ContentsEditorial.......................................................................................................................................................... 1Employment status – DTI discussion document............................................................................................2Employment Act 2002....................................................................................................................................3Costs in employment tribunals.......................................................................................................................4Faccenda Chicken Limited v Fowler (1986)...................................................................................................6Newsflash....................................................................................................................................................... 7

Editorial

This edition of Emblem contains a variety of topics that have come to the fore over recent months. Changes in the law brought about by recently decided cases and new legislation continue to stretch employment lawyers and HR professionals seeking to advise both employers and employees.

We examine the changing costs regime for employment tribunals and the likely impact on the approach of employers and employees to tribunal claims. The complex Working Time Regulations 1998 have thrown up a case that will have a serious impact on the provisions made by employers to employees on long term sick. As previously, we are also looking back at cases decided some time ago which stood the test of time.

At the time of going to press Tony Blair had escaped the wrath of the TUC Conference, although news editors seemed more determined to highlight differences over Iraq. The closure of final salary pension schemes, public sector pay demands and ‘New Militant’ trade union supremos bid to create ‘Winter of Discontent II’ – a modern tale of industrial unrest. The spring edition of Emblem will no doubt examine the outcome of any battles that ensue.

Editorial teamMichael ParrJohn StamperAndrew McDonaldRachael Owens

Employment status – DTI discussion document

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The Employment Rights Act 1996 contains provisions enabling the Government to extend statutory employment rights to categories of workers not previously protected. The rationale for taking up these enabling powers is to be found in that employment relationships have become more diverse. It has become less easy to categorise people who do work simply on the basis of the titles employed or self-employed.

The word that finds its way into employment legislation is worker. Given recent tabloid and broadsheet excitement (albeit in the August silly season) about the concepts of class with many high earners wishing to disavow their ‘middle class’ label in favour of ‘working class’, have legislators fallen for another piece of ‘New Labour’ spin? Well, no. It may sound a good story but the word worker is a handy noun for describing people who the Government and the European Union believe should have rights in employment situations.

The uncertainty that arose because of the distinction between employees and self-employed has led to some people being denied rights. Fiscal considerations were often uppermost in determining the difference between the two categories with income tax and national insurance treatment being perceived as being more favourable to the self-employed. These issues have tended to matter less now that the Inland Revenue has had purges on the bogus self-employed, particularly in the construction industry. The Revenue’s eternal quest to recover as much income tax through PAYE as possible and to extract the higher levels of NIC led to most of the leading cases being revenue cases as opposed to employment cases. The changes in legislation have resulted in the distinction between employed and self-employed becoming less important.

Decent legislative changes have provided that certain core rights are enjoyed by those who are workers. For example the right to receive the national minimum wage, not to suffer unlawful deductions and the smörgåsbord of rights under the Working Time Regulations are now enjoyed by those who have a form of contract requiring them to provide personal work or services and therefore do not fall within either categories of employed or self employed. The DTI is currently seeking views on the extension of protection to such workers in respect of claims for unfair dismissal and redundancy payments together with the rights under TUPE.

Emblem will keep readers updated as to the responses to the discussion document once they become available. The DTI expects that the process will be complete by early December 2002.

Employment Act 2002

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In the April 2002 edition of Emblem we made reference to what was then the Employment Bill. The Bill received Royal Ascent in July 2002 and will come into force in April 2003. As expected, the Act contains measures aimed at helping employees who wish to combine their working life with their parental responsibilities concerning childcare. Driven by the political will to alter working practices so as to give protection to employees and workers who have childcare responsibilities, this Act is a further step in changing attitudes to the conflict between work and family life.

Although maternity rights have been with us for some time and the first batch of ‘New Labour’ legislation dealt with the concept of parental [paternal?] rights, employee protection in relation to childcare obligations had developed through the somewhat unsatisfactory route of the Sex Discrimination Act 1975.

Emblem will be examining the full text of the Employment Act 2002 and future editions will deal with the specific issues arising out of the new legislation. However, for the purposes of this edition, the following is a bullet point summary of the new Act.

