Summary

Our April update covers recent developments in UK employment law, including cases on lawful grounds for suspending employees, communicating with women on maternity leave and a novel case on the limits of lawful positive discrimination. We also outline other points of note, including new government consultations on regulating the use of confidentiality clauses, as well as extending the current public sector off-payroll working rules to the private sector.

An employer may suspend an employee when it has reasonable and proper cause

The Court of Appeal has confirmed that an employer will not breach the implied term of trust and confidence if it suspends an employee where it has reasonable and proper cause to do so.

This case concerned a primary school teacher who was alleged to have used excessive force on three occasions against two pupils with challenging behavioural issues. She resigned after she was suspended to allow a disciplinary investigation to take place. She subsequently brought a county court claim for breach of the implied term of trust and confidence, arguing that suspension was not reasonable or necessary for the conduct of the investigation.

Dismissing her claim, the County Court held that the school had reasonable and proper cause for suspending her. The High Court upheld an appeal, finding that suspension was largely a knee-jerk reaction and had not been necessary. The Court of Appeal then reversed the High Court’s decision. In doing so, it emphasised that the issue of whether there was reasonable and proper cause for a suspension was a question of fact, and that an appellate court shouldn’t interfere with the factual findings at first instance unless it has identified a misdirection of law or other error of principle. The High Court also erred by asking whether suspension had been necessary, whereas the correct legal test is to consider whether the employer had reasonable and proper cause.

Why this matters?

It is helpful to have the Court of Appeal confirm that a legal test of whether suspension was ‘necessary’ sets the bar too high. Nonetheless, employers still need to give careful consideration as to whether they have reasonable and proper grounds to suspend, as there can be serious consequences for getting this wrong. In addition to potentially undermining the fairness of a subsequent dismissal, the employee may also be able to claim damages for breach of contract, as illustrated by this case.

Employment Tribunal considers the limits on lawful positive discrimination

The Equality 2010 Act doesn’t generally permit positive discrimination. Instead it allows employers to take less aggressive ‘positive action’ steps to level the playing field in relation to disadvantaged groups, provided certain strict conditions apply. Typical general positive action measures include offering training for or encouraging applications from groups the employer reasonably considers to be under-represented in its workforce. However, in the context of recruitment and promotion, there is a specific statutory positive action measure that does include a positive discrimination element, where the favoured candidate is just as qualified as the other candidate for the role; in these circumstances, the possession of the protected characteristic (gender, race etc) can be used as a ‘tie breaker’ provided the employer reasonably considers that the protected group is under-represented in its workforce. The case below appears to be the first time a UK employment tribunal has considered a situation where an employer has sought to rely on this exemption as a defence to a discrimination claim.

As a result of its slow progress in increasing diversity amongst its workforce, the employer, a police force, implemented a radical recruitment programme. From the pool of all police constables candidates who passed an assessment centre and interview process, jobs were offered to all female, BAME, LGBT or disabled candidates who passed, ahead of all other candidates. There were insufficient remaining vacancies for the other candidates who had passed, including Mr Furlong, a white, heterosexual male. He brought a claim for direct discrimination on the grounds of sexual orientation, race and sex.

The tribunal concluded that the employer’s approach did not comply with the tie-breaker conditions. The employer had deliberately introduced just a pass/fail assessment, compared to previous recruitment rounds where candidates were numerically scored to identity whether they exceeded the pass mark, and if so, how strong a candidate they were. The simple pass/fail assessment meant that people were being artificially treated as equally qualified when in reality, of those who passed, some would have only just passed whilst others would have strong passes. The tribunal therefore held that the employer’s decision to treat all passing candidates as being of equal merit was artificial. It found that Mr Furlong would have been recruited on merit, and upheld his discrimination claims.

Why this matters?

Employers have historically been reluctant to make use of the recruitment positive action power permitted by the EqA, as its boundaries have been unclear. In light of gender pay gap reporting requirements, there is an increasing focus on workplace diversity and many employers are considering taking more drastic measures to increase representation of protected groups. Although only an employment tribunal decision, and so not a binding decision, this case indicates that even well-intentioned employers need to be careful not to overstep the mark.

Bad leaver provision was not an unenforceable penalty or an unconscionable contract

Employment-related incentive schemes often contain provisions that require an individual to forfeit or pay back awards on the occurrence of certain events, including on a breach of contract. Courts will generally not uphold a penalty clause where the sum to be paid by the party in breach is out of all proportion to any legitimate interest of the innocent party. A court can also rescind a contract on the basis that it is an unconscionable bargain if the claimant can show that they have been subjected to a serious disadvantage - for example through poverty, ignorance or lack of advice - that was exploited in a morally culpable manner by the other party.

