Employment Injury Update – August 2014

Published: 01/08/2014 | Employment, Newsletters


Contents

  • Editorial
  • Recent Developments In Respect Of Paid Annual Leave Obligations
  • Some Definitions – “lock-out”, “strike action” & “other industrial action”
  • Case Law Update

Editorial

Changez KhanBy Changez Khan

Even in the heat of summer, employment tribunals and courts remain active. Just last week the Supreme Court considered the doctrine of illegality in Houng v Allen [2014] UKSC 47, a rare case involving the intervention of Anti-Slavery International. It was held that an au pair who had been illegally trafficked into the country as a minor was permitted to bring a claim against her employer for race discrimination. Overturning the Court of Appeal, the Supreme Court held that public policy militated in favour of allowing the claim to proceed. Any other conclusion would have permitted the smuggling trade to escape scrutiny.

In this edition the line-up is as follows:

  • Frederick Lyon and Jake Rowley provide the case law update. This includes the case of Begraj v Heer Manak Solicitors, where a Tribunal became unstuck after opting to hear evidence in secret from the police;
  • David Roderick considers the timely issue of holiday pay: in particular, the issues of entitlement and proper calculation; and
  • Robert Golin gives us a rare glimpse into the world of lock-outs and strike action.

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Recent Developments In Respect Of Paid Annual Leave Obligations

180215-1.008 copyBy David Roderick

Two recent decisions of the European Court of Justice will increase, potentially significantly, the financial obligation of employers in respect of paid annual leave.

Article 7 of the Working Time Directive (2003/88) provides:

  1. Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.
  2. The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.

Gülay Bollacke v K+K Klaas & Kock

In the recent European Court of Justice case of Gülay Bollacke v K+K Klaas & Kock (Case C-118/13), the court emphasised that the Article 7 entitlement to paid annual leave “must be regarded as a particularly important principle of European Union social law from which there may be no derogations” (paragraph 15), and reiterated that “In order to ensure respect for that fundamental workers’ right affirmed in EU law, the Court may not make a restrictive interpretation of Article 7(2) of Directive 2003/88 at the expense of the rights that workers derive from it”. Naturally, the ECJ heeded its own precept and in Bollacke a wide interpretation indeed of the Article 7 paid annual leave rights was applied.

The Article 7 entitlement encompasses firstly the right to paid annual leave, and also an entitlement to an allowance in lieu of paid annual leave outstanding at the end of the employment relationship. Mrs Bollacke pursued the former employer of her late husband for the right to receive an allowance in lieu of paid annual leave not taken by Mr Bollacke at the date of his death. However, German Federal case law had previously determined that the entitlement to an allowance in lieu did not arise where the employment relationship was terminated by the death of the employee.

Unsurprisingly, in light of the overarching concern to protect the health and safety of workers inherent in working time laws, the German court’s referral to the ECJ specifically asked whether Article 7(2) of Directive 2003/88 was to be interpreted as meaning that the entitlement to an allowance in lieu of a minimum period of paid annual leave on termination of the employment relationship attaches to the person of the worker in such a way that that entitlement accrues only to the individual worker, in order to enable that worker to realise at a later date the purposes of rest and leisure associated with the granting of paid annual leave.

The deceased Mr Bollacke, respectfully, was of course no longer in a position to use such pay for the purposes of his rest and leisure. Nevertheless, the ECJ answered that Article 7 of Directive 2003/88 was not to be interpreted as meaning that the death of a worker which ended the employment relationship relieved the employer of payment of the allowance in lieu to which that worker would ordinarily have been entitled by way of paid annual leave outstanding.

Lock v British Gas Trading Limited

The decision of the ECJ in Lock v British Gas Trading Limited (Case C-539/12) is likely to prove to be of considerably greater significance. Employers must now take into account commission payments and not basic salary alone when calculating paid annual leave.

The Article 7 entitlement to paid annual leave is given effect in the UK by Regulation 16 of the Working Time Regulations 1998, which provides:

  • (1) A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13 [ and regulation 13A], at the rate of a week’s pay in respect of each week of leave.
  • (2) Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week’s pay for the purposes of this regulation, subject to the modifications set out in paragraph (3).

Thus, the calculation of a week’s pay for the purposes of paid annual leave is therefore governed by the following ERA 1996 principles:

‘221 – General

  • (1) This section … [applies] where there are normal working hours for the employee when employed under the contract of employment in force on the calculation date.
  • (2) …if the employee’s remuneration for employment in normal working hours … does not vary with the amount of work done in the period…
  • (3) …if the employee’s remuneration for employment in normal working hours … does vary with the amount of work done in the period, the amount of a week’s pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable by the employer to the employee in respect of the period of twelve weeks…
  • (4) In this section references to remuneration varying with the amount of work done includes remuneration which may include any commission or similar payment which varies in amount.’

