Welcome to the latest edition of the Employment Law Update brought to you by the employment team at Russell-Cooke. The aim of this service is to keep you informed of recent developments in this fast moving field of law so that you are better prepared to deal with issues as they arise in your workplace and recognise when professional advice might be required.
Contact details for members of the team are provided at the end of the Update. If you have a query about the issues covered or about any employment law related matter please do not hesitate to get in touch.
Workplace stress
In Dickins v 02 plc, the Court of Appeal held that the psychiatric ill health suffered by an employee had been reasonably foreseeable as she had explained in sufficient detail her difficulties at work to her employer.
Facts of the case
Ms Dickins, a long standing employee of O2, was promoted in August 2000 to the position of management accountant. This role required Ms Dickins to be responsible for the preparation of management accounts and to be involved in some audit work. Whilst Ms Dickins did not have any formal qualifications in accountancy, she was highly regarded within the company and it was felt that she could perform the role. Ms Dickins was required to prepare her first audit alone in November 2000. She became very stressed by this and after bursting into tears at work was off for two days on sick leave. Following this incident, it was agreed that the company would limit her work to the preparation of management accounts.
In early 2001, Ms Dickins began to suffer from irritable bowel syndrome, which led to her being off work from time to time during the following months. Her GP felt that her condition was stress-related and referred her for counselling. She applied for an internal role within the company and her application was successful. Whilst the job description stated that the role involved some audit work and that a formal accountancy qualification was required, Ms Dickins was promised training and support by a chartered accountant within the company to assist in performing her new role. Despite the promises of training and support, none was forthcoming (since the accountant she was due to receive training from left the company) and she was required to prepare the company’s February 2002 audit alone.
In March 2002, Ms Dickins complained of still feeling exhausted having returned from a two week break. She requested a less stressful job but was advised by her line manager to wait three months, since there were no vacancies at the time. In April 2002, Ms Dickins informed her manager that she was feeling “stressed out” and she therefore requested six months off work. She informed him that she was having difficulty getting up in the mornings and that she felt drained of physical and mental energy. Her manager said that he would refer the matter to the company’s human resources department but in the meantime, Ms Dickins should use the company’s counselling service. Ms Dickins declined to do so, since she was already receiving counselling at the time.
During Ms Dicken’s appraisal in May 2002, she repeated that she was feeling stressed and again requested time off work. She again mentioned her symptoms and stated that she felt that this would lead to her being off work due to sickness sooner or later. During her appraisal, her manager suggested referring her to occupational health but this was not acted upon. Within a short period of time following her appraisal, Ms Dickins was signed off work suffering from anxiety and depression. She did not return to work and her employment was terminated in November 2003. Ms Dickins brought a claim for damages for personal injury in 2005.
Legal tests to be satisfied
In order for an employee to succeed in bringing a claim for damages for personal injury, it is necessary for the employee to be able to show that (i) the employer breached its duty to take reasonable care of his or her health in the workplace and (ii) it was reasonably foreseeable that a breach of this duty would injure the employee.
O2 sought to argue (relying on the guidelines set out in the Court of Appeal decision in Hatton v Sutherland [2002] – the leading case on employer's common law obligations in relation to workplace stress-related illness) that it was not foreseeable that Ms Dickins’ health would break down. The Court of Appeal however held that Ms Dickins had made it sufficiently clear to her employer that she did not know how much longer she could continue, particularly at her meeting with her manager in April 2002.
O2 also argued that it had not breached its duty to take reasonable care of Ms Dickins’ health and safety due to the provision of a confidential counselling service, given that it was held in Hatton v Sutherland that where an employer provides a confidential advice service, with referral to treatment/counselling services, it was unlikely to be found in breach of that duty. The Court of Appeal dismissed this argument on the basis that where an employee describes severe symptoms arising from stress at work, and warns his or her employer that they cannot continue, suggesting they seek counselling will not be an adequate response to discharge liability. This affirmed the decision in Daw v Intel Corporation [2007],
namely that the provision of a counselling service will not be sufficient for an employer to argue that they are not in breach of their duty to provide a safe working environment if the employee’s problems can only be addressed by the employer taking some form of action.
Lessons to be learned
This case is a helpful reminder that employers need to be proactive when dealing with employees who are at risk of ill-health due to workplace stress in order to avoid liability for personal injury. Such action may include sending the employee home or taking steps to obtain advice from the employees GP or referring the employee to a medical specialist.
Dickins v O2 PLC [2008] EWCA Civ 1144
Disability discrimination
The House of Lords, in Mayor and Burgesses of the London Borough of Lewisham v Malcolm has overruled the leading authority on how to determine disability-related discrimination claims.
