Bell & Scott's Employment Law Update

Bell & Scott's Employment Law Update December 2007

Welcome to the December issue of Bell & Scott's Employment Law Update.

In this issue we comment on recent cases in respect of holiday pay, in particular rolled up holiday which has proved to be a bit of a minefield.

Statutory Disciplinary Procedures and the failure to follow automatically unfair dismissal - we consider the effect of missing out or delaying part of the three step procedure and the ramifications for employers, looking at three recent cases.

And finally, in the season of goodwill to all we consider the case of Sinclair v Wandsworth Council and the pitfalls facing employers dealing with alcohol in the workplace.

Recent Decisions

Holiday Pay: Update - Rolled Up Holiday Pay

The law on holiday pay seems straightforward but there are a number of minefields that the courts have been trying to navigate for a number of years with limited success. On a straightforward basis all employees working a five day week must get at least 20 days paid leave each year including bank holidays. This entitlement increases to 24 days from October this year and then to 28 days in April 2009. For workers or employees on casual or variable shifts, the Working Time Regulations set out that the workers are currently entitled to 4.8 weeks annual leave in each year and that they are entitled to be paid during any period of annual leave at the rate of a week’s pay for each week of leave. Following the introduction of the Working Time Regulations in 1998 difficulties have arisen as some employers “rolled up” holiday pay by paying their workforce only during the weeks that they worked but at a rate which included pay in respect of annual leave. In the case of Robinson-Steele v PD Retail Services the European Court of Justice held that rolled up holiday pay is unlawful unless certain conditions apply. Although the Working Time Regulations in the UK have not been amended to reflect this decision, the government guidance on the Working Time Regulations state “rolled up holiday pay is considered unlawful and employers should renegotiate contracts involving rolled up holiday pay for existing employees/workers as soon as possible so that payment for statutory annual leave is made at the time when the leave is taken”.

The guidance is at odds with the recent case of Lyddon v Engleford Brickwork Limited. In that case the EAT had to decide if the Tribunal had correctly decided that an employer had been entitled to set off rolled up holiday pay against sums claimed by a former employee. Mr Lyddon had been told that he would be paid at the rate of £135 per day and that that would include holiday pay. His weekly pay packet set out his basic wage including rolled up holiday pay. He took two weeks leave during which he received no pay and did not query how his holiday pay was calculated. When his employment ended he took action claiming holiday pay in respect of the statutory annual leave he had accrued but not taken. The Tribunal held that the key question was whether the payment of rolled up holiday pay had been implemented “transparently and comprehensively” and were of the view that in this case it had been. The EAT upheld the Tribunal’s decision stating that there was a consensual agreement identifying a specific sum properly attributable to periods of holiday, applying the principles from Robinson-Steele rather than the principals set out in the government’s guidance.

Comment: The EAT appears to have decided that where there is a consensual agreement identifying a specific sum properly attributable to the periods of holiday, then rolled up holiday pay and offsetting is allowed. It would appear that as long as employees know that this is how their holiday pay is to be paid and do not take issue with it, employers can continue to pay their employees and workers holiday pay in this way. Therefore it does appear that rolled up holiday pay in certain limited circumstances can be lawful regardless of what the government’s guidance states.

In the case of Yarrow v Edwards Chartered Accountants 2007 the EAT confirmed that a day’s pay for the purpose of arrears of holiday pay and also ordinary pay should be calculated by reference to the number of working days in a year. For individuals who work a five day week the calculation would be 365 less 104 weekend days less eight public holidays and less the number of days annual leave and not the number of calendar days in the year.

Statutory Disciplinary Procedures - failure to follow automatically means an unfair dismissal

In Venniri v Autodex Limited, the EAT held that Section 98 A (1) of the Employment Rights Act 1996 was part of the essential fabric of unfair dismissal law and accordingly that unless the matter is expressly conceded by the other party that whenever Tribunals consider whether a dismissal is fair they should consider the issues raised by Section 98 A (1) and in particular:

In this case the Tribunal itself did not identify that compliance with the Statutory Disciplinary Procedures (“SDP”) was an issue and made no findings about compliance with Section 98 A (1) of the Employment Rights Act 1996 as the employer admitted that it had failed to comply with the first step of the SDP, which is initial notification of the reason why the employer is contemplating dismissal.

