October 2013 - Partners Employment Law Seminar

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Partners Employment Lawyers
Employment Law Update
7th October 2013

Changing Contract
Terms
Presenter: Hina Belitz
7th October 2013

Identifying the problem
Numerous issues
can arise through
terms and
conditions changes

Variation Clauses
Unilateral changes by the
employer
For Example
“We may make changes to these terms and
conditions of employment on giving you 14 days’
written notice.”
or
“Our policies are discretionary and can be
changed by us at any time.”

Theory vs. Practice at the Tribunal
Theory : in the contract - a
binding clause
Practice : two devices used to
show employer in breach
The Tribunal will favour the argument
1. that the variation clause, if construed properly, does not
cover the situation in question; or,
2 by relying on an implied term fettering the right of the
employer to vary the contract, namely that the employer
will not do so arbitrarily or unreasonably.

Ambiguity
• Ambiguous clauses
favour the employee - the
contra proferentum rule is often
applied
• Make your variation
clause clear and
simple

Implied trust and confidence
•Courts will imply a term that the employer will not exercise a variation clause
capriciously or unreasonably. This is essentially a different way of stating the
well established implied term of trust and confidence.
• This is most commonly seen in city banker bonus cases, where banks are not
allowed to use their discretion when setting discretionary bonuses in a way that
is capricious or unfair. However, it has wider application.
•Can apply to other clauses such as relocation clauses

Agreement to the changes – the ideal way
Changes in writing for
clarity,
but not technically
required

The Two issues
1) making sure the employees
actually agree to the change
2) making sure the agreement is
binding

1) Making sure the employees actually agree to the change
Union agreement
only binding on
employee if
Authorised to vary
contracts on their
behalf
A Clause can be
included in the
individuals’ contracts
to allow for this

Silence doesn’t mean consent
Working under
protest is not
binding
If an employee carries on working, but under protest, then he is not
taken to have agreed to the variation and it will not, therefore, bind
him. The protest need not be immediate, but must be within a
reasonable period (typically weeks rather than months).
If the employer nevertheless insists on the change, the employee can do
one of four things:-
1) resign, and claim constructive dismissal
2) accept the new terms under continuing protest and at the
same time claim constructive unfair dismissal on the basis he
was dismissed under one contract and is now working under a
new one on the varied terms
3) seek a declaration from the employment tribunal as to the
terms and conditions under which he is employed;
4) work under protest, content in the knowledge that the
changes are not binding and – if ever sued for refusal to comply
with the changes (eg a new restrictive covenant) – a court will
not enforce them. If the employer decides to dismiss him, he
will have a claim for unfair dismissal (subject to the employer’s
defence that it had a sound business reason for the variation).

(2) Making sure the agreement is binding
Consideration from the
employer
• pay raise, more holiday,
etc

Dismissing and re-hiring
Advantages
The advantage of dismissal and re-engagement is that it is certain to
achieve the aim of varying terms and conditions of employment (at
least, for those who accept the offer of re-engagement).
It prevents the employees from later bringing claims for wrongful
dismissal (assuming the dismissal was on notice, which it should be),
unlawful deductions from wages, or breach of contract generally.
Disadvantages
The disadvantages of dismissal and re-engagement are
(a) it is incredibly damaging to workplace morale;
(b) it usually involves extensive collective consultation; and
(c) there is a risk of unfair dismissal claims.

