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Employer tries to dismiss employee over a disagreement about money

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In Handshake Ltd v Summers, the Employment Appeal Tribunal found that a breakdown in trust and confidence between an employer and employee, did not entitle the employer to rely on “some other substantial reason” to dismiss the employee.

Law

In employment law, there are potentially five reasons constituting a fair dismissal. These are (1) conduct; (2) capability; (3) redundancy; (4) illegality; and (5) some other substantial reason. If the employer demonstrates a potentially fair reason, it must then show that it followed a fair procedure and the dismissal was fair in all the circumstances.

Facts

Following a dispute between the parties regarding Mr Summers’ entitlement to company shares, his solicitors wrote a letter to Handshake Ltd stating that Mr Summers had “lost all trust and confidence in his employer”. Handshake Ltd subsequently dismissed Mr Summers arguing there had been an irreparable breakdown in the working relationship. Mr Summers brought a claim for unfair dismissal.

The Employment Appeal Tribunal agreed that Mr Summers had been unfairly dismissed and concluded that the real reason for the dismissal was not a loss of trust and confidence but the “power struggle” relating to Mr Summers’s remuneration. This case highlights to employers that “some other substantial reason” cannot be used as a smokescreen to justify a dismissal that does not fit into one of the other fair reasons for dismissal.

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Volunteers have no protection under discrimination law but interns do

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In X v Citizens Advice Bureau, X signed a volunteer agreement to work four to five hours a week for a Citizens Advice Bureau. The volunteer agreement specifically stated that it was “not an employment contract or legally binding”.  The CAB subsequently asked the volunteer to stop working for the organisation. She claimed that this was disability discrimination.

The Equality legislation only protects employees, other workers and people seeking access to work and training. The CAB therefore said that X was not covered by the Equality Act as she was neither an employee, worker, nor someone seeking vocational training or employment.

The Supreme Court agreed with the CAB and decided that this volunteer was not protected by the equality legislation as there was no legally binding employment contract. Furthermore, the purpose of the volunteer work was not to determine whether she should be offered paid work in the future. She was purely there to“do good”. Importantly, the Supreme Court distinguished between “volunteering” (which is not protected by equality law) and undertaking a “work placement” which is.

Whilst this decision may provide some comfort to employers, it is important to note that most people working for free in commercial organisations are likely to be protected under discrimination law because they are typically there to gain access to employment or vocational training.

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Wearing crosses / Tensions between rights of homosexuals and religious groups …at work

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To the great joy of the Daily Mail, in the much publicised case of Eweida and Ors v UK, the European Court of Human Rights ruled that Nadia Eweida, a practising Christian and British Airways check in worker should not have been prevented by BA from wearing a visible plain silver cross necklace. Whilst the European Court agreed that BA’s aim to promote their corporate image was reasonable, there was no evidence that employees wearing religious items had a detrimental impact on that image. The European Court decided that there had been a breach of Ms Eweida’s right to manifest her religion.  The fact that BA subsequently amended their uniform policy demonstrated that the earlier prohibition was not very important.

By contrast though, Shirley Chaplin, who was a clinical nurse who was not permitted to wear a crucifix outside her uniform on the basis it was a health and safety risk to nurses and to patients failed in her case. The Court said that hospitals were better placed to make decisions about clinical safety than a Court.

Tensions between rights of homosexuals and religious groups …at work

To much less fanfare, but equally significantly, in conjoined cases, the European Court found that the rights of homosexuals trumped those of religious groups opposed to homosexuality.

Lillian Ladele, an Islington Council Marriages Registrar, and Gary McFarlane, a Relate Psycho-sexual Counsellor were dismissed for refusing to conduct civil partnership ceremonies and providing therapy to gay couples respectively. The European Court decided that both the Council and Relate had a legitimate policy to promote equal opportunities and to require their employees not to discriminate on grounds of sexual orientation.

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If you’re one of two employers being sued, don’t be the first to settle

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In Optimum Group Services Plc v Muir, Optimum lost a key contract.  They thought Mr Muir’s employment should transfer to the new providers, Beaumont, under TUPE.  The new providers denied this and said that Mr Muir was redundant and should claim payments from Optimum.  Mr Muir ended up with no job and no redundancy payment so sued both Optimum and Beaumont.  Mr Muir reached a settlement with Beaumont before the hearing where they agreed to pay him £20,000.  He continued his claim against Optimum and won.  The Tribunal found that Mr Muir had been unfairly dismissed by Optimum. In calculating the compensatory award for unfair dismissal, it decided not to deduct the £20,000 settlement payment from Beaumont because to do so would give Optimum, who had behaved badly, a ‘windfall benefit’. The Employment Appeal Tribunal held that the first tribunal had got it wrong.  A Tribunal, when calculating compensation for unfair dismissal, should only consider what actual financial loss was suffered by a claimant as a consequence of dismissal. The Tribunal cannot enable a claimant to profit financially irrespective of the circumstances. The Tribunal also erred when it sought to penalise Optimum for its behaviour towards Mr Muir.

