Penalty clauses redefined

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Penalty clauses redefined

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Many employment contracts and settlement agreements contain clauses suggesting dire consequences if they are breached. When relied upon, employees often argue that they are “penalty clauses” and therefore void. Faced with two contrasting cases on the nature of a penalty clause, the Supreme Court has provided a new test to identify those clauses which are unenforceable as penalties.

The first case concerned Mr Makdessi, the founder of a successful group of advertising companies. He and his partner entered into an agreement to sell their majority shareholding in the group to Cavendish. The agreement imposed non-compete obligations on Mr Makdessi and his co-owner; it provided that breach of those obligations would disentitle him to two further payments and require him to sell to Cavendish his remaining shares at a default price.

The second case related to Mr Beavis, a motorist who parked his car in a car park managed by ParkingEye. Signs in the car park indicated that there was a 2-hour maximum stay and that failure to comply would result in an £85 charge. Mr Beavis overstayed the 2-hour limit by 56 minutes and was faced with an £85 fine (reduced to £50 if paid within 14 days).

Both Mr Beavis and Mr Makdessi argued that they had been subjected to penalty clauses which were unenforceable.

The Supreme Court found that the terms were not penalty clauses and could therefore be enforced. In doing so, it replaced the old test for penalty clauses, which focused in large part on whether the clause represented a genuine pre-estimate of the loss which would be caused by breach (in which case they would be enforced) or whether they were extravagant (when they would be void). Instead, it determined that there was a multi-factored test.

One criterion is whether the clause relates to something which must be done under the terms of the contract; if it does, it cannot be a penalty clause.

Another factor raised by the Supreme Court is whether the clause was freely negotiated by parties with comparable bargaining power. Whilst that may not be the case in employment relationships, save for those employees who are particularly senior, it was the case for Mr Makdessi.

Finally, the court must consider whether the provision is “unconscionable” or “extravagant”; this was not the case for Mr Beavis, as the Court held that ParkingEye’s charge was in proportion to its legitimate interests in managing the car park.

Whilst this decision is a significant restatement of the law, in practice carefully worded clauses should be able to stay on the right side of the new penalty clause definition and remain enforceable.

Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67

 

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Who counts as ‘redundant’ for the purposes of collective consultation?

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Who counts as ‘redundant’ for the purposes of collective consultation?

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Where an employer in the UK proposes to dismiss more than 20 employees at one establishment in a period of 90 days, they must consult on a collective basis. If an employee resigns in response to a substantial change to their working conditions, they can be counted towards the 20-person threshold.

Between 16 and 26 September 2013 Gestora Clubs Dir SL in Spain dismissed 10 employees, including Mr Pujante Rivera. A further 22 employees’ contracts were terminated within 90 days of that. One of those terminations was a resignation from an employee who objected to Gestora’s unilateral decision to cut her salary by 25%.

Mr Pujante Rivera brought proceedings against Gestora on the basis that they failed to carry out collective redundancy consultation. He argued that the dismissals occurring within 90 days of his own (including the employee who resigned) meant that the threshold for collective consultation (which, in Spain, is 10% of the workforce) was exceeded.

The European Court of Justice agreed with Mr Pujante Rivera. It held that “redundancy” for the purposes of the rules on collective consultation should be construed widely to include the employee who resigned, given that she resigned in response to a change to an essential element of her contract.

Pujante Rivera v Gestora Clubs Dir SL and another (C-422/14)

 

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Increase to part-time hours means recalculation of holiday

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Increase to part-time hours means recalculation of holiday

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When a part-time worker increases their hours, their statutory annual leave entitlement should be recalculated going forward.

As one would expect, the European Court of Justice has ruled that an increase in the number of hours worked by a part-time worker necessitates the recalculation of their entitlement to holiday. The recalculated amount need only apply from the date that their hours increased – it need not have retroactive effect.

If the part-time worker’s hours decrease, the employer can deduct the excess leave taken under the previous working arrangement from the entitlement going forward.

Greenfield v The Care Bureau Ltd (C-219/14)

 

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Draft regulations on public sector exit pay cap published

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Draft regulations on public sector exit pay cap published

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The government has published draft regulations for its plans to introduce a cap on public sector exit payments.

The cap is set at £95,000 to include: (i) redundancy payments; (ii) payments to reduce actuarial reductions to accelerated receipt of pensions; (iii) payments to discharge liability under fixed-term contracts; (iv) payments of shares on loss of employment; and (v) any other payment made on loss of employment, including payments in lieu of notice.

Payments which fall outside of the cap include: (i) payments consequent on personal injury; (ii) pay for accrued but untaken holiday; (iii) bonus payments; (iv) damages ordered by a Court; (v) payments relating to a TUPE transfer.

All organisations in the public sector will be subject to the cap, except for a few named exceptions, which include the BBC, Channel 4, the Financial Conduct Authority, The Prudential Regulation Authority, RBS and the Bank of England.

The draft regulations are currently the topic of Parliamentary debate.

Draft Public Sector Exit Payment Regulations 2016

 

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Does disparate treatment render dismissal unfair?

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Does disparate treatment render dismissal unfair?

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An employee’s dismissal will not be unfair by reason of a colleague being given disparate treatment if the two employees’ circumstances are not truly parallel.

Mr Jones was employed by MBNA from 2006. MBNA held a work event at Chester Race Course in November 2013 to which its staff, including Mr Jones and another, Mr Battersby, were invited. Both Mr Jones and Mr Battersby had been drinking before and during the event. Mr Jones put his arm around Mr Battersby’s sister and, in response, Mr Battersby kneed Mr Jones in the leg. Mr Jones then punched Mr Battersby in the face.

