1. Preparing to compete?

An employee is unlikely to breach his duty of fidelity to his employer by simply making a decision to set up a competing business and discussing this with friends and family. However, there is a whole spectrum of steps which may be taken before you reach the extremes of directly soliciting customers of the company and actually carrying on in competition prior to resigning. How does one determine what will constitute a breach of an employee's duties? The Court of Appeal recently held that a middle-ranking salesman who obtained funding from the DTI to develop his own unique product, commissioned concept drawings from product designers and sent those drawings to a competitor (who subsequently invested in the new business) had acted lawfully. An employer must show actual competition, breach of restrictive covenants or misuse of confidential information to succeed in a claim against an employee for breach of the duty of fidelity or breach of contract. The public policy considerations against restraint of trade have established through case law, that acts of preparation before departure are not generally actionable. It is in the public interest to encourage entrepreneurial activity. An employee would otherwise be "locked in corporate bondage or unable to get a running start were he to leave" (Helmet Integrated Systems Ltd v Tunnard).

However, a close consideration of the facts in any particular case will be needed to ascertain whether the preliminary steps taken could amount to a breach of the duty of good faith and fidelity on the part of an employee in that particular case. Different considerations will be relevant in relation to directors. An employer will be keen to argue that a fiduciary duty is owed (over and above the employee's duties of good faith and fidelity) as this will enable it to claim an account of profits rather than being limited to a claim for loss actuallly suffered as in the case for damages on breach of contract. Identifying suitable premises for a new business, negotiating a lease, purchasing a shelf company and entering into heads of term for the formation of a competing company have previously been found to be lawful acts of preparation. However, working on a business plan, procuring lawyers, approaching auditors and bankers for a new competitive business venture, ordering promotional literature and entering into agreements for the supply of products prior to resignation was held to breach contractual and fiduciary duties (Shepherds Investments Ltd (2) Shepherds (Financial) Ltd v Walters and ors).

 2.Temporary changes to duties and location

 A contract of employment is made up of express contractual terms and terms implied either by common Iaw or statute. Generally speaking, an employer cannot unilaterally vary the terms and conditions of employment without risking a claim for breach of contract and/or constructive unfair dismissal. The consent of the employee is required for a variation of terms or conditions. However, a recent EAT case has confirmed that in rare circumstances, an employer may invoke an implied right to temporarily transfer employees to do other work provided that the work is suitable, the employee suffers no detriment (either in status or benefits), the change in duties or location is only temporary and the business need is clearly justified. (Luke v Stoke on Trent City Council)

3.Statutory dismissal/grievance procedures

 

  • The statutory grievance procedures do not apply if a grievance relates to an actual or contemplated dismissal (reg 6(5) of the Dispute Resolutions Regulations 2004). A claimant who believed that a disciplinary procedure which ended in dismissal was tainted by disability discrimination was, therefore, unable to extend the time limit for bringing a disability discrimination claim by submitting a written grievance (however, the EAT did extend time on the just and equitable ground) (Jones v DCA). N.B. Different rules apply where the relevant disciplinary action does not end in dismissal. If a claimant believes that the disciplinary action was unlawful discrimination or that the grounds on which the employer took the disciplinary action were different from those actually asserted, then the statutory grievance procedures shall apply. However, the parties shall be treated as having complied if the employee sends a written grievance to the employer either before any appeal under the dismissal and disciplinary procedures, or (where neither of those procedures are being followed), before presenting any complaint arising out of the grievance to an employment tribunal (Reg 7(1) and 7(2) Dispute Resolution Regulations 2004).

 

  • The EAT held that a claimant who had lodged an appeal the day before the expiry of the three-month time limit for an unfair dismissal claim had reasonably believed a dismissal or disciplinary procedure was under way and the unfair dismissal claim was therefore in time (Codemasters Software Company Limited v Wong). Accordingly, provided the claimant is able to demonstrate that he had reasonable grounds for believing an internal appeal procedure was continuing he should benefit from the extension of time under reg 15 Dispute Resolution Regulations 2004. Correspondence from the claimant's solicitor may be relevant to determining whether or not there really were reasonable grounds for believing an appeal process was ongoing.

