Bell & Scott Employment Law Update, September 2007 Welcome to the September 2007 issue of Employment Law Update In this issue we comment on the case of McAdie v The Royal Bank Scotland where the Court of Appeal have endorsed the Employment Appeal Tribunal’s approach in finding that an employer could fairly dismiss an employee for ill health capability, despite the fact that the employee’s stress related illness was attributed to the conduct of the employer; and the case of Vision Services (UK) Limited v Coutinho where sellers can appeal against a finding of an automatically unfair dismissal following a TUPE transfer. News Racial and Religious Hatred Act 2006 This Act will soon come into force, creating the new offence of stirring up hatred against persons on religious grounds, augmenting the existing offences contained within the Public Order Act 1986 in England and Wales (not Scotland for the moment). This new offence is punishable by a fine or a prison sentence of up to seven years. The offence applies to the use of words or behaviour which are threatening and intended to stir up religious hatred against a group of people defined by reference to their religious belief or lack of belief. The Racial and Religious Hatred Act 2006 (Commencement No. 1) Order 2007 has now been published. It brings all but a handful of provisions of the Act into force on 1 October 2007. While the Act is not limited to the field of employment, and creates a criminal (rather than civil) offence, an act of religious discrimination in the workplace could (in appropriate circumstances) also amount to an offence under the Act. Where a corporate body is guilty of the offence and "it is shown that the offence was committed with the consent or connivance of a director, manager, secretary or other similar officer" then both that individual and the corporate body are guilty of the offence. Watch this space! Equality Act 2006 On 1 October 2007, the Commission for Equality and Human Rights (“CEHR”) will come into existence. It is created under the Equality Act 2006 which received Royal Assent on 16 February 2007. The CEHR will replace the Equality Opportunities Commission, Commission for Racial Equality and Disability Rights Commission and take over their functions in respect of race, sex and disability discrimination. The CEHR’s statutory duty is to promote equality and combat discrimination on the grounds of sexual orientation, religion or belief, and age. In terms of the Act, the CEHR must: Promote understanding of the importance of equality and diversity; Encourage good practice in relation to equality and diversity; Enforce the equality enactments (such as enforcing the prohibition on discrimination on the grounds of religion or belief in the provision of goods and services) and also promote an awareness and understanding of the rights under this and the other equality enactments contained within the Act; Promote equality of opportunity; and work towards the elimination of unlawful discrimination and harassment. Working Time (Amendment) Regulations 2007 These regulations amend the Working Time Regulations (WTR) 1998 to increase the annual leave entitlement from 4 weeks to 5.6 weeks. The increase takes effect in two stages. Workers will become eligible for the first additional 0.8 weeks from 1 October 2007 (four days a week for full-time employees), giving 24 days entitlement; entitlement to the second 0.8 weeks from 1 April 2009 making a total of eight days additional holiday for full-time employees, giving 28 days in total. Comment : While these additional eight days are designed to ensure that workers receive paid time off for public holidays in addition to their rights to four weeks' holiday under the Working Time Regulations 1998, there is no obligation to allow workers to take these extra days on a public holiday. Interestingly, these regulations apply to Great Britain, but in Scotland there are nine public holidays. Workers in Scotland will not be entitled to an extra additional day's leave. The regulations cap the total amount of statutory holidays at 28 days. Therefore, those working for (say) six days a week who are currently entitled to 24 days' holiday under the WTR will still only be entitled to a total of 28 days' holiday after 1 April 2009. The Government has put in place a temporary, transitional measure to help employers, making it possible to make a payment in lieu of the additional holiday entitlement (the additional 0.8 weeks from 1 October 2007) until 1 April 2009. In addition, to encourage early compliance with the regulations, employers providing at least 28 days' holiday prior to 1 October 2007, where it is not possible to make a payment in lieu of that holiday and it cannot be carried forward for more than one year, will fall outside of the regulations provided they continue to meet those requirements. The increases that take place in October 2007 and April 2009 will be calculated proportionally depending on when the employer's holiday year starts.   National Minimum Wage Regulations 1999 (Amendment Regulations) 2007 From 1st October the national minimum wage increases as follows: Adult rate (workers aged 22 and over) increases to £5.52 Development rate (for 18 to 21 year olds) increases to £4.60 Development rate (for 16 to 17 year olds) increases to £3.40

