EmBLeM August 2007 – edition 8 Contents Editorial ......................................................................................................................................................... 1 Single Equality Act ........................................................................................................................................ 2 Repudiation of compromise agreements ...................................................................................................... 3 Can the 'without prejudice' meeting come back to haunt you? ..................................................................... 4 Whistleblowing - update on PIDA.................................................................................................................. 6 Jurisdictional overlap: the problem of dismissals involving injuries ............................................................... 8 Statutory procedure to go ........................................................................................................................... 10 Editorial July saw the elevation of Chancellor Gordon Brown to the position of Prime Minister. In a promise to bring change to his government he leaked the Queen's speech with an announcement to the House of Commons about proposed bills for the forthcoming parliamentary session. One of these bills should be of interest to HR professionals and employment lawyers. It is interestingly entitled the Employment Simplification Bill. A Bill to simplify employment law? That certainly would be a change. Changes to government departments now sees an end to the old DTI. Whether the distribution of portfolios amongst the new Brown cabinet will place employment matters in the hands of anyone imaginative enough to take up the Gibbons report on the future of statutory disciplinary procedures is to be seen. Certainly the wind of change would be appreciated in relation to statutory disciplinary and grievance procedures. The Blair government's record on employment changes is open to criticism with the 2004 Statutory Disciplinary and Grievance Regulations and 2006 TUPE representing low-lights in that government's legislative output. Enhanced rights for various minorities give a flavour of the aspirations of the Blair government but a failure to properly understand discipline and grievance in the workplace showed a fundamental lack of substance. Few can doubt that the 2004 Regulations were intended to reduce the amount of employment litigation and claims to the employment tribunal. The origins of such measures must necessarily be found in the Treasury and there are no prizes for remembering who had been prudently controlling that for the last 10 years. Employment simplification, we wish. Editorial team EmBLeM 1 Single Equality Act The government has issued a consultation document relating to equality matters with a consultation period until 4 September 2007. There has been a discrimination law review which commenced work in February 2005. Its work was undertaken at the same time as that of the equality review. The overarching principles of both reviews were to find a framework of legislative controls which would promote greater equality in society. As might be expected, the press has picked up on some of the more newsworthy aspects of the review such as a proposal that women should have greater access to golf club facilities and mothers should be able to breast feed in public. There is no apparent connection between these two additional rights for women. However, the review looks into areas that are of considerably greater importance to employment lawyers and HR professionals such as: Can the definition of indirect discrimination be harmonised? Are 'reasonable adjustments' appropriate beyond disability discrimination? Should the requirement for a comparator in direct discrimination case be retained? Can the concept of a general occupation on requirement test be introduced into all discrimination (except disability)? Should alternate dispute resolution be promoted for all discrimination. Practice has shown that attempts by government to make matters clearer have usually resulted in periods of uncertainty as new legislation is 'bedded in'. A single equality act does have its attractions especially given the move to a single commission to cover such issues. EmBLeM 2 Repudiation of compromise agreements In a High Court case which has only limited precedent value, there is an interesting examination of matters relating to the misconduct of senior officers of a company. In Collidge v Freeport Plc [2007] Mr Justice Jack sitting in the Queen's Bench Division examined the conduct of the claimant in the context of a dispute relating to a compromise agreement entered into following the termination of his employment. Mr Collidge was the founder of Freeport Plc which is a company that owns and runs retail outlets across the country. He had been the chairman and chief executive of the company, but, following various disagreements, it was agreed that he would leave the company and in return for signing a compromise agreement he would receive a compensation package. In financial terms the severance package was worth in the region of £450,000 and also permitted him to continue to live in the company's flat in Monaco, free of charge. A provision that was in keeping with the lifestyle he enjoyed. The company's advisers had insisted on a clause within the compromise agreement which required Mr Collidge to warrant as a strict condition of the agreement that there were no circumstances that he was aware of that would constitute a repudiatory breach of his contract of employment which would have entitled the company