November 2009
In this issue:
We consider the Court of Appeal
decision in Cook v MSHK Ltd
(losing the right to dismiss for
misconduct by delaying), the
EAT decision in OCS Group UK
Ltd v Jones (when there will be
a service provision change
under TUPE 2006), the Court of
Appeal decision in Royal Mail
Group Ltd v Communication
Workers Union (TUPE
consultation) and the Court of
Appeal decision in Autoclenz v
Belcher on employment status.
Authors:
Noel Deans
noel.deans@klgates.com
+44.(0)20.7360.8187
Paul Callegari
paul.callegari@klgates.com
+44.(0)20.7360.8194
Daniel Wise
daniel.wise@klgates.com
+44.(0)20.7360.8271
K&L Gates is a global law firm with
lawyers in 33 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous
GLOBAL 500, FORTUNE 100, and
FTSE 100 corporations, in addition to
growth and middle market companies,
entrepreneurs, capital market
participants and public sector entities.
For more information, visit
www.klgates.com.
Losing the Right to Dismiss for Misconduct
In Cook v MSHK Ltd, the Court of Appeal has given an important decision on
when an employer will lose the right to dismiss an employee for misconduct
because it has taken too long to act (and, therefore, is said to have "waived the
breach" or "affirmed the contract").
The employee worked for a record company under a contract which contained
restrictive covenants. He accepted an offer of employment with a competitor and
resigned, giving the required notice. During the notice period, the employer
discovered that he would be working in breach of covenant after he left. It removed
him from sensitive work and restricted his computer access. The employee was
then absent with stress, but returned to work out his notice period after receiving
assurances from the employer that the matter could be put behind him. The
employee was then dismissed for gross misconduct and breach of fiduciary duty
because the employer believed that he had lied at the outset when asked what work
he would be doing after he left.
The employer brought a claim in the High Court against the employee for damages
to cover the employee’s failure to work out his notice and to have the dismissal
declared lawful. However, the claim failed. The employee successfully argued that
the employer had affirmed the contract by inviting him back. It had therefore lost
the chance to dismiss him.
This was confirmed by the Court of Appeal. The key point was that during the
weeks following its discovery of the fact that the employee was intending to join a
competitor, the employer had given no indication to the employee that it was going
to discipline or dismiss him. Rather, it had made it clear that it regarded him as
bound to work his notice period. The employer had therefore affirmed the contract.
The lesson from the decision for employers is that when an employee is suspected
of misconduct, decisive and prompt action is needed. If disciplinary proceedings
are to take place, they should take place promptly. If there is going to be delay in
taking formal action (perhaps because the parties are attempting to negotiate a
settlement) then it will be sensible for an employer to expressly reserve its right to
take further action at some point in the future in all communications with the
employee. An employer may only be trying to be constructive and conciliatory.
However, failure to reserve its position may result in an employer being left unable
to dismiss an employee for misconduct.
For more information please contact Noel Deans.
__________________________________________________
When There Will Be a Service Provision Change under TUPE
The EAT has given a helpful decision on when there will be a service provision
change under TUPE. In OCS Group UK Ltd v Jones, the EAT considered the
extent to which "activities" need to be the same before and after the transfer in the
context of a "service provision change" in order for TUPE to be triggered.
The employees were employed by OCS to work on a catering contract between
OCS and BMW at the BMW car plant in Cowley. Under the contract, OCS
On Notice
provided a restaurant and deli bar, 4 "satellites"
and a shop on behalf of BMW. The satellites
were required to provide English and continental
breakfast, beverages, a lunch involving hot soup
and cold baguettes, sandwiches, rolls, pizza and
jacket potatoes together with hot and cold
desserts. Since the contract was losing money,
OCS eventually lost the contract and another
provider (MIS) took over the contract at the plant.
Under the new contract, only pre-packed
sandwiches and salads were sold and there was
no hot food preparation.
When the OCS contract terminated, the
employees brought claims against OCS. OCS
argued that the employees had transferred to
MIS. This was because the termination and reawarding of the contract constituted a service
provision change under TUPE. Therefore, MIS
should be liable for the employees' claims as
liability transfers under TUPE.
The ET decided that the employees did not
transfer because the new contract was “materially
different” from the old one in that it was a
substantially reduced service. OCS appealed,
arguing that the essential activity was the same the provision of food and catering services for the
staff at the plant.
The EAT agreed with the ET's decision. It found
that the new contract was a "wholly different
operation," and that the correct approach was to
ask if the activities carried out were
"fundamentally or essentially the same".
