Summary: In our April update we cover cases on disability discrimination, constructive dismissal and on whether childcare vouchers are remuneration for maternity purposes. We also consider two decisions on vicarious liability and update on changes which come into force in April.

Occupational Health’s knowledge of an employee’s disability is not imputed to all employees

The EAT has confirmed in Gallop v Newport City Council, that Occupational Health’s knowledge of a disability cannot be imputed to another employee – in this case, the manager who was the sole decision maker in a dismissal hearing. Citing CLFIS (UK) Ltd v Reynolds, the EAT found that, where there is a sole decision maker, the crucial question in determining whether there has been discrimination, is the state of mind of that decision maker, and not the state of mind of those providing information to them. This finding was in respect of a direct disability claim and may not apply to failure to make reasonable adjustments claims.

This case had previously been heard in the Court of Appeal before being remitted to the Employment Tribunal to consider Mr Gallop’s disability discrimination claim. The Court of Appeal held that employers are not able to accept the content of an Occupational Health report without first giving proper consideration of their own as to whether an employee is disabled or not. Whilst this latest finding by the EAT will prove helpful for employers when dealing with Occupational Health in potential disability discrimination cases, the key take-away from this case is that employers must conduct their own analysis of an employee’s possible disability rather than relying solely on an Occupational Health report.

PHI and age discrimination - contractual documentation is key

In Smith v Gartner UK Ltd, a case regarding payments under a permanent health insurance (PHI) benefit, the Claimant had her claims for unauthorised deduction from wages and direct age discrimination struck out by the Employment Tribunal. Mrs Smith had been receiving payment under the Respondent’s PHI scheme from May 2003 having gone off sick the year before. Under the terms of the original PHI scheme, the payments ceased when she turned 60, in September 2014. Whilst the Respondent had introduced a new PHI policy that provided benefits to claimants up to the age of 65, because Mrs Smith was not working immediately prior to making a claim, she was not eligible to receive any benefit under that scheme. She therefore brought a claim against her employer.

The decision to strike out the claim – on the basis that she had no reasonable prospect of success - has now been upheld by the EAT. It found that the Respondent’s contractual obligations did not go further than providing insurance cover for Mrs Smith. It was not responsible for making any payments. Her age discrimination claim could not succeed, therefore, as the Respondent had discharged its duty under the contract. The fact that her payments ceased was because of this contractual position, and not because she had been discriminated against.

PHI age discrimination claims are often determined by the black letter wording of a contract. However, as this is (perhaps surprisingly) a decision to strike out a claim on paper following a preliminary hearing, its significance should be treated with caution. Had it proceeded to a full hearing, the outcome might not have been so clear cut.

Vicarious liability – “close connection” test still good law

Two judgments, handed down simultaneously by the Supreme Court in March 2016, consider the two elements of the test that decides whether there is vicarious liability. Cox v Ministry of Justice focuses on the first element - whether the relationship between the primary wrongdoer and the organisation is one that can result in the organisation being vicariously liable. Mohamud v WM Morrison Supermarkets plc, considers the second element – whether, in an employment situation, the employee’s wrongful behaviour is sufficiently closely connected to his employment to establish vicarious liability.

In Cox, the Claimant worked in a prison kitchen. She sustained a back injury when a bag of rice was dropped on her by one of the prisoners assisting her. She claimed that the Ministry of Justice should be vicariously liable. The Supreme Court agreed with her, finding that the relationship between the prisoners and the prison was akin to employment as, amongst other factors, the prisoners were carrying out activities for the benefit of the prison.

In the second case, a Morrison Supermarkets employee made racist remarks to a customer following an altercation at the petrol station till where the employee worked. The employee then followed the customer out to the forecourt, where he punched and kicked the customer to the ground. The lower courts held that the employer was not vicariously liable for the assault, saying that there was not a sufficiently “close connection” between what the employee had done and what he was employed to do. On appeal to the Supreme Court, the Claimant argued that the “close connection” test should be replaced with a broader test of “representative capacity”. The Supreme Court rejected this, saying that whilst the current test is imprecise, the fact-specific nature of this area of the law means that certainty and precision is not attainable, and there is nothing wrong with the existing approach. The Supreme Court did, however, allow the appeal. They held that although the employee’s actions were motivated by personal racism and constituted a gross abuse of his position, there was a sufficiently close connection between his violent actions and what he was employed to do, to establish vicarious liability.

Neither of these cases has brought about changes in the legal test for establishing vicarious liability. They are helpful, however, as an indication of the broad approach the courts will take when considering the “close connection” test, and the relationship between the person who actually does the wrong act and the organisation that they “work” for.

Employer’s letter to a sick employee amounted to a constructive unfair dismissal

In Private Medical Intermediaries Ltd and others v Hodkinson an employee resigned in response to a letter sent to her by her employer while she was absent due to work-related stress. The EAT agreed with the Tribunal’s finding that, in sending the letter, the employer breached the implied term of trust and confidence. Accordingly, her constructive unfair dismissal complaint was upheld.

Miss Hodkinson suffered from a disability and had a period of sick leave. On her return, the employer implemented most but not all recommended reasonable adjustments. Miss Hodkinson subsequently went off sick again, this time due to work-related stress and anxiety, not her disability, alleging she was being bullied. The employer wrote to her and asked if she wanted to raise a grievance, to which she responded that she was “in no fit state to communicate”. Having taken legal and HR advice, the employer wrote again, proposing a meeting with her. It offered flexibility on location, but went on to set out details of six areas of concern that it wanted to discuss with her. Miss Hodkinson resigned in response to this letter and brought various disability discrimination claims and a claim for constructive unfair dismissal.