The Employment Act 2002 provides:

6 months’ paid and a further 6 months’ unpaid maternity leave 2 weeks’ paid paternity leave 6 months’ paid and a further 6 months unpaid leave for adoptive parents An increase of over 60% in the rate of Statutory Maternity Pay which rises from £62 to £100 a

week Reimbursement of paternity and adoption payments made by employers, with 100% recoverable

by small employers plus a further compensation payment The legal of right to apply to work flexible hours for parents with children under 6 years old The legal right to apply to work flexible hours for parents with disabled children up to 18 years old

The above is a summary of the family friendly nature of the Act. In addition, the Act seeks to improve the process of dispute resolution between employers and employees. Also modifications are proposed to the employment tribunal system. Again, the following is a summary of the new provisions:

New minimum standards for disciplinary and grievance procedures New requirements for employees in certain circumstances to raise grievances with their employer

before making an application to an employment tribunal A fixed period of consultation to promote timely settlement of disputes

A further provision within the new Act gives the Secretary of State the power to make regulations preventing less favourable treatment of employees engaged on fixed-term contracts. There has been much case law in relation to this category of employee and regulations clarifying the position would be broadly welcomed by representatives of both employers and employees.

As with all new legislation, it is not before the EAT and Court of Appeal have dealt with the more debatable aspects of the legislation that all becomes clear. This will be the case particularly in relation to the legal right to apply to an employer for flexible hours to cater for childcare responsibilities. As indicated above, the rights of employees in relation to this flexible approach has previously only been available in very limited circumstances. The courts have interpreted the SDA, and in particular its provisions relating toindirect discrimination, to place a burden on an employer to show why it was not reasonable for a working mother returning from maternity leave to work on a part-time basis. The legal analysis advanced was that statistically women bear the responsibility of childcare within society and therefore any policy which indirectly discriminates against women is unlawful under the SDA. Accordingly, a blanket refusal toconsider part-time work for such an employee was unlawful. The case law developed to require employers faced with a returning working mother to make a commercial assessment as to whether or not her position could be covered on a parttime basis, for example, by way of job share. The Employment Act 2002 aims to avoid any need to recourse through the circuitous route of the SDA (which was not available to men in any event) by providing these new rights. Future editions of Emblem will examine this change in some greater detail.

Michael ParrPartner, BLM Manchester

Costs in employment tribunals

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The costs rules that apply in employment tribunal cases have their roots in a part of the original ethos of the tribunal (then called the industrial tribunal). It was always envisaged that the tribunal should be a forum for resolving industrial disputes but one which did not adopt an overly legalistic approach. It was to be a place where lawyers were not so much denied access, rather they were expected to attend without the prospect of having the other side pay for the pleasure of their company.

The ‘no-costs’ rules were intended to complement the informality of the tribunal process. Over time the weight of legal authorities and the constant flow of legislation rendered the original ideals of the tribunal somewhat dated. Important legal principles were being established and, save in the simplest of cases, parties wanted (and needed) legal representation. In reality, probably many tribunal chairmen were grateful that parties were represented, as often considerable time is wasted by unrepresented parties in any type of litigation.

For many employers, the no-costs rule was seen as working unfairly against them. Employers felt that dismissed employees would bring hopeless cases against them safe in the knowledge that it was extremely unlikely that costs would be awarded against the employee, even if the case was unsuccessful. Employers saw the prospect of incurring substantial costs to win a tribunal case only to find that it was a pyrrhic victory when the legal costs had to be paid. Set against this was a more commercial view that the case could be settled by way of a nuisance-value payment. The money that would have been paid to the solicitor was used to buy off the employee’s claim. Whilst this was clearly attractive to the financial director, the human resources director frequently saw it as an unsatisfactory precedent to set as it encouraged other employees to pursue cases that had no merit.

Dissatisfaction with the rule was not one-sided. Equally, employees felt that they were at a disadvantage. Employees believed that their employers were able to use their seemingly limitless resources to defend claims that really were as cut and dried as it is possible to be in the employment tribunal. The applicant would therefore have to incur legal expense to meet the employer’s expensive lawyers in court only to find that no costs were awarded when the tribunal found in the employee’s favour. The compensation recovered would go, in part, to discharge the solicitors’ costs.