to dismiss him without notice. In evidence, the company alleged that Mr Collidge had been guilty of several breaches of his contract of employment, including use of a company employee for private driving and painting duties, misuse of his company credit card, claiming personal expenses as company expenses and wrongful removal of the company's equipment. The court had to consider whether or not the warranty given by Mr Collidge meant that it was a conditional contract in that if the allegations against him were proved the company would be able to claim that there was a repudiatory breach which would allow the company to refuse to make the compensation payments (and allow Mr Collidge his place in the sun). Mr Justice Jack took the opportunity to examine how a court should consider alleged misconduct on the part of employees and whether or not that conduct would entitle the company to dismiss summarily. The judge considered that where expenses had been obtained by an employee that he was not entitled to, there would be two aspects that a court must examine in assessing whether summary dismissal could follow. These would require the court to ask whether there had been any dishonesty involved or a pattern of behaviour on the part of the executive. The court contemplated that there were degrees of dishonesty and by looking at the number of instances, one can conclude that there are both qualitative and quantitative aspects to that type of misconduct. Interestingly, the judge indicated that a court examining such a case should not distinguish between the actions of a company director and those of a salesman within the organisation. Both would be guilty of misconduct if they abused the system for claiming expenses. In fact, the judge stated that it was for the director to set a standard for all other employees. Having made adverse findings against Mr Collidge in relation to various allegations of impropriety, the court concluded that the misconduct was such that had the company known about it prior to his termination they would have been entitled to dismiss him summarily. It followed, therefore, that there was a repudiatory breach of the compromise agreement permitting the company to refuse payment to Mr Collidge. Not only does the case give an interesting examination of the court's assessment of what is and what is not conduct justifying summary dismissal, it does have an interesting drafting point in relation to compromise agreements. There has been a tendency over the years since compromise agreements were introduced in the Employment Rights Act 1996 for employers’ representatives to add more and more content to the compromise agreement. This case shows that it can be to the advantage of an employer to include within the compromise agreement a provision making payment conditional upon a warranty from the employee that they have not been guilty of misconduct that would have justified summarily dismissal had the employer been aware of it. Whilst employee representatives may wish to oppose such clauses, in reality, no employee should have any fear of such clause if they have acted in an honourable manner throughout their employment. No doubt employee representatives will be concerned that the employer will simply use this as a device to withhold payment. EmBLeM 3 Can the 'without prejudice' meeting come back to haunt you? The Court of Appeal (CA) in the two recent cases of Framlington Group Ltd v Barnetson [2007] EWCA Civ 502 and Brunel University v Webster [2007] EWCA Civ 482 has thrown some light on what will be kept away from the enquiring eye of the employment tribunal under the protection of 'without prejudice'. Background Many employers faced with the prospect of months of costly and time consuming disputes with employees often take the commercially sensible step of entering into without prejudice discussions in an attempt to resolve matters quickly. Usually the employer wishes to dismiss the employee and make an agreed severance payment to him to avoid a claim to the tribunal. These discussions often lead to an offer being made which is accepted and the parties sign a compromise agreement protecting the employer from future claims. Employers are rightly concerned in case negotiations break down and at the employment tribunal hearing the employee seeks to rely on what was said. Employers sometimes think that by expressing a meeting or a letter to be 'without prejudice', these are magic words excluding the statements made from being referred to in subsequent proceedings. Unfortunately, this is not the case. So a letter that tells an employee 'We think you are no good at your job and want to sack you, without prejudice', may, and certainly will, be used by the recipient in subsequent proceedings. Generally speaking, tribunals will not consider matters said or written by the parties in a genuine attempt to resolve employment disputes. The logic is simply that tribunals want to encourage parties to try to settle disputes. If they were to allow one or other party to refer to all discussions at a tribunal hearing, this would act as a deterrent to parties trying to settle matters. BNP Paribas v Mezzotero EAT (2004) This case caused a great deal of concern for employers. Ms Mezzotero had raised a grievance complaining about her employer's treatment of her following her return from maternity leave. In response she was called to a meeting which her employers told her was 'without prejudice'. She was told that it would be for the best if her employment ended and she was offered a severance package. The discussions at the so called without prejudice meeting were held by the EAT to be admissible in subsequent tribunal proceedings. The rationale