Employment Review - July 2007
In this month’s review we cover the first Tribunal decision dealing with the new “service provision change” definition of a transfer within TUPE 2006. There are also interesting cases about the ownership of an employee’s contacts list stored on the employer’s computer and the implications of an employee breaching warranty provisions within a compromise agreement.
Award of legal costs against an employer
TUPE – Service Provision Change
News
Ownership of employee’s contacts list
Compromise Agreement – Director’s breach of warranty meant the employer did not need to pay severance payment
Recent work
Award of legal costs against an employer
In litigation dealt with in the Civil Courts the usual position is that the loser has to pay the winner’s legal fees. This is not the case in the Employment Tribunal. However, the Tribunal does have the ability to award legal costs against either the employer or employee in certain circumstances.
In the case of Kew College Limited -v- Parsley the Tribunal upheld the employee’s complaint of constructive unfair dismissal and she received an award of £54,000 compensation.
In addition, the Tribunal ordered the employer to pay the employee’s costs on an “indemnity” basis. This meant that the employer had to pay all her legal fees.
Circumstances in which costs can be awarded include where either party’s claim or defence is “misconceived”, meaning that it had no reasonable prospect of success and where either party acts unreasonably in bringing or defending the claim. The Tribunal found against the employer on both counts. The employer appealed against the costs award but was unsuccessful.
In practice, applications for costs are much more common than they used to be and we are finding that Tribunals are more willing to award costs in the right circumstances. If either an employment claim or defence is “misconceived”, in the sense that it was doomed to fail from the outset, the party bringing or defending the claim is at risk on costs. Further, we are finding that Tribunals are prepared to award costs against Claimants or employers in circumstances where their witnesses are found not to have told the truth when giving evidence.
It is often said that Tribunals are a relatively risk-free place in which to conduct disputes because costs are not awarded to the winning party, but this case and our experience shows that is not always the case. That said, the position remains that if either the employee had reasonable grounds to bring the claim or the employer had reasonable grounds to defend the claim, the Tribunal is unlikely to award costs, even if ultimately the claim or defence fails at the ultimate hearin
Kew College Limited -v- Parsley.
TUPE – Service Provision Change
We now have the first decision on the new “service provision change” definition introduced by the 2006 TUPE Regulations. Although this is only a decision of the Employment Tribunal and is being appealed, it is interesting to look at the approach taken by the Tribunal.
Broadly speaking, the new definition of a “service provision change” was aimed at clarifying the application of TUPE to the contracting in or contracting out of services or in a situation where the contractor providing the services to the client changes. Further, for there to be a TUPE transfer based on a service provision change, there needs to be an “organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client”.
Questions we are often asked is whether there is an organised grouping of employees linked to the provision of the services and how do you go about identifying which employees form part of the organised grouping so that they transfer under TUPE?
In the decision of Hunt -v- Storm Communications Limited Ms Hunt was employed by Storm as an Account Manager who provided PR services and spent about 70% of her time working on one client’s account. The Tribunal decided that there was a service provision change, when the client terminated its contract with Storm and awarded a new contract to a different PR Agency.
Although the Tribunal decided that the situation did not involve a transfer of an economic entity that retained its identity, they were satisfied that there was a “service provision change” and that Ms Hunt was the “organised grouping of employees” whose principal purpose was to provide services to the client.
The Tribunal appears to have focussed on the amount of time spent by Ms Hunt in working on the client’s account and ultimately accepted that she spent about 70% of her working time in the course of the year working for that particular client.
We understand that the case is being appealed so we will report any future decision of the Employment Appeal Tribunal, hopefully with some further clarity on this difficult area.
Our experience is that the new “service provision change” definition will result in more TUPE transfers where there is a change in contractors or a contracting out or in of services. In these situations it is critical to analyse whether there can be said to be an organised grouping of employees and who forms part of it. It is also important that consideration is given to including appropriate provisions in contracts for services to deal with employees and TUPE at the expiry of the contract.
Hunt -v- Storm Communications Limited.
Recently the Cabinet Office has come up with its draft legislative programme for the next year. This includes an “Employment Simplification Bill” which will implement the outcome of the Gibbons review of workplace dispute resolution to include the repeal of the statutory dispute resolution procedures and the implementation of a package of replacement measures to encourage early/informal resolution and changes to the Employment Tribunal system. We do not know when this will happen and we have no detail on the replacement measures. Notwithstanding the promise of a simpler world, it is important, before that utopia arrives, that employers continue to follow the statutory dismissal and grievance procedures given the potential for dire consequences in not doing so.