A subtle change was made to the costs rules in the employment tribunal in July 2002. Previously, costs could be awarded where one party or the other had acted vexatiously, abusively, disruptively or unreasonably. The Employment Tribunal (Construction and Rules Procedure) Regulations 2001 added an important new criterion for the award of costs and that was where the tribunal believed that the bringing of the proceedings has been misconceived. In addition, the 2001 Regulations also made it clear that tribunals could award costs in respect of any postponements or adjournments of cases. Generally speaking, before then, a party that caused an unnecessary postponement or adjournment was always open to an order for costs under the concept of unreasonableness.

The 2001 Regulations are perceived to have substantially increased the powers of the tribunal to impose costs sanctions against parties who pursue hopeless cases, whether they are applicants who had no prospect of succeeding or respondents who had no prospect of successfully defending the claim.

Anecdotal evidence suggests that the tribunals have been slow to invoke these powers save in the most exceptional of cases. It is too early to say whether or not the change in these regulations will move tribunals closer to the position in the civil courts. However, most commentators believe that the employment tribunals will look at the costs position in civil courts and do all that is possible to avoid the tribunals moving towards a similar position.

The Employment Act 2002 contains powers for the Secretary of State to make new regulations to deal with further specific costs issues which include:

awarding costs directly against a party’s representative awarding costs spent in preparation of the case

It is difficult to predict whether or not there will be a shift in the approach of employers and employees to employment tribunal proceedings. I suspect that the new costs regime within the employment tribunal will not result in a substantial increase in costs awards. The comparison with civil proceedings is worth examining: in the civil courts the present rules by which costs follow the event are some way away from costs being awarded where proceedings have been misconceived. In percentage terms, tribunals are not going to award costs simply because a party has pursued or defended a claim which has a better or worse than 50% success rate. It is only those cases which have a negligible prospect of success where it is likely that costs will be awarded.

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Of course once the concept of awarding costs against the party becomes an issue, the ability of a party to discharge an order for costs becomes relevant. In Kovacs v Queen Mary & Westfield College (2002) the Court of Appeal was asked to determine whether employment tribunals were required to take into account a party’s means when awarding costs. In this case the applicant had pursued a claim for race and sex discrimination but had been unsuccessful. However, the tribunal did find that she was unfairly dismissed and she received an award of approximately £1,500. The tribunal concluded that her race and sex discrimination claim were misconceived and ordered that she pay the respondent’s costs arising out of those unsuccessful complaints. The Court of Appeal held that her ability to pay costs was irrelevant to the tribunal’s decision as to the awarding of costs. Unfortunately, although this decision does give some clarity in relation to the points, it seems likely that future regulations made under the Employment Act 2002 could overturn the decision as the Act specifically allows for regulations to be made which may include provision authorising an employment tribunal to have regard to a person’s ability to pay when considering the making of an award against him.

It seems likely that the employment tribunals will continue to guard against losing their informality and less legalistic approach to the hearing of employment disputes. At the same time will redress some of the unfairness of the no-costs rule which had the potential to dictate how parties would deal with claims, quite irrespective of their merit.

Michael ParrPartner, BLM Manchester

Faccenda Chicken Limited v Fowler (1986)

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A frequent problem for employers is the impact of a former employee making use of information that hehas acquired during the course of his employment. The Court of Appeal in 1986 considered the types ofconfidential information and the protection an employer has.

The case involved the (aptly named) Mr Fowler who was employed as a sales manager at Faccenda Chicken Limited. It appeared to be Mr Fowler’s suggestion that Faccenda sold its fresh chickens from refrigerated delivery vans which traveled throughout the country. Mr Fowler was so impressed with hisown idea that he set up his own business using the same methods and approaching the same customers. Eight other employees of Faccenda joined him in the new venture. Needless to say the company were unimpressed with the enterprising Mr Fowler and commenced proceedings against him and his cohorts seeking damages for breach of contract of employment and for conspiracy to injure by abuse of confidential information.

