Update: employment

The credit crunch continues to throw up interesting issues for employment lawyers. In Secretary of State for Business Enterprise and Regulatory Reform v Neufeld and Howe [2009] EWCA Civ 280, the DBERR wanted guidance on how to treat directors and majority shareholders of failed companies, where those individuals also held contracts of employment by virtue of which they were claiming various benefits from the Insolvency Fund.

The benefits in question for employees of insolvent companies include up to eight weeks arrears of pay, notice pay, holiday pay and basic award for compensation for unfair dismissal. The question was could individuals who were the owners and managers of the company '“ and thus fully able to direct the decisions of the company '“ also claim they were 'just' employees and so recover these payments from the state and, if so, would the court please issue some general guidelines to clear up the confusion that currently existed about the proper approach to this issue.

Apparently there are several hundred such claims awaiting determination and there will no doubt be many hundreds more, but the issue of principle is not limited to claims in insolvency.

Potential confusion

The recent decisions in this particular sub-set of 'employment status' cases had pointed to potential confusion as to the factors to be taken into consideration and the weight to be given to them. In particular, there have been slightly conflicting decisions about the weight to be given to the fact that the sole or majority shareholder is in effective 'control' of his own contract of employment '“ including his own dismissal. An approach based on robust common sense had been that if you could exercise this sort of control, then you couldn't claim to be an employee at the same time (see Buchan v S of S for employment and Ivey v S of S for Employment [1997] IRLR 80).

However, in subsequent cases (see in particular S of S for Trade and Industry v Bottrill [1999] ICR 592; Gladwell S of S for Trade and Industry [2007] ICR 264 and Nesbitt v S of S for Trade and Industry [2007] IRLR 847), the issue of the relevance and weight to give to the control factor has been extensively reconsidered. The Neufeld decision conclusively puts that argument to bed, at least for the present. The Court of Appeal makes it clear that in all cases tribunals and other courts have to determine whether there is a genuine contract of employment in place by reviewing other factors such as the course of conduct of the putative employee, the existence and validity of written terms of employment, payment structures and the like. The fact that the employee controls the employing company is no longer relevant at all '“ there must be a conceptual separation between the various hats that the individual may wear.

These cases have all arisen in the context of insolvency and the relevant, and changing, departmental responsibility for outstanding payments owed by the company to its employees. As a result, the DBERR is less likely to challenge claims for reimbursement in the future and, in cases that go to tribunal, a properly directed first instance decision is unlikely to be appealable. What now remains to be seen is how far these concepts go in other employment-based claims involving owners/managers of solvent businesses '“ for example TUPE transfer claims.

The tribunal's role

It is not often that the Court of Appeal is called upon to decide an 'ordinary' unfair dismissal case, but this is what happened in London Ambulance Service NHS Trust v Small [2009] EWCA Civ 220.

Simon Small was dismissed by the Trust on grounds of conduct following an internal investigation and hearing at which he was legally represented. The employment tribunal found his dismissal both procedurally and substantively unfair. It disagreed with various findings of the employer's panel and also thought the investigation had taken too long. The Employment Appeal Tribunal (EAT) upheld that decision, albeit increasing the contributory fault element from ten per cent to 50 per cent.

In a short and punchy decision the Court of Appeal reversed the tribunal. Although it had directed itself correctly about the well-established test (British Home Stores v Burchell [1978] IRLR 379 and Post Office v Foley [2000] ICR 1283), the tribunal had not applied the law correctly. Instead of focusing its fact-finding exercise on the Trust's conduct of the dismissal, it had concentrated on the claimant's conduct and then used these findings to substitute its own view for that of the tribunal. It had muddled up the tribunal's role in determining whether or not a dismissal was fair with the fact-finding that the tribunal has to do in determining contributory fault.

The decision on contributory fault is only for the tribunal and only after it has decided that a dismissal is unfair. The role of the tribunal on the primary issue of whether or not the dismissal was fair is to review the actions and decision of the employer, which is not determining contributory fault but whether or not it should dismiss.

'Polkey' claims

By contrast, the EAT remains occupied by claims of unfair dismissal in various respects, many of them associated with redundancies.

