On Notice
April 2008
Authors:
Noel Deans
+44 (0)20 7360 8187
noel.deans@klgates.com
Paul Callegari
+44 (0)20 7360 8194
paul.callegari@klgates.com
www.klgates.com
In this month’s edition of On Notice we report on an interesting case addressing whether
homophobic abuse aimed at a heterosexual employee is covered by the regulations
prohibiting harassment on the grounds of sexual orientation. We also summarise
important decisions regarding the employment status of controlling shareholders,
dismissal relating to paternity leave and dismissal following changes to terms and
conditions. We provide an update on new regulations dealing with the recovery of PAYE,
on changes to the rates of SSP and SMP and finally, a reminder that the provisions of
the Information and Consultation of Employees Regulations 2004 apply to smaller
businesses from 6 April 2008.
Jackie Cuneen
+44 (0)20 7360 8184
jackie.cuneen@klgates.com
Lisa Goodyear
+44 (0)20 7360 8256
lisa.goodyear@klgates.com
Susannah Jarvis
+44 (0)20 7360 8271
susannah.jarvis@klgates.com
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Is homophobic banter covered by Sexual Orientation Regulations?
In English v Thomas Sanderson Blinds Ltd the Employment Appeal Tribunal (EAT) ruled
on the scope of the protection against harassment given by the Employment Equality
(Sexual Orientation) Regulations 2003, which prohibit harassment on the grounds of
sexual orientation.
Mr English was employed by Thomas Sanderson Blinds Ltd between 1996 and 2005.
During that time he was subjected to sexual innuendo and banter by his work colleagues
to the effect that he was homosexual, apparently originating from the fact that he
had attended boarding school and lived in Brighton. However, Mr English was not
homosexual, his colleagues had never actually believed him to be and Mr English himself
accepted that his colleagues never actually thought he was homosexual.
Mr English brought a claim against his employer under the Regulations. The EAT
decided that the claim failed because the unwanted conduct was not on grounds of Mr
English’s sexual orientation. The banter was a means of teasing Mr English. However, it
was not based on a perception or incorrect assumption that he was gay and was therefore
not covered by the Regulations.
The EAT further commented that the Regulations had failed to do their job in correctly
implementing the Equal Treatment Directive, which has a broader scope. Had Mr
English been able to rely directly on the Directive (which in this case he could not as his
employer was not a public body) then the outcome of his claim may have been different.
This loophole identified by the EAT may be of use to employers who are seeking to
defend claims brought in similar circumstances but on different protected grounds, e.g.
religion.
For more information on this case, please contact Noel Deans.
When a controlling shareholder is an employee
In Clark v Clark Construction Initiatives Ltd, the EAT gave useful guidance on the
factors to be considered in assessing whether a majority shareholder of a company was its
employee.
On Notice
Mr Clark was the managing director of building
company in which he owned all the shares. He was
formally declared to be its employee, although there
was no written contract of employment. He was
paid a very small salary by the company but used
company credit cards to cover his living expenses.
Mr Clark transferred all his shares to another
company while staying on as managing director of
his “own” company.
When he was summarily dismissed within a year by
his “own” company he brought a claim for unfair
dismissal. The Employment Tribunal dismissed his
claim on the basis that while he was the controlling
shareholder of his “own” company, he was not its
employee and so did not have the requisite one year’s
service to sue that company for unfair dismissal.
The EAT agreed with this decision and set out
guidance as to when a controlling shareholder will
also be an employee of the company. The mere fact
that an individual had a controlling shareholding did
not of itself prevent that person from also being an
employee. Similarly, the fact that the individual had
built the company up or would profit from its success
did not prevent an employment relationship from
arising. If the parties conducted themselves as if a
contract of employment was in existence then that
would be a strong pointer towards the contract being
binding (and vice versa).
However, if the terms of the alleged employment
contract had not been put in writing (as in Clark
itself), that would be powerful evidence that it was
not really intended to create a binding employment
contract in any way. The fact that the individual took
loans from the company or guaranteed its debts could
exceptionally have some relevance but it was not
sufficient to deny a controlling shareholder the right
to also be an employee of that company.
Clearly each case will depend on its own facts but
the guidance given by the EAT will prove useful
to companies who face similar claims from former
shareholders.
For more information on this case please contact
Jackie Cuneen.
Whether dismissal of an employee on paternity
leave was automatically unfair
In Atkins v Coyle Personnel plc Mr Atkins claimed
that he was unfairly dismissed while on paternity
leave and that the reason for his dismissal was that
he took paternity leave, which would render the
dismissal automatically unfair.
He had told his employer that he could be contacted
while on paternity leave. The employer did so, but on
one occasion Mr Atkins got into a heated argument
with his line manager, apparently because he was
exhausted after the birth of his child. Mr Atkins was
dismissed as a result.
The Employment Tribunal decided that his dismissal
was nothing to do with Mr Atkins taking paternity
leave but, rather, as a consequence of the argument
with his line manager. Mr Atkins appealed and
argued before the EAT that for his claim to succeed,
it was not necessary for him to be dismissed because
he took paternity leave. Rather, all that was needed
was for the dismissal to be “associated with”
the paternity leave, which was the case with his
dismissal.