Business protection
a key fairness
justification
Examples of cases where dismissals in these circumstances
have been held to be fair.
• employee dismissed for refusing to work extra hours
even though union accepted extra hours would be
needed to keep the business alive — Ellis v Brighton
Co-op Society Ltd [1976] IRLR 419.
• supervisor dismissed for refusing to supervise extra
staff — Bowater Containers Ltd v McCormack [1980]
IRLR 50.
• employees dismissed for refusing to accept adverse
changes to employment contracts pursuant to
important business reorganisations — Chubb Fire
Security Ltd v Harper [1983] IRLR 311 and Catamaran
Cruisers Ltd v Williams & Another [1994] IRLR 386
• employees dismissed for refusing to accept a ‘buy-
out’ payment in lieu of the employer ending an annual
bonus – Slade v TNT (UK) (EAT/0113/11)

Dismissal for refusal
Generally deemed
fair if no negative
financial impact on
employees
Employee dismissed for refusing to sign a
restrictive covenant preventing ex-employees
from soliciting clients for 12 months, in
circumstances where the company was facing
problems from staff who had left and set up in
competition — RS Components Ltd v Irwin [1974]
1 All ER 41.
• employee dismissed for refusing to move
within reasonable travelling distance of head
office, when head office relocated — Farr v
Hoveringham Gravels Ltd [1972] IRLR 104, IT.
• woman dismissed for refusing to work during
school holidays, even though she had been given
12 months’ notice to make suitable childcare
arrangements — Moreton v Selby Protective
Clothing Co Ltd [1974] IRLR 269, IT.

Tribunal Considerations
Extent of impact is a key
factor
•The factors a tribunal will take into account, when deciding
whether the dismissal is fair or unfair, include:
• the extent of the detrimental impact on the employees if
the variation occurs.
• the extent of the detrimental impact on the employer if the
variation does not occur. If the employer can demonstrate
the business is facing insolvency (so the employees will lose
their jobs without variation) this will be a very compelling
factor. However, it is not necessary for the employer to
establish this — Catamaran Cruisers v Williams (supra.).
• whether the trade union (if recognised) accepts the
changes are reasonable — Hollister v NFU (supra).
• the number of employees who have consented. The
greater the number who consent, the more willing a tribunal
will be to hold that the variations are reasonable.

PRESENTER: WILLIAM BAYS
7TH OCTOBER 2013

18Employment Law Update
Employment
Law Reforms

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Early Conciliation
Probably coming into force 6 April 2014

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• Acas current involvement in cases – rarely conciliates in pre-issue claims because of lack of funding.
• Steps for Early Conciliation
1. Before issuing a claim, the Claimant must send details of their claim to Acas
2. They will then be offered the option to engage in early conciliation to try to resolve the claim
3. If conciliation is refused by any party to the claim then the individual can bring a claim in the
tribunal
4. If the parties do want to conciliate, the period of conciliation will last one month (and can be
extended by a further two weeks)
5. At the point that the conciliation fails or at the expiry of one month (whichever happens first)
the individual can bring a claim in the employment tribunal
6. When a claimant submits details of their claim to ACAS, this will ‘stop the clock’ in terms of
time limits. They will then have either one month from the end of the conciliation (or, if
longer, their original time limit) to present their a claim.
This is expected to begin in April 2014.

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Applies to everything except
1. Certain exempt jurisdiction
2. EC already completed (e.g. because requested by
employer)
3. Multiple claims
4. Claim Form includes jurisdictions not subject to EC
5. Claims against MI5, MI6 and GCHQ

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The Early Conciliation form

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Two Stage Process
First Stage: Early Conciliation Support Officer
• Contact Claimant and take basic details
• Give general information
• Check whether employer still trading
• Enquire whether Claimant represented
• Get contact details for person at Respondent
This call is envisaged to take place by close of business
on the day following receipt of the EC Form
If the prospective Claimant does not want ACAS to
contact the Respondent, the conciliation fails and a
Certificate will be issued…

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Two Stage Process
Second Stage: Conciliation Officer
• Conciliation Officer endeavours to promote a
settlement
• Lasts for up to one calendar month
• Extendable by further two weeks if reasonable
chance of achieving a settlement

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The Early Conciliation
Certificate:
• Name and address of the prospective Claimant
• Date of receipt by ACAS of EC Form
• ACAS’s Unique Reference Number
• Date of issue of the EC Certificate, and a
statement indicating the method by which it is
sent

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Changes to limitation periods
• Day A – when EC Form provided to ACAS
• Day B – when EC Certificate is deemed
received
• Limitation clock stops day after day ‘A’
and resumes day after day ‘B’.
• BUT if time limit would otherwise have
expired less than a month after day ‘B’, it is
extended to a month after day ‘B’.
This is complicated, but the key thing to
remember is – no matter, what the
claimant will always get a month
after day B.