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Employee-Owner status: shares for staff in stead of employment rights

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Probably the most radical reform  proposed by the Government is the new ‘employee owner’ status, whereby employees will forfeit major employment rights (like unfair dismissal) in exchange for employees being given shares in their employer worth £2,000 or more. These shares will be sold back to the employer for a reasonable price and up to £50,000 worth of shares will be exempt from Capital Gains Tax (CGT) at the point of sale.  This is due to come into force in April 2013.

One of the biggest obstacles to employers using this status is that granting shares to staff triggers an immediate income tax and National Insurance charge. Very few employees would sign up to such an arrangement if they had to pay the tax themselves so in order to get any take up, an employer would have to bear the tax itself, so even if only £2,000 of shares were to be granted, assuming the employee is a 40% taxpayer, another £1,200 of tax would need to be paid. If the employer paid this, this would itself be a taxable benefit triggering a further charge to tax of £480 so the total cost to the employer, with employer’s NICs would be over £4,000 – around about the median award for unfair dismissal. When you combine that upfront cost to the employer with the uncertainties that the shares may have been overvalued and so the whole thing may not work, the complexities and legal cost of set up of the new regime and the fact that most employees leave their employers without thinking of claiming unfair dismissal, you can see why, as currently drafted, this is looking like it will only be of interest to a niche of employers and employees, such as the senior hires in technology start ups.

The Government is reviewing whether to reduce the income tax and National Insurance contribution liabilities that arise when shares are issued to employee shareholders; and whether to issue further guidance regarding share valuation and forfeiture. The answers to those questions will determine whether the scheme is viable. Watch this space.

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Employers can rely on unrelated earlier disciplinary warnings to dismiss an employee for misconduct

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In Wincanton v Stone, Mr Stone was employed as a driver for Wincanton. In 2009, Mr Stone received a first written warning for being insubordinate. In 2010, Mr Stone breached Wincanton’s health and safety rules when he pulled out of a loading bay when the light was red. This was not an act of insubordination but carelessness. Wincanton dismissed Mr Stone on the basis that the earlier warning “tipped the balance” in favour of dismissal, even though the two warnings were for very different types of conduct.

Mr Stone brought a claim in the Tribunal for unfair dismissal. The Tribunal held that Wincanton had acted unreasonably in aggregating the warnings. Wincanton appealed and won.

An employer is entitled to dismiss someone for being involved in two different types of misconduct.  This is clearly a helpful decision for employers.

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Volunteers have no protection under discrimination law

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In X v Citizens Advice Bureau, X signed a volunteer agreement to work four to five hours a week for a Citizens Advice Bureau. The volunteer agreement specifically stated that it was “not an employment contract of employment or legally binding”. The CAB subsequently asked the volunteer to stop working for the organisation. She claimed that this was disability discrimination.

The Equality legislation only protects employees, other workers and people seeking access to work and training. The CAB therefore said that X was not covered by the Equality At as she was neither an employee, worker nor someone seeking vocational training or employment.

The Supreme Court agreed with the CAB and decided that this volunteer was not protected by the equality legislation as there was no legally binding employment contract. Furthermore, the purpose of the volunteer work was not to determine whether she should be offered paid work in the future. She was purely there to“do good”. Importantly, the Supreme Court distinguished between “volunteering” (which is not protected by equality law) and undertaking a “work placement” which is.

Whilst this decision may provide some comfort to employers, it is important to note that most people working for free in commercial organisations are likely to be protected under discrimination law because they are typically there to gain access to employment or vocational training.

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Controversial remarks on Facebook about gay marriage are not ‘gross misconduct’

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In Smith v Trafford Housing Trust, Mr Smith posted a link on his Facebook wall to a BBC news article entitled “Gay church marriages set to get the go-ahead” and commented that it was “an equality too far”. In response, his colleague posted a comment on his wall, “Does this mean you don’t approve?”

Mr Smith replied “no, not really, I don’t understand why people who have no faith and don’t believe in Christ would want to get hitched in church. The bible is quite specific that marriage is for men and women. If the state wants to offer civil marriage to same sex then that is up to the state; but the state shouldn’t impose its rules on places of faith and conscience”.

As a result of his comments, Mr Smith was suspended on full pay and subjected to a disciplinary investigation. At the disciplinary hearing, he was found guilty of gross misconduct for breaching the Trust’s Code of Conduct and Equal Opportunities Policy. Instead of dismissing Mr Smith, the Trust demoted him from his managerial position which resulted in his pay being reduced by 40 per cent over two years.

Mr Smith’s appeal to the Trust was dismissed. Therefore he issued proceedings in the High Court for breach of contract (but interestingly not for unfair dismissal or discrimination). He argued that the demotion and pay reduction were unlawful on the basis he had not committed an act of misconduct, gross or otherwise.

