Update: employment

As the academic year draws to an end, two big issues loom. First, the impact of the major changes and cutbacks proposed for public services. The government talks of closing down whole bodies and organisations, of reducing public sector jobs and of changing pension and redundancy terms, presumably by introducing new laws. Employment lawyers advising on all sides will need to watch closely to understand the implications of these proposals and the pinch points.

Second, it now looks as though most of the Equality Act 2010 will be implemented in October. This is a very wide-ranging piece of legislation which changes every aspect of current equality law, even when simply harmonising it. In future, we will have to understand 'protected characteristics' and the changed definitions of direct and indirect discrimination, harassment and victimisation. We will also see whether the heightened focus on equal pay and the new provisions about pay secrecy will lead to more litigation in the private sector. Pre-employment health questionnaires are restricted; positive action has been boosted and enhanced public duties have been introduced for the first time in the newer equality strands of sexuality, religion or belief and age. The provision on dual discrimination, gender pay reporting and the public sector duty regarding socio-economic inequalities may not all survive. And there may not be any enabling legislation to 'unleash the power of the procurement pound' (one of the stated aims of the new Act). But the pulling together and greater focus of equality provisions is likely to lead to a heightened awareness of rights and options and therefore potentially of litigation.

Incorrect disciplinary procedures

Meanwhile, there are a crop of interesting and thought-provoking cases, two of which deal with issues that may become increasingly live in the current climate. In Edwards v Chesterfield Hospital NHS Foundation Trust [2010] EWCA Civ 571, the Court of Appeal considered the rights of a public sector employee who had been wrongfully dismissed for gross misconduct and where the correct disciplinary procedure had not been applied. The issue was determined on the basis of a summary judgment application so the facts have not been judicially determined. What could the employee hope to recover if he made good his whole claim? The employee argued that he should get notice pay, pay for the period of the correct disciplinary process and damages at large because he could never hope to work again substantively as a consultant. The total bill could be £3.5m plus.

Applying for summary judgment, the trust argued that he should recover just his three months' notice pay, it being settled that the defendant has to do no more than its bare legal obligation. This argument succeeded at first instance. On appeal, the High Court held that on the basis of Gunton v LB Richmond, in addition to his notice pay, Mr Edwards was entitled to such pay as he would have received while the trust went through the correct disciplinary procedure.

Following the consultant's further appeal, the trust argued that the doctor's case on damages at large was an attempt to go behind the decision of House of Lords in Johnson v Unysis [2001] UKHL 13. In that case, the lords held that the only right in respect of the manner of dismissal lay in the statutory right not to be unfairly dismissed. The Court of Appeal disagreed with the trust. In Edwards, the claim was not only for the loss arising form the dismissal, but also from the loss arising from the failure to carry out the correct disciplinary procedure, which was incorporated in the contract of employment. This was a separate breach. On the basis of the presumed facts, if the correct procedure had been carried out, the employee would not have been found guilty of gross misconduct and dismissed. Therefore, he was entitled to recover damages that flowed from the breach of contract in using the wrong procedures, reaching the wrong result and dismissing.

As Lord Justice Lloyd remarked in his concurring judgment, 'the defendant could have dismissed the claimant on proper notice... if allegations of misconduct had been made, had been considered in proper disciplinary proceedings, and had been held to be unfounded'. If the case settles, we will never know exactly what happened and in particular whether the trust got their choice of disciplinary procedures right, but the consultant was subsequently cleared ofmisconduct by the GMC.

Problem payouts

Staying with the NHS, Rose Gibb v Maidstone and Tunbridge Wells NHS Trust [2010] EWCA Civ 678 is also a decision of the Court of Appeal overturning the lower court. It is an extreme situation, nevertheless illustrating important underlying principles. The trust entered into a compromise agreement, vetted by the Strategic Health Authority, with its chief executive to pay her £250,000 to leave quietly. She had already suffered considerable obloquy after a damning report on the treatment of C. difficile at the hospital of which she was chief executive. However, NHS Finance, Performance and Operations intervened to prevent the payment, saying that she should only receive the equivalent of six months' pay, £75,000, in line with guidance from the secretary of state.

When the employee sued for the balance of the contract, the trust argued that the payment had been ultra vires as being 'irrationally generous' and the judge at first instance agreed. He concluded that the trust's financial analysis when agreeing to pay her the £250,000 had been insufficiently rigorous and also that factors such as longevity of service and difficulties in the market were not legally relevant.