Recent Decisions

In McAdie v. The Royal Bank of Scotland 2007, the Court of Appeal endorsed the Employment Appeal Tribunals (“EAT”) approach in finding that an employer could fairly dismiss an employee for ill-health capability despite the fact that the employees stress related illness was attributed to the conduct of the employer. Although the cause of the employees incapability is a relevant factor for a Tribunal to consider when determining whether or not a dismissal is fair, the key issue is whether the employer acted reasonably in all the circumstances, which include the fact that the employer was responsible for the ill-health.

The facts of the case are fairly straightforward. Mrs McAdie left school and worked for the Bank from the age of 17. She progressed through the Bank into a number of senior positions and in 1995 was promoted to the position of Assistant Corporate Manager based in Croydon, South London. She was responsible for some 45 members of staff and for borrowings of up to £80million and acted as a personal assistant to the Corporate Manager. During 1995, Mrs McAdie was treated for breast cancer and decided to opt for the Bank’s “option to change package”, which reduced her position to a part-time post with less stress attached to it. Mrs McAdie was concerned that stress could be a trigger for cancer and was anxious to take all steps to remove unnecessary stress from her life. The result of her application was that she moved to another Branch as a Customer Service Officer working 14 hours a week. Thereafter, she moved to Retail Banking and in 2000/2001 had a period of maternity leave.

In 2003, her then Manager, Mr Shaugnessy, identified a staffing problem in another Branch which was some miles from Mrs McAdie’s home. She was asked to move from Bromley to Swanley. She was reluctant to do so because she had created childcare provisions around the area of her place of work. The travelling distance between Mrs McAdie’s home and that of the new Branch was not much more and her contract of employment contained a term which meant that she could be asked to transfer her place of work to an alternative office within a reasonable travelling distance of her existing workplace. Mrs McAdie objected to moving to another Branch. Her reasons included the stress or upset of being forced to switch to another office and advised that she may consider resigning should she be asked to do so. She registered her concern and advised that she had already advised Mr Shaughnessy of her previous medical history and wished to avoid stress. This did not, however, alter the decision to transfer her as she held all the relevant experience and skills.

Mrs McAdie initially raised an informal grievance on the 17th July 2003 but was unsatisfied with the outcome of the grievance, and raised a formal grievance on the 6th November 2003. The Tribunal found that certain matters were omitted from the note of the grievance, namely her concerns that a previous grievance against her current Manager may have influenced his selection for transfer; concerns of whether she had been displaced from a member of staff transferring from another Branch; concerns about her health and her concerns about travelling. During this period Mrs McAdie was signed off sick and did not return to work. Her relations with Bank officials then, she felt, were increasingly intimidating and bullying. Her grievance was not, in fact, dealt with until April 2004. Mrs McAdie followed the Bank’s grievance procedure to its conclusion appealing that decision which was dismissed by the Bank on 19th July 2004.

The Bank then followed through on its long term sickness absence policy, collecting and considering medical reports in respect of Mrs McAdie, and invited Mrs McAdie to attend a long term sickness meeting on 4 August. She was eventually dismissed at a meeting on 22 December 2004. The Bank’s position was that they were always keen to facilitate her return to work; either a return to Bromley or redeployment to an area of their choice within the Bank or the RBS Group. During the meeting which she had had with the Bank, Mrs McAdie had indicated that she was unable to consider any form of return to work now or on the short term. This, the Tribunal decided, left the employer with really no choice at all. The EAT considered that the Bank was responsible, and culpably so, for the Applicant’s ill-health. However, the EAT considered that it was important to focus not as such on the question of the responsibility but on the statutory question of whether it was reasonable for the Bank in the circumstances to dismiss her for that reason.

