This e-bulletin includes short summaries of the following recent developments. Please contact us if you would like more information. Further updates can be found on our blog Employment Notes, which you can subscribe to here.

1. Restrictive covenants: Supreme Court relaxes approach to severance and upholds non-compete

2. Unfair dismissal: right to privacy in relation to personal emails and WhatsApp messages

3. Holiday pay: Court of Appeal confirms voluntary overtime to be included in calculation; challenge to limit on historic claims

4. Disability discrimination: Court of Appeal confirms that discrimination because of a perceived disability is unlawful

5. Disciplinary proceedings: covert recording by employee may not be gross misconduct

6. Collective bargaining: Court of Appeal rules that employers can make one-off offer to workers to agree new term

7. IR35: draft legislation on extension of off-payroll working rules to private sector

8. Consultation responses: Government commits to extend redundancy protection for those taking family leave and further regulation of the use of 'NDAs'

9. New consultations: proposed changes to family-friendly rights, reducing ill-health job loss, one-sided flexibility, a single enforcement body, and modern slavery statements

10. Other consultations in the pipeline: carers, equal pay, gender pay gap reporting and criminal records

 

1. Restrictive covenants: Supreme Court relaxes approach to severance and upholds non-compete

The Supreme Court in Tillman v Egon Zehnder Ltd has upheld an appeal against the Court of Appeal's strict approach to severance in relation to restrictive covenants. 

In this case a non-compete covenant prohibited an individual from being directly or indirectly engaged, concerned or ‘interested in’ competing businesses. The Supreme Court agreed with the Court of Appeal that ‘interest’ must include minor shareholdings, and that this would be an unreasonable restraint of trade had it not been capable of severance. However, the Supreme Court overruled the Court of Appeal on the correct approach to severance. Severance of words in a single covenant is not limited only to situations where the covenant is in effect a combination of different covenants. Severance will be possible if:

  1. the words can be removed without needing to add to or modify the remaining text,
  2. the remaining terms continue to be supported by adequate consideration, and
  3. the removal of the words does not generate any major change in the overall effect of all the post-employment restraints in the contract, focusing on the legal effect of the restraints rather than their significance for the parties.

These three criteria were satisfied in this case. The Supreme Court therefore allowed the appeal and restored the injunction granted by the High Court (with the words ‘or interested’ removed). Submissions were invited as to the proper costs orders, with the Court suggesting that 'there might be a sting in the tail' for the employer given its responsibility for including unreasonable drafting in the covenants.

The case is the first time in over 100 years that the Supreme Court has examined the rules on restrictive covenants, and employers will breathe a sigh of relief that the Court has re-established the more liberal approach to severance. Although the decision does not give carte blanche to employers to impose whatever restrictions they choose, it does provide a useful safety net should the drafting include the odd word or two which take the extent of the covenant too far. However, given the warning on costs, it would still be prudent for employers to review covenants, particularly for key employees, to ensure they go no further than is reasonably necessary to protect the business.

2. Unfair dismissal: right to privacy in relation to personal emails and WhatsApp messages

The European Court of Human Rights in Garamukanwa v United Kingdom has confirmed that the right to privacy can theoretically apply in relation to communications sent from a workplace email address, or which touch on both professional and private matters. However, in this case, the employee did not have a reasonable expectation of privacy in private communications sent to a work colleague, which had been discovered as part of a police investigation into allegations of harassment and passed to the employer for use in disciplinary proceedings. At the time of the communications, the employer had already informed the claimant of his colleague's complaint and that his conduct was unacceptable, and therefore he could not have reasonably expected that his subsequent communications linked to the allegations would remain private. The employer was entitled to rely on these communications to justify dismissal for gross misconduct. The case highlights the importance of putting employees on notice of this type of allegation at an early stage.

