On Notice
September 2009
Authors:
Noel Deans
noel.deans@klgates.com
+44.(0)20.7360.8187
Paul Callegari
paul.callegari@klgates.com
+44.(0)20.7360.8194
In this month’s On Notice we introduce a new member of the team,
Laura O'Brien. We also report on the Employment Appeal Tribunal
decision in Kovats v TFO Management LLP regarding whether a
member of an LLP can be an employee. We also summarise the
EAT's latest guidance on TUPE in Metropolitan Resources Ltd v
Churchill Dulwich Ltd, and finally we comment on the House of
Lords decision in SCA Packaging v Boyle relating to the meaning of
the word "likely" in the Disability Discrimination Act 1995.
Daniel Wise
daniel.wise@klgates.com
+44.(0)20.7360.8271
Jackie Cuneen
jackie.cuneen@klgates.com
+44.(0)20.7360.8184
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.
Welcome to Laura
We are delighted to welcome Laura O'Brien to the employment team, who has joined
the team upon qualification. Laura trained at K&L Gates and spent 12 months in the
Employment, Pensions & Incentives Department, thereby gaining excellent
experience in employment law matters.
Can a member of an LLP also be an employee?
In Kovats v TFO Management LLP, the Employment Appeal Tribunal (“EAT”) had
to consider the question of whether a member of a limited liability partnership could
also be an employee.
Mr Kovats joined TFO Management LLP (the “LLP”) as a member in 2004. He was
recruited to run the London office and manage a recruitment team in London and
Bahrain. In 2006 he signed a revised partnership agreement which included profit
sharing arrangements (11 members, including Mr Kovats, being entitled to 1/11th of
profits each year) and a provision whereby any member could be retired by a
decision of the members on six months’ notice.
Various issues arose regarding Mr Kovats' performance and in 2007 a members’
decision was taken for him to retire from the LLP. Mr Kovats wrote to the LLP
referring to his “contract of employment” and asking various questions regarding his
compensation package. The LLP responded saying he was not an employee and Mr
Kovats brought a claim for unfair dismissal and compensation for failure to provide
written reasons for dismissal. The LLP argued that he was not an employee and so
could not bring these claims.
The EAT agreed with the decision of the Employment Tribunal (ET) that Mr Kovats
was a partner. It then went on to consider the common law tests in relation to
employment status (separate to those tests relating to partnership) and analysed
whether these tests conferred employment status on Mr Kovats. The EAT stressed
that the finding of someone as a partner or member of an LLP under the first step did
not necessarily preclude someone being an employee under the common law tests as
well.
The EAT agreed, however, that in this case the ET had been correct in finding that
there was no evidence that Mr Kovats was an employee. There was, in fact,
On Notice
evidence to the contrary: Mr Kovats had signed
agreements that were wholly compatible with his
being a partner, he had considerable autonomy in his
role, he never suggested he was an employee until
he was voted out of the LLP, he received no
remuneration and instead expected to share in the
profits of the LLP and his share of the profits was
paid gross and he accounted for income tax himself.
The question of whether an individual is an
employee is extremely important as numerous rights,
duties and liabilities (including, as in this case, the
right to claim unfair dismissal) are available only to
employees. This case is a strong reminder that
tribunals will look at the substance of a relationship
between parties rather than the label attached by the
parties themselves. Although in this case the result
was favourable for the LLP, if the factual matrix had
been different a relationship of employer/employee
could have been found notwithstanding the fact that
Mr Kovats was a member and partner of the LLP.
It should also be remembered that the EAT will
interfere in Tribunal decisions of this kind only if
they are manifestly unfair and a considerable degree
of latitude is, therefore, given to Tribunals in the
first instance to apply the test to the relevant factual
matrix. Notwithstanding its decision in this matter,
it continues to be difficult to accurately predict a
Tribunal's finding in cases of this sort. Care should
therefore be taken to factor in this level of
uncertainty when addressing business decisions in
this area.
For further information on this case please contact
Noel Deans.
Service provision change under TUPE
In Metropolitan Resources Ltd v (1)Churchill
Dulwich Ltd, (2) Martin Cambridge & Others, the
EAT gave guidance on how to determine when there
has been a service provision change for the purpose
of the Transfer of Undertakings (Protection of
Employment) Regulations 2006 (“TUPE”).
The case concerned the Migrant Helpline which had
contracted with Churchill Dulwich Ltd ("CD") to
provide accommodation for asylum seekers. From
26 January 2007, the Migrant Helpline started
sending all new asylum seekers to different
accommodation owned by Metropolitan Resources
Ltd ("MR"). The ten Claimant employees of CD
remained at the previous accommodation until the
contract between the Migrant Helpline and CD
expired. CD subsequently wrote to MR stating that
they believed the ten Claimant employees
transferred to MR under a TUPE service provision
change. MR disagreed and CD and the ten Claimant
employees brought a claim in the ET.