The EAT disagreed and ruled that the taking (or
proposed taking) of paternity leave had to be the
reason for the dismissal. Had the EAT agreed with
Mr Atkins, the circumstances in which employees
could claim automatically unfair dismissal would
have been significantly widened.
For more information on this case please contact Lisa
Goodyear.
Dismissal of employee following a change to
working conditions
In Robinson v Tescom Corporation, the EAT had
to decide whether an employee had been unfairly
dismissed in circumstances where he was dismissed
for refusing to work in accordance with revised terms
to which he had agreed “under protest”.
Mr Robinson was employed as a sales manager and
was responsible for an area from Great Yarmouth
to Slough. His employer sought to extend that area
to include the whole of the South of England (from
April 2008 | 2
On Notice
The Wash to mid Wales). Mr Robinson objected on
the basis of the amount of time he would have to
spend away from home. After various grievances, Mr
Robinson agreed to cover the new area but wrote to
his employer to state that he did so “under protest”
and that he reserved the right to claim damages for
breach of contract and to seek “a declaration from
the Courts that my employer must abide by the
original terms of my contract”.
to monitor an employee’s conduct carefully in such
cases since in doing so the employee may provide
the employer with “fair” grounds for dismissal if the
employee’s protest goes too far!
However, once his appeal against his grievance
was dismissed, Mr Robinson refused to work under
the new terms and was then dismissed for gross
misconduct. He brought claims for unfair dismissal
and breach of contract, both of which were rejected
by the Employment Tribunal on the basis that having
agreed to work under the new terms, Mr Robinson’s
refusal to do so amounted to a refusal to follow
a reasonable management instruction for which
dismissal was an appropriate sanction.
Currently, if HMRC recategorises a contractor as an
employee, the employer is required to account for the
full amount of any underpaid PAYE tax even if the
individual has already paid tax under self-assessment
on the basis that he was self-employed. This
effectively allows HMRC to charge the tax twice
since it did not have discretion to allow any tax paid
by the individual to be offset against the employer’s
PAYE liability. This loophole was highlighted by the
Special Commissioners in the case of Demibourne
Limited v HM Revenue & Customs.
Mr Robinson’s appeal to the EAT also failed.
The EAT decided that Mr Robinson’s fatal error
(which was based on a misunderstanding of ACAS’
guidelines) was to refuse to work under the new
terms having agreed to do so. Effectively, Mr
Robinson had two options. Either, to agree to the
new terms under protest and to then work under the
new terms but claim breach of contract (or to resign
at a later stage and claim constructive dismissal).
Or, to refuse from the outset to work under the new
terms, meaning that the employer must then decide
whether to dismiss or allow the employee to work
under the old terms. Mr Robinson’s mistake was that
he mixed up the two options. Once he had agreed to
work under protest (the first option), his subsequent
refusal to do so (the second option) provided his
employer with a fair reason for dismissal.
This case serves as a useful lesson for both
employers and employees in how to deal with a
situation where an employer wishes to implement
changes to terms and conditions without the consent
of the employee. In particular, the extent to which
an employee can work under protest is highlighted
by this case and employers would be well advised
For more information on this case please contact
Paul Callegari.
New regulations to deal with recovery of PAYE
On 6 April 2008 the Income Tax (Pay As You Earn)
(Amendment) Regulations 2008 will come into
force to close this loophole and resolve the issue.
The regulations extend the circumstances in which
HMRC can transfer an employer’s PAYE liability
to an individual who has received a payment from
which tax has been under-deducted. This means that
employers can set off the tax already paid to HMRC
by the individual and just pay the excess PAYE
(together with any interest and penalties), rather
than having to pay the full amount owed. No interest
charges will be payable by the employer on the tax
already paid by the employee.
The new regulations will be welcomed by employers,
as they will reduce the administrative burden and
no longer expose the employer to the cashflow
disadvantage of having to pay the full amount of tax
and then seek recovery from the employee of the
amount of tax already paid.
For more information on this change please contact
Ian Fraser.
April 2008 | 3
On Notice
Changes to weekly rates of pay from 6 April
2008
•
Statutory sick pay increases from £72.55 to
£75.40 per week; and
•
Statutory maternity, paternity and adoption pay
increases from £112.75 to £117.18.
Information and Consultation of Employees
Regulations 2004 (ICE) to cover smaller
businesses
From 6 April 2008, the phased implementation
of ICE will be completed when the regulations
apply to businesses employing 50 employees or
more. ICE imposes an obligation on employers
to establish a forum for consultation on important
business decisions with employee representatives
if so requested by at least 10% of the workforce.
However, employers can refuse a request if there
is already a pre-existing agreement in place which
satisfies the requirements of ICE.
For more information about ICE and ways in
which “pre-existing agreements” can be used to an
employer’s advantage, please contact Paul Callegari.
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April 2008 | 4