More recently, the Outer House of the Court of Session has decided that, although ordinary members of the public may have a reasonable expectation of privacy when sending messages to a WhatsApp group, the position was different for police officers subject to professional standards applicable both on and off duty. In this case police officers sent offensive messages to a WhatsApp group of other officers, all of whom were under a positive obligation to report this type of message, in itself increasing the likelihood of disclosure. Given that officers are expressly required at all times to abstain from any activity likely to interfere with the impartial discharge of duties or giving that impression to the public, their expectation of privacy was limited. The employer was therefore entitled to use the messages (discovered during the course of a separate criminal investigation) as the basis for misconduct proceedings. The ruling suggests that individuals working in regulated industries or professions, where a higher standard of personal conduct is required, may not be entitled to an expectation of privacy in relation to messages sent to a WhatsApp group. (BC v Chief Constable Police Service of Scotland)

3. Holiday pay: Court of Appeal confirms voluntary overtime to be included in calculation; challenge to limit on historic claims

The Court of Appeal has confirmed that, for the purposes of calculating holiday pay for the 4 week EU-derived entitlement under the Working Time Regulations, voluntary overtime should be included as part of "normal remuneration", provided it is sufficiently regular and predictable. This was notwithstanding somewhat Delphic comments from the European Court of Justice in Hein v Albert Holzkamm suggesting that, as overtime was always "exceptional and unforeseeable", only pay for regular mandatory overtime would form part of "normal remuneration" – a contention which the Court described as clearly "nonsense". (Flowers v East of England Ambulance Trust)

Meanwhile, a Northern Irish Court of Appeal ruling has raised the possibility of higher historic holiday pay claims, given its decision that working time regulations should be read as permitting a claim for a series of deductions and that a series will not be broken by gaps of more than 3 months between underpayments.  The Court ruled that deductions will be a factually linked series where they all relate to holiday pay wrongly calculated using basic pay rather than "normal remuneration".  It considered that the EAT ruling in Bear Scotland v Fulton, that a gap of more than 3 months between deductions broke the series, was wrongly decided. Further, lawful payments of correct amounts between the underpayments will not break the series.

As police officers, the claimants were not eligible to bring an unlawful deduction claim (which expressly permits claims brought within 3 months of the end of a series of deductions) but instead had to frame their claim under the Northern Irish working time regulations (which impose a time limit on claims of 3 months from each deduction). The Court therefore read words into the working time regulations to permit claims made within 3 months of the last of a series of deductions, given that the EU principle of equivalence requires national remedies for breaches of EU rights to be no less favourable than for similar domestic rights.

The ruling is not binding in Great Britain, but may be persuasive. The employer has announced it will seek leave to appeal and of course a Supreme Court ruling would be binding in Britain. Employers who have not yet moved to a 'normal remuneration' calculation for holiday should keep a close eye on developments. (Chief Constable of the Police Service of Northern Ireland v Agnew)

4. Disability discrimination: Court of Appeal confirms that discrimination because of a perceived disability is unlawful

The Court of Appeal has confirmed that direct discrimination on grounds of perceived disability is unlawful. As the statutory definition of disability can include progressive conditions, perceived disability can include where an employee has a condition which currently does not cause a substantial adverse effect on normal day-to-day activities but the employer mistakenly perceives that it is likely to worsen so as to have that effect in the future. It is not necessary that the employer perceives the employee expressly to satisfy the statutory definition of disability, only that it perceives the employee to have an impairment with the features specified in the statutory definition.

Where an employer rejected a job applicant based on stereotypical assumptions that the individual's condition (in this case, hearing loss) would worsen sufficiently to give rise to a substantial adverse effect in the future, that constituted direct disability discrimination on grounds of perceived disability. Direct disability discrimination cannot be justified. This can be contrasted with the situation where the reason for the treatment is that an employee is or is perceived to be unable to do the work required satisfactorily as a result of disability, where the claim is for discrimination arising from disability and the employer can seek to justify the treatment.  Given the breadth of potential disabilities, managers should be live to the potential for perceived disability claims when making decisions based on their view of an individual's capabilities. Decisions should be based on medical evidence rather than assumptions about the individual's condition. (Chief Constable of Norfolk v Coffey)