of the decision was that the meeting was not to settle a dispute between the parties as the issue at that stage was in respect of the employers' treatment. Ms Mezzotero had entered the meeting thinking ‘grievance’ and the employers were thinking 'termination'. The EAT concluded that there was no dispute and the discussions did not have the protection afforded to without prejudice meetings. Brunel University v Webster (2007) In the Brunel University case, the CA considered an appeal against a decision by the Employment Tribunal, which was upheld by the EAT, that evidence of a 'without prejudice' discussion was admissible. The without prejudice settlement discussions in question took place prior to a tribunal hearing held in relation to a claim of race discrimination brought against the university. The employment tribunal found in the university's favour and the university published remarks about the case in its newsletter. As a result of these remarks, the employees brought further claims alleging victimisation. These grievances were considered by a university appointed panel and proceedings were issued in the employment tribunal, where the employees sought to rely on what was said in the earlier settlement discussions. The CA held that there had a been a bilateral waiver of privilege in respect of the without prejudice negotiations, due to the fact that there had in effect been a trial of the relevant issues by an independent panel. In addition, the employees had referred to the discussions in their ET1 and witness statements and the university had attached a copy of the grievance panel's report to their ET3, thus making their intention to waive privilege clear. Framlington Group Ltd v Barnetson (2007) The Brunel University case is fact sensitive and Framlington Group v Barnetson may be considered to be of wider importance. EmBLeM 4 In Framlington an employee brought a claim for breach of contract and wrongful dismissal. The company sought to exclude from proceedings various exchanges which took place between parties in relation to the terms of departure on the basis that they had been made without prejudice. This application was refused by the high court judge who found that the ‘without prejudice’ rule did not apply, as there was no dispute at the stage of discussion but merely an attempt to agree a variation of the employee's contract terms. The CA reversed this decision, taking into account the public policy interest in encouraging genuine attempts settle and avoid litigation. They took the view that the discussions were protected from disclosure under the 'without prejudice' principles. The key issue was whether 'in the course of negotiations, the parties contemplated or might reasonably have contemplated litigation if they could not agree.' In this situation litigation had clearly been in the mind of both parties at the time of the discussions. Practical guidance Employers should ensure that any settlement discussions which take place in an attempt to settle a dispute are covered by 'without prejudice' protection. Essential to the analysis is whether the parties thought that litigation may result if settlement could not be reached. Problems will occur for employers where they simply want to dismiss an employee and have no legal jurisdiction but want to agree a severance package. There is no ‘dispute’ as such so, by virtue of Mezzotero, without prejudice cannot attach to what might be seen as the employers’ opening gambit in negotiations. For employers, it must be a two step approach. First there must be the unilateral suggestion of termination (or perhaps other sanction) this would be an open statement and therefore capable of being referred to in subsequent proceedings, unless both parties move to step two which involves bilateral discussions which can be without prejudice. Many employers will no doubt feel that irrespective of the risk of settlement discussions being used against them in the future, it is still commercially worthwhile taking the risk to achieve a negotiated termination in order to save the extensive cost and management time involved in protracted disputes, but they should be careful. EmBLeM 5 Whistleblowing - update on PIDA The Public Interest Disclosure Act 1998 (PIDA) is fast approaching its 10th birthday and, in keeping with all new legislation, leaves in its wake a series of EAT and Court of Appeal (CA) decisions that put the laudable objectives of the statute into practice. PIDA is the statute that affords protection to individuals who are referred to as 'whistleblowers', that is, they have reported illegal or inappropriate conduct on the part of their employer or other employees. For a long time whistleblowers had no direct protection. On the contrary, the common law had developed a strictness with regard to duties of trust and confidence and obligations of confidentiality which frequently meant that it was the employer who was in the stronger position where an employee sought to raise issues with outsiders. PIDA is based on the premise that employees should be able to make statements to their employers and, if necessary, outside authorities about wrongdoing without fear that they will be punished by losing their jobs or suffering other detriment. These disclosures can quite often be embarrassing both morally and commercially to their employers. Whilst it is important to protect those who genuinely wish to report a wrongdoing, there is also a need to protect employers from those employees who act on the basis of malice, discontent or simple mischievousness. Again this is one of those areas where some practitioners feel that Parliament has allowed the whistle blowing ideal to outweigh the practical