The Court agreed with Mr Smith for the following reasons:

1. His conduct did not bring the Trust into disrepute. Although Mr Smith’s wall identified him as an employee of the Trust, a reasonable Facebook reader would not conclude that Mr Smith’s views about gay marriage reflected the views of the Trust.
2. The obligation not to promote religious or political views under the Trust’s Code of Conduct did not extend to Mr Smith’s Facebook wall, irrespective of the fact that Mr Smith had 45 work colleagues as Facebook friends. This was because the wall was inherently non-work related and, most importantly, Mr Smith’s colleagues had chosen to make him a Facebook friend and therefore it was their decision whether or not to acknowledge his views.
3. He had not failed to treat his colleagues with dignity, respect or acted in a manner which was liable to cause offence. Mr Smith’s posting about gay marriage was a widely espoused view. Neither was the manner in which he delivered his opinion disrespectful or judgmental. The court said that “the frank but lawful expression of religious or political views may frequently cause a degree of upset, and even offence, to those with deeply held contrary views, even where none is intended by the speaker. This is a necessary price to be paid for freedom of speech”.

This case demonstrates the rising presence of social media in the employment sphere. Employers should ensure they implement a social media policy which establishes boundaries for their employees on what conduct is acceptable when using social media. However, this case clearly demonstrates that while workplace rules can restrict the use of social media outside work, freedom of expression is paramount and will take precedence where the comments are clearly not intended to be work related.

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If employees sue two employers and one settles, the tribunal must reduce the award against the other employer to ensure the employee does not “double recover”

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In Optimum Group Services Plc v Muir, the Employment Appeal Tribunal held that a Tribunal should have deducted a settlement payment received by the claimant from another employer when calculating the award, in accordance with the principle that the same loss cannot be recovered twice.

In this case, Optimum lost a key contract. They thought Mr Muir’s employment should transfer to the new providers, Beaumont, under TUPE. The new providers denied this and said that Mr Muir was redundant and should claim payments from Optimum. Mr Muir ended up with no job and no redundancy payment so sued both Optimum and Beaumont.

Mr Muir reached a settlement with Beaumont before the hearing where they agreed to pay him £20,000. He continued his claim against Optimum and won.

The Tribunal found that Mr Muir had been unfairly dismissed by Optimum. In calculating the compensatory award for unfair dismissal, it decided not to deduct the £20,000 settlement payment from Beaumont because to do so would give Optimum, who had behaved badly, a ‘windfall benefit’.

Optimum appealed and the Appeal Tribunal held that the tribunal had got it wrong. The settlement paid by Beaumont should have been deducted from the award the Tribunal ordered Mr Muir to receive from Optimum. A Tribunal, when calculating compensation for unfair dismissal, should only consider what actual financial loss was suffered by a claimant as a consequence of dismissal. The Tribunal cannot enable a claimant to profit financially irrespective of the circumstances. The Tribunal also erred when it sought to penalise Optimum for its behaviour towards Mr Muir.

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Government publishes its response to ‘employee owner’ share scheme

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In December 2012, the Department for Business, Innovation and Skills published its response to a consultation on how to implement the new ‘employee owner’ scheme, whereby employees will forfeit major employment rights in exchange for taking a stake in their business.. This is an unusually fast response from the Government who only announced the scheme at the conservative party conference in October 2012.

To recap, the scheme will apply to employers who give employees shares worth between £2,000 and £50,000. These shares will be sold back to the employer for a reasonable price and will be exempt from Capital Gains Tax (CGT) at the point of sale. However, in return the employee must give up key employment rights including unfair dismissal, redundancy and the right to request flexible working.

The consultation received widespread criticism from a variety of organisations of which only three out of 184 said they would take up the new status. Irrespective of this feedback, the Government is progressing ahead with an implementation date of April 2013.

The Government’s response modifies its original proposals. These include:

• renaming ‘employee owner’ contracts to ‘employee shareholder’ contracts;
• removing the upper threshold of £50,000 which would allow companies to offer more shares under the scheme, although the exemption from CGT would remain capped at £50,000;
• clarifying that shares should be fully paid up and issued free to the employee shareholder;
• creating a power for the secretary of state to increase the minimum share value of £2,000;
• allowing shares to be issued by non-UK registered companies;
• allowing shares to be issued by both the employer and its parent company; and
• changing the notice period for early return from additional paternity leave from six weeks to 16 weeks to ensure it is consistent with the rules regarding maternity/adoption leave.

One of the biggest obstacles to employers taking up this opportunity would be that granting shares to staff triggers an immediate income tax and National Insurance charge. Very few employees would sign up to such an arrangement if they had to pay the tax themselves so in order to get any take up, an employer would have to bear the tax itself, so even if only £2,000 of shares were to be granted, assuming the employee is a 40% taxpayer, another £1,200 of tax would need to be paid. If the employer paid this, this would itself be a taxable benefit triggering a further charge to tax of £480 so the total cost to the employer, with employer’s NICs would be over £4,000 – around about the median award for unfair dismissal. When you combine that upfront cost to the employer with the uncertainties that the shares may have been overvalued and so the whole thing may not work, the complexities and legal cost of set up of the new regime and the fact that most employees leave their employers without thinking of claiming unfair dismissal, you can see why this is looking like it will only be of interest to a niche of employers, such as technology start ups.

The Government is reviewing whether to reduce the income tax and National Insurance contribution liabilities that arise when shares are issued to employee shareholders; and whether to issue further guidance regarding share valuation and forfeiture. The answers to those questions will determine whether the scheme is viable. Watch this space.

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