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Problem Areas
• What if the wrong Respondent
is named on the form?
• What if another claim comes
up?

29Employment Law Update
Tribunal Fees

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1) From the 29th July 2013, all Claimants were expected to pay
a court fee when submitting their claim to the Tribunal
2) There is an additional charge just before the hearing.
Tribunal Fees
The two stage approach was intended to give the parties two extra
nudges towards the negotiation table, each time a new fee is due.

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Tribunal Fees
The amount of the fees depends on the type of claim which were
divided into two levels
1. For Type A claims, the issue fee is to be £160 and the hearing
fee is to be £230.
2. For Type B claims, the issue fee is to be £250 and the hearing
fee is to be £950.
N.B. Judicial Mediation is paid for by the Respondent at £600

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Common Type A claims include those for:
•Statutory redundancy payments.
•Equal pay (whether for breach of the sex equality clause or the maternity equality clause).
•Unlawful deductions from wages.
•Breach of contract.
•Determination of what should be included in a section 1 statement (for more information on
section 1 statements, seeChanging terms of employment: a quick guide: Section 1 statement of
terms).
•Failure to inform and consult as required by TUPE.
•Refusal to allow annual leave, compensation, payment or compensatory rest under the Working
Time Regulations 1998 (SI 1998/1833).
•Refusal to allow time off for dependants.
•Refusal to permit, or pay for, time off for antenatal care.
•Failure to permit time off for trade union duties or public duties.
•Failure to permit, or pay for, time off for trade union activities or time off for employee
representatives
•Failure to permit, or pay for, time off to look for work or arrange training.
Tribunal Fees

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Common type B claims therefore include:
•Unfair dismissal (ordinary and automatic)
•Discrimination.
•Whistleblowing.
Tribunal Fees

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Issue fees and hearing fees: fee groups
The starting point to determine the issue fee payable by a fee group bringing a type A claim is:
•Where there are between 2 and 10 claimants: £320.
•Where there are over 200 claimants: £960.
The starting point to determine the issue fee payable by a fee group bringing a type B claim is:
•Where there are between 11 and 200 claimants: £1,000.
•Where there are over 200 claimants: £1,500.
The starting point to determine the hearing fee payable by a fee group bringing a type A claim is:
The starting point to determine the hearing fee payable by a fee group bringing a type B claim is:
Tribunal Fees

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Tribunal Fees
Gross Monthly Income is
below:
Single In a couple
With no children £1,085 £1,245
1 Child £1,330 £1,490
2 Children £1,575 £1,735
For those who cannot afford the fees there is a two stage test for
qualifying for remission
1) “Disposable Capital” of applicant and/or their partner
1) E.g. Investments, Redundancy Payments and Savings
2) Gross Monthly Income

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Changes to
Whistleblowing
Edward Snowden
Chelsea (Bradley) Manning
Julian Assange

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Whistleblowing is when a worker reports suspected wrongdoing at work.
Officially this is called ‘making a disclosure in the public interest’.
A worker can report things that aren’t right, are illegal or if anyone at work is
neglecting their duties, including:
•someone’s health and safety is in danger
•damage to the environment
•a criminal offence
•the company isn’t obeying the law (like not having the right insurance)
•covering up wrongdoing
Whistleblowing

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Protection from detriment after damage is done
Dismissal – Easy to prove
Detriment – discrimination bully/ harassment
Whistleblowing
Disclosure - Reasonable belief of the “worker”