Ownership of employee’s contacts list
In the case of Pennwell Publishing (UK) Limited -v- Isles and Others the High Court held that an employee’s contacts list held on the employer’s computer belonged to the employer, even though this included the employee’s personal contacts and business contacts which he had generated prior to joining the employer.
The Court found that the employee had accessed the employer’s computer and removed lists of potential customers and suppliers. Although the Court decided that the contacts lists did not amount to a trade secret nor did the use of them breach the employee’s obligations in his contract of employment not to misuse confidential information, the Court found that the contacts lists fell within the definition of company property as contained in the employment contract. The Court decided that where the address list was contained on the employer’s email system, that list could not be copied or removed in its entirety by an employee for use outside their employment.
The employer had a well written email policy which made it clear that employees could only use the email system for business use and access was not allowed to send or re-distribute any messages or files that were not directly related to their job responsibilities. However, on the facts, the employer had not communicated that policy to the particular employee. Notwithstanding this, the employer was granted a permanent injunction to stop the employee from using the contents of the contacts list.
From an employer’s point of view, it is important that contractual documentation is clear as to what constitutes company property and the Judge indicated that it would clearly help an employer to have an email policy which made it absolutely clear what employees could and could not do. Employees who are intending to set up in competition with their employer after they have left need to be very careful as IT experts are able to establish when employees have accessed the employer’s computer system during employment to remove files including contacts lists.
Pennwell Publishing (UK) Limited -v- Isles and Others.
Compromise Agreement – Director’s breach of warranty meant the employer did not need to pay severance payment
It is now fairly common practice to include in a Compromise Agreement a warranty from the employee that there are no circumstances of which the employee is aware that would entitle the employer to dismiss summarily. The purpose of this is to ensure that the employer is not paying out substantial sums by way of compensation when, due to circumstances unknown to it, it could have dismissed the employee immediately and without any compensation, for example, because of gross misconduct.
In the case of Collidge -v- Freeport plc the employer had entered into a Compromise Agreement with Mr Collidge which included a compensation payment of just over £445,000. The Compromise Agreement made it clear that the payments were “subject to and conditional upon the term set out below”, which included a warranty which was declared to be a “strict condition of this Agreement” that there were no circumstances which the employee was aware of which would entitle the employer to terminate his employment without notice.
Following termination, but before the compensation payment became due, the company discovered a number of matters, including use of a company driver to do private work, misuse of his company credit card, removing company equipment, claiming personal expenses as company expenses and claiming mileage allowance and petrol costs for personal reasons.
The Court decided that Mr Collidge had acted dishonestly on a number of occasions. The tricky legal bit was whether, based on the wording of the Agreement, the company could simply not pay the compensation sum because the truth of the warranty was a contractual pre-condition to the obligation to pay or whether it would have to accept Mr Collidge’s breach of warranty as bringing the entire Compromise Agreement to an end and leaving it with a claim for damages.
Based on the Judge’s interpretation of the wording of the Compromise Agreement he was satisfied that the warranty was a precondition to the employer’s obligation to pay and he decided that the company did not have to make the payment.
As a result of this case, employers should review their standard Compromise Agreements and ensure that, if this warranty is included, the Compromise Agreement makes it clear that the warranty is a precondition to the obligation to make the severance payment. If this is not done, this will limit the options available to the employer. Further, from a practical point of view, it is clearly preferable that investigations into any possible gross misconduct are completed either prior to negotiation of the Compromise Agreement or as soon as possible thereafter.
We have a standard form Compromise Agreement which is drafted to deal with this.
Collidge -v- Freeport plc.
In the last month we have:
- Presented Accountancy Forum seminars in Nottingham, Leicester, Derby and Stoke
- Negotiated employment contracts for two leading football managers
- Assisted an international company on harmonisation of contracts for senior executives within the EC
- Advised two charities on restructuring and dealing with consequential down-sizing
- Advised a client on TUPE implications following a successful tender for the provision of warehouse services
- Advised on religious discrimination and the right of Sikhs to carry a Kirpan (ceremonial knife) at work
- Advice on law relating to ballots and pickets in connection with proposed industrial action
- Provision of bespoke training to a client on TUPE
- Advised a large employer in connection with a potential equal pay claim
- Roscoe Fernandes appeared on BBC Radio Nottingham to discuss current news and in particular the effect of the new Smoking Legislation on certain businesses
- David Potter addressed our In House Lawyers Forum on the use of mediation in employment disputes