The case illustrates the limitations of the
definition of a service provision change under
TUPE. The decision will be welcomed by
incoming contractors since it gives them
significant scope to use their own personnel and
to avoid the onerous implications of TUPE by
changing the way that the service is delivered.
The decision should also be borne in mind by
outgoing contractors since they are potentially
liable to their employees for redundancy and
other costs in the event that they do not transfer.
However, organisations engaged in outsourcing
should be careful to avoid using this case as a
mechanism to seek to avoid the effects of TUPE,
a tactic that has historically proved ineffective.
Employers Do Not Warrant
Accuracy of Information Given in
TUPE Consultations
In Royal Mail Group Ltd v CWU, the Court of
Appeal has given an important decision on the
extent of employers’ consultation obligations in
a TUPE transfer situation.
The employer (Royal Mail) was selling off some
of its post office services to WH Smith.
Regulation 13 of TUPE obliges an employer to
inform employee representatives (or the
employees themselves) of “the legal, economic
and social implications of the transfer for any
affected employees”. Failure to comply can lead
to a penalty being imposed under Regulation 15.
Royal Mail took the view that TUPE did not
apply so that its employees did not transfer. It
therefore did not inform the CWU (the
employees’ representatives) that automatic
transfers would take place. In the ET claims
which arose from selling off post offices, the
CWU took the view that the employees did
transfer and consequently that Royal Mail was in
breach of its obligation to consult under TUPE
because its view was mistaken.
The ET found that Royal Mail had no genuine
belief in its view and was therefore in breach of
the duty to consult. This was overturned by the
EAT which found that Royal Mail did have a
genuine belief in its view. This meant that it was
not in breach of regulation 13, even if that view
was mistaken.
In a decision which will be welcomed by
employers, the Court of Appeal upheld the
EAT's decision. The only obligation on the
transferor in a TUPE transfer situation is to
communicate matters as it believes them to be. It
does not warrant the truth of what it says. If it
makes a genuine mistake about the legal
implications of a transfer it will not be in breach
of regulation 13.
For more information please contact
Daniel Wise.
_________________________
For more information please contact
Paul Callegari.
_________________________
November 2009
2
On Notice
Court of Appeal Decision on
Employment Status
In Autoclenz v Belcher, the Court of Appeal has
given an important decision on employment
status and written agreements.
People performing work can be employees,
workers or self-employed contractors. Their
status is key, since apart from the tax
implications, employees enjoy a wider range of
statutory protections, including the right not to be
unfairly dismissed. Workers enjoy some statutory
rights (such as holiday pay) but do not have
employees’ security of tenure. Contractors enjoy
no statutory rights except certain rights under
health and safety legislation.
In this case the claimant and his colleagues were
engaged by a car cleaning company as valeters.
The company provided them with cleaning
equipment for which they were charged. It also
charged them for insurance. They paid their own
tax and NI. The company then introduced
contract terms which provided that, first, the
valeters did not have to carry out the work
personally – the “substitution” clause-- and,
secondly, that there was no obligation on the
company to provide work, nor on the valeters to
accept work on a particular occasion – the
“mutuality of obligation” clause. On the face of
it, these clauses meant that the claimant was not
an employee.
The claimant claimed that he was an employee
and therefore entitled to unpaid wages and
holiday pay. The company defended the claim by
maintaining that he was self-employed, and
therefore not entitled to either.
The ET decided that the claimant was an
employee because of the degree of control the
company had over him in terms of how he
performed his duties. The company appealed,
and the EAT found that the claimant was not an
employee but was a worker. The EAT said that
the mutuality of obligation clause was not a
sham. To be a sham there had to be a joint
intention by both sides to mislead and that was
not the case here. Because that clause was valid,
the claimant could not be an employee.
The Court of Appeal agreed with the ET and
decided that the claimant was an employee.
While the terms of the written contract were
important, it was the reality “on the ground” that
counted. In this case there was a practice of
requiring the valeters to notify the company if
they were not going to turn up for work. This
was inconsistent with the “mutuality of
obligation” clause. Similarly, the “substitution
clause” was not enforced. The written agreement
did not reflect the true agreement between the
parties. It was therefore a sham. A contract could
be a sham without both parties deciding to
mislead each other.
The decision illustrates that, ultimately, it is the
reality of the situation that counts. However, this
is not to say that the terms of the contract are
unimportant. They are still the first port-of-call.
But the lesson from the case is that, in order to
avoid an unwanted employment situation arising
or vice versa, employers should ensure that the
terms of the contract are actually enforced and
reflected in the day to day practice of the parties.
For more information please contact Noel Deans.
_________________________
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©2009 K&L Gates LLP. All Rights Reserved.
November 2009
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