The difficulties faced by Mrs McAdie were that no matter what she had indicated, she was not ever coming back to work for the Bank and could not see any circumstances in which she could. The EAT were of the view that the decision may have been different if her position had been that she was willing to try again, but she was not and in those circumstances what can an employer do?

In the particular set of circumstances, the Bank’s culpability in bringing about Mrs McAdie’s incapability was not a basis on which it could be said that her dismissal was unfair.

The Court of Appeal upheld the decision of the EAT in its entirety.

Comment

In terms of the judgement, this is a fairly strong decision in favour of employers. It should be noted, however, that the Court of Appeal agreed with the EAT that where an employer is responsible for the employee’s ill-health the employer should normally make more effort to find alternative employment for the employee or put up with a longer period of sickness absence than would otherwise be reasonable. Whether the sickness absence would be paid or unpaid is something which would depend upon the particular circumstances of each case. What is important is that employers do not take the decision to mean that any dismissal on incapability grounds where they may well have caused or contributed towards the ill-health of that employee is likely to be found to be fair. It is important to manage stress in the workplace, as no matter the outcome in McAdie, a workplace fraught with adverse working conditions resulting in unacceptable levels of stress on employees will breach the implied term in every contract that the employer will take reasonable steps to ensure the safety of its employees at work. This includes a duty to take reasonable care not to cause psychiatric harm to employees by way of the character or volume of work.

An employer which does not take action to manage the effects of stress on its employees will not obtain the best out of those employees and will also run an increased risk of stress-related claims. Employers should consider, and be seen to consider, the impact of stress in the workplace. This might include:

• Carrying out a stress audit. Ask employees to list their concerns in respect of stress.

• Using return to work interviews after sickness absence, performance appraisals and employee surveys to identify any underlying stress-related reason for absence or poor performance.

• Training managers to recognise situations likely to cause stress and to identify the symptoms of stress and how to manage stress.

• Designing a stress policy. The policy should make it clear that this is an issue that the employer takes seriously and give employees guidance as to how to deal with the effects of stress, and how to raise these concerns within the workplace.

• Consulting employees, employee representatives or unions on organisational changes.

• Avoiding placing unreasonable demands on employees by prioritising workloads and appropriate delegation of duties.

• Providing adequate training.

• Providing support through an employee assistance programme or occupational health service and/or providing independent confidential counselling.

Sellers can appeal against a finding of automatic unfair dismissal following a TUPE transfer

Vision Services (UK) Limited v. Coutinho [UKEAT/0466/06/CEA]

In this case the Employment Appeals Tribunal (“EAT”) held that where a dismissal is found to be related to a TUPE transfer and therefore automatically unfair (because there is no economic, technical or organisational reason) the seller has the right to appeal against that finding even though liability for the dismissal passes to the buyer under the TUPE regulations.

The facts of the case are actually fairly straightforward. Mr Coutinho is an IT specialist. He worked with Vision Information Services (UK) Limited from January 1997. By the time of the actual transfer in 2004, he was Vision’s highest paid employee. The negotiations for sale of Vision to Deluxe Media Services Ltd started in November 2002, but had fallen by the wayside in May 2003. Discussions resumed again in late December 2003. On 19 March 2004 Mr Coutinho was told that the negotiations with Deluxe Media Services had fallen through and approximately three or four days later on 22 March, he was told that he would be made redundant with effect from 31 March 2004. Vision was then sold to Deluxe Media on the 31 July 2004.

Mr Coutinho, who was of Asian origin, raised an Employment Tribunal Claim in June 2004 claiming that he had been unfairly dismissed on the grounds of his race, and subsequently added a claim that there had been a TUPE transfer to Deluxe Media Services and that his dismissal was for a reason related to the transfer and that all liabilities relating to the dismissal had therefore been transferred to Deluxe Media.

Deluxe Media was added as a second Respondent.