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As of 25th June 2013, a change in the law on whistle blowing came into force as
part of the changes to Enterprise and Regulatory Reform Act 2013
The most important changes fall into four categories.
 Protected Disclosures must be in the Public Interest
 No Requirement for Good Faith
 Personal Actions Against Fellow Employees
 Vicarious Liability
Changes to Whistleblowing

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1. Protected Disclosures must be in the Public Interest
• The old legislation was intended to protect employees disclosing illegal or dangerous practices
E.g. hospitals, breaches of health and safety which endangered the public, environment etc.
• This principle was extended through case law to include a disclosures relating to the employees’ own contract.
• The advantage to the employee was no limit on the compensation for dismissal following a protected disclosure
The New Law
• Simply to try to close that “loophole.”
• Any disclosures must be in the public interest in order to qualify as protected
• How will the Tribunal interpret that…… who knows? – we’ll have to wait and see

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2. Good Faith
Under the previous law there was a requirement for protected disclosures to
be made in good faith, for example, not vindictively against the company.
The new law has removed this requirement and the claimant’s motivation for
making the disclosure is no longer relevant.
The New Law
Use as a shield not a sword? – statutory cap

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3. Personal Actions Against Fellow Employees
The new legislation allows employees to bring civil actions against
fellow employees who treat them less favourably.
E.g. Mid Staffordshire Hospital – Nurses falsifying records

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4. Vicarious Liability
Companies can now be held vicariously liable for the detriment suffered by an
employee for bringing a protected disclosure.
This would be in the case that an individual was treated less favourably by a
fellow employee much in the same was as with discrimination.

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2008 – 2012 – 75% of whistleblowing cases settled – buying silence?
Missed opportunity?
Protection from “discrimination as a whistle-blower” for future job application
Reward system in USA? – a cut of the fine
E.g. Bradly Berkensfield – a year and a half in prison and $105m waiting when he gets out
Employers should be grateful?

What’s the Plan?
 Simply an exchange
 An employee gives up their statutory rights in
exchange for shares in a business.
 A new class of employee is created
Partners Employment Lawyer 02073746546
www.partnerslaw.co.uk

Who is an Employee
Shareholder?
Clause 23 to add a new section 205A to the Employment
Rights Act 1996
 “(1) An individual who is or becomes an employee
of a company is an “employee owner” if—
 (a) the company and the individual agree that the
individual is to be an employee owner, and
 (b) in consideration of that agreement, the
company issues or allots to the individual shares in
the company which have a value, on the day of
issue or allotment, of no less than £2,000 and no
more than £50,000.Partners Employment Lawyer 02073746546

What Rights are Given Up?
Clause 23 to add a new section 205A to the
Employment Rights Act 1996
 (2) An employee who is an employee owner
does not have—
 (a) the right to make an application under section
63D (request to undertake study or training
 (b) the right to make an application under section
80F (request for flexible working),
 (c) the right under section 94 not to be unfairly
dismissed, or
 (d) the right under section 135 to a redundancy
payment.

Why do they want to do this?
 October 2011 – Beecroft Report – Adrian Beecroft
 Small businesses are over burdened with complicated employment
law
 This led to the plan for No Fault Dismissals
 Dropped due to lack of support. – No evidence to support the
proposed benefit.
 Companies did not want this change
 George Osbourne: -“particularly suitable to new businesses starting
up and small and medium sized firms.”
 No-fault dismissal would give businesses confidence to hire more staff
and so help create job Partners Employment Lawyer 02073746546

How will it affect Employees?
• No Unfair Dismissal
 No procedure need be followed
 No consulting with employees
 No following the ACAS Code of Practice etc.
• No right to request training.
 Therefore;
 Employees may fall behind technological developments
 Employees may not network, build relationships

How will it affect Employees?
• No redundancy payment.
 No meetings – at risk of redundancy
 No search for suitable alternative employment
 No large scale consultations
• No right to request flexible working
 Mothers and Carers?
 Job Sharing
 Working from Home
 FlexitimePartners Employment Lawyer 02073746546