On appeal, the court considered it at least unusual that a public body should be seeking to escape its own contractual obligations by claiming to have been irrational, and would have none of it. The court reminded itself that the test for unreasonableness was the Wednesbury one, namely whether any public body could reasonably have reached the decision made by the trust. It was very clear that the payment was not ultra vires, because a whole range of factors could properly be taken into account and clearly were. The claim, therefore, succeeded on that ground alone. However, the court went on to make obiter comments on the other two heads.

First, it thought that the case on restitutionary principles should succeed. It was unfair for the trust to get all the benefits of the negotiated exit without paying for them and there was nothing inherently wrong with such a claim being based on the agreement not to pursue a case. Second, it thought that the trust had been in breach of the implied term of trust and confidence because it had 'recklessly' led the claimant to believe that it had obtained all necessary approvals.

Perceived disability

In Aitkin v Metropolitan Police [2010] UKEAT, the EAT, with Mrs Justice Slade presiding, had to consider an argument that treatment on grounds of perceived disability is unlawful by parity of reasoning with the case of Coleman v Attridge Law [2010] ICR 242. The claimant complained that he had been removed from frontline duties and subjected to various other matters, including an attempt to retire him medically, because the force perceived him to be dangerous and that this erroneous perception was based on the fact that he suffered from a mental illness which amounted to a disability.

The tribunal disagreed. It found that the claimant's treatment derived from what he actually did '“ his conduct at a Christmas event and subsequently had upset and frightened a number of his colleagues. The EAT agreed, deciding that the claimant's behaviour should not be 'deducted' from the material characteristics of the hypothetical comparator. It also considered that the protection afforded by the DDA was for actual disability and consequences flowing from it, not perceived disability. Although the behaviour of the claimant might be connected with his disability, it was not the actual disability.

Therefore, applying the test in Malcolm v Lewisham BC [2008] UKHL 43, it was correct to consider what would have happened to a hypothetical comparator who had also behaved in the same way. The Equality Act 2010 contains a new provision at section 15 whereby 'unfavourable treatment' 'arising in consequence of' a disability is outlawed unless it is a PROMALA (a proportionate means of achieving a legitimate aim). This is specifically intended to reverse Malcolm. Nevertheless, it is not at all clear that Aitkin would have succeeded in persuading the EAT that it should approach causation any differently under the 2010 Act.

Age discrimination

The cases flow thick and fast and are nearly all about justification. Kraft Foods v Hastie [2010] UKEAT/24/10 with the president in the chair is no exception. This case establishes head-on that in contractual redundancy schemes age-related tapers, intended to avoid windfalls for the employee of payment beyond retirement age, are usually going to be justified.

Kraft operated a very generous redundancy payments scheme whereby employees received three and a half weeks' pay for each year of service. The scheme had a cap whereby people who were made redundant within a few years of the retirement age of 65 (which is currently deemed to be justified) could not recover by way of redundancy pay more than they would have earned if they had stayed in employment: a classic example of a windfall cap. The scheme was agreed with the trade union. Mr Hastie, who was 63 when he took voluntary redundancy, got £76,000. If the cap had not operated, he would have got £90,000. He argued that the cap was a PCP (provision, criterion or practice) and that it was not a PROMALA.

The EAT commented that the original pleadings on both side were short and to the point. However, by the time of the hearing, the simple point about windfalls had become 'somewhat obscured'. A whole range of other matters going either to the 'aim' or 'means' leg of the PROMALA test had been introduced. At first instance, the tribunal allowed the claim. It considered that there were a number of legitimate aims in the scheme but that they were not 'ones that made it legitimate' to impose the cap. It also held that, having regard to the balance of effect on either side, the cap was not proportionate: it affected the employee more than the employer.

The EAT reversed that judgement. In its view the rejection of the windfall justification (which had been presaged by the then president in Loxley v BAE systems [2008] ICR 1348) could not be sustained. The cap was a simple and sensible means of preventing the employee from recovering more by way of redundancy then he could have earned in employment. The point as to whether the employees in question received a pension or not was a separate and distinct point. The other points in the case were subsidiary. We are left with a simple and clear judgment on this widespread provision in such schemes: the dove tailing with pensions is for another case, and if the default retiring age is abolished we'll be back to the drawing board.