5. Disciplinary proceedings: covert recording by employee may not be gross misconduct

The Employment Appeal Tribunal has ruled that covert recording by an employee will not always be a breach of the implied duty of trust and confidence.  It will normally amount to misconduct, but will not automatically be gross misconduct justifying dismissal.  Relevant factors will include the purpose of the recording, which "may vary widely from the highly manipulative employee seeking to entrap the employer to the confused and vulnerable employee seeking to keep a record or guard against misrepresentation".  It might also be that an employee wishes to conceal a disability which makes it difficult for them to accurately recall conversations.  Whether the employee has contravened an express instruction not to record or lied about doing so will also be relevant, as will the subject-matter of the recording.  If highly confidential information or personal information relating to another employee is discussed, this is more likely to involve a breach than where the discussion relates to matters concerning the employee of which a note would normally be kept and shared.  Finally, "any evidence of the attitude of the employer to such conduct" will be relevant, including whether and how the issue is addressed in any disciplinary policy.

The EAT also commented that it is good practice to discuss at the start of a meeting whether it would be desirable to record it, noting that sometimes recording will inhibit a frank exchange of views and that, for long meetings, a summary or note will be of more value.

Employers may wish to review their approach to this issue and ensure that disciplinary policies make clear whether recording carried out covertly or without express written consent amounts to gross misconduct.  It would also be prudent to ensure managers state at the beginning of any investigatory, disciplinary or grievance hearing if recording is not permitted and ask the employee to confirm they are not doing so; where a meeting is adjourned for the panel's private deliberations to continue, managers should check that the employee has not left any possessions in the room. (Phoenix House Ltd v Stockman)

6. Collective bargaining: Court of Appeal rules that employers can make one-off offer to workers to agree new term

It is unlawful for an employer to bypass collective bargaining by making an offer of new terms directly to individual trade union members where the main purpose of the offer is to set a term of employment other than by collective bargaining.  The Court of Appeal has overturned the EAT decision in Kostal UK Ltd v Dunkley (see here) and held that this does not prevent an employer making a one off direct offer to workers to change a contractual term, provided that the employer’s sole or main purpose is not to take the relevant term outside of the scope of collective bargaining on a permanent basis.  Leave to appeal is being sought. 

7. IR35: draft legislation on extension of off-payroll working rules to private sector

The Finance Bill 2020 published on 11 July 2019 includes draft legislation to extend the public sector off-payroll working rules to large and medium-sized private sector companies with effect from 6 April 2020;  consultation on the draft legislation closes on 5 September 2019.  A summary of responses to the earlier consultation on the proposals, a policy paper and fact sheet have also been published, and the government has promised to publish further guidance this summer.   Employers will welcome the reassurance in the factsheet that "HMRC will focus on ensuring businesses comply with the reform for new engagements, rather than focusing on historic cases. HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time. Organisations’ decisions about whether workers are within the rules will not automatically trigger an enquiry into earlier years." Our blog post discussing the reforms in more detail is available here.

8. Consultation responses: Government commits to extend redundancy protection for those taking family leave and further regulation of the use of 'NDAs'

In July the Government published its response to two consultations, confirming its intentions to amend legislation but without specifying any particular timetable for doing so. Extension of priority over vacancies on redundancy  Currently women on maternity leave are given priority over any suitable alternative vacancies should their role be made redundant. An employer’s failure to offer any such available vacancies renders the consequent redundancy dismissal automatically unfair. The Government has committed to extend this right of priority over vacancies to apply from the point at which the employee notifies the employer – whether orally or in writing – that she is pregnant, until six months after the end of maternity leave (even if the mother does not immediately return to work due to taking another form of leave at that point).  Similar protection will be available for those taking adoption leave. The Government intends also to provide protection for those taking shared parental leave, proportionate to the amount of leave taken and the threat of discrimination, but has yet to determine exactly how this will work. No additional protection will apply to paternity leave.  The Government will also establish a taskforce of employer and family representative groups to make recommendations on improvements to the information available to employers and families on pregnancy and maternity discrimination, and to develop an action plan to facilitate pregnant women and new mothers staying in work.  The response document is here. Confidentiality clauses