Facts of the case
This case concerned a housing authority’s decision to evict a schizophrenic tenant (Mr Malcolm) who had unlawfully sublet his flat. In his defence, Mr Malcolm sought to argue that the subletting of his flat was related to his disability. He contended that but for his schizophrenia, he would not have sublet his flat. Following the council’s attempt to seek possession of his flat, Mr Malcolm argued that he was being treated less favourably for a reason related to his disability.
Decision
Their lordships held in favour of Lewisham council. Whilst they accepted that Mr Malcolm would not have sublet his flat but for his schizophrenia, they held that the decision to evict was a housing management decision, which had nothing to do with his disability.
Their lordships then also engaged in a discussion as to the correct comparator for the purposes of disability-related discrimination. The majority held that the correct analysis was to compare the way the disabled person had been treated to the way that a non-disabled person would have been treated in the same situation. Consequently, in this case, the correct comparator would have been a non-disabled tenant who had also unlawfully sublet their flat.
Implications of the Case
The test for a comparator used by the House of Lords in Malcolm drastically narrows the scope of disability-related discrimination as understood in the employment sphere. Under Malcolm, if, for example, an employee is dismissed as a result of lengthy sickness absence which is the result of a disability, the employee’s comparator will need to be a real or hypothetical non-disabled person who has been off sick for the same length of period for a non-disability related reason. Previously, following the leading authority of Clark v TDG Ltd t/a Novacold in order to prove disability-related discrimination in the above scenario, the correct comparator would be someone who had not been off sick for a lengthy period of time, which resulted in almost all cases showing a difference in treatment.
However, many commentators believe that the decision will not have a drastic effect on disability discrimination claims in employment as, in most cases, it is likely that claimants will seek to rely on an employer’s duty to make reasonable adjustments as the main focus of their argument. Employers will still need to consider making reasonable adjustments to, for example, their standard sickness absence policy, prior to dismissing a disabled employee for taking excessive sick leave.
London Borough of Lewisham v Malcolm [2008] UKHL 43, 2WLR 369
Discrimination by association
The European Court of Justice (ECJ) has affirmed the Advocate General’s opinion in Coleman v Attridge Law (2008) (as reported in the last update) that the European Equal Treatment Framework Directive (which prohibits discrimination on the grounds of age, sexual orientation, religion or belief as well as disability) does provide protection against “associative discrimination”. As a result discrimination against a non-disabled person on the grounds of their association with a disabled person is unlawful.
C-303/06 (ECJ); [2008] IRLR 722
Garden leave and the right to work
The High Court in SG & R Valuation Service Company v Boudrais and others granted an interim injunction to keep two senior employees on garden leave even though there was no garden leave provision in their contracts of employment, on the basis that there was clear evidence of actual wrong doing on their part.
In this case, Mr Boudrais and Ms Smith (“the Employees”) were employed by SG & R Valuation Service Company LLC (“the Company”). Both Employees resigned, giving their requisite three months’ notice, to work for a competitor. Following their resignation, the Company became aware that the Employees had planned their departure and had collected confidential information belonging to the Company which they planned to use with their new employer, to the detriment of the Company. Further, the Company became aware that both Employees had sought to poach other staff members.
As a result, the Company wrote to the Employees asking them to remain at home, and suspended them with pay. The Employees resigned with immediate effect following receipt of these letters, arguing that the Company was acting in repudiatory breach of contract. The Company therefore sought an interim injunction to stop the Employees from working with a competitor for the remainder of their three month notice period.
The Court approached the issue by examining the existing case law on such matters. The first question to be determined was whether the Employees had a right to work. It was held that they both had a right to work because they had specialist skills and their removal from the market for a substantial period of time would result in their skills becoming stale. For instance, Ms Smith was involved in underwriting property valuations and this required regular use and contemporary knowledge of the market. Further it was held that the Employees had a right to work due to their seniority, and the fact that they were entitled to a discretionary bonus, which formed a substantial part of their remuneration package. If they were prevented from working, they could not earn this bonus.
However, existing case law recognises that the right to work is not an absolute right, as employees have the right to work on the proviso that they do not act in such a way as to render it impracticable for their employer to provide them with work. Given that the Employees had breached their contract and had shown an intention to profit from their breach (as their new employer was going to provide them with a £60,000 payment for taking “working tools and know how” with them) the Court held that there was no obligation on the Company to provide work to the employees, given the circumstances.
This case highlights that, even where an employer does not have a contractual right to put an employee on garden leave, they may be able to do so, where there is clear evidence of the employee’s wrongdoing. However, in most cases, it will be difficult for an employer to prove this, highlighting the need for express garden leave provisions in contracts of employments, particularly for senior staff.
SG & R Valuation Service Company v Boudrais and others [2008] EWHC 1340 (QB)
Reliance on implied terms enables an employer to bring a claim for damages
The High Court has ruled in Kynixa Limited v Hynes & Others that three key employees must pay substantial damages (in the region of £1 million), due to their failure to warn their employer that they were intending to work for a competitor.