When an employer is contemplating dismissing an employee it is obliged to follow the statutory dismissal procedure. The standard form dismissal procedure is comprised of three stages:

Step 1 - initial notification of the reason why the employer is contemplating dismissal;

Step 2 - a meeting with the employee to discuss the position following which the employer’s decision should be notified; and

Step 3 - an appeal meeting should the employee exercise his or her right to appeal.

Each step under the statutory dismissal procedure is to be taken without unreasonable delay and the timing and the location of the meetings must also be reasonable. In this particular case the employer admitted that it had failed to comply with the first step of the statutory dismissal procedure and the EAT substituted a finding of automatically unfair dismissal and sent the case back to the Tribunal to consider remedy.

Employees have a right not to be unfairly dismissed by their employer. For a dismissal to be fair an employer must establish if the reason for an employee’s dismissal falls within one of the categories of the six potentially fair reasons for that dismissal, which include the employee’s conduct. In terms of the Employment Rights Act once an employer has established a potentially fair reason for a dismissal, the Tribunal must decide whether dismissal was fair or unfair having regard to the reason shown by the employer. Establishing fairness will depend on whether in the circumstances, including the size and administrative resources of the employer’s undertaking, the employer acted reasonably in treating its reason for sufficient reason for dismissing the employee.

In this case, Mr Venniri worked for Autodex Limited. He was a spray painter. His contract contained a mobility clause requiring him to work at four different sites, Cowley, Rickmansworth, Slough and Southhall. On the 18 August 2006, Mr Venniri was working at Cowley and was asked to provide three days cover at Rickmansworth the following week. He refused, as he believed that Autodex intended to permanently relocate him to Rickmansworth where he had been previously threatened with a disciplinary action over the quality of his work. On the 22 August 2006, Mr Chokley, an Autodex manager, told Mr Venniri that his refusal to go to Rickmansworth would be considered at a disciplinary hearing when the HR Director returned from holiday. Autodex’s case was that at that stage Mr Venniri replied “you can do what the f… you like, I’m not going”. Mr Venniri countered this in his case with the proposition that Mr Chokley had also told him that if he failed to go to Rickmansworth he would be sacked for gross misconduct on the 25 August 2006. Mr Venniri remained at work and was called to a disciplinary hearing on the 29 August 2006. At the hearing Mr Kearney told Mr Venniri that he had been dismissed the previous week and advised him of the appeals procedure. Mr Venniri’s appeal was dismissed. Mr Venniri then presented a claim for unfair dismissal to the Tribunal and represented himself. The Tribunal held that the reason for his dismissal had been his conduct and that the issue it had to determine was fairness and whether the reason that Mr Venniri was dismissed was fair in all the circumstances of the case. The Tribunal held that having regard to the size and nature of the organisation Autodex had fairly dismissed Mr Venniri. Mr Venniri appealed arguing that (1) the Tribunal’s reasons for the decision were inadequate and in particular that there was a lack of any finding as to whether the statutory procedure had been completed, and (2) there was no explicit consideration of whether the dismissal had been a reasonable punishment in the circumstances.

In its judgement the EAT found that the Tribunal’s decision had not identified compliance with the SDP as an issue and therefore made no findings about compliance with the relevant sections. The EAT went on to state that Section 98 A (1) of the Employment Rights Act 1996 is an essential part of the fabric of unfair dismissal law and in every unfair dismissal case Tribunals should consider if where there is applicable procedure, there has been non completion of the procedure, and if that non completion is wholly or mainly attributable to failure by the employer to comply with its requirements.

The EAT went on to hold that claimants do not have to explicitly raise Section 98 A (1) of the Employment Rights Act because Tribunals should have the matter in mind as an issue regardless. Part of the argument put by Autodex in this case was that as there had been no argument before the Tribunal about the alleged failure to apply the SDP, it was not open for Mr Venniri to argue the point in appeal. Autodex accepted that if the point was allowed to be taken on appeal, the first step of the procedure had not been complied with. Their position was in any event that Mr Venniri should receive no compensatory award because had the SDP been complied with, he would still have been dismissed.