TUPE provides, under Regulation 3(1) and (3) that
a service provision change occurs when:
1. Activities cease to be carried out by a person
(“a client”) on his own behalf and are carried
out instead by another person on the client's
behalf (“a contractor”); or
2. Activities cease to be carried out by a contractor
on a client's behalf (whether or not those
activities had previously been carried out by the
client on his own behalf) and are carried out
instead by another person (“a subsequent
contractor”) on the client's behalf; or
3. Activities cease to be carried out by a contractor
or a subsequent contractor on a client's behalf
(whether or not those activities had previously
been carried out by the client on his own
behalf) and are carried out instead by the client
on his own behalf.
Immediately before the service provision change
there must be:
1. An organised grouping of employees situated in
Great Britain which has as its principal purpose
the carrying out of the activities concerned on
behalf of the client; and
2. The client intends that the activities will,
following the service provision change, be
carried out by the transferee.
At a pre-hearing review, the ET focused on the
question of whether there had been a change of
service provider for the purposes of TUPE. MR
argued that there had not been a service provision
change. It said that there were a different number of
beds provided, that the location of the beds was
different and that the asylum seeker's stay was
longer under its service. This meant that it was
providing a different service than that of its
predecessor and so TUPE did not apply.
September 2009
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On Notice
The ET disagreed and decided that MR was carrying
out essentially the same services as CD. The ET
decided that the location at which the activity took
place was not integral to the definition of "activity",
nor were the facts that there were more beds or that
an overnight service was provided by MR. The ET
also found that CD had also ceased to carry out
services for the Migrant Helpline. The ET, therefore,
found that the provisions of TUPE set out above
were satisfied and there was a service provision
change. In addition, the ET decided that the transfer
date was on 26 January 2007, when all new asylum
seekers were sent to the new accommodation
provided by MR.
The EAT dismissed an appeal from MR and upheld
the ET’s decision. It decided that the minor
discrepancies in the service provided by MR
compared with that previously provided by CD did
not preclude the ET from finding that there was a
service provision change.
This case is interesting because although there were
minor differences between the service provided by
CD and MR, this did not preclude the application of
TUPE. There is still some uncertainty, however,
about how far the service must differ before TUPE
ceases to apply - at what point can it no longer be
said that the "activity" is the same before and after?
Given this is a relatively new piece of legislation it
is likely that a body of case law will build up over
time to deal with issues of that sort. Until then, it is
advisable in the context of a reorganisation of this
sort to adopt caution when applying the new TUPE
rules.
For further information on this case please contact
Paul Callegari
The ET had decided that the employee did suffer
from an impairment in the form of hoarseness and
vocal nodes. Further, it found that when she was
suffering from vocal nodes this did have an adverse
impact on her day to day routines. The management
regime that the employee followed to minimise the
effect of her impairment went far beyond the coping
strategies envisioned by the guidance the ET
considered. On the balance of probability the ET
decided the vocal nodules were “likely” to recur for
the purpose of the definition of disability in the
DDA and accordingly the employee was disabled.
When the matter was referred to the Court of
Appeal it discussed the meaning of the phrase
“likely to have a substantial adverse effect” in
paragraph 6(1) of the DDA and concluded that the
meaning of “likely” in that context meant “could
well happen” as opposed to on the balance of
probabilities. This marked a departure from
previous case law on the matter where likely was
interpreted as being something that had over a 50%
chance of happening (“on the balance of
probabilities”), a much higher threshold.
The House of Lords adopted the Court of Appeal’s
reasoning and found that in the context of the DDA
“likely” meant “could well happen”. “Could well
happen” is a lower test than on the balance of
probabilities. The upshot of this decision is that it
will be easier for individuals in a wider range of
situations to establish they are entitled to the DDA’s
protection. Employers should note that where an
employee raises a heath related concern this should
be taken seriously and the DDA’s requirements
considered. To this end, it is rarely inappropriate,
when costs permit, for companies to obtain medical
reports on issues of this kind at an early stage to
allow their subsequent treatment of such employees
to be informed.
House of Lords considers DDA
SCA Packaging v Boyle is a House of Lords decision
on the issue of what comprises a disability under the
Disability Discrimination Act 1995 (the “DDA”).
In this case, the Claimant suffered from hoarseness
and nodules on her vocal cords. Her disability was
managed on a day to day basis by speech therapy
and a management regime including avoiding
straining her voice.
Employers should also note that the lowering of the
test means that the courts will be less disposed to
deal with pre-hearing issues of whether there was a
disability and will want to focus on arguments
surrounding reasonable adjustments instead. Any
litigation strategy should take this new approach
into account.
For further information on this case please contact
Dan Wise.
September 2009
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On Notice
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September 2009
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