IN EXCHANGE FOR RIGHTS
 Shares with a value between £2,000 and £50,000
 Not Capital Gains Tax on payments
 Benefit from dividend
 New and expanding companies could make the
dividend/sale price more substantial than a redundancy
payment

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Settlement Agreement ACAS Code of Conduct
Code designed to help employers through S111A of the ERA 1996
In particular relating to how to approach employees and the
new rules on Without Prejudice Conversations

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For an Agreement to be valid it must satisfy the following conditions:
(a) The agreement must be in writing;
(b) The agreement must relate to a particular complaint or proceedings
(c) The employee must have received advice from a relevant independent adviser on the terms and effect of the
proposed agreement and its effect on the employee’s ability to pursue that complaint or proceedings before an
employment tribunal.
To be legally binding for these purposes, a settlement agreement has to specifically state the claims that it is intended to
cover.
(d) The independent adviser must have a current contract of insurance or professional indemnity insurance covering the
risk of a claim by the employee in respect of loss arising from that advice;
(e) The agreement must identify the adviser;
(f) The agreement must state that the applicable statutory conditions
regulating the settlement agreement have been satisfied.

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Section 111A of the ERA 1996 provides that offers under a settlement agreement can be
made on a confidential basis and cannot be used as evidence in an unfair dismissal claim
to an employment tribunal.
Pre-termination negotiations can be treated as confidential even where there is no
current employment dispute or where one or more of the parties is unaware that there is
an employment problem.
Section 111A of the ERA 1996

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An automatically unfair reason for dismissal such as whistleblowing, union membership or
asserting a statutory right are not covered by the confidentiality provisions.
Exceptions
Claims other than unfair dismissal, such as discrimination, harassment, victimisation or other
behaviour prohibited by the Equality Act 2010, or claims relating to breach of contract or
wrongful dismissal.

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Improper Behaviour
Where there has been some improper behaviour it will not mean that an employer will
necessarily lose any subsequent unfair dismissal claim that is brought to an employment
tribunal.
If a settlement agreement is being discussed as a means of settling an existing employment
dispute, the negotiations between the parties can be carried out on a ‘without prejudice’
basis
Exactly what the Tribunal will decide constitutes improper behaviour is unclear.
The phrase “unambiguous impropriety” has been taken from the Without Prejudice Principle
e.g. undue pressure to accept terms

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There is no legal requirement for an employee to be allowed to be accompanied to a
Without Prejudice discussion.
However, It is considered good practice by ACAS
Could be a fellow employee or trade union representative
Right to be accompanied

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Employees should be given reasonable time to review the changes
Employee time to review terms
ACAS guidance says that this means 10 days to consider and take advice
Parties can agree otherwise

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ACAS Guidance
ACAS have produced a non-statutory guide to help employers
Of particular use for employers are:
- Procedural checklists
- Template letters for employers to use
- Hypothetical scenarios to guide employers through the process
- http://www.acas.org.uk

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Summary of changes
• Early Conciliation
• Tribunal Fees
• Whistleblowing
• Employee Shareholders
• ACAS Code of Conduct for Settlement Agreement
From 1st October
• Third Party Harassment
• Minimum wage increase

Discrimination
Awareness
Remziye Ozcan
7th October 2013

Discrimination Awareness
• Statistics
Average compensation in discrimination claims
from April to June 2013:
£9K for race discrimination
£17K for disability discrimination
£11K for sex discrimination
Maximum award for race discrimination was
£65K…. But in 2011/12 the maximum was
£4.4million!
• Unlimited compensation
•Equality Act 2010 – applies to all employers