Mr Jones went on to a nightclub. Mr Battersby waited outside the club and sent Mr Jones 7 texts which threatened him with physical violence. Mr Battersby did not carry out the threats and nothing further happened between them.

Both men were subjected to investigation and disciplinary hearings. The outcome for Mr Jones was dismissal, whereas Mr Battersby was given a final written warning. Mr Jones brought a claim for unfair dismissal on the basis of the disparity of treatment between him and Mr Battersby.

The Employment Appeal Tribunal found that the disparity of treatment did not render Mr Jones’ dismissal unfair. Mr Jones and Mr Battersby were not in truly parallel circumstances. Mr Jones had punched Mr Battersby at a work event at which he had been told that MBNA’s disciplinary rules would apply. Mr Battersby’s texts were sent outside of work and, though reprehensible, were not acted upon.

In practice, this confirms that employees will not have much success in running the ‘disparity in treatment’ argument unless they can point to someone accused of exactly the same thing they are or can indicate that it demonstrates an ulterior motive for the dismissal.

MBNA Limited v Jones UKEAT/0120/15

 

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Davies Report on women on boards is published

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Davies Report on women on boards is published

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Lord Davies’ final report on women on boards shows an increase in the number of women holding board-level positions but makes a number of recommendations for improvement.

The report was published on 26 October 2015 and showed that, as of 1 October 2015, no FTSE 100 companies had all-male boards and female representation on those boards was at 26.1%. This is a marked improvement on the 12.5% figure from February 2011. The report pointed to executive search companies as the driving force behind the improvement; investor communities, on the other hand, were found to be less supportive of change.

The picture was found to be less positive amongst FTSE 250 companies. Boards within that group had only 19.6% female representation and 15 all-male boards remained. The report also found that, whilst representation at board level has increased, significant room for improvement exists in respect of the number of females in executive roles (standing at only 9.6% in FTSE 100 companies).

The report did not feel that a quota would be necessary, instead recommending the continuation of the target-based, business-led approach. It suggested a target whereby all FTSE 350 firms have 33% female board representation within the next five years, with greater efforts being made to recruit more women into senior executive roles.

Women on Boards Davies Review: five year summary October 2015

 

 

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New requirement for anti-slavery and human trafficking statements

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New requirement for anti-slavery and human trafficking statements

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The government has legislated to require that commercial organisations publish a slavery and human trafficking statement annually to state what they are doing to prevent the use of slaves or trafficked workers in their supply chains.

Two new sets of regulations add to section 54 of the Modern Slavery Act 2015 to bring in the requirement for slavery and human trafficking statements. All commercial organisations will be required to publish such a statement in respect of each financial year in which their turnover exceeds £36 million. That turnover threshold is calculated on a global basis to include the organisation itself and its subsidiary undertakings.

The statement will need to detail what steps the organisation has taken to ensure that the supply chains it uses are free from slavery and human trafficking. If the company has taken no such steps, it is required to make that clear in its statement. The government’s guidance recommends that every statement be succinct and written in plain English, but make reference to all relevant company policies and procedures.

The relevant legislation will apply in respect of financial years ending on or after 31 March 2016.

The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015 (SI 2015/1833) and The Modern Slavery Act 2015 (Commencement No. 3 and Transitional Provision) Regulations 2015 (SI 2015/1816)

 

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HM Treasury policy paper on extension of Senior Managers Regime

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HM Treasury policy paper on extension of Senior Managers Regime

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HM Treasury has published its policy paper on extending the Senior Managers and Certification Regime to everyone who is approved under the Financial Services and Markets Act 2000. This would represent a significant increase in the coverage of the regime.

The SMCR as it stands applies to banks, building societies and credit unions which are regulated by the FCA and/or PRA. The policy paper would see the regime extend beyond that to also cover insurers, investment firms and consumer credit firms. The size of this extension is very significant: the SMCR as it stands would cover 935 firms, whilst the extended version will apply to 60,715.

The extended regime will still focus on regulating senior management via their firms, who will effectively act as regulators for themselves and their staff by certifying the fitness and propriety of all those whose functions carry significant risk. It also still features rules of conduct applying to the majority of staff at regulated firms and the requirement for clear documentation of the scope of its senior managers’ respective functions.

The extended regime forms part of the Bank of England and Financial Services Bill. It is currently passing through Parliament and is expected to be implemented in 2018.

HM Treasury: Senior Managers and Certification Regime: extension to all FSMA authorised persons, October 2015

 

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Complaint about terms and conditions was in public interest

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Complaint about terms and conditions was in public interest

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Employees who make a complaint about terms and conditions regulating their and their colleagues’ employment may now be taken to have blown the whistle. The definition of what is in the ‘public interest’ – and therefore protected by whistleblowing legislation – has been widening and the latest case on the point has taken it further still.

Mr Underwood was employed by Wincanton Plc as an HGV driver. In November 2013, he and three colleagues submitted a grievance relating to the terms and conditions of their employment, with a particular focus on the process by which overtime was being allocated amongst drivers. Wincanton dismissed Mr Underwood in June 2014.

Mr Underwood claimed that his dismissal had been automatically unfair in being caused by his protected disclosures.

The Employment Appeal Tribunal held that Mr Underwood’s complaints were capable of being ‘in the public interest’ for the purposes of whistleblowing legislation. Previous authority has made clear that disputes relating to terms and conditions can amount to protected disclosures. It did not matter that only Mr Underwood and the colleagues sharing his terms of employment were concerned by the complaint – they still counted as a subset of the general public.

This case represents the latest in a trend towards recognising a public interest in complaints which only have relevance to limited numbers of people. Employers should be wary of taking punitive action against a staff member who makes a complaint about his contract if those complaints are applicable to more people than solely that employee.

Underwood v Wincanton plc UKEAT/0163/15

 

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