In considering matters the Employment Appeal Tribunal’s finding was that in this case the Tribunal should have considered failure to follow the SDP, as Mr Venniri had made no concession conceding this and had relevant documents relating to this in the hearing bundle alleging to not having received anything in writing before the meeting on 29 August 2006. The view of the EAT was that he was not raising a fresh matter on appeal but was complaining that the Tribunal had failed to deal with an issue it was duty bound to address. In sending the case back to the Tribunal for a remedy, the EAT directed that a new Tribunal should consider matters relevant to remedy which could include contributory conduct issues afresh without being bound by the conclusion of the original Tribunal and the application of the doctrine that, had the SDP been applied, the result would have been no different.

The case is interesting in two respects. Although Mr Venniri was unrepresented it is dangerous to conclude that a Tribunal will pick up on each and every ground to support a claim of unfair dismissal including procedural shortcomings in respect of a general test of fairness under the Act and it is best practice to specify each ground in support of a claim. This is particularly important as on the 3 October 2003, before the judgement in Venniri, the EAT gave a judgement in Ladbrokes Racing Limited v Trainer in which it held that as Mr Trainer had not raised procedural unfairness in his ET1 (the original claim) if he wanted to argue that his dismissal had been procedurally unfair, he would need to apply to amend his ET1. The EAT in Trainer did not, unlike the EAT in Venniri, consider that the Tribunal was automatically obliged to consider the application of Section 98 A (1) of the Employment Rights Act and to that extent there are now two decisions which appear to be conflicting and until a further EAT reviews both of the decisions, there is likely to be some uncertainty over what must automatically be considered by a Tribunal in reaching a decision and what must be specifically raised by the parties.

The lesson to employers is to ensure compliance with the statutory procedures to avoid any automatic finding of unfair dismissal.

Statutory Dismissal Procedure: Excessive delays in holding an appeal can render the dismissal unfair

As a follow on to the previous case and the three step procedure, in the case of Wilmot v Selvaraj, the EAT considered the impact of a significant delay between an employee exercising her right of appeal against a decision to dismiss and the date of the appeal hearing itself. Mrs Wilmot was dismissed for falsely claiming overtime and holiday payments to which she was not entitled. The statutory dismissal procedure was followed but there was a four month delay between the employee’s notification of her intention to appeal and the actual appeal meeting itself. The Employment Tribunal had considered that there had been a fair reason to dismiss in the circumstances and that a fair procedure had been followed. On appeal, however, it was argued before the EAT that the dismissal was automatically unfair because the four month delay before the appeal was heard had contravened the statutory dismissal process.

The EAT held that if there is an undue delay before an appeal is heard, this will contravene the statutory dismissal regime and render the dismissal unfair even though the reason for the dismissal itself is ultimately fair. In reaching its decision the EAT referred to a number of cases on this point where delays of between three and six months were found to infringe the statutory regime. This particular case was sent back to the Employment Tribunal to consider whether the four month delay was in the circumstances unreasonable. The EAT considered, and directed that the Tribunal consider, that it was appropriate to take into account all the facts surrounding the resources available to the employer at this time.

Comment: This is a timely warning to employers to ensure that any appeal process is dealt with as quickly as possible to avoid an otherwise fair dismissal being rendered automatically unfair. The bigger the employer and the greater the resources available the higher the expectation will be that appeals will be dealt with as quickly and as timeously as possible within the statutory regime.

In the case of Sinclair v Wandsworth Council, the Employment Appeals Tribunal recently came to what might seem to most employers to be a surprising conclusion when it upheld the Employment Tribunal’s decision that an employee who had been drunk on duty several times had been unfairly dismissed. Although the case involves an individual who had a known problem with alcohol the actions taken and the considerations made by both the Employment Tribunal and the EAT are important in any workplace context.

Mr Sinclair worked for Wandsworth Council as a business support assistant in the Technical Services Department. In January 2006 he was caught drinking on duty which was in breach of the Council’s disciplinary code. When this matter was investigated he told his manager that he was an alcoholic. His manager told him that drinking on duty was a serious disciplinary offence but that disciplinary proceedings would be put on hold if he agreed to a referral to the Occupational Health Service (OHS). Mr Sinclair was initially quite reluctant to see the OHS and said he would prefer to try and stop drinking on his own and refused consent for the OHS to contact his own GP. He was told by his manager that in order to keep his job he would need to show some co-operation with the OHS and he signed the consent form and stated in a covering letter that he would “do what it takes” to keep his job.

