Financial Services Company Had ‘Legitimate Business Reasons’ for Placing Trader on Garden Leave

In an important decision that strengthens the hand of employers facing hard times, the High Court has ruled that a financial services company had legitimate business reasons for placing a highly-paid bond trader on garden leave.

The trader was on a minimum five-year contract and, on top of his basic salary, was entitled to a minimum bonus of £200,000 a year. The desk on which he worked had, however, experienced a dramatic downturn in revenues and he was placed on garden leave after a view was taken that it was too expensive to keep him on. He remained on garden leave for over a year prior to his dismissal.

The company accepted that he had been wrongfully dismissed and that he was entitled to be paid his salary, pension contributions and guaranteed minimum bonus from the date of his dismissal to the expiry of his contract. Issues remained, however, as to his entitlements during the garden leave period.

The Court found that, on a true reading of the contract, there was no express duty to pay him a bonus while he was on garden leave. There was, however, an implied term that such bonus payments would only be refused on rational grounds.

In finding that such grounds existed, the Court noted that the company’s motive for placing him on garden leave was its view that continuing to pay him a guaranteed bonus was unsustainable against the background of declining revenues. He had been unwilling to accept a change in his contract terms and the company had business reasons for its decision that were not arbitrary.

The company acted with reasonable and proper cause and its intention had been to negotiate a settlement while he was on garden leave. The amount of the man’s compensation in respect of his admitted wrongful dismissal remains to be finally calculated. His claim was otherwise dismissed.

Premier League Club Triumphs in Transfer Market Tax Dispute

Football StadiumThe distinction between taxable remuneration arising from employment and tax-free compensation for the surrender of employment rights is a crucial one but has proved perennially tricky. In a test case of critical importance to professional sports clubs and their players, a tribunal ruled that termination payments made to two Premier League footballers fell on the tax-exempt side of the line.

A club had agreed to make payments totalling over £4 million to the players on their transfer to another club. They were expressed to be non-contractual compensation for the early termination of their contracts. That was not accepted by HM Revenue and Customs (HMRC), however, and demands were raised against the club in respect of Income Tax and National Insurance Contributions.

In upholding the club’s challenge to those demands, the First-tier Tribunal (FTT) found that the payments were consideration for the players’ early surrender of their rights as office holders. Although their contracts permitted early termination by mutual consent, the payments could not be viewed as having been made in lieu of notice.

In rejecting HMRC’s appeal against that ruling, the Upper Tribunal could find no fault in the FTT’s approach to the case. The players’ contracts did not provide expressly for payments to be made to them on termination of their contracts and the money they received was thus not profit or remuneration arising from employment.

Supermarket Chain Indirectly Liable for Rogue Employee’s Data Leak

Can employers be held liable for the criminal actions of rogue workers who disclose colleagues’ personal data on the Internet? In an important test case arising from a huge data leak from the personnel files of a supermarket chain, the High Court has answered that question in the affirmative.

The case concerned a trusted IT specialist who worked for the chain but bore a grudge against it after receiving a disciplinary rap over the knuckles. He copied the personal details – including names, addresses, dates of birth, telephone numbers, bank details and salaries – of almost 100,000 of his co-workers from the chain’s personnel files and placed them on a file sharing website.

The chain was tipped off about the leak after a CD containing a copy of the data was sent to three newspapers. Deeply concerned that the leak might expose its staff to fraudulent ‘phishing’ or identity theft, the chain took swift and effective steps to remove the data from the web. The perpetrator was in due course identified and, after he was convicted of offences under the Computer Misuse Act 1990 and the Data Protection Act 1998 (DPA), he was jailed for eight years.

Lawyers representing more than 5,500 of the chain’s employees lodged damages claims against it, alleging that it was both directly and indirectly liable for the IT specialist’s misdeeds. The chain was alleged to have breached its strict duties under the DPA to protect its employees’ personal data. Other claims of misuse of personal data and breach of confidence were also pursued.

Ruling on the claims, the Court noted that any system that permits human access to data involves inevitable risks. The chain had internal checks in place and had taken appropriate steps to protect the data by limiting access to a few trusted employees. There was no way that the chain could have known of the IT specialist’s grudge and there had been no failure to provide adequate and proper controls. The chain had not been obliged to routinely monitor employees’ internet access and its sole failing was that it did not have an organised, or failsafe, system in place for the deletion of data stored on individual workers’ computers.

The chain was nevertheless found indirectly – or vicariously – liable for the IT specialist’s criminal acts. It had deliberately entrusted him with its payroll data and he had been put in a position where he could handle it and disclose it to third parties. There was a sufficient connection between his job and his wrongful conduct to make it just for the chain to be held so liable.

The Court’s ruling opened the way for the affected employees to seek compensation. However, in granting the chain permission to challenge its decision before the Court of Appeal, the Court noted that the chain was itself the primary target and victim of the embittered IT specialist’s actions. The result of the case could be viewed as the Court acting as an accessory in the furtherance of his criminal objectives.