The Government has also confirmed that it is going ahead with its proposals to regulate confidentiality clauses in settlement agreements and employment contracts, largely as set out in its March consultation. The consultation response confirms that, "when Parliamentary time allows", the Government intends to:

  • legislate to ensure that a confidentiality clause cannot prevent an individual disclosing to the police, or to regulated health and care professionals or legal professionals (who are themselves covered by duties of confidentiality);
  • require that the limitations of a confidentiality clause are clearly set out in the clause (in settlement agreements) or in the written statement of particulars (where included in an employment contract), using clear, plain English and specific wording about what information cannot be shared and with whom. The Government does not intend to prescribe a particular form of wording, or require there to be agreement on acceptable wording that the employee can use in job interviews or conversations with colleagues, family and friends, but it will produce guidance on the drafting requirements.
  • legislate to require an individual signing a settlement agreement to receive independent legal advice specifically on the nature and limitations of the confidentiality clauses.

Breach of the drafting requirements will render the confidentiality clause in a settlement agreement void in its entirety (without voiding the whole agreement). A failure to provide a compliant written statement of employment particulars could lead to a declaration and potentially additional compensation of 2 or 4 weeks' pay (subject to the statutory cap for a week's pay) if the individual brings a successful tribunal claim. The new enforcement arrangements will not apply retrospectively.

Consultation on further reforms to harassment and discrimination law The confirmed reforms above do not take up all of the recommendations made by the Work and Equalities Select Committee (discussed in detail in our blog post here) and the Government has promised to respond more fully to those recommendations in due course. However, the Government is consulting further on possible interventions through the GEO consultation on sexual harassment in the workplace ending on 2 October 2019. This seeks views on a number of specific proposals including the introduction of a duty on employers to take all reasonable steps to prevent harassment in the workplace (the scope of which would be clarified by a statutory code of practice), employer liability for third-party harassment subject to a reasonable steps defence, an extension of the three-month time limit for bringing discrimination and harassment claims to six months, and protection for volunteers and interns. Any changes will apply to all forms of harassment.

Suggested possible enforcement measures in relation to the proposed new duty to take reasonable steps to prevent harassment include investigation and enforcement action by the Equalities and Human Rights Commission, enforcement by individuals either as a standalone claim or contingent on a harassment claim, financial penalties (perhaps mirroring the remedy for failure to inform and consult on a TUPE transfer of 13 weeks' gross pay), and obligations to publish or report on prevention and resolution policies and/or the number of harassment complaints.

9. New consultations: proposed changes to family-friendly rights, reducing ill-health job loss, one-sided flexibility, a single enforcement body, and modern slavery statements

As usual, the first half of July saw a flurry of new Government consultation papers published on possible reforms, some providing detail on previously announced initiatives and some new proposals:

Good Work Plan: Proposals to support families sets out three consultations on:

  • a new right to neonatal care leave from 'day one' of employment, with flat rate statutory pay conditional on 26 weeks' service at the 15th week before the baby is due. Where a newborn is in hospital for neonatal care for at least 2 continuous weeks, the number of weeks, capped at a limit to be specified (suggested options are 2, 3, 6, or 12 weeks), would be added on to the end of maternity or paternity leave. Consultation ends on 11 October 2019.

  • whether larger employers (with 250 or more employees) should be required to publish their policies on flexible work and family related leave and pay on their websites, possibly with key information to be included on the government's gender pay gap reporting portal; the consultation also asks whether and how (all) employers should be required to set out their approach to flexible working in job adverts. Consultation ends on 11th October 2019.