On the facts of this case, the claimant received a small shareholding in her employer in consideration for its sale to the defendant. The Share Purchase Agreement and the company’s Articles of Association provided that the shares of a 'bad leaver' had to be sold back to the company on termination. A bad leaver included someone who voluntarily resigned. The claimant resigned and was therefore required to transfer her shares for acquisition value. She brought various claims, including that the bad leaver provisions were in breach of the rule against penalties and were unconscionable.

The EAT upheld the tribunal’s decision that the contract was not unconscionable, as the claimant could not establish that she had been at a serious disadvantage. She had even warranted in the Share Purchase Agreement that she had taken professional advice and that the bad leaver clause was reasonable. The EAT also confirmed that the rule against penalty clauses did not apply in this case, because the repercussions of being a bad leaver were not triggered by a breach of contract; in requiring the transfer of her shares the employer was relying on the claimant’s resignation, not a breach of contract.

Why this matters?

This case highlights that the penalty clause doctrine only applies where there is a breach of contract. The case also highlights the high threshold for showing that an agreement is unconscionable. Claimants seeking to challenge bad leaver provisions in incentive schemes may have better prospects arguing that they amount to an unlawful restraint of trade, as those provisions act as a disincentive to the employee moving to a new job. (The claimant in this case was prevented from arguing this in her appeal as she had not raised the point in the employment tribunal). To guard against such restraint of trade claims, employers need to carefully consider the legitimate interests which bad leaver provisions are intended to protect, as well as ensuring that such provisions are well drafted.

This case concerns a discrimination claim brought by a woman who was on maternity leave when she was put at risk of redundancy. The claimant attended an initial meeting regarding the proposed redundancies. She was subsequently sent an important email containing information about redeployment and the process of matching her to other available vacancies. However, this email was sent to her work email address, which she was not accessing during maternity leave. She found out about the email a few days later, when she called HR.

Although the claimant did not suffer any financial loss as a result of the delay in receiving the email, the tribunal upheld her claim that she had suffered unfavourable treatment because she was on maternity leave, and awarded her £5,000 compensation. Overturning this decision, the EAT emphasised that it was not enough that the unfavourable treatment would not have happened 'but for' the claimant being on maternity leave. Instead, the tribunal ought to have looked at the reasons why the unfavourable treatment happened. Specifically, it should have considered whether there was evidence to suggest that the employer was motivated by a discriminatory factor. As there was no finding on this point, the EAT remitted the case back to the tribunal for further consideration.

Why this matters?

The EAT’s decision is a helpful reminder that a genuine mistake is unlikely to give rise to a finding of discrimination. Nonetheless, employees on long-term leave - whether for maternity, adoption, shared parental leave or otherwise - can often be an afterthought when workplace changes take place. As part of their project planning, prudent employers should give thought as to how they will communicate with employees on leave and ensure that they can take part in the process.

Misuse of confidentiality agreements: The government has commenced a consultation to gather evidence and views on the use of confidentiality clauses in the employment context and on measures to prevent their misuse. Concerns have arisen from recent high-profile cases that some employers have used confidentiality clauses to suggest that victims of harassment and discrimination cannot make any disclosures (for example to police or regulators) and to intimidate them into silence. The government is proposing measures to address these issues, whilst recognising that confidentiality clauses have a place in the employment context, both in order to protect the employer’s proprietary interests and to allow both sides to an employment dispute to move on with a clean break. The government’s suggested measures include: banning confidentiality clauses which prevent a victim reporting potential criminal acts; requiring confidentiality clauses to highlight which disclosures are not prohibited; and a requirement that workers receive specific advice on the scope and limitations of a confidentiality provision in a settlement agreement.

Off-payroll working in the private sector: Since April 2017, public sector authorities have been responsible for deciding whether workers who provide their services through an intermediary would have been regarded for income tax and National Insurance Contributions (NICs) purposes as an employee had they been engaged directly. If so, the public authority must then pay tax, NICs, and the apprenticeship levy as if that worker was an employee. As announced in its 2018 Budget, the government intends to extend these off-payroll working rules to the private sector, from 6 April 2020. HMRC has now published an off-payroll working policy paper and consultation on this proposal. The consultation closes on 28 May 2019.

New ACAS guidance on neurodiversity in the workplace: ACAS has issued new guidance on handling neurodiversity in the workplace. Neurodiversity refers to the different ways the brain can work and interpret information. It is estimated that approximately 1 in 7 people in the UK are neurodivergent, meaning that the brain functions, learns and processes information differently. Neurodivergence includes Attention Deficit Disorders, Autism, Dyslexia and Dyspraxia. The guidance addresses the importance of employers supporting neurodiversity, including steps managers can take when they become aware that a team member is neurodivergent. It also highlights the potential benefits of creating a more neurodiverse workforce.