Employment Status – Uber Case Must Go to Court of Appeal

After losing its case in the Employment Appeal Tribunal, which found that Uber drivers are workers and thus have the right to be paid the National Minimum Wage or the National Living Wage and to receive holiday pay (Uber B.V. and Others v Aslam and Others), Uber disputed the finding and continues to insist that its drivers are self-employed and value the fact that they can choose if, when and where to drive.

Wishing to resolve the matter as quickly as possible, Uber requested that the case be ‘fast-tracked’ to the Supreme Court.

Permission has been refused, however, and the company must pursue its appeal in the Court of Appeal.

Employer Pays for Unwise Attempt to Soften the Blow of Dismissal

When workers are dismissed for poor performance, it is understandable that some employers might wish to soften the blow by giving some other reason. However, as one case showed, there is a duty not to mislead employees and such deviations from the truth can cause a host of difficulties.

The case concerned a lawyer who worked for an insurance broking firm. His boss took the view that he had made several serious mistakes and had concerns about his capabilities. A decision was taken to dismiss him, but the intention was that he would work out his three-month notice period.

Rather than being informed of the true reason for his dismissal, the man was told that a decision had been taken to reorganise his department and that greater reliance would in future be placed on external legal expertise. He took the view that such outsourcing would be a relevant transfer and that the employer had breached the information provision and consultation requirements enshrined in the Transfer of Undertakings (Protection of Employment) Regulations 2006. Only following his resignation did he discover the real reason for his dismissal.

His complaint of wrongful dismissal was, however, dismissed by an Employment Tribunal (ET). It found that the man’s real complaint related to the manner of his dismissal and that the employer had not breached its implied obligation to maintain the relationship of trust and confidence between them.

The ET found that the man had neither been entitled to resign when he did, nor to treat himself as having been dismissed. He was himself in breach of contract in refusing to work out his notice and the employer was entitled to reclaim from him over £1,000 that he had been overpaid for days not worked.

In upholding his appeal against those rulings, the Employment Appeal Tribunal (EAT) noted that the employer had been intent on saving the man’s feelings and making the termination of his employment more palatable. However, in resorting to falsehood, it had breached its obligation not to mislead him. The ET having erred in law, the EAT substituted a finding that the man was entitled to damages equal to the notice pay that he would have received had he not resigned.

National Minimum Wage Rates 2018/2019

The Government has accepted the Low Pay Commission’s recommended rates for the National Living Wage (NLW) and the National Minimum Wage (NMW) that will apply from 1 April 2018. These are as follows:

  • The NLW, which applies to those aged 25 and over, will increase from £7.50 to £7.83 per hour;
  • The NMW for 21- to 24-year-olds will increase from £7.05 to £7.38 per hour;
  • The NMW for 18- to 20-year-olds will increase from £5.60 to £5.90 per hour;
  • The NMW for 16- and 17-year-olds will increase from £4.05 per hour to £4.20; and
  • The apprentice rate of the NMW, which applies to apprentices aged under 19 or those aged 19 or over and in the first year of their apprenticeship, will increase from £3.50 to £3.70 per hour.

The accommodation offset will increase from £6.40 to £7.00 per day for each day during the pay period that accommodation is provided.

Extended Criminal Record Certificates – A Balance Must Be Struck

Those who work with children or vulnerable adults are required to have extended criminal record certificates (ECRCs) so that prospective employers can judge whether they are fit to perform such sensitive roles. However, as one Court of Appeal case showed, a careful balance has to be struck between disclosure of information and the serious blight that might cause to an individual’s career.

The case concerned a teacher who vehemently denied claims that he had made sexually inappropriate comments to students, aged between 17 and 24, during a college trip abroad. His local police force decided, however, that it was necessary to include those allegations on his ECRC. That made it very unlikely that he would be able to find employment in his chosen field, but his judicial review challenge to the decision was dismissed by the High Court.

In upholding his appeal against that ruling, the Court of Appeal found that the police decision was unbalanced and disproportionate. The man’s ECRC made no mention of the fact that the Independent Safeguarding Authority had approved him as fit to continue teaching children. It was clear that the police had failed to take account of a relevant factor when reaching the decision. The ECRC was quashed.

The Firm’s Annual Christmas Party

The annual Christmas party gives employers the opportunity to thank members of staff for their contribution over the past year and is a chance for everyone to relax and enjoy the holiday season. However, it is easy to forget that an employer owes its employees certain obligations, even outside work, when the event has been organised by the employer, and that employees’ conduct during it should comply with normal standards and should not breach workplace equal treatment and anti-harassment policies. An employer may be held vicariously liable for the actions of employees at such functions as they are likely to be considered as having occurred ‘in the course of employment’.