In Virgin Media Ltd v Seddington and Eland UKEAT/0539/08, the employer mistakenly thought that it was involved in a collective redundancy situation so that the statutory disciplinary procedures did not apply. Therefore the dismissals were automatically (procedurally) unfair under the now repealed provisions of s.98A(1) of the Employment Rights Acts 1996 because, although the employees had been called to meetings and been given the right of appeal against the decisions, the letter calling them to the meeting had not contained all the required information.

The employer however argued that the 'Polkey' principle should apply and that the tribunal should calculate remedy, if any, on the basis that the dismissals would have taken effect anyway, because, as the tribunal agreed, there was a real redundancy situation and the jobs held by the claimants were indeed surplus to requirement.

The claimants argued that the employer was a big company, that there were lots of vacancies and that in effect it was for the employer to prove that there were no suitable jobs into which they could be redeployed.

The tribunal decided that the company had failed to establish that there was any substantial chance that, even if it had acted fairly, the employment would have ended anyway. In other words, the tribunal approached this issue on the basis that the burden of proof was on the employer. As there was very little evidence about alternative roles, the tribunal concluded that it was too speculative to consider whether the employees would have been redeployed.

The EAT disapproved this approach. First, the court reminded itself of the guidance given by the previous president in Software 2000 v Andrews [2007] ICR 825, and in particular that evidence from both the employer and employee was relevant. The EAT also held that where the employer raises a prima facie case under the Polkey principle, it is for the employee to provide evidence as to the job or jobs that he says he could do or would have accepted so as to rebut the case raised.

As a result of these two EAT decisions, tribunals will have to be much more analytical in their approach to remedy where employers argue that the dismissal would have taken effect in any case.

Equal pay and the NHS

The long-awaited lead decision in the pre-hearing review ('PHR') in Hartley and Ors v Northumberland Health NHS Foundation Trust and Ors has just been handed down by a heroic tribunal panel, chaired by Employment Judge Malone. The decision is a book '“ and not even a short book '“ running to over 200 pages and 870 paragraphs and as such is the longest PHR decision ever recorded!

The background to these claims is the NHS Agenda for Change ('AfC') which was started in 1999 and resulted in an agreement in 2004 to modernise pay and reward structures by, inter alia, agreeing and applying a systematic job evaluation scheme ('JES') across more than one million jobs in the NHS. Part of the aim of the AfC was to address gender-based pay inequalities. In devising the agreement, the NHS had brought together representatives of all the staff groups and an expert team which included a very highly regarded pay equality specialist who had been regularly retained to advise women in equal pay claims.

The claims included a wholesale attack on the JES itself, which was the basis of the new pay rates. One group of claimants argued that the JES '“ which would otherwise be a complete defence to most claims '“ was insufficiently analytical and systematic and, worse still, that it had been manipulated to benefit the status quo and therefore male roles.

The claimants also argued that the various types of pay and retention protection which had been introduced to provide a cushion for employees against immediate loss of pay were unlawful as being indirectly discriminatory against women.

As readers will be aware (see Redcar and Cleveland Borough Council v Bainbridge and Ors [2009] IRLR 776 (CA)) one of the biggest difficulties created by attempts in the public sector to give effect to pay equality legislation is their approach to pay protection for those who would otherwise see a drop in their income.

Rejected claim

The tribunal has rejected both of these major planks of the claims. The JES has been held to be a robust and analytical scheme which has not been manipulated to favour any particular group of employees. In this regard, the architects of the scheme were particularly praised by the tribunal for their integrity and expertise.

Additionally, the tribunal, in a carefully reasoned section, has substantially rejected the attacks on the pay protection mechanisms adopted by the AfC. First, the statistics did not in fact show a difference between men and women affected. Secondly, even if they had, they would have been a legitimate means (albeit in one case over too long a time scale) of achieving a legitimate aim.

The parties will be absorbing this decision with keen interest and it will be interesting to see how much of the challenge to the AfC is maintained through litigation. The current state of extended litigation has left this whole area in a state of confusion and it would be good to think that this decision heralds the fact that large schemes can legitimately be brought into effect without endless legal arguments.