Mr Lock is employed as an “Internal Energy Sales Consultant”. His remuneration is made up of basic salary and variable commission payments (the commission component being on average 60% of his overall remuneration). His receipt of commission payments is deferred as it falls due not at the time when the work which generates the commission is done, but weeks or months later upon the conclusion of the sales contract with British Gas.

Thus, when on annual leave for a period of three weeks, Mr Lock was paid his basic pay and his commission which had been earned over previous weeks. However, he was not able to carry out work to generate commission during the holiday period, and as a consequence this had an adverse effect on his salary in the weeks and months following his annual leave. Under this system, Mr Lock’s average commission earnings over the course of the year will be lower than they would be if he had not taken any leave, because during the leave period, he will not have undertaken work entitling him to commission payments.

Arising from that particular context, the referral to the ECJ asked whether Article 7 required that Member States took steps to ensure that a worker is paid in respect of periods of annual leave by reference to the commission payments he would have earned during that period, had he not taken leave, as well as his basic pay?

It is apparent from the court’s judgment that the ECJ in fact answered a more general question before considering the particular application of the correct Article 7 principles to the circumstances that concerned Mr Lock.

The court reiterated that previous Article 7 case law had concluded that workers must receive their normal remuneration for periods of annual leave, and that means that his or her salary during the leave period must be comparable to remuneration during periods of work (Robinson-Steele and Others (2006) C-131/04; and Schultz-Hoff / Stringer (2009) C-350/06 / C-520/06). It declined to accept the argument put forward by British Gas, that as Mr Lock was in fact paid basic pay and commission (earned in previous months) during his leave period, the objectives of Article 7 were met. The court noted that whilst that was during the period of annual leave, Mr Lock may be deterred from exercising the annual leave right given the deferred financial disadvantage which would accrue.

Having come to those conclusions, the ECJ determined that Article 7 must preclude national legislation and practice under which a worker whose remuneration consists of a basic salary and commission, the amount of which is fixed by reference to the contracts entered into by the employer as a result of sales achieved by that worker, is entitled, in respect of his paid annual leave, to remuneration composed exclusively of his basic salary.

The consequences are therefore that compensation for commission payments will need to be included in annual leave pay. This is a logical extension of the principle in Williams v British Airways plc [2011] IRLR 948, that annual leave pay is to be based on normal remuneration, i.e. payments which are “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration”.

It remains to be seen, but there is a distinct possibility that in the near future overtime payments will have to be treated similarly as intrinsically linked to the performance of an employee’s contractual obligations and therefore included in the calculation of annual leave pay. The EAT is to contemplate this issue at the end of July (the time of writing) in two cases where tribunals have concluded that overtime payments need to be included; Neal v Freightliner (Case number 1315342/2012) and a Scottish tribunal case, Fulton v Bear Scotland Ltd.

The court’s decision in Lock is, however, much less clear-cut in terms of the situation facing employers paying commission which is not generated while the employee is on annual leave, and how the total remuneration to which such a worker is entitled in respect of his annual leave will now need to account for the deferred financial disadvantage. This will be an issue for the individual tribunal in the case of Mr Lock and (until any further guidance from the EAT or Court of Appeal) for other individual tribunals to resolve.

The ECJ stated that the methods of calculating the commission to which a worker, such as Mr Lock, is entitled in respect of his annual leave must be assessed by the national court or tribunal on the basis of the rules and criteria set out by the case law of the Court of Justice of the European Union and in the light of the objective pursued by Article 7 of Directive 2003/88. No further guidance was given as to a calculation methodology other than “it is for the national court or tribunal to assess, in the light of the principles identified in the Court’s case-law … whether, on the basis of an average over a reference period which is considered to be representative, under national law, the methods of calculating the commission payable to a worker, such as the applicant in the main proceedings, in respect of his annual leave, achieve the objective pursued by Article 7 of Directive 2003/88”.

It should be noted therefore, that the tribunal’s decision resolving that method in the case of Mr Lock will not be a decision that binds other tribunals to apply the same methodology. The definition of a reference period which is considered to be representative under UK law is, however, very likely to be the subject of further litigation: i.e. whether at one end of the spectrum it might be a 12 month average (as suggested by the Advocate General in Lock, as that would accord with the way British Gas calculated averages for the purpose of maternity payments to its employees), or a “previous 12 weeks” reference period which would correspond with the method applied in the s.212 ERA 1996 method of calculating a week’s pay, as cited above.