Christmas TreeIn order to prevent what should be a happy occasion from leading to recriminations or worse, an employer should take certain basic steps. Here are some of the more important ones:

  • When planning any work event, thought should be given to whether it will coincide with the dates of religious festivals;
  • Carry out a risk assessment – this should include the venue and, in particular, the possible risks associated with serving alcohol. Making sure employees can get home safely is important, so consider hiring transport or providing taxis if necessary. Ensure soft drinks are provided as an alternative to alcoholic drinks and that individual dietary requirements are catered for;
  • Ensure that, if employees’ partners are invited, there is no discrimination with regard to who is included. Ensure also that reasonable adjustments are made to allow any disabled employee or partner to attend and that any employees absent on maternity leave or because of long-term sickness are included;
  • Where possible, make sure that the arrangements accommodate the requirements of employees of different religions;
  • Ensure that employees understand the difference between ‘banter’ and behaviour that could be considered to infringe the dignity of any person present…and if such behaviour occurs, act quickly to prevent a reoccurrence. Take prompt action if a complaint is received;
  • Make sure that employees who are expected to attend work the day after the function understand that absence through over-indulgence is likely to be regarded as a disciplinary rather than a medical matter; and
  • Make sure employees are aware that any illegal acts will not be tolerated.

The biggest problems that are likely to arise are that inappropriate behaviour may occur, especially if alcohol flows too freely, and that there may be conduct which members of a particular religious persuasion find objectionable.

Your firm’s contract of employment will probably deal with most or all of these issues. However, it is sensible to have a separate policy on what is expected of employees at workplace social events and to remind employees of its contents in advance of any function.

In one vicarious liability case, a claim was brought by an employee who was punched in the face by a colleague and suffered serious brain injury some time after a group of employees had left the firm’s Christmas party and adjourned to a nearby hotel. The High Court ruled that the employer could not be held liable for serious injuries inflicted by one member of staff on another some hours after the planned Christmas event had finished. This makes clear the wisdom of organising an event with an obvious finishing time, such as a meal at a restaurant, so that those who wish to continue to celebrate afterwards do so at a venue of their choice.

For advice on all matters to do with employee behaviour issues and contracts of employment, contact us.

Discrimination – Identifying the Right Comparator Can be Problematic

The usual way of detecting discrimination is to conduct a comparison between the treatment of complainants and colleagues in a similar position. However, as one Employment Appeal Tribunal (EAT) decision illustrated, identifying an appropriate comparator is frequently problematic.

The case concerned a doctor who claimed that her employer’s two-thirds final salary pension scheme unlawfully discriminated against those who had worked both full time and part time during their careers. She had retired after working for 27 years for the same employer and was awarded about 78 per cent of a full pension. That was on the basis that, when periods of part-time work were taken into account, she had completed the equivalent of 21 years’ full-time service.

In complaining to an Employment Tribunal (ET), she argued that a full-time worker who had worked for 20 years or more would have qualified for a full pension. It was submitted that the scheme was infected by double pro-rating in the case of those with some part-time service and that she had been put at a particular disadvantage.

Her claim was, however, dismissed on the basis that making use of her suggested full-time comparator would have failed to take account of a critical feature of the scheme – that benefit accrual rates under it depended on the employee’s age on joining the employer and the years remaining until normal pension age.

In rejecting her challenge to that decision, the EAT could detect no error of law in the ET’s decision on the comparator issue. It was unfortunate that the ET had cut and pasted the majority of its decision, on an almost word-for-word basis, from the employer’s written arguments. However, its reasoning was sufficient to enable her to understand its conclusion that she was not being paid less by way of pension entitlement than a comparable full-time worker.

Restrictive Covenant in Engineer’s Contract Passes Reasonableness Test

Restrictive covenants in employment contracts involve the imposition of restraints on employees’ personal freedom and have to be reasonable to be enforceable. In one case, the High Court ruled that a clause in an engineer’s contract that prevented him from working for competitors for 12 months passed that test.

The engineer worked for a company that specialised in making high-tech consumer goods and was obsessed by maintaining the confidentiality of its research. He was put to work on a secret project to develop a new electric car shortly after he had received a conditional offer of employment from an electric car manufacturer. He did not inform his employer of that development.

His employment contract contained a restrictive covenant that, amongst other things, forbade him from working for any company that operated in a similar field to his employer for a 12-month period after leaving his job. After the car manufacturer’s offer was made final and the engineer announced his resignation, his employer launched proceedings to hold him to the terms of the covenant.

He argued that the covenant, which had a worldwide reach, was void in that it placed excessive restraints on his freedom to make a living. However, the Court found that the restrictions were no wider than was reasonably necessary to protect the employer’s commercial interest in preserving its trade secrets.

The Court acknowledged that the engineer and the car manufacturer had acted in good faith and that there was no reason to suspect that the engineer intended to divulge his employer’s confidential information to the car manufacturer. However, the purpose of the covenant was not merely to restrain deliberate disclosure of confidential information and there was a real risk of innocent breach.

Whilst expressing sympathy for the engineer, the Court noted that he was largely the author of his own misfortune in unwisely failing to tell his employer of the conditional offer he had received before embarking on the secret project. The Court issued an injunction restraining him from taking up his new post for 12 months from the date on which he left his job.