The Tribunal found that Miss Hodkinson had been unfairly dismissed and that she had suffered harassment and discrimination on grounds of disability. The EAT overturned the findings of discrimination, broadly because they were not consistent with the findings of fact made by the Tribunal. Of wider importance for employers, however, the EAT did uphold the finding of constructive unfair dismissal.

On the face of it, this is concerning for employers. When an individual is off sick, potentially for a significant period, it is often necessary to continue to correspond with the employee and to progress outstanding matters. The key point to note in this case, however, was the timing and content of the correspondence. The Tribunal found that the issues raised were not serious and did not need to be dealt with at that stage. This case is not therefore authority that any contact with an employee on sick leave will amount to a fundamental breach of contract. Rather, it highlights the importance of careful consideration of the contents and timing of any communication.

No requirement to continue providing childcare vouchers during maternity leave

The EAT in Peninsula Business Services Ltd v Donaldson has decided that an employer is entitled to suspend entitlement to childcare vouchers provided under a salary sacrifice scheme when an employee goes on maternity leave. During maternity leave an employee is entitled to continued receipt of all her benefits, but not to her normal remuneration, which is replaced by statutory maternity pay. The EAT in this case said that, contrary to HMRC guidance, childcare vouchers provided by salary sacrifice were not a benefit. This meant the employer did not have to continue providing them during maternity leave. The salary sacrifice scheme was instead a diversion of salary from the employee’s pay-packet to the voucher provider, so the vouchers counted as remuneration.

This is a helpful decision for employers and will apply to any benefit obtained by salary sacrifice, not just childcare vouchers. The EAT made clear, however, that childcare vouchers provided as a benefit in addition to salary would have to continue during maternity leave. It should be noted that the EAT said its decision in this case was finely balanced and so may be challenged in subsequent cases.

Court entitled to change employer’s decision on commission entitlement

The Court of Appeal in Hills v Niksun Inc has affirmed a High Court decision that an employee should have received higher commission than the employer had awarded him. It held that the court was right to overrule the employer’s exercise of its discretion in deciding the amount of commission. Even though there were repeated references in the contractual terms of the commission plan to the employer’s right to exercise its discretion in the operation of the plan, the plan in fact set out a detailed process for the award of commission which the employer had to follow. This limited the employer’s discretion.

On the facts, the court held that the employer had made an unreasonable decision when it gave a 48% allocation of commission to the employee under the plan. The plan terms required the employer to make an allocation of what was “fair and reasonable in the circumstances”, which in the circumstances the court said should have been a 66% allocation.

This case is a useful reminder that even though an employer may try to reserve to itself a broad discretion in the way it operates a commission or bonus plan, this discretion can be limited by the other terms of the plan.

First-tier tax tribunal confirms that label used in settlement agreement is not determinative

The First-tier tax tribunal has considered the appropriate tax treatment of a payment described as being “by way of payment in lieu of notice”. In Michael Phillips v HMRC, the employee in question received the sum under a compromise agreement, in addition to a sum described as being “compensation for loss of employment and damages for breach of contract”. HMRC sought to tax the sum as earnings from employment. The taxpayer argued that it was a termination payment and could therefore benefit from the £30,000 tax exemption under section 401 of the Income Tax (Earnings and Pensions) Act 2003.

The tribunal agreed with the taxpayer. Although the sum was described as “pay in lieu of notice”, there was no contractual PILON in the individual’s contract of employment. It further confirmed that it did not matter that the payment was calculated by reference to the salary the individual would have earned during his notice period. The fact remained that he had not been given the notice period he was contractually entitled to and it was not an amicable, unforced termination.

While this decision is correct, it does highlight the difficulties that can be caused by the way payments are described under a settlement agreement. If a payment is intended to be damages, it is always better to avoid referring to it as “pay in lieu of notice” or “PILON” as this can trigger HMRC to challenge the status of the payment.

Changes to statutory payments and employment tribunal awards

A number of changes to the rates and limits of statutory payments and employment tribunal awards come into force on 6 April 2016.

  • Penalties for non-payment of tribunal awards

A financial penalty will be levied on an employer who fails to pay an employment tribunal award or settlement award promptly and in full following receipt of a warning notice and a penalty notice. The penalty will be 50% of the original award, subject to a minimum of £100 and a maximum of £5,000. The penalty will be reduced by 50% if the employer pays both the original award and the penalty within 14 days of the penalty notice.

  • Tribunal compensation limits increase

The maximum compensatory award for unfair dismissal will increase from £78,335 to £78,962 and the maximum week’s pay for the calculation of redundancy payments and the basic award in unfair dismissal claims will increase from £475 to £479.

  • Statutory sick pay

Statutory sick pay will stay at £88.45 per week from 6 April 2016.

  • Statutory maternity, adoption and paternity pay

Statutory maternity, adoption and paternity pay will stay at £139.58 per week from 6 April 2016.

  • National Living Wage

In addition to these changes, the National Living Wage came into force on 1 April 2016. The new rate of £7.20 applies to employees aged 25 and over. Our tips for complying with the National Living wage can be read here.