The employees were not subject to any post termination restrictions in their employment contracts. However, the court held that, when resigning, the three senior employees had deliberately misled their employer regarding their intention to join a competitor and had therefore breached the implied term of good faith and fidelity. Further, two of the employers were subject to a shareholder’s agreement which contained restrictive covenants (including non-solicitation and non-compete provisions) which were deemed to be enforceable, in part due to the bargaining position of the two employees when they had entered into the shareholders agreement.
Employers should have precisely drafted restrictive covenants in their employment contracts for senior employees, in order to best protect their businesses despite the finding in this case that employers can rely on implied terms in contracts or restrictive covenants in agreements other than an employment contract.
This case should also serve as a cautionary tale to senior or key employees that they risk being in breach of their implied duties of good faith and fidelity if they leave to join a competitor and fail to disclose this information to their current employer when they resign, highlighting the need for legal advice from an early stage in any planned team move.
Kynixa Limited v Hynes and others [2008] EWHC 1865 (QB)
Breach of compromise agreement entitles employer to avoid paying compensation
The Court of Appeal in Collidge v Freeport Plc has upheld a decision that Freeport Plc (“Freeport”) was not obliged to make a payment under a compromise agreement where Mr Collidge had breached a warranty that he had given as part of a compromise agreement.
Mr Collidge had been the founder of Freeport Plc and a director and employee of the company. The Board of Freeport (following concerns about Mr Collidge’s activities) decided to suspend him until an investigation into his activities could be conducted. Although he denied the allegations, Mr Collidge agreed to resign and entered into a compromise agreement. It was agreed that Mr Collidge would receive a compensation payment plus certain benefits. The compromise agreement made clear that the payments were “subject to and conditional upon the terms set out below…….” and the agreement included a warranty given by Mr Collidge confirming that he was not aware of any circumstances which would constitute a repudiatory breach of his contract of employment, entitling Freeport to dismiss him without notice.
It was later discovered, following Freeport entering into the agreement with Mr Collidge but prior to the compensation payment being made, that Mr Collidge had in fact been submitting fraudulent expenses claims. As a result, the company did not make the payment to Mr Collidge and he issued proceedings.
The Court of Appeal agreed with the High Court’s decision that Freeport’s obligation to pay was conditional on the statement set out in the warranty being true. The evidence which the company had obtained of gross misconduct would have entitled it to dismiss Mr Collidge without notice and consequently it was not obliged to pay him the compensation payment.
Implications of the case
Employers should ensure that any payment provisions under a compromise agreement are linked to warranties so that they effectively become a precondition to payment under the agreement being made.
Collidge v Freeport Plc [2008] EWCA 485
New ACAS Code of Practice
The draft revised ACAS Code of Practice on Disciplinary and Grievance Procedures has been published recently together with a guidance document. It is due to come into effect on 6 April 2009, when the current statutory dismissal and grievance procedures are abolished.
The draft revised Code is considerably shorter than its predecessor, as its aim is to provide a basic practical guide for employers, employees and their representatives to follow when handling disciplinary and grievance issues in the workplace. The new ACAS Code will not be legally binding, but it will be used by employment tribunals and mediators appointed by ACAS to determine whether the parties have behaved reasonably.
From April 2009, tribunals will cease to be able to increase or decrease an award of compensation where one party has failed to follow the relevant statutory procedure. This will be replaced by a power to make an adjustment to an award of compensation of up to 25% if the tribunal considers that there has been an unreasonable failure to comply with any provision of the new ACAS Code. The Code covers all disciplinary and capability dismissals but does not cover redundancy or the non-renewal of a fixed term contract. The legal requirements relating to redundancy will apply.
Business & Regulation Group Seminar
Riding the Storm: A Practical Approach to Legal Issues in the Economic Downturn
13th January 2009
6pm – 7.30pm
8 Bedford Row, London WC1R
Businesses in the UK are facing the most challenging trading conditions for more than a generation. A depressed property market, the dramatic reduction in availability of credit, and instability in the financial services sector have led to fears that the UK is about to enter a severe recession. Such difficult economic conditions bring with them new risks and challenges and make it more important than ever for businesses to be familiar with the legal framework within which businesses operate.
This seminar is aimed at business owners and managers and will provide an overview of the law in the areas referred to below, together with practical suggestions as to how the related legal risks can be managed. Members of the Business & Regulation Group at Russell-Cooke will discuss:
> Directors’ Duties under the Companies Act 2006
> Transactional risk and personal liability under the Insolvency Act 1986
> Managing redundancy
> Overview of Insolvency Procedures
There is no charge for this seminar. Please feel free to pass this invitation on to your colleagues.
If you are interested in attending this seminar, please email janev.djemil@russell-cooke.co.uk
The Charity Team's Evening Seminar Series runs from November 2008 to May 2009
For more details and booking information please click here
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