What is a protected characteristic?
•Unlawful to discriminate against individuals in respect of specific
characteristics known as protected characteristics which are:
• Age (reference to an age or an age range e.g. 20 year olds or the
“over fifties”)
• Disability (look at later)
• Race (colour, nationality, ethnic or national origin e.g. Scottish )
• Sex (being a man or a woman)
• Sexual orientation (homosexual, heterosexual, bisexual)
• Religion or belief (including lack of religion)
• Pregnancy/maternity
• Gender reassignment
• Legislation protects:
• employees which, for the purposes of the EA, includes workers,
contract workers and those who personally perform services –
references in seminar to employees includes all these categories;
• job applicants;
• former employees;
• no service requirement
Who is protected

Types of discrimination
• Direct
• Indirect
• Harassment
• Victimisation
• Discrimination arising from disability
• Failure to make reasonable adjustments -
disability

Recruitment – Avoiding Discrimination
• What does the job really
entail?
Employers must not discriminate:
• In any arrangement made to fill a
vacancy
• In the terms offered
• In the decision to refuse someone a
job
• To avoid discrimination, prior to recruiting
into the role consider
•What does the job really entail –
skills/qualities/experience
•Job descriptions/person specifications
should accurately reflect the real
requirements of the job
•Avoid making assumptions/stereotypes

Recruitment - Direct Discrimination
Less favourable treatment because of protected
characteristic
•Explanation of direct discrimination:
• employer treats another person less favourably
• than they treat or would treat others
• because of a protected characteristic
• Example: Employer recruiting to a role decides not to interview
women, whether or not they are suitable. Women treated less
favourably than men because of their sex
• The fact that the employer and the employee share the same
characteristic is not a defence to discrimination
•Lack of intention to discriminate is not relevant, if that was the effect of
the treatment

Recruitment - Indirect Discrimination
• Provision, Criterion or Practice
• Applies to all
• Disadvantages group with protected
characteristic
• Disadvantages individual with protected
characteristic
• Objective justification

Application and Selection
• Objective
• Standardised
• Non-discriminatory
•The process of considering application should be objective,
standardised and non discriminatory. Aim to get the best
candidate for the job:
• Individuals shortlisting should not see
candidates personal details
• Fair and objective criteria
• Conduct interview on the basis of the
•application form, job description,
•any agreed weighting and results of
any selection test (disability-reasonable
adjustments)
• If possible more than one person involved in assessment
• Keep documents for at least 4 months – 3 months to
bring a claim

Recruitment - Pregnancy
• Disclosure obligations
• Refusal to recruit

Recruitment - Disability & Health
• Avoiding disability
discrimination
• Pre-employment enquiries

DURING EMPLOYMENT
• Less favourable treatment?
• Why/discriminatory reason?

Association & Perception
It’s who you know, as well as what
you are!
•Discrimination if an employer
treats an employee less
favourably because of their
association with another person
who has a protected
characteristic.
• Discrimination if an employer
treats an employee less
favourably because they
perceive them to have a
protected characteristic. Even if
they are mistaken.

Disability Discrimination I
Disabled if:
• physical/mental impairment
• long term
• substantial & adverse effect on
ability to
do day to day activities

Disability Discrimination II
Discrimination
arising from disability
Individual treated unfavourably (not
less favourably) because of
something arising in consequence of
their disability there will be
discrimination unless:
1. The employer can show that it was
a proportionate means of
achieving a legitimate aim –
objective justification – (looked at
above in relation to indirect
discrimination); or
2. Employer did not know or could not
reasonably be expected to know of
disability

Disability Discrimination III
Duty to make reasonable
adjustments

Reasonable Adjustments
• If applicant/employee is disabled = duty to make reasonable adjustments in 3
scenarios
• to avoid physical feature or pcp (e.g. working practices) putting them at a substantial
disadvantage.
• Provide auxiliary aids (e.g. computer adapted equipment) to avoid substantial
disadvantage
• Where duty arises failure to comply=discrimination. No defence of justification.
• Examples of adjustments:
• Making adjustments to premises (e.g. wheelchair access);
• Acquiring or modifying equipment (e.g. suitable computer packages);
• Providing information in an accessible format;
• Allocating some of the disabled person’s duties to another worker;
• Transferring the disabled worker to fill an existing vacancy (e.g. if no reasonable
adjustments can be made to their current role);
• Altering the disabled worker’s hours of work (e.g. later starts);
• Assigning the disabled worker to a different place of work;
• Allowing the disabled worker to be absent during working or training hours for
rehabilitation, assessment or treatment;

Disability IV
What is
reasonable?