implications of the statute. As with discrimination statutes, PIDA does not require employees to have worked for a qualifying period as a pre-requisite to eligibility to bring a claim. An employee on day one can rely upon the statute's protection. This may sometimes have implications in that difficult period for advisors where a dismissal takes place within 12 months of commencement of employment. The employee cannot pursue a standard unfair dismissal claim and therefore looks to those statutes where the qualifying period is not required. This can result in a disgruntled employee making an application, generally without the fear of a costs order, in the hope that some nuisance value payment will be made by an employer wishing to avoid expensive and embarrassing litigation. PIDA has often been used for this purpose. Setting aside these practical difficulties associated with speculative claims, the basic framework of PIDA has the following elements: Central to the working of PIDA is the concept of a 'protected disclosure'. Such a disclosure may relate to criminal activity, breach of statutory and other legal obligations, danger to health and safety of workers, environmental mishaps or generally concealment of any of these items. Legal obligations have been defined as including contractual obligations (Parkins v Sodexho Ltd [2002]). The whistleblower must have acted in good faith and his belief as to the information disclosed must be based on reasonable grounds. A list of people who can be considered to be 'prescribed persons to whom a protected disclosure can be made' is contained within the statute. The CA has recently given judgment in another PIDA case, Babula v Waltham Forest College [2007]. This was interesting as it involved contemporary issues relating to Muslim students. Mr Babula (who is a US citizen) was working for Waltham Forest college and was of the view that a fellow lecturer had been segregating Muslim students from others and had made certain inappropriate statements about a terrorist strike in London. Mr Babula felt his colleague posed a threat to national security and alerted the CIA, the FBI and the British police. He was the subject of disciplinary action by the college for this reporting. The matter proceeded to the EAT who considered that he did not have the protection of PIDA on the basis that the allegations he made were that his colleague was guilty of incitement to religious hatred. At the time he made the disclosure, the regulations relating to religious hatred had not been enacted and therefore no law had been broken. Accordingly, the EAT found that he was not able to rely upon PIDA in his claim against the college. The matter went before the CA who overturned this decision. The CA also overturned an earlier EAT ruling of Kraus v Penna [2004] where an examination of the features of a PIDA claim by the EAT meant that there were three hurdles for the employee relying upon PIDA to surmount and these were: He must have reasonable belief of his allegations. EmBLeM 6 He must act in good faith. The allegation must relate to a precise legal obligation that had been breached. Many commentators saw the Kraus decision as placing an obligation upon the whistleblower to have taken legal advice to be absolutely certain that the criminal offence alleged had, as a matter of law, been committed. This, of course, brings into play all sorts of difficulties in relation to particularly complex statutes relating to financial irregularities or environmental breaches. The whistleblower may well see inappropriate behaviour which he thinks constitutes a criminal offence but technically when analysed by lawyers it is not. The Kraus decision would have meant many whistleblowers losing the protection of PIDA and other employees being put off the idea of whistleblowing because they had no protection. Therefore Babula is to be welcomed in that it gives the whistleblower protection even though technically there was no offence committed but there was the appearance of criminality or wrongdoing from which the whistleblower, acting in good faith, formed a reasonable belief. Of course set against the aims of ensuring transparency and an ability for employees to disclose wrongdoing on the part of their employers, there is the risk that Babula will give the opportunity for speculative claims. Heavily regulated industries such as financial services are often the areas where whistle blowing is to be found. It is a matter of waiting to see whether the clarification given by Babula will result in increased PIDA claims. EmBLeM 7 Jurisdictional overlap: the problem of dismissals involving injuries Managers and HR professionals are regularly faced with the practical problems of employees absent for a variety of conditions that their GPs 'diagnose' as stress, anxiety, depression and the almost Victorian, general malaise. Usually, the problem is one of absence management about which many words have been written but few have found the practical solution to looking behind the MED3 or sick note. The situation can, however, be altogether more serious where the employee suffers genuine psychiatric injury as a consequence of his or her treatment at work. The development of discrimination legislation, common law claims for psychiatric injury arising in the workplace (since Walker v Northumberland County Council (1995)) and vicarious liability for employees breaching the Protection from Harassment Act 1997 (Majrowski v Guy's & St Thomas' NHS Trust (2006)) provide a range of possibilities for employees to bring claims against their employer. The difficulty for practitioners is that often there are several potential causes of action, which can be pursued in