On Notice
June 2009
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
In this month’s On Notice we report on the new Equality Bill which
promises to be the most significant piece of new legislation for
some time. We also summarise some important new cases: the
EAT decision in Chief Constable of Dumfries & Galloway v Adams
on the definition of disability, the High Court decision in Gibb v
Maidstone NHS Trust on directors’ pay, the EAT decision in
Bournemouth University v Buckland on constructive dismissal and
the Court of Appeal decision in Rolls-Royce plc v Unite the Union
on age discrimination in the context of selection for redundancy.
daniel.wise@klgates.com
+44.(0)20.7360.8271
Jackie Cuneen
jackie.cuneen@klgates.com
+44.(0)20.7360.8184
Lisa Perelman
lisa.perelman@klgates.com
+44.(0)20.7360.8256
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.
Equality Bill 2009
The Equality Bill 2009 has received its first reading in Parliament. It is intended to
combine and replace all of the existing discrimination legislation into a single
statute. If it comes into force it will also make significant changes to the law in a
number of areas. The Bill is extremely lengthy and is likely to prove controversial.
As it may be considerably revised as it progresses through Parliament we have
provided below a brief summary of its main proposals as it currently stands:
•
Perhaps most controversially, the Bill permits a degree of positive
discrimination in the recruitment process in favour of disadvantaged groups
when faced with otherwise equally qualified candidates.
•
The Bill gives the Secretary of State the power to order employers with 250
plus employees to publish information about disparities in pay between male
and female employees.
•
The Bill also seeks to reverse the controversial House of Lords decision in
Malcolm v Lewisham LBC (see the August 2008 edition of On Notice).
•
Clauses in employment contracts which require employees not to reveal their
pay packages will be unlawful.
•
Perhaps less controversially, the Bill gives effect to the recent European cases
on discrimination by association (see further the September 2008 edition of On
Notice).
Further updates will be provided as the Bill progresses through Parliament.
For more information please contact Noel Deans.
EAT decision on definition of disability
In Chief Constable of Dumfries & Galloway v Adams the Employment Appeal
Tribunal ("EAT") has given a useful decision on the definition of disability for the
purposes of a disability discrimination claim. Whilst finding in favour of the
employee on the facts, the EAT provided guidance which will help employers
when defending disability discrimination claims, as it has established a narrower
definition of disability under the Disability Discrimination Act 1995 (the "Act").
On Notice
The claimant was a police constable whose work
included night shifts. He developed ME and
struggled to complete his night shifts because his
mobility was affected in the last 2 hours of the
shift from 2 to 4 am. He was able to work day
shifts. When he was dismissed he claimed
disability discrimination under the Act.
His employer claimed that he was not disabled
within the meaning of the Act, i.e. he did not
have “a physical or mental impairment which has
a substantial and long-term adverse effect on his
ability to carry out normal day-to-day activities”.
His employer said that the activities affected, i.e.
working night shifts, did not constitute “normal
day-to-day activities”, nor did working as a
policeman. The Employment Tribunal ("ET")
disagreed and concluded that he was disabled.
His employer appealed to the EAT.
The EAT dismissed the appeal. However, it also
gave general guidance as to the definition of a
"disability" under the DDA. The EAT said that
activities that only occurred at work could still be
“normal day-to-day activities” and thus fall
within the definition. However, the test was
whether the activities affected were to be found
across a range of employment situations. The
EAT said that night-shift working is common in
the UK and was therefore a “normal day-to-day
activity”. Further, the specific activities affected
(walking, climbing stairs, and driving) also fell
into that category.
The flip side of this decision, of course, is that
employees who find that it is only their ability to
carry out specialist tasks which is affected, not
common to a wide range of industries, will
struggle to show that they are disabled under the
Act. The EAT gave the example of a skilled
watchmaker who was unable to carry out skilled
tasks relating to that trade.
It is noteworthy that under the proposals in the
recently published Equality Bill, the definition of
disability will remain the same.
For more information on this case please contact
Daniel Wise.
Further increase in maximum
statutory redundancy payment
In the January 2009 edition of On Notice we
reported on the increase in the maximum weekly
pay used to calculate statutory redundancy pay
from £330 to £350 where the event giving rise to
the payment occurs on or after 1 February 2009.
In April’s Budget the Chancellor announced a
further increase from £350 to £380 – with a
knock on uplift to the maximum statutory
redundancy payment from £10,500 to
£11,400. The Chancellor has not indicated
whether the maximum for an unfair
dismissal basic award will also increase nor
when the change will come into force.
Directors’ pay and bonuses
In Gibb v Maidstone & Tunbridge Wells NHS
Trust, a case which has received much media
attention, the High Court was called upon to
decide whether an employer could withhold a
severance payment of £175,000 which it had
previously agreed to pay to a former employee
under a compromise agreement.
The employee had been Chief Executive of her
employer, a public body. She was paid an annual
salary of £150,000. Following a “superbug”
outbreak at several hospitals in 2006 her
employer decided to terminate her employment.
They entered into a compromise agreement
under which she would be paid £250,000
comprising £75,000 pay in lieu of notice and
£175,000 compensation. The employer paid the
£75,000 but, following intervention by the
Health Secretary, withheld the £175,000.