Obligation is to make adjustments
that are reasonable – consider:
• whether taking any particular steps would be effective in preventing the
substantial disadvantage (if the adjustment would not work it will not be
reasonable);
• the practicability of the step;
• the financial and other costs of making the adjustment and the extent of any
disruption caused
• is it cost effective overall e.g. cost of adjustment compared to
recruiting/training new member of staff;
• can’t pass cost onto employee
• the extent of the employer’s financial or other resources;
• the availability of financial or other assistance to help make an adjustment
(e.g. Access to Work);
• the type and size of the employer.
• Vary from case to case

Dealing with Absence I
• Follow own procedure/ACAS code
• Investigations
• Factors to consider
• Reasonable adjustments

Dealing with absence II
Do I have to:
• Disregard disability
related
absence?
• Extend contractual sick
pay?

Dealing with Absence IV
Annual leave
Employers need to think about whether
their annual leave policy and its
application may be discriminatory

Harassment
• Unwanted conduct – related to
protected characteristic
• Purpose of effect
• Violating Dignity
• Hostile/degrading/humiliating or
offensive environment

Victimisation
Victimisation – protected acts – detriment

Don’t Panic
•ECHR statutory code of practice
•ECHR non statutory guidance
• ACAS

Hiring and Firing: Protecting the Business
Hina Belitz
7th October 2013

Overview
I wish our contracts had said…
You really should settle this
one…
What do you mean: there’s
nothing to stop him poaching
our key customers

Keep your contracts up to date
•The single most important measure you can take to
protect the business is to regularly review the contracts
of employment of key employees (and the company
procedures they operate under) to make sure they are
up-to-date.
• And make sure changes are recorded – you need to
show a paper trail of agreed variations.
• One major costs in a termination situation establishing
what the parties rights are because the employment
documentation has not kept pace with the variations
that have been agreed over the years.
• Some don’t matter – they can be evidenced in other
ways, like pay awards.
• But some matter a great deal, like the terms of bonus
arrangements, pension terms, and post-termination
restrictive covenants

Update key terms
• pay: bonus, deferred compensation,
share options, pension
• notice
• business protection on termination
• rules of conduct during employment

Rules of conduct
•Markets, financial and consumer are increasingly
sensitive to breaches and it is vital that companies
articulate very clearly to employees, including senior
staff, what is and is not acceptable behaviour.
•Are there particular rules of conduct, breach of
which might cause the company harm, either
financially or to its reputation?
•Are the company’s standard disciplinary rules
comprehensive enough?
• Check which rules are contractual – and identify
which are within your entire discretion to change.
• Best practice is to consult before implementing
changes even where you have managerial
prerogative.

Notice
What period
of notice
should you
offer?
•So this brings us on to the question of how much
notice should your contracts set out? The length of
notice should be determined by business need not
seniority
• Need to undertake an assessment, a cost benefit
exercise: required length of notice to:
• protect the business operations
• find and induct a replacement
• cost of buying out notice if the employer
does not want the employee to work it
•keeping an employee who has resigned out of the
market may be more important than the short
term cash flow implications of a notice period.
• In many situations the length of the notice period
is an important factor in being able to respond
tactically to the departure of a key employee with
influence over key suppliers/customers.
If the length of notice is not
defined, the court implies a
‘reasonable’ period of notice