the Employment Tribunals (ET) or the civil courts arising out of the same set of circumstances. A good example of this is to be found in the developments in unfair dismissal claims that involve a psychiatric injury. A claim can be made for unfair dismissal where either: The employee is dismissed for unfair reasons or following an unfair procedure, or The employer commits a repudiatory breach of the contract of employment which the employee accepts by resigning (constructive dismissal). In such circumstances the employee can bring a claim in the ET. However, if the employee is successful, the compensation cannot include an award for non pecuniary loss (Dunnachie v Kingston upon Hull (2004)). The award in the civil courts would include general damages for the personal injury sustained. ETs cannot make such awards for unfair dismissal. If the injury leads to a financial loss, that loss can be recovered in the ET. For example, if the claimant suffers a psychiatric injury as a result of a dismissal which prevents him or her from working, he or she cannot be awarded damages for the injury but can be awarded compensation for lost earnings arising from the injury. But how does the employee recover from the psychiatric injury? Case law has developed which suggests that a claimant may, in fact, be unable to recover for the psychiatric injury at all. The principle arises out of Johnson v Unisys Limited (2001), as clarified in Eastwood & Williams v Magnox Electric Plc (2004) and McCabe v Cornwall County Council (2004). The House of Lords in Johnson held that where Parliament has legislated to provide a particular remedy, the common law cannot be used to extend the parameters of liability. Mr Johnson had been unfairly dismissed and recovered the maximum compensation then available as he had been unable to return to work for a considerable time. He was suffering from a psychiatric condition caused by the manner of his dismissal. Lord Hoffman was emphatic in his judgment that the unfair dismissal regime was all encompassing, leaving no room for the common law. If the injury arises out of the 'manner of dismissal' then the appropriate jurisdiction is the ET and not the county court, regardless of the fact that the ET cannot make an award for personal injury. This is particularly disadvantageous for the claimant who may suffer considerable harm and lose a large amount of earnings because of being unable to work but be faced with the compensation cap of just over £63,000. However, if the claimant accrues a cause of action prior to the dismissal then that survives and a common law claim can be pursued separately. In the situation of actual dismissal, it should not be too challenging to differentiate between the injury caused by the manner of that dismissal and those caused by some preceeding conduct on the part of the employer. However, in the case of constructive unfair dismissal this is likely to be more difficult, as there will usually have been a course of conduct leading up to the resignation. In such a situation the claimant will need to prove that there was a repudiatory breach of contract by the employer and this will often span over a significant period of time and include the conduct that led to the injury occurring. It may be impossible to artificially separate a pre-existing cause of action from conduct that constitutes the manner of dismissal. The higher courts have been particularly coy in giving guidance on jurisdictional overlap in constructive dismissal claims. EmBLeM 8 The difficulty has been explored in the recent first instance decisions of Jones v Caerphilly County Borough Council (2006) and Troquet v Nicholas UK (2006). In both cases the claimant had pursued a claim for constructive unfair dismissal and subsequently brought a common law claim for psychiatric injury. In both instances the court accepted that the employer's repudiatory conduct which gave rise to the constructive dismissal had caused the psychiatric injury. The correct jurisdiction was therefore in the ET and the claims in the civil court were struck out. Although this has not been tested in the Court of Appeal (CA), it is a logical progression that even if a claimant has not made an ET claim previously, but the injury arose out of the manner of that dismissal then there is no jurisdiction in the county court. This could leave a claimant with no compensation, except possibly a claim against his solicitor for failing to bring a tribunal claim. Leaving a claimant with a limited remedy for a substantial psychiatric harm case appears harsh, but is the logical result of the Johnson approach. Parliament has also legislated on the correct cause of action following discrimination in the workplace as being in the ET under the discrimination legislation. It brings to mind claims usually made in the county court by sexually harassed female employees. Is there in fact any jurisdiction if the principles set out above are correct? The cases demonstrate the unenviable position for claimant's solicitors and emphasises the importance of defendant's insurers and solicitors raising such issues in subsequent county court claims. EmBLeM 9 Statutory procedure to go In December 2006, Alistair Darling, the then Secretary of State at the DTI asked Michael Gibbons to carry out a review of the workings of the Employment Act 2002 (Dispute Resolution) Regulations 2004 (the Regulations). The Gibbons Report was published on 22 March 2007 and with it came a sigh of relief from employment lawyers and HR managers across the country. In his executive summary, Mr Gibbons indicated that the aim of his review was to 'identify options for simplifying and improving all aspects of employment dispute