Although the precise financial consequences of the Lock judgment for employers in the UK are therefore currently only prospective rather than definite, employers will now certainly need to:

  • make provision for the increased costs of paid annual leave, in particular in the case of employers who have large numbers of staff paid on a commission basis;
  • keep under close review, but be prepared to make provisions for the possibility that annual leave pay will in the near future have to also account for average overtime pay;
  • obtain advice on what arguments are available to deploy a shorter rather than longer reference period which is considered to be representative in calculating average payable commission;
  • review annual leave pay administration processes in order to perform such a calculation.

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Some Definitions – “lock-out”, “strike action” & “other industrial action”

Robert GolinBy Robert Golin

Introduction

This article considers the defence of “lock-out”, “strike action” and “other industrial action” against claims for unfair dismissal, under Section 238 Trade Union and Labour Relations (Consolidation) Act 1992 (“the 1992 Act”).

Background

Recently I appeared for five claimants in a case involving a group walkout. All of the claimants worked in the packing room of an abattoir. Their employment contracts did not specify a fixed finishing time, the rationale being that live animals could not be left on-site overnight and live animals had to be “processed” on the day of delivery. Sometimes this meant working from 6am or 8am until at least 10pm.

Due to a faulty machine at the abattoir, the packing line (a conveyor-belt) had to run slowly for a period of time. This, in turn, elongated the claimants’ already long working days. The packing room staff were not happy with their hours and, over the course of a number of weeks, complained to management.

Matters came to a head one morning. The Respondent’s case was that a group of about 15 packing room staff walked out of the packing room whilst production was ongoing. It was alleged that: the group went to the car park; demanded to speak to the Respondent’s Director; and refused to return to work until they had done so.

The members of the group were all suspended and asked to leave the premises. Following a disciplinary procedure, the claimants were dismissed on grounds of gross misconduct. However, a few employees involved in the walkout were re-instated as the Respondent decided that they had become embroiled in the walkout through no fault of their own.

The claimants all brought claims for, among other things, unfair dismissal. One of the Respondent’s grounds of resistance was the defence of “lock-out”. Although the issue was not pursued following the oral evidence, it raised an unusual point of law in respect of the Tribunal’s jurisdiction to consider claims for unfair dismissal.

Legal Framework

Section 238(1) of the 1992 Act applies if, at the date of dismissal, either:

  • the employer was conducting or instituting a lock-out, or
  • the complainant was taking part in a strike or other industrial action.

If 238(1)(a) or (b) apply, the Tribunal has no jurisdiction to consider complaints of unfair dismissal unless:

  • a “relevant employee” has not been dismissed;
  • a “relevant employee” has been offered re-engagement within 3 months and the complaining employee has not been offered re-engagement;
  • the reason, or principal reason, for the dismissal is one of a number of prescribed reasons (see s.238(2) and (2A)).

Essentially, if the employer has dismissed selectively, or the dismissal is for a prescribed reason, the Tribunal’s jurisdiction is protected.

Who Is A “Relevant Employee”?

This is a question of fact for the Tribunal to decide.

In relation to a “strike or other industrial action”, a “relevant employee” is an employee who was “taking part in the action” (s.238(3)(b)). This is often a difficult issue to apply in practice. An employee may, for example, be off-sick when a strike starts. How is an employer to distinguish between an employee who is absent from work for a legitimate reason, and an employee absent because of strike action? In other cases, an employee may be on annual leave during a strike, but may demonstrate with his colleagues at the picket line. Should an employer treat the employee on annual leave any differently to the employees who are illegitimately absent from work?

The case law demonstrates that: the motive of the employee is irrelevant (Coates and Venables v Modern Methods and Materials Ltd [1982] 3 All ER 946); the knowledge of the employer is irrelevant (Jenkins v P and O European Ferries (Dover) Ltd [1991] ICR 652); the question as to whether the employee was “taking part in the action” is a question of objective fact unaffected by what the employer knew or ought to have known (Bolton Roadways Ltd v Edwards [1987] IRLR 392).

In relation to a “lock-out”, a “relevant employee” is an employee who was “directly interested in the dispute in contemplation of furtherance of which the lock-out occurred” (s.238(3)(a)). It appears, therefore, that there has to be a “dispute” leading to a lock-out, and the employee has to be “directly interested” in the dispute.

