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Employment Law

The Employment relationship

• Contract governs the employer-employee relationship

• However, to redress imbalance in power of employer, statute protects rights of
employees
o S 94 Employment Rights Act 1996 – right not to be unfairly dismissed

Who has employment rights – employees, workers, independent contractors?

• Employees – only employees may claim unfair dismissal + statutory redundancy

payment

• Workers – may bring discrimination proceedings under Equality Act + benefit of Working Time
Regulations 1998
o Wider category than employee
o Requirements:
§ Perform services personally
§ + not in a client-customer relationship with the end user

• Independent contractors – in business on their own account with no employment law rights

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Wrongful and unfair dismissal

• Wrongful dismissal = contractual claim, complaining that dismissal in breach of

employment contract
• Unfair dismissal = statutory claim where employee claiming employer dismissed for
unfair reason / followed unfair procedure

Wrongful dismissal

1. Individual must have been dismissed

a. Expressly
b. Constructive dismissal – resignation in response to a fundamental breach by
the employer
2. Dismissal must have been in breach of the employment contract (e.g. without
sufficient notice)
o Where gross misconduct, employer may dismiss immediately

Forums

1. Employment Tribunal
a. Within 3 moths of dismissal, subject to ACAS EC – before a claim can be
submitted, claimant must notify ACAS + nominated ACAS EC officer will try to
achieve conciliation between the parties + clock is stopped while officer
attempts to achieve settlement
b. Limit of £25,000

2. Court
a. Within 6 years of dismissal
b. No cap on damages

Recovery on contractual basis

• Employee put in the position they would have been in had the contract been
performed, i.e. will be able to recover the amount of their net salary and benefits
that would have been paid during the remainder of their notice period had the
contract not been breached
• Mitigation applies + employee should take reasonable steps to try and find another
job, otherwise damages award may be reduced

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Unfair dismissal (s 94 ERA 1996)

• Claim in ET only
• Within 3 months of dismissal subject to ACAS EC

Who can bring a claim?

1. Must show X is an employee

o S 230(1) Employment Rights Act 1996 – a person working under a contract of
employment; however, the courts look to the substance of the relationship
o #1 - Mutuality of obligation test: obligation on company to provide work +
obligation on individual to personally perform that work (substitution clause)
§ Unconditional right = not employee; conditions limiting right, e.g.
only when ill / at choice of company = employee
§ Exercise of the right to substitute?
o #2 - Operational control over the individual?
§ Where, when, how work is done?
o #3 - Integration test – part and parcel of organisation
§ Uniform
§ Email address
§ Training
o #4 - Economic reality test – considering the picture in the round, and:
§ Mode of payment (invoices vs monthly)
§ Supply of equipment / materials
§ Taxation considerations – PAYE vs self-assessment
2. There must be a dismissal – express or constructive
3. He was employed for qualifying period of service
a. Employment began before 6 April 2012: 1 year
b. Employment began on or after 6 April 2012: 2 years
4. He was not in an excluded category (e.g. police, armed forces)

This places the burden on the employer to show:

1. That it had fair reason for the dismissal (s 98(2) ERA1996) + gave the employee the
right reason;
a. Capability – incompetence or incapability
b. Conduct – disobedience, abuse, theft, drunkenness, persistent lateness
c. Redundancy – fair reasons for dismissal:
i. Business shuts down
ii. Location shuts down
iii. Reduction in need for employees – less work available due to
technological innovation, for example
d. Statutory illegality – e.g. work permit expires
e. Some other substantial reason – e.g. clash of personalities; economic or
organisational reason for dismissal on TUPE transfer

AND

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 2. The procedures followed in carrying out the dismissal must be fair in all the
circumstances:

Where reason = capability / conduct

a. Tribunal will consider whether employer’s disciplinary procedure has been

followed (employee handbook)
b. + the ACAS Code of Practice 1 – Disciplinary and Grievance Procedures
– employer must (failing which compensation can be increased by 25%):
i. Establish facts of case
ii. Inform employee of problem
iii. Hold meeting with employee to discuss problem, allowing employee
to be accompanies
iv. Decide on appropriate action
v. Provide an opportunity to appeal
c. Tribunal will also consider:
i. Consistency with past practice of employer
ii. Equitability – equal treatment to employees in same position
iii. Warning procedures
iv. Offers of (re)training
v. Fair hearings – producing evidence / witnesses re: conduct / capability

Where redundancy

a. Follow own employee handbook

b. Consultation
i. Individual consultation – always
ii. Collective consultation – where 20 or more redundancies at one
establishment within a 90-day period
c. Selection process – objective criteria capable of measurement
d. Consideration of suitable alternative employment
e. Consideration of alternative modes of cost-cutting: voluntary redundancy
process / moving to cheaper premises / job sharing / reductions in hours
f. Opportunity to appeal selection for redundancy

Remedies

1. Re-instatement
2. Re-engagement

3. Compensation
a. Basic – statutory formula based on age, number of complete years + gross
weekly salary (subject to a statutory cap); and
b. Compensatory (subject to statutory cap) – designed to compensate for actual
loss decided on equitable basis = loss of wages + potential future loss of
wages + benefits

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Employment contract

Restrictive covenants

• Following termination of employment, vast majority of implied duties on the

employee during employment cease + employee would be able to set up in
competition immediately
• RCs prevent employee doing certain things following termination of employment