Following up on this, the Council held a disciplinary hearing at the end of March 2006 and issued Mr Sinclair with a final written warning. Four weeks later Mr Sinclair was found again drunk again and was suspended pending an investigation. During the investigation he falsely claimed that any alcohol in his system must have been from the previous night and stated that the OHS had referred him for counselling. In fact, no OHS referral had been made and a disciplinary hearing on this matter was arranged for the end of May. Shortly before the hearing Mr Sinclair failed to attend at an appointment with the OHS on the grounds of ill health and further claimed that he had tried to attend the clinic at a drop in centre the following day but had found it closed.

At the actual disciplinary hearing itself, Mr Sinclair argued that the hearing should be adjourned as he was co-operating with the OHS. That request was refused and the hearing went ahead. Mr Sinclair was found to have been unfit for work through drink and, taking into account his previous final written warning, was dismissed. His appeal against the dismissal, which did not take place until September 2006, was unsuccessful.

Mr Sinclair then raised proceedings at the Employment Tribunal for unfair dismissal. The Tribunal found that although the circumstances of the dismissal arose out of his alcoholism, it was a conduct rather than a capability dismissal and that there had been a full and reasonable investigation into the issue. However, on a majority decision, the Tribunal found the dismissal to be unfair on the basis that (1) the Council had not circulated its alcohol policy to Mr Sinclair or to a number of key individuals responsible for his supervision despite the terms of the policy stating that it required to be circulated to all staff. Mr Sinclair did not see the policy until the day before the hearing. Part of the policy required that he needed to actively seek treatment before any disciplinary hearing would be suspended; and (2) the Council had failed to make it clear to Mr Sinclair exactly what he needed to do in terms of actively seeking treatment for his alcoholism to avoid those disciplinary proceedings being continued. This led Mr Sinclair to believe mistakenly that he was doing all that was required of him and the matter was now in the hands of the OHS. Despite the finding of unfair dismissal, in awarding compensation to Mr Sinclair the Tribunal reduced his compensation to four weeks’ loss of earnings as they believed that had he not been dismissed when he was, he would not have embarked upon a course of treatment with “sufficient vigour” to stop disciplinary proceedings altogether and in any event would have been dismissed four weeks later. The EAT upheld the finding of unfair dismissal and the reduction of the award.

Comment: The facts of this case are interesting as they provide a very valuable case study on handling workplace misconduct arising from alcoholism or drunkenness in the workplace. The first point to note is that despite the fact that the employee was guilty of two counts of drunkenness at work, his dismissal was unfair. However this was on procedural grounds, since the Tribunal clearly took the view that dismissal for drunkenness was within the range of reasonable responses. That is, those six reasons which render any dismissal fair. The problem in this case was that the Council had not followed its own alcohol policy and had not even given the policy to the employee or his managers. This particular policy had been in force with the Council for sixteen years and required the Council to give alcoholic employees the chance to keep their jobs by pursuing a course of treatment under the supervision of their OHS and as a result of poor communication by the Council the employee was in some doubt as to whether he was in fact doing all that he needed to do and it had not been spelled out to him sufficiently clearly that he would be dismissed if he did not actively pursue treatment.

The case throws up a number of difficult issues for employers since alcoholism may require careful handling and in some cases an employee’s line manager may take the view that to give an alcoholic employee too brutal a reality check may make matters worse but an employer should not tiptoe around issues if they are seriously considering dismissal.

The second point to note is that if the employer does not get it wrong procedurally there are good arguments for keeping compensation down to a minimum and an employer may be able to persuade a Tribunal that the employee showed insufficient commitment to combat the addiction and that any procedural failings therefore merely hastened the inevitable dismissal. The other issue highlighted is that policies and procedures of this nature need to be very carefully drafted and available to employees from the outset. Managers also need to be completely familiar with their terms and in implementing them it should be made extremely clear to employees what is required of them.

The Christmas party is a potential minefield of liability claims for employers. So much so that many employers find themselves with problems on their hands over the Christmas period and having to deal with the aftermath of the office party. The following is designed to be a light hearted but timely reminder of the potential pitfalls and avoiding them.

Employers should remember that they are vicariously liable for the employee’s behaviour if it takes place in the course of their employment and this can cover Christmas parties and work related functions even if they are held off premises and outside working hours.