Meaning Of “Strike” & “Other Industrial Sction”?

The word “strike” is defined at s.246 of the 1992 Act as, “any concerted stoppage of work”. Given the use of the word “any”, the Courts have interpreted the term broadly. Further, the stoppage of work has to be “concerted”, which has been found to mean “mutually planned” on the part of the employees (Connex South Eastern Ltd v National Union of Rail, Maritime and Transport Workers [1999] IRLR 249).

As such, many forms of industrial action will constitute “other industrial action” within the meaning of s.238. Working to rule, going slow, refusing to work on some new machinery, and picketing activity have all been held to fall into that category (Drew v St Edmundsbury Borough Council [1980] IRLR 459 and Thompson v Eaton Ltd [1976] IRLR 308).

The key cases on this issue are Express and Star Ltd v Bunday [1988] ICR 379 and Manifold Industries Ltd v Sims EAT/223/91.

The first point to note is that, unhelpfully, there is no definition of the term “lock-out” in the 1992 Act itself.

The term is defined at Section 235(4) Employment Rights Act 1996, as follows:

(4) …”lock-out” means…(c) the refusal by an employer to continue to employ any number of persons employed by him in consequence of a dispute, “done with a view to compelling persons employed… to accept terms or conditions of or affecting employment” (underlining added).

However, in Express the Court of Appeal held that that definition should be limited to the provisions of that section, although it may ‘give an indication of the sort of ingredients that one should look for in order to determine whether a state of affairs does indeed amount to…a “lock-out”‘ (p.387C, per May LJ).

May LJ also referred to the definition found in the Shorter Oxford English Dictionary (p.387E), which stated:

“… a refusal on the part of an employer…to furnish work…except on conditions to be accepted by the latter collectively” (underlining added).

Clearly both definitions suggest that there must be an element of compulsion to accept terms and conditions other than those already agreed between the employer and employee.

The element of compulsion is commented upon in Express by Glidewell LJ in the following way:

“What is material is that in my view the ordinary meaning of the word “lock-out” comprehends not merely the act of the employer in refusing to allow his employees to work, but the reason why he so refuses. Suppose that a manufacturer has an urgent order from a valued customer, and that some of the employees threaten that they will “go slow” and not complete the order on time unless they receive double pay; if the employer refuses, and tells the employees that they may only continue to work for him provided that they work at the normal speed and for the agreed rate of pay, can he be said to lock-out his employees? I do not accept that he can.” (Express, p.391A-B, underlining added)

The element of compulsion has been examined further in Manifold Industries:

“He [Counsel for the Appellant] submits, with reference to Express & Star v Bunday [1988] ICR 379 at 391, that an employer who insists that his employees adhere to their existing contracts and refuses to permit them to work unless and until they are willing to do so cannot be said to have locked them out.

Again, Mr Beggs [Counsel for the Respondents] offered no more than formal opposition to these submissions which are, in our view, correct in law.”

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Case Law Update

Jake Rowley 180215-1.258 copy
Jake Rowley                               Frederick Lyon

Mr L J Seldon V Clarkson Wright & Jakes [UKEAT/0434/13/RN]

(Langstaff J, President)

Importance for practitioners: The long running saga of Seldon v Clarkson Wright & Jakes reaches its apparent conclusion: the age of 65 can be an appropriate age for mandatory retirement.

FACTS: The Claimant, a former partner in a solicitors firm was forced to retire at 65 in line with the provisions of the partnership deed. He alleged that he had been subject to direct discrimination on the grounds of age.

Following a decision of the Supreme Court ([2012] UKSC 16) the matter had been remitted to the Tribunal to decide whether forcing the Claimant to retire at 65 was reasonably necessary to achieve the legitimate aims the Respondent sought to achieve by imposing a rule requiring retirement at a fixed age, namely retention of associate solicitors, workforce planning, and “congeniality” (not blighting the inter-personal atmosphere by challenging a partner with evidence of declining performance at a time in his life when it might be more likely). It held that it was.

The issue for the EAT was whether the age could lawfully and properly chosen as 65 rather than some other discriminatory age such as 68 or 70.

HELD: The issue for the Tribunal was to determine where the balance lies between the discriminatory effect of choosing a particular age and its success in achieving the aim held to be legitimate. That balance, like any balance, will not necessarily show that a particular point can be identified as any more or less appropriate than another particular point. On the evidence before it, the Tribunal was entitled to find that a retirement age of 65 was reasonably necessary to achieve the legitimate aims identified.

