November 2010
Authors:
Noel Deans
noel.deans@klgates.com
+44.(0)20.7360.8187
Paul Callegari
paul.callegari@klgates.com
This November edition of On Notice covers a recent decision of the High Court on
post-termination restrictions (Phoenix Partners Group LLP v Asoyag); a Court of
Appeal decision on employers’ entitlements to cap commission payments (GX
Networks Ltd v Greenland); an EAT decision on age discrimination (Canadian
Imperial Bank of Commerce v Beck); and an ECJ ruling on the legality of
compulsory retirement ages in employment contracts (Rosenbladt v Oellerking).
More topics are covered in the In Brief section.
+44.(0)20.7360.8194
Daniel J Wise
daniel.wise@klgates.com
+44.(0)20.7360.8271
K&L Gates includes lawyers practicing out
of 36 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.
The High Court decision in Phoenix Partners Group LLP v Asoyag, provides
guidance as to the permissible scope and enforcement of post-termination
restrictions in employment contracts, and in particular, “non-compete clauses”.
Mr Asoyag was employed by Phoenix as a broker of equities derivatives related to
various indices, including the FTSE, EuroStoxx, DAX and cash equities
derivatives. On 8 December 2009, Mr Asoyag resigned from his employment with
Phoenix. His contract required him to give three months notice and he was placed
on garden leave for this period. The post-termination restrictions in his contract
also provided that he should not compete with Phoenix for a period of six months
(less any time spent on garden leave) in England, France, North America, Hong
Kong or Israel.
On 8 March 2010, when his garden leave period ended, Mr Asoyag started working
for GFI Holdings Limited as a broker exclusively on the EuroStoxx index. Phoenix
sought to enforce its non compete covenant against him, which Mr Asoyag argued
he was not breaching because Phoenix was not engaged at all/in any significant
way in EuroStoxx brokering after he left. The High Court determined that on the
facts there had been no genuine trading by Phoenix in the EuroStoxx market since
January 2010, following Mr Asoyag’s departure. As such, Mr Asoyag was not in
breach of the restriction. The Court also found that whilst Phoenix’s trading did
have an international aspect, this did not justify extending the restraint to Israel,
Hong Kong or North America where Phoenix’s involvement was limited.
The Court’s decision re-affirms that it is for the former employer to prove that
post-termination restrictions are enforceable and not in restraint of trade and that
the former employee is in breach. Employers should be mindful that they will be
required to prove that the restraint goes no further than is reasonably necessary to
protect their business interests. The case also highlights that a former employee
who starts work within the period of restriction may not necessarily be in breach.
The nature of the new employment must be analysed closely to determine if there
has been a breach before any action is pursued against the employee in the Courts.
The Court of Appeal case of GX Networks Ltd v Greenland, provides useful
guidance to employers on the scope of their right to exercise a discretion reserved
in commission, bonus or other remuneration schemes.
Ms. Greenland was employed by GX as a sales account manager. Her contract of
employment provided for remuneration by way of basic salary and commission on
sales. One element of her commission was known as an
“overperformance” commission.
On Notice
It was payable on new business which exceeded
her target. Targets were set by the company after
negotiation with the employee. Under the terms
of the employment contract, targets were to be
reviewed at the end of each of the first three
quarters of the year. The employment contract
also contained a clause which read “The sales
director has the discretion to cap an individual’s
Q4 bonus at 100% if required although such
cases will be by exception only and require HR
and Finance agreement”.
In 2007, Mrs Greenland exceeded her sales target
by 305%. Under the calculation stipulated for the
over performance commission, this entitled her to
commission of £165,503, on top of her basic
salary of £37,980. The employer sought to cap
the commission at £37,980 on the basis that
neither it nor any employee had ever
contemplated that an employee could earn so
large a sum as commission. The Court held that
the capping provision did not provide unfettered
discretion, and could be applied only under
exceptional circumstances. Such circumstances
did not include either the employer’s failure to set
a proper target, or its failure to budget for such a
large payment. The Court stated that misconduct
by the employee or dire financial straits for the
employer might be considered exceptional.
This case acts as a reminder to employers that a
discretionary power built into remuneration
schemes of this sought must be exercised with
care. Employers must also take care when
drafting such schemes, to ensure that the
language used does not unnecessarily restrict
their exercise of discretion.
In Canadian Imperial Bank of Commerce v
Beck, the Employment Appeal Tribunal restated
some clear warnings to employers regarding the
wording used in recruitment literature in the
context of age discrimination.
Mr Beck was employed by the investment bank
as head of marketing from 15 June 2007 until his
dismissal effective on 8 May 2008. At the date of
his dismissal he was 42 years of age. During the
course of his employment, he had a number of
professional disagreements with the head of the
division, who contrived to replace him with a
more compliant employee. The Bank was found
to have conducted a sham redundancy exercise
when dismissing Mr Beck and in advertising for
his replacement, the recruitment agency sought a
“younger, entrepreneurial profile (not a headline
rain maker).”
