1987] IRLR 503 allows the tribunal to make a reduction in the compensation awarded to reflect the possibility that there would have been a fair dismissal in any event (i.e. following a fair disciplinary procedure).
In Thornett v Scope an allegation of bullying against the claimant was upheld in a disciplinary hearing and appeal, and the claimant was issued with a final written warning which was to last two years.
However, the employer took the view that the claimant should no longer work at the office where the bullying took place and proposed to relocate her. The claimant opposed the move and argued that she would still have to liaise with the bullying victim and so relocation would not improve matters. The claimant was dismissed, as the employer could not see another option in the circumstances.
The claimant’s claim for unfair dismissal succeeded as the Tribunal felt that no reasonable employer in these circumstances would have dismissed her but instead would have explored options for keeping her at her existing place of work. Notwithstanding this result, the tribunal went on to find that had the claimant been kept on, her employment would have in any case ended after six months and therefore made a Polkey reduction. The claimant’s compensation was reduced to six months loss of earnings and further reduced for contributory fault as the tribunal felt her conduct partly led to the dismissal.
Although successful on appeal to the EAT on the point that there ought not to have been a Polkey-type deduction based on speculation without evidence, the decision was overturned by the Court of Appeal.
The court said that tribunals are very familiar with making speculations based on the evidence they have heard. The tribunal’s statutory duty may involve making such speculations and the tribunals cannot be expected or even allowed to opt out of that duty because their task is a difficult one and may involve speculation.
The result of this case is some comfort for the employer who dismisses an employee with good reason, but too hastily. However the message, if employers wish to avoid lengthy and expensive proceedings, is not to take short cuts.
Thornett v Scope [2006] All ER (D) 257
Annual Increase In Tribunal Award Limits
The Employment Rights (Increase of Limits) Order 2006 has been laid before Parliament and will come into force on 1 February 2007.
he most important increases in limits are to the maximum compensatory award for unfair dismissal which will increase to £60,600 from £58,400; and to a week’s pay for the basic award, redundancy payments etc. which will increase to £310 from £290.
Confidential Information Undertakings
The Court of Appeal makes clear that an employer who fails to give suitably swift undertakings not to use confidential information which an employee brings from his former employer should incur the costs of any application brought by the former employer.
In this case, the former employer had discovered that following resignation, the employee had immediately found new work with a direct local competitor and believed that she had taken with her a large quantity of confidential information which she had conveyed or intended to convey to the competitor.
The former employer therefore sought by correspondence an undertaking from the competitor that it would not seek to assist or support the employee in any breach of her obligations to the former employer.
The competitor ignored the first letter and its response to a second letter was that it would investigate the allegation raised by the former employer and respond as soon as reasonably practicable. No undertaking was given in the response.
The former employer then swiftly issued an application for an injunction, following which the competitor gave appropriate undertakings which settled the matter. The question that remained was which side should pay the relatively expensive costs of the injunction application?
The court of Appeal held that the former employer had succeeded in its claim, because the competitor had eventually given the required undertakings, and was therefore entitled to its costs. Costs could have been avoided if the competitor had replied more positively to the letter before action. The court also said that the former employer’s case had not been premature or evidentially unsound. Even though the former employer had not produced direct evidence that the competitor had been using the confidential information, it had rightly brought the claim based on a reasonable belief that the information taken would be relayed to its competitor.
The message is clear: genuinely confidential information is still capable of protection and failing to respond promptly to requests to comply with this principle can be expensive.
Fox Gregory Limited v Spinks and Another [2006] All ER (D) 47
Reasonable Adjustments On A Redundancy
The Court of Appeal has held that a failure to convert a redundant disabled employee’s possible alternative employment to part-time does not amount to a failure to make reasonable adjustments for the purposes of the Disability Discrimination Act 1996 (DDA).
In this case, the claimant who was partially paralysed and could only work part-time was made redundant fairly. She was offered the chance to apply for another, full-time, job as being suitable alternative employment.
The employer told the claimant that it would consider changing the role to parttime should the employee be successful in obtaining the job. The employee refused to apply for the alternative employment unless the job was changed to part-time before she applied.
The EAT found that in failing to convert the job to part-time, the employer had failed to make reasonable adjustments for the disabled employee. However, the Court of Appeal disagreed with this finding. Until the claimant had applied for the job, no duty arose for the employer to make reasonable adjustments.
The result is a victory for commonsense. As the Court pointed out, if a job advertised as full-time could be subject to the requirement of reasonable adjustments for the purposes of the DDA, it would potentially discriminate against the whole class of possible disabled applicants for that job and the result would be legally absurd.
NTL Group Limited v Difolco [2006] EWCA Civ 1508
The DTI has clarified the definition of carer under the new right for carers to request flexible working which will be enforced on 6 April 2007 under the Work and Families Act 2006
A ‘carer’ will be an employee who is or expects to be caring for an adult who:
- Is married to, or is the civil partner of the employee
- Is a ‘near relative’ of the employee
- Falls into neither category but lives at the same address as the employee
The use of near relative rather than ‘immediate relative’ creates a wider definition of carer than employers may have desired. The Government estimates that the wider definition will cover 80% of all carers.
It is noted that the Government has not defined caring nor is there a provision requiring employees to provide proof of caring. However, an agreed move to flexible working constitutes a permanent change to an employee’s working hours and the employee may not unilaterally revert to the original hours at a later date. For this reason, the number of requests to employers may not be as high as originally thought.
Statutory Grievance Procedure And Time Limits
In most situations employees have three months from the termination of their employment to bring a claim in the employment tribunal. These two cases expose a new exception to this general rule.
In Barua, the claimant raised a grievance (about reduction in pay) before resigning. He made a claim to the tribunal almost six months later. The employer responded, stating that the claim was out of time. The EAT held that the raising of the grievance, although prior to the termination, gave the employee a three month extension on the normal time limit, under the Statutory Dispute Resolution Regulations.
The decision is difficult to reconcile with the wording of the regulations, but is sensible. The purpose of the three month time extension after raising a grievance is to give both the employer and employee more time in order to resolve the dispute without expensive proceedings. Employers need to be aware that, where an employee has raised a grievance (whether before or after resignation), the normal three month time limit may not apply and claims may not materialise until six months have passed.
Barua v H M Prison Service [2006] AII ER (D) 199
Colbourne v Lewisham London Borough Council [2006] AII ER (D) 200
In addition to providing employment law advice, the seminars we have produced in the last month include:
- A seminar to clients on the Work and Families Act 2006, redundancy issues and proactively managing sickness absence
- A Lecture to University students on the MA in Personnel and Development and employment law issues
- Training sessions for HR Departments on the Fixed-Term (Prevention of Less Favourable Treatment) Regulations 2002 and the handling of ET Claims
- Hosting and co-presenting a seminar on Employing Migrant Workers for the Food, Drink and Hospitality industries.