  • the case for a potentially radical reform of family leave and pay, including possible changes to paternity, shared parental and maternity leave and pay and their possible replacement with a single 'family' set of entitlements, with the aim of encouraging greater sharing between mothers and fathers of leave and childcare responsibilities. The consultation closes on 29th November 2019. The Government is currently evaluating the shared parental leave regime and expects to report on this later in 2019.

Health is everyone's business: proposals to reduce ill health-related job loss, a consultation closing on 7 October, proposes a new right for employees to request workplace modifications on health grounds (which would be in addition to the duty to make reasonable adjustments for disabled employees).  This would be similar to the right to request flexible work and enable an employer to refuse on legitimate business grounds.  Modifications could include recorded conversations with the employee about what is needed, seeking occupational health advice, and/or adjustments to hours, duties or the physical environment.  The consultation asks if the right should be made available to all employees or limited to assist return from sick leave (possibly of a minimum length of 4 weeks) or after 4 weeks' cumulative sickness absence.  The right would be supported by a new Code of Practice and would be considered by an employment tribunal in an unfair dismissal claim.   Other proposals include measures to improve access to occupational health services and reforms to the statutory sick pay system, including to allow SSP to be paid on a pro rata basis during an employee's phased return to work after sickness absence, removing the concept of qualifying days and removing the lower earnings limit for eligibility. 

Good Work Plan: Consultation on measures to address one-sided flexibility sets out proposals to introduce new rights for workers to be given reasonable notice of their working hours and to be compensated where their shifts are cancelled or curtailed without reasonable notice. Views are sought by 11 October 2019 on whether the new rights should be "day-one" rights, what "reasonable notice" should be in respect of both rights, the level of compensation, and whether rights should vary depending on type of work done or the industry in which the worker is employed. The consultation document also notes that the Government has previously committed to adopt the Low Pay Commission's recommendation for workers to have a right to switch to a contract that reflects their normal working hours, with limited grounds on which an employer is entitled to refuse.

Good Work Plan: establishing a new Single Enforcement Body for employment rightsseeks views by 6 October 2019 on the case for a new single enforcement body, which would cover holiday pay for vulnerable workers, umbrella companies, the national minimum wage, employment agencies, and gangmasters and labour exploitation.  The consultation also seeks views on whether it should have an enforcement role in relation to statutory sick pay and unpaid tribunal awards, and provide support to the EHRC in relation to discrimination. 

The need for additional enforcement in relation to discrimination has been highlighted by a report of the Women and Equalities Committee published on 30 July, which strongly criticised the EHRC's failure to use its enforcement powers more proactively to tackle institutional and systemic discrimination, and its reliance on individuals bringing their own tribunal claims once discrimination has occurred.  In particular, the Committee urged the Commission to support a 'critical mass' of cases (rather than just those that create legal precedent) and to partner with regulators, inspectorates and ombudsmen to increase enforcement action in their sectors.

Finally, a Transparency in Supply Chains consultation seeks views by 17 September 2019 on proposals to improve transparency and compliance with modern slavery legislation, including making reporting on specific topics compulsory, requiring publication of statements on a central online registry and a single reporting deadline, and the possibility of a new civil penalty scheme which could be within the remit of the new single enforcement agency.

10. Other consultations in the pipeline: carers, equal pay, gender pay gap reporting and criminal records

The Government Equality Office has published Gender equality at every stage: a roadmap for change, which sets out some of the initiatives discussed above but also trails further possible reforms. It confirms plans to consult on a new right to carers' leave, review the enforcement of equal pay legislation (including consideration of when mandatory equal pay audits could be appropriate), and assess the effectiveness of gender pay gap reporting with consultation on any changes by 2021. The roadmap also mentions the possibility of requiring employers to publish retention rates for employees returning from parental leave. Also in the pipeline are reforms to the regime for disclosure of criminal records for non-sensitive jobs. The Ministry of Justice has announced (here) its intention to consult later this year on changes permitting job applicants not to disclose sentences for some sentences of over 4 years once a specified rehabilitation period has passed, and reducing the rehabilitation periods for shorter sentences.