The employee sued her employer for breach of
the compromise agreement in the High Court.
Her claim failed. The important points to note
are the following. First, the Court concluded that
the compromise agreement was irrationally
generous because the sum added up to more than
the employer would have ended up paying if she
had successfully sued it in the ET. Further, there
was no evidence that the employer had carried
out a proper financial analysis of its liabilities
and it appeared that the relevant non-executive
directors were personally reluctant to see the
employee go. Their views had therefore coloured
their approach to the level of the settlement sum.
The agreement was therefore ultra vires, i.e. the
employer did not have the power to make it.
Accordingly, it was unenforceable and the
employee could not sue on the contract.
Since the onset of the credit crunch the issue of
directors’ remuneration has attracted much press
coverage and, increasingly, is ending up in the
courts. The Gibbs case has led to press
speculation that similar logic might apply to
other high-profile remuneration packages. Of
June 2009
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On Notice
course, Gibbs was concerned with a public sector
employer. While the decision is important for that
sector, private sector employers have a much
freer hand in negotiating payouts. Compromise
agreements, however generous, are generally
speaking enforceable and the ultra vires argument
will not apply. The decision does, however, allow
new owners of a business scope to challenge
payments agreed by previous management where
previously none existed.
For more information on this case please contact
Jackie Cuneen.
Definition of constructive dismissal
and curing of breach
In Bournemouth University v Buckland the EAT
has given an important decision on the definition
of constructive dismissal.
The employee was a university lecturer. The
exam papers he had a marked were re-marked by
another academic without his knowledge and new
(higher) marks substituted. After he complained
his employer commissioned a report by another
senior academic which vindicated him. However,
he was not satisfied with the steps taken and,
having resigned, brought a claim for constructive
unfair dismissal. He claimed that his employer’s
action in having the papers re-marked was a
breach of the implied term of mutual trust
and confidence.
The employee succeeded before the ET, however,
he lost before the EAT. On appeal to the EAT it
was argued by the employer that the breach had
been “cured” by the report which vindicated the
employee. It was also argued that the ET had
applied the wrong test for whether there had been
a constructive dismissal, i.e. it had asked whether
the employer had acted within “a band of
reasonable responses”. It should simply have
asked whether the employer was in fundamental
breach of the implied term of trust
and confidence.
The EAT found that the employer had been in
fundamental breach of the implied term by
having the papers re-marked. However, the
commissioning of the report had “cured” the
breach. The employee had elected to wait until
after the report had come out before resigning.
Because he had done that the employment
contract had been kept alive and he lost his right
to resign. There had been no dismissal. The ET
had made a mistake in asking only whether the
employee subjectively felt vindicated by the
report (he did not). Rather, the question was an
objective one. Further, the EAT agreed that the
ET had applied the wrong test in deciding
whether he had been constructively dismissed.
The case is a useful illustration of when a
fundamental breach can be cured. By acting
swiftly and appropriately in constructive
dismissal cases, employers may have the
opportunity to prevent such a claim arising at all.
For more information on this case please contact
Lisa Perelman.
Court of Appeal rules that length of
service criterion in a redundancy
matrix was lawful
In the November 2008 edition of On Notice we
reported on the High Court decision in RollsRoyce Plc v Unite the Union, which decided that
using length of service as one criterion in a
redundancy selection matrix is lawful. Although
the criterion constituted indirect age
discrimination it was justified. The Court of
Appeal has now confirmed the High Court’s
decision, albeit, in some instances, for
different reasons.
Briefly, an application was made by Rolls-Royce
to the High Court to have a length of service
criterion in a redundancy selection matrix
declared unlawful. This application was made
because Rolls-Royce had negotiated, prior to the
introduction of the Age Regulations, a collective
agreement with Unite which contained an agreed
method of selection in any redundancy exercise
whereby employees were awarded points for
various criteria. Length of service was to be used
as a “deciding factor” where employees scored
the same points. Rolls-Royce was worried that
this criterion would fall foul of the Age
Regulations and so sought a declaration from the
High Court.
The Court of Appeal decided that the criterion is
lawful. Although it also found that length of
service was discriminatory under the Age
Regulations, viewed objectively it considered
that it was a proportionate means of achieving a
legitimate aim. The legitimate aim was the
reward of loyalty, and the overall desirability of
achieving a stable workforce in the context of a
fair process of redundancy selection.
June 2009
3
On Notice
Regarding the specific question of proportionality
(which Rolls-Royce felt the High Court judge
had not addressed adequately) the Court of
Appeal felt that this was demonstrated by the fact
that length of service was only one of many
criteria and was used as a “deciding factor” and
not as a “blunt instrument” on its own. It was also
consistent with an overarching concept of
fairness and the fact that younger employees
within the organisation accepted it.
of criteria in a redundancy selection matrix
especially if it is to be used as a “deciding
factor”. However, as we stated in November’s
On Notice, employers should still be mindful of
the facts of this case and especially that the
redundancy policy had been agreed through
collective agreement with a union. This case
certainly does not give employers “carte
blanche” to revert to the days of using “last in,
first out” as the sole criterion.
The main point for employers is that they should
take encouragement from this decision if they
want to use length of service as one of a number
For more information on this case please contact
Paul Callegari.
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