There was no doubt that Mr Fowler and his men had the benefit of information they had acquired during the course of their employment. They knew the system, they knew the clients, and they knew a broad range of financial information necessary to know how to make the new business profitable. In a detailed examination of the nature of confidential information the Court of Appeal concluded that there were in effect three categories of information that an employee may possess which were:

trivial information which all employees acquired and could not possibly be confidential confidential information of an intermediary nature, such as names of customers that an employee

would deal with or routes for delivery trade secrets or highly confidential information

(A trade secret is something of a highly confidential nature and a good example is the formula for Coca Cola. Also within this category are items of information that are highly sensitive for commercial reasons, so a comprehensive list of a company’s customers and the prices they were being charged might fall into this category.)

The Court of Appeal examined the protection that an employer could seek to prevent an employee from using the different types of information. It concluded that for the trade secret or highly confidential information, the employee was bound as a matter of law to keep that information confidential both during the course of his employment and after termination. With the intermediary category, the court concluded that the restrictions implied by law ceased to bind the employee after termination.

There will usually be a dispute as to whether a particular type of information falls within the second or third categories. Subsequent cases have examined the role of restrictive covenants in protecting post-termination use of confidential information and most practitioners now seek to protect information that might fall into either category. This is particularly important, especially as the primary remedy for misuse of confidential information for the employer is the interim injunction. It will substantially assist the employer if there is a clear restrictive covenant in place.

Again this is an old case which has stood the test of time in defining confidential information and highlights the importance of professionally drafted contracts of employment.

The decision was no doubt disappointing to the Faccenda Chicken Ltd but they survived it and remain purveyors of fresh chicken. Emblem has been unable to ascertain the success or otherwise of Mr Fowler.

Newsflash

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This section of Emblem aims to provide up-to-the minute news items and/or case reports which theeditorial team believes to be of particular significance. In the case below we see a further movement towards an overwhelming implied contractual duty to treat employees reasonably.

Transco (formerly BG) v O’Brien (Court of Appeal, 7 March 2002)

The case is of particular interest as it reinforces the view of many employment law practitioners that the law is moving closer to an implied contractual duty to treat employees reasonably. Effectively, this extends the implied contractual term referred to as mutual trust and confidence.

Mr O’Brien was an employee who was singled out by not being offered a revised contract of employment which included an enhanced redundancy payment. The reason for this was that the employer (Transco) mistakenly viewed him as employed under an atypical form of contract, ie not their normal contract of employment.

In August 1998 Mr O’Brien was made redundant but the employer did not regard him as a ‘permanent employee’. As such, Mr O’Brien did not receive the enhanced redundancy payment given to others. Strangely, he was the only employee to be excluded from the package.

Unsurprisingly, O’Brien applied to an Employment Tribunal which by a majority decision decided that he was indeed a permanent employee for the purposes of the enhanced redundancy package. As such, the employer’s failure to offer him the revised contract of employment with the enhanced redundancy package was a breach of contract. They regarded it as a breach of the implied duty of trust and confidence ‘andin particular the duty to treat employees in a fair and evenhanded manner’.

Frankly, it seems fairly clear that if all other members of staff have been offered such a contract there would be a good argument to find that the employer had acted capriciously in failing to offer the same terms to O’Brien.

The employer appealed to the Employment Appeal Tribunal (EAT). At this point the EAT identified that the tribunal’s (arguably creative) use of the term ‘fair and even-handed manner’ was not an error of law – even though there were no legal authorities which directly supported it.

The Court of Appeal heard arguments from the employer that the implied duty of trust and confidence should not create new rights and positive obligations which do not otherwise exist. The Court of Appeal would not accept that argument and found that there can indeed be a breach of the implied term if an employer decides to offer one employee a new contract whilst refusing to offer similar contractual terms toanother.

Admittedly, the employer in this case was labouring under a misconception as to the employment status of O’Brien. In particular, they genuinely (but wrongly) believed that he was not a permanent employee. However, that was not enough to deprive O’Brien of the improved terms of employment, which surely would have been offered had it not been for the employers’ mistaken belief.

The decision perhaps highlights the growing feeling that the boundaries in employment law cases are being moved further towards a general overriding principle of fairness and reasonableness in the employment relationship.

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DisclaimerThis document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of Berrymans Lace Mawer. Specialist legal advice should always be sought in any particular case.

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