Protecting the business
• Protect Confidential
Information
• Prevent Unfair
Competition
• Protect Customers
and Suppliers
• Retain Remaining
Workforce

Garden leave
•One of the best ways of protecting these interests is to impose a period of
garden leave You can do this:
• partially, by transferring the employee to ‘non-core’ activities, so that
you are still getting value from the wages you are paying, or
• completely - by putting the individual on garden leave. This type of
leave is a period of paid suspension, when the contract of employment
is continuing.
Transferring the employee to special duties
• You can only change employee’s contractual duties with their consent.
• So to avoid any doubt it would be wise to include a clause in your contract
allowing transfer within reason to alternative duties during the notice period.
• Do not impose a change – you may be acting in breach of contract.
• This is what the employee may be waiting for - you giving them ammunition
to allege you have constructively dismissed them (by acting in breach of
contract).

Confidentiality
The law already implies
some basic protection
Better to be safe than sorry
– spell out confidentiality
obligations

Restrictive covenants - why wait till the horse has bolted?
Restrictions can be agreed:
• on recruitment
• during employment
• on termination, or
• later, to settle a
termination
dispute

Does the company have a free hand in drawing up restrictive covenants?
• Restrictions are void unless they are ‘reasonable’
• Careful, role and sector-focussed, drafting is required
• Keep them up-to-date with job changes
They must be:
• necessary to protect an
identifiable legitimate
business interest, and
• reasonable in their scope

Tax and termination payments
• Protect the £30,000 tax
relief
• Attach some money to the covenants
or risk the whole termination payment
being taxable

Dismissing employees – avoiding the pitfalls
• wrongful dismissal
• unfair dismissal
• discrimination
• tax
• integrity of post-
termination restrictions
• damage to reputation

What is the difference: wrongful dismissal/unfair dismissal?
1) Dismissal in breach of contract
= wrongful dismissal
2) Dismissal in breach of contract
and/or
No fair reason for dismissal/Failed to
follow a fair procedure
= unfair dismissal

PILONs and tax
•There is a downside of a PILON
clause … the £30,000 tax relief is
not available
Also:
• It may not be available if you
customarily make pay in lieu of
notice payments without an
express clause
• Which is most important to you –
the tax relief or the covenants?

PILON
Non-
Poachi
ng
Non-
Dealing
No-
Compe
te
•This approach means you avoid one of the
consequences of a wrongful dismissal – that the
employee is discharged from their obligations
under the contract (restrictive covenants).
• This failsafe mechanism only works though if you
have a PILON clause hardcoded in the
employment contract.
• Usually the employer simply pays the wages and
a capital sum reflecting the value to the employee
of the contractual benefits (such as pension
contributions, healthcare costs, etc.) the
employee has lost by not having been given due
notice.

Compensation in a wrongful dismissal claim
What’s this about
‘mitigating my
losses’…?
•The dismissed employee can bring the claim in
either the ordinary civil courts (generally speaking
in the County Court, in high value cases in the
High Court) or the employment tribunal.
•The employment tribunal is restricted to making
an award of no more than £25,000 in damages for
breach of contract claims.
• Employees are often advised, because of this
financial cap, to claim what loss they can under a
different type of employment tribunal claim.
• When calculating how much to award an
employee who has been dismissed in breach of
contract the court or tribunal is obliged to put the
employee in the financial position they would
have been in had the employer complied with the
terms of the contract.
• Employees have a duty to mitigate the amount
they have lost by trying to get another job.

Settlements
Which is best in a particular
case?
• ‘Full and final settlement’
• Settlement agreement
• COT3 (Acas)

Thank You!
 For more information please contact Hina Belitz
 0207 374 6546
 hina@partnerslaw.co.uk
 www.partnerslaw.co.uk
 @hinalegal
 www.facebook.com/EmploymentLawyersLondon

October 2013 - Partners Employment Law Seminar

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October 2013 - Partners Employment Law Seminar