Agbenowossi-Koffi v Donvand Ltd (T/A Gullivers Travel Associates) [2014] EWCA Civ 855

(Master of the Rolls, Sullivan LJ, Sharp LJ)

Importance for practitioners: Where a claim for racial harassment had been struck out as being out of time it was an abuse of process for the Claimant to lodge a second claim to try to establish having been subjected to an on-going course of conduct.

FACTS: The Claimant (A-K) had been employed as a client services executive in the travel industry. She was of black African origin and she brought a claim that her employer had called her a “monkey dressed in silk”. The statement had been admitted but the Respondent argued the claim had been submitted outside the three month time limit. A-K sought an amendment to the claim to include other incidents demonstrating a continuing course of conduct. The Tribunal refused to extend the three month time limit and dismissed the claim.

A-K issued a second claim including the original complaints together with the newer ones. It was struck out on the basis the new complaints could have been included in the first claim and it was an abuse of process because the only reason they had been included was to resurrect the first complaint.

A-K argued there was no abuse – it was only after the presentation of the first ET1 and a change in representation that she had realised it was possible to allege a continuing act.

HELD: Appeal dismissed. On the abuse of process point: although there was no evidence that A-K had issued the second claim in order to harass or oppress the Respondent it did not follow that it was not an abuse of process on the circumstances of the case. The very fact a Respondent was faced with two claims where one could and should have sufficed would often itself constitute oppression. It was unnecessary to show harassment beyond that inherent in having to face two sets of proceedings.

Ojikutu v Camden London Borough Conucil [2014] EWCA Civ 978

(Rimer LJ, Aikens LJ, Sir Stanley Burnton)

Importance for practitioners: Time limits in the EAT for serving an amended notice of appeal are strict and will not be disapplied unless there are exceptional extenuating circumstances.

FACTS: The Appellant (O) sought to appeal a decision by the employment tribunal. She submitted a notice of appeal which was refused on the paper sift by the EAT. Under the Employment Appeal Tribunal Rules 1993 O then sought to serve a fresh appeal under rule 3(8). The deadline for such a fresh appeal was 28 days. O in fact, through an arithmetical error, served her fresh grounds of appeal 29 days after being sent her initial refusal. It was accepted that this had caused the Respondent no prejudice and in addition O stated that her error had been induced by stress and a recent bereavement. Notwithstanding this the EAT refused her permission as she was out of time. O appealed.

HELD: While the rule appeared to be ungenerous it had to be seen in the context of the extensive period of time that any appellant has for appealing a decision of the Employment Tribunal. O had already been permitted 42 days to bring the appeal and the circumstances to allow an extension under rule 37 have to be exceptional. O’s circumstances were not so exceptional that her breach, albeit that it was only one day, could be excused. The decision to refuse her permission was unimpeachable.

(1) V Begraj (2) A Begraj v Heer Manak Solicitors & ORS (2014) EAT

(Langstaff J)

Importance for practitioners: Langstaff J provided tribunals with guidance on the appropriate action to take when approached by a third party offering information related to the merits of a case.

FACTS: After hearing around 30 days of evidence between the Claimants and the Respondent the tribunal was approached by two police officers. The tribunal heard information from the two officers in private both orally and in writing. They accepted that this information would remain confidential and did not mention the approach to the parties. After an additional 5 days of evidence the tribunal came to the conclusion that they had no choice but to reveal the information. There followed an application asking that they recuse themselves and the tribunal acquiesced to this.

HELD: In the circumstances the tribunal had been right to recuse themselves. Langstaff J at [53] offered guidance for tribunals faced with any similar situations. He suggested that where a third party offers opinion about the merits of the case the tribunal should make the parties aware of that approach without delay. Any approach that seeks to interfere with a judge’s independence should be rebuffed. Generally judges cannot accept information on the condition that it be kept confidential. There are limited exceptions to this such as cases involving national security or possibly cases involving a serious risk of harm to an individual. In such circumstances judges should in any event disclose that an approach has been made and state that they have received a request to keep the information confidential which they have good reason to honour.

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Author: Changez Khan Farrars (chambers@farrarsbuilding.co.uk)


Author: Frederick Lyon Farrars (chambers@farrarsbuilding.co.uk)


Author: David Roderick Farrars (chambers@farrarsbuilding.co.uk)


Author: Jake Rowley Farrars (chambers@farrarsbuilding.co.uk)


Author: Robert Golin Farrars (chambers@farrarsbuilding.co.uk)