Anti-discrimination legislation states that any act committed by an employee in the course of his employment is treated as if they were done by the employer irrespective of whether the act or actions were known about or sanctioned by the employer. Employers have a defence to discrimination cases if they took such steps as were reasonably practicable to prevent the discrimination taking place. To reduce the liability employers should notify employees beforehand of the standards of behaviour expected and that misconduct may result in disciplinary action. An obvious but overlooked matter is the invitation. Do not insist that all staff attend the Christmas party. Christmas is a “Christian” holiday so pressuring someone to attend if they do not want to on the grounds of religion could potentially be a discriminatory practice.

If the event is out of hours some people have family responsibilities that may prevent their attendance, so insisting that they attend again is a discriminatory practice.

Also, be aware that if a secret Santa gift is being circulated try and ensure that the gifts are inoffensive. Some gifts such as underwear and sex toys have sparked complaints of sex discrimination and harassment in the past.

Manage expectations - alcohol generally makes people lose their inhibitions and say silly things. Try and avoid providing staff performance reviews during the office party. In one case an employee claimed his boss had promised him a higher salary during a chat at the Christmas party. His salary remained static, so he resigned and claimed constructive dismissal. The employer won the case but only because of the vague nature of the promise.

A promise made at a Christmas party is still a promise after the Christmas party.

How employees get home after a party needs to be considered. An employer needs to take responsibility and has a duty of care to his employees and because it is a company party they must think about travel arrangements and consider ending the party before public transport stops running or provide phone numbers for local taxi companies and encourage staff to use them.

Hopefully, however, most people will behave themselves and any high spirits will be just that. The Christmas party can provide a great venue for all levels across an organisation to introduce themselves to more senior members of staff and interact with those they would not otherwise have a chance to meet on a social basis.

Companies Act 2006

Part 10 of the Companies Act 2006 relating to Directors came into force on the 1 October 2007 and employers should be aware of the following key provisions:

The Act now provides a code setting out the common law duties of directors in to new general duties. The following duties came into force on the 1 October 2007:

Three remaining statutory duties concerning conflict of interest are expected to come into force on the 1 October 2008.

The new Act contains a definition of director’s service contracts including contracts of service, contracts for services and non executive letters of appointment. This also includes arrangements where the services of a director are provided via a personal services company. It should be noted that shareholders’ approval is now required for director’s service contracts with a guaranteed term of longer than two years (before approval was only required for a fixed term of five years or more).

In addition director’s service contracts will have to be made available for inspection by shareholders until one year after their expiry.

There are new provisions which require shareholder approval before a company can enter into a substantial property transaction with a director or grant loans or quazi loans or enter into other credit transactions with a director.

The provisions found within the Companies Act 1985 are restated and extended to include payments to directors and their connected persons for loss of any office or employment in connection with the management of the company. However, shareholder approval will be required for such payments unless they fall within one of the specified exemptions set out within the Act.

Data Protection Act: End of Transitional Arrangements

From the 24th October 2007 the final exemption under the Data Protection Act 1998 in respect of manual filing systems in existence before the 24th October 1998 ceased to apply. From the 24th October 2007 the Act applies in full and data controllers are obliged to ensure that the processing of all personal information complies with the Act. There isn't a huge amount of personal data that most organisations can justify holding for more than 10 years, so it's hoped that most organisations will already have destroyed any information that would have been covered by the transitional relief. If not, unless your organisation has any great justification for holding on to this data the best advice is to destroy it.

The Employment Bill (previously referred to as the “Employment Simplification Bill”) will reform the statutory dispute resolution procedures. The Government consultation following the Gibbons Review on the procedures closed on 20 June 2007 and a response from DBERR to the consultation is expected soon. In addition, the Bill will simplify and clarify the enforcement framework for the national minimum wage and contain proposals to amend trade union membership law in light of ASLEF v UK.

The speech highlighted that the Pensions Bill “will place a duty on every employer to contribute to good quality workplace pensions for their employees”.

Following the Queen’s Speech, Cabinet Minister Ed Miliband, indicated that the Government intends to extend flexible working rights to parents with children older than six. Sainsbury’s HR Director Imelda Walsh is to undertake an independent review into the extension of this right.