The Tribunal upheld his claim that there had been a TUPE transfer. It found that the main reason for Mr Coutinho’s dismissal was that Vision was unsellable, because of Mr Coutinho’s high salary and the costs of employing him. The Tribunal concluded that the sale had not fallen through but had been put into abeyance until he had been dismissed. The Tribunal found that the dismissal was for a reason related to the transfer and not therefore for an economic or technical or organisational reason, and so the dismissal was automatically unfair. It also upheld some of his claims for race discrimination.

Following this decision Vision, not Deluxe Media, appealed against the liability judgement. Mr Coutinho appealed against the remedies that he had been awarded on the basis that the race discrimination award was too low and that the Tribunal should have made an award for aggravated damages, which it did not.

In relation to Vision’s appeal, the Agents for Mr Coutinho argued before the EAT that the appeal was academic because no finding of legal liability had in fact been made against it. The legal liability for both relevant claims had passed to Deluxe under TUPE and so only Deluxe Media had the right to appeal.

Under Regulation 5(2) of TUPE 1981 all rights, powers, duties and liabilities relating to the transferring employees will pass to the buyer and any act or omission before the transfer in relation to a transferring employee shall be deemed to have been an act or omission of the buyer. As a result of Regulation 5(2) the acts of Vision are deemed to be acts of Deluxe Media and the EAT considered that on the face of it, it was unclear why Vision would have any interest in the issue of lawfulness in the first instance. Regulation 5(2), however, only transfers liability to the buyer (Deluxe) if the dismissal was as a result of the sale of the business (a transfer related reason) and therefore unfair.

The primary finding was disputed by Vision. The EAT noted it would be extraordinary if that decision was, in effect, self-insulated from challenge. The EAT was therefore of the view that Vision must have the right to pursue the liability appeal. The reason being that the subject matter of the appeal was Vision's acts, which in terms of TUPE, were deemed to be those of Deluxe, and if it were successful its actions would not result in a dismissal by reason of the transfer. The EAT then went on to consider the Tribunal’s reason in finding that the dismissal was for a transfer related reason and rejected Vision’s arguments that the Tribunal had erred in reaching the decision in holding that the Tribunal was entitled to infer, on the basis of the evidence before it, that the dismissal was transfer related.

Of most interest in a commercial sense is the Tribunal’s finding that the transfer related reason did not amount to an economic or technical or organisation (“ETO”) reason, which would not have been unfair. The Tribunal's findings were that Vision was in financial difficulties and needed to sell the business in order to survive, and most importantly that it was not being reorganised so that it could continue as a going concern. There was no redundancy procedure. There was no selection criteria and no consultation. All of these elements would normally have been present where a dismissal was attributable to a genuine ETO involving redundancy (which was the reason Mr Coutinho was given, and which may have in all likelihood involved more than one employee). The Tribunal was therefore not satisfied that the reason for the dismissal, or the principal reason, was an ETO. The EAT stated that it believed that the Tribunal had in mind the line of cases which established that a dismissal carried out as part of a reorganisation designed to make an undertaking more saleable does not constitute a reason related to the sale of the business and the EAT upheld the decision of the Tribunal.

Comment

The important point here is that in most cases the buyer (Deluxe) would have appealed against the Tribunal decision rather than the seller (Vision) and so the issue of whether the Appellant in this case had a right to bring the appeal would not have arisen. In this case, however, the seller and the buyer were represented by the same Agent and the EAT was told that there were indemnity arrangements in place, which are normal in commercial transactions. The norm here would be that the seller was liable under these arrangements and this is why the seller rather than the buyer appealed the decision. This emphasises an important right for sellers who may prefer to conduct the case themselves rather than rely on the buyer who will not ultimately be liable doing so. The circumstances of this case could be applied to any number of business transfers and illustrate the care that must be taken in business sales particularly in circumstances where there has been a stop start to a set of negations and one or more employee is viewed by a prospective purchaser as just too expensive or unnecessary. There is a very fine line between a reorganisation with a view to making a business a more attractive proposition to a buyer, and a reorganisation because of a sale.