The Tribunal found that this advertisement
shifted the burden of proof to the employer to
prove that it had not dismissed Mr Beck because
of his age. In assessing whether the Bank was
able to discharge this burden, the Tribunal found
(a) the Bank’s suggestion that “younger” meant
“less senior” was unconvincing; (b) even though
Mr Beck’s replacement had been 38 and the
preferred candidate had been in his fifties, the
use of the word “younger” suggested that Mr
Beck’s age was the motivation for his dismissal;
and (c) because the individual within the Bank
who dismissed Mr Beck did not give evidence
during the main hearing, the Tribunal could not
confirm that age was not a factor in his decision
making process.
This case serves as a warning to employers that
characteristics based on age should not be
featured in recruitment objectives or literature.
Use of such wording is likely to give rise to an
implication of age discrimination. The Tribunal
is entitled to shift the burden to the employer to
prove that this was not the case. In the absence of
compelling evidence, this is a difficult burden
to overcome.
In the recent decision of Gisela Rosenbladt v
Oellerking Gebaudereinigungsges, on
reference from a German Court, the ECJ gave a
ruling on the legality of a contractual retirement
age of 65 under the equal treatment directive.
This is an important judgment given that the UK
will be phasing out the national default
retirement age of 65 next year.
Mrs Rosenbladt was employed as a cleaner under
a part-time employment contract with a cleaning
firm, Oellerking. The collective framework
agreement for employers in the cleaning sector in
Germany provides that except as otherwise
provided for in an employment contract, the
employment relationship shall end at the latest at
the end of the month in which the employee
reaches the age of 65. In accordance with that
clause, Oellerking gave Mrs Rosenbladt notice of
the termination of her employment contract, with
effect from 31 May 2008, on the ground that she
had reached retirement age. Mrs Rosenbladt
brought an action against the employer on the
basis that her termination of employment was
unlawful under the equal treatment directive as it
constituted discrimination on the grounds of age.
The ECJ held that compulsory retirement on the
grounds of age can be justified under article 6(1)
of the equal treatment directive only if, within
the context of national law, it is objectively and
November 2010
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On Notice
reasonably justified by a legitimate aim and if the
means of achieving that aim are appropriate
and necessary.
The Court found that the provision in question
had its basis in a negotiated agreement. In other
words, the law allowed employees and
employers, by means of individual or collective
agreements, to opt in or opt out of application of
the default retirement age. Its application was
therefore flexible and subject to the agreement of
the parties concerned. In this case, application of
the default retirement age was agreed by way of
collective agreement and was therefore justified
and proportionate in the circumstances. The
Court made clear, however, that its ruling did not
mean that such clauses in collective agreements
are exempt from review under the equal treatment
directive. Rather, in each case the provision will
be scrutinised to see if it can be
objectively justified.
In September’s Edition of On Notice, we reported
that the Coalition Government has decided to
phase out the national default retirement age in
the UK from April 2011 but that employers will
still be able to operate a compulsory retirement
age if it can be objectively justified. This case
demonstrates that there is a greater prospect of
justifying a compulsory retirement age in an
employment contract that has arisen as a result of
negotiated agreement with the employees either
individually or collectively.
In Brief
In Gisda Cyf v Barratt, the Supreme Court laid
down the principles to be applied when
determining the effective date of termination of a
person’s employment where that employment has
been terminated without notice. The question is
critical to the viability of claims for unfair
dismissal as, under the Employments Rights Act
1996, such claims must be brought within three
months from the effective date of termination.
The Court held that where an employer chooses
to summarily dismiss an employee by post (in
this case for gross misconduct), it is reasonable
for the dismissal not to be effective until the
employee either learns of the dismissal or has a
reasonable opportunity to learn of it. Thus the
Court held that the effective date of termination
in this case did occur when the employee read
the letter of dismissal, not when it was sent, or
when it arrived at her house. The principles set
down by the Court indicate that employers
should be mindful that termination will not be
effective until the employee has a reasonable
opportunity to learn of it. Greater certainty can
be achieved by employers effecting terminations
in face-to-face meetings instead of
in correspondence.
In Weston Recovery Services v Fisher (EAT),
the employee was summarily dismissed for gross
misconduct for returning a company vehicle after
use in a condition which was unsafe. The
employee brought a claim for unfair dismissal.
The Tribunal held that the employer had
genuinely believed, on reasonable grounds
following a reasonable investigation that the
employee was guilty of the misconduct alleged
and the sanction of dismissal fell within a range
of reasonable responses open to it. As such, the
dismissal was not found to be unfair. However,
the Tribunal found that the conduct did not
amount to gross misconduct justifying summary
dismissal and therefore the employer was still
liable for wrongful dismissal. This case makes
clear that where an employee is guilty of an act
of misconduct, the employer should be careful in
determining whether that conduct amounts to
gross misconduct. If it does not, that conduct will
not justify summary dismissal.
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November 2010
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