resolution'. Many commentators would have said that that task was simple: repeal the Regulations. Of course, matters are rarely that straightforward and the government was not going to allow the thinking which underpins the Regulations to be lost. In order to understand where we are, one has to examine, in broad terms, some of the reasons for the Regulations. Cynics have always believed that the main purpose of the Regulations was to reduce the amount of work for employment tribunals, and this was little more than a Treasury-led objective to make savings on public spending. There was a perception that if rules and procedures could be prescribed for dealing with workplace disputes, whether it was in the context of disciplinary matters or grievances, employers would ensure that dispute resolution could take place without matters coming before the ET. In order to have a universal take-up of any such regime, there had to be a stick to beat non compliants. In the case of the employer, the failure to follow the statutory procedures in relation to discipline would render a dismissal automatically unfair. It was also open to the tribunal to increase the monetary award to the employee by between 10% and 50%. Many employers have fallen foul of the Regulations and paid the price. Whether there has been any collective lesson learning among employers is debatable. Whether the Regulations failed employers as a group is a matter for conjecture, but undoubtedly problems arose for those who did not have the resources of an HR department. How could owner-managed businesses cope when seasoned professionals were uncertain as to how the Regulations should be interpreted. Other procedures were intended to act as sticks to employees so that a failure to follow the Regulations in relation to grievance matters could result in tribunal applications being rejected by the tribunal. The employee could ultimately find himself without any redress whatsoever if he or she had failed to follow the Regulations. One particularly damaging change to the system as a consequence of the Regulations was to take away certainty that the tribunal application had to be lodged within three months of the effective date of termination (or other act complained of). The Regulations distorted this and it became possible for applications to be made outside the three month time limit. As had been predicted at the time the Regulations were enacted, where certain steps are prescribed, there will necessarily be a need for the courts to interpret the Regulations and compliance with them. Employment lawyers and HR professionals have seen case after case proceeding to the EAT and to the Court of Appeal as the higher courts were called upon to determine precisely how Parliament intended the Regulations to work in the myriad different circumstances of the workplace, across all sectors. This of course meant that the overriding principle of reducing the number of tribunal claims was subverted. More importantly there was a feeling on both sides that the Regulations presented bureaucratic hurdles to employers and employees which were of little or no benefit to resolving disputes. By allowing prescription to override fairness, the Regulations fell into disrepute. Before the Regulations, the ET, cast as it was as an industrial jury, was able to make assessments as to the conduct of both sides with the concept of reasonableness being uppermost in its mind. It could understand what sort of conduct was reasonable and assess minor failures to follow particular procedures in disciplinary or grievance contexts. The recommendations of the Gibbons review leave no doubt as to the committee's views on the Regulations. Some of the important recommendations are: Repeal the Regulations. Produce clear, simple, non-prescriptive guidelines on grievances, discipline and dismissal in the workplace. Ensure incentives to comply with new guidelines by maintaining and expanding the ET's discretion to take into account reasonableness of behaviour and procedure when making awards or costs. EmBLeM 10 Introduce simple new procedures to settle monetary disputes about wages, redundancy and holiday pay without the need for tribunals. Increase the quality of advice available for potential claimants and respondents. Pilot a free early dispute resolution service. Abolish fixed periods of ACAS involvement. Simplify employment law recognising that its complexity creates uncertainty and costs. Simplify employment tribunal forms ET1 and ET3. With any review of this nature there will be a period of uncertainty as the old cases slowly work through the system and the new regulations come into place. One has to be sceptical as to the speed with which new regulations will be enacted. The repeal of the Regulations does come as a considerable climb down and there is probably a great deal of politics still to be played out in relation to these matters. It is perhaps disappointing that employers' organisations have appeared weak in relation to the Regulations which were, in the eyes of many commentators, doomed from the start. This is an area where there is consensus between employers' and employees' representatives that there should be relatively simple procedures to be followed. It can be of no advantage to either side for legalistic arguments to be run and legal costs to be wasted. The Gibbons review is to be welcomed by all within the employment law and HR fields and it is to be hoped that Regulations Mark II will be less prescriptive and will reflect the ability of the ETs to make commonsense decisions. 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Specialist legal advice should always be sought in any particular case. EmBLeM 11