 

  • On the face of it, the effect of s.32 of the Employment Act 2002 is to prevent an employee from presenting certain complaints to a tribunal if he has failed to lodge a grievance about the matter under the statutory grievance procedure (or failed to wait the requisite 28 days from the date of lodging such a grievance or lodged a grievance more than a month after the end of the original three month time limit). This prohibition seemed to be absolute as it went to jurisdiction, leaving a tribunal with no discretion to permit a claim to proceed even where this might be in the interests of justice (Canary Wharf v Edebi [2006]). However, a recent EAT decision has clarified the operation of s.32.

 

  • The EAT has held that an employee's failure to lodge a grievance did not automatically deprive the tribunal of jurisdiction. A tribunal shall only be prevented from considering a complaint presented if the failure to raise a grievance is apparent to the tribunal from the ET1 (s.32(6(a)Employment Act 2002) or the employer explicitly raises the issues of compliance with statutory procedures (s.32(6)(b) Employment Act 2002). However, in the absence of either of these two eventualities, there would be no basis for the EAT to deprive the tribunal of jurisdiction even if it found that the employee had not submitted the necessary grievance! A salutary warning to employers not to forget to plead any alleged failure by the employee to raise a grievance in their ET3s. (DMB Business Machines PLC v Plummer).

 

  • Moving now to a case where the failure to comply with the statutory modified grievance procedure did, indeed, prevent the claim proceeding, we are reminded that the requirements of step one of the standard grievance procedure are less onerous than those of the modified grievance procedure. Whereas it is sufficient to simply set out the grievance in writing and send this statement to the employer to ensure compliance with step one of the standard grievance procedures; step one of the modified grievance procedure requires the employee to set out not only the grievance, but also "the basis for it". (N.B. The requirement to set out the basis for the grievance only arises at step two of the standard grievance procedure.) In a rather harsh decision, the EAT concluded that an employee who had sent a simple letter asserting unlawful sex discrimination in relation to pay and conditions on the basis that she believed she had been paid less than male Council employees engaged in work of broadly similar or equal value had not complied with step one of the modified grievance procedure and accordingly her claim could not proceed. The judge seemed to recognise the severity of this decision and reach his conclusion with some reluctance. However, the decision is a useful reminder of the risks for an employee of agreeing to the modified grievance procedure. (City of Bradford Council v Pratt). It may be that the DTI review of the statutory dispute resolution procedures will resolve such difficulties by providing, say, that tribunals have a power to stay proceedings in such cases to allow compliance with the grievance procedure, rather than barring a claimant from proceeding. It does seem unfair that a claimant may be prevented from pursuing a claim at tribunal for failure to comply with the statutory procedures whereas the sanction imposed on an employer who breaches these procedures is purely financial (by way of compensation uplift). There are no comparable provisions which operate to prevent an employer from actually defending a claim.

4. Correct comparator in discrimination case

The EAT held that the correct comparator for a male manager who enters the women's toilets and shouts at a woman on her break whom he believes to be "skiving" was a female manager with the same robust management style who treated a male cleaner of similar sensitivity to the claimant in the same way. For the purposes of the Sex Discrimination Act 1975 (SDA), a comparator must have the same (or, not materially different) relevant circumstances. In previous case law the gender of the complainant or comparator has been changed but not the gender of the discriminator. Indeed, the claimant argued that this had not been done since the SDA came into force. Notwithstanding this, the EAT held that to give meaning and context to the comparison being made, the gender of the manager had to be changed and on this basis, it found that the claimant had not been treated less favourably on grounds of sex. (Kettle Produce Limited v Ward). One can appreciate that the meaning and context of the comparison may have been lost if one didn't change the gender of the manager (as the connotations of a man entering the men's toilets to admonish a male cleaner lack the context of a man intruding on female designated space). However, the danger with permitting the gender of the discriminator to be changed in the context of determining whether less favourable treatment has occurred is that the impact of any detrimental treatment may be neutralised. For example, if you consider that comparing the treatment of a female PA harassed by a predatory male manager with that of a male PA harassed by a predatory female manager, the danger is that the potential discriminatory impact is defused leading one to a conclusion that the female PA has not suffered less favourable treatment or harassment - this does not seem correct.

5. Race discrimination

  •  A recent EAT decision has given an important warning to employers in relation to the effectiveness of compromise agreements by holding that an agreement did not compromise a race claim where it stated that it was in settlement of all claims for "redundancy payments, unfair dismissal, discrimination on grounds of race, sex and/or disability" but failed to recite the relevant section of the Race Relations Act 1976 in relation to compromise of claims. The Recitals simply confirmed that "the conditions regulating this Agreement in section 203 of the Employment Rights Act 1996 are satisfied" which was insufficient to compromise the race discrimination claim (Palihakkara v BT plc)

 

  • A recruitment consultant was found to have directly discriminated on grounds of race against an individual when it rejected a job application in his own name ("Miah") but responded positively to the same application presented from an English-sounding name ("Mark Williams"). An award of £95,000 was made for loss of earnings.(Miah v Shearer Darnell Recruitment Ltd)

6. Protective award is punitive and should not be reduced by earnings during the protected period

It is well established that the protective award for failure to inform and consult on a collective redundancy is intended to be punitive against the employer (Susie Radin Ltd v GMB [2004]). It is not designed to compensate employees for loss suffered as a result of the breach. However, the EAT has now confirmed that employees who remain in employment throughout the protected period (up to 90 days from the earlier of the date the first dismissal takes effect and the date of the award) should not have their earnings during that period taken into account to reduce the amount of the award. Interestingly, the EAT held that provided the individual is entitled to pay during their notice period (either by virtue of their employment contract or the statutory right to minimum notice) then they will be entitled to a protective award even if they are not, in fact, under notice. This resulted in an element of double recovery for employees who were held to be entitled to a protective award on top of earnings. Weight was given to the argument that an earlier provision in TULR(C)A 1992 which contained a claw-back purporting to allow an employer to reduce the protective award by the amount of any payments made by the employer under the contract of employment or by way of damages for breach of contract had been repealed in 1993 on the basis that the provision "largely deprived the sanction of its practical effect and deterrent value" (Cranswick County Foods Plc v Beall).

This decision could mean that employees "affected by measures taken in connection" with proposed redundancies (eg as a result of a reorganisation of the work force) would have a right to a protective award unreduced by earnings during the protected period even where they were not serving notice or personally at risk of redundancy.

7. Implied contract between agency worker and end-user rare

Two recent EAT decisions provide welcome clarification for companies engaging agency workers that it will only be in rare circumstances that a contract of employment will be implied between an agency worker and the end-user (James v Greenwich Council and Cairns v Visteon Ltd). If there is a genuine tripartite agency relationship where services are procured through an agency and the end-user cannot insist on engaging a particular worker, some words or conduct would be needed to persuade a tribunal that the arrangements do not, in fact, reflect the reality such that it is necessary to imply an employment relationship between the worker and end-user. Even if the end-user exercises significant control over the way that the work is performed, this will not, by itself, be sufficient to undermine a tripartite agency relationship. Care should, however, be taken in carrying out disciplinary action as this could imply a level of control and integration inconsistent with a standard tripartite arrangement. However, the mere passage of time would not, in itself, be sufficient to establish mutuality of obligation between a worker and end-user.

Uncertainty had existed since the Court of Appeal said (obiter) that there may be circumstances where an employment relationship can be implied between an agency worker and the end user (Dacas v Brook Street Bureau) which was reaffirmed in a subsequent Court of Appeal case (Cable and Wireless v Muscat). However, it now seems that it will only be where the written arrangements do not genuinely reflect the actual relationship between the parties or where a worker has no contract of employment with the agency (as in Dacas) that the tribunal may be compelled to consider whether to imply a contract by necessity between the agency and end-user. Where, on the other hand (as in Cairns), the worker did have unfair dismissal protection by virtue of her contract of employment with the agency, the fact that she had a greater chance of succeeding in a claim against the end-user would not, in itself, be sufficient to compel a tribunal by necessity to imply a contract.

Where possible, companies should address the status of agency workers in contractual documentation with the agency and seek indemnities to protect against any future liability that might arise should the agency workers succeed in asserting an employment relationship with the end-user.

8. Extension to flexible work rights

The Government has now published the Flexible Working (Eligibility, Complaints and Remedies) (Amendment) Regulations 2006 SI 2006/3314 which will extend the right to request flexible working to certain carers of adults from 6 April 2007. An employee with 26 weeks' continuous employment may make a request for flexible working if the employee is or expects to be caring for an adult in need of care who is either the employee's spouse, partner or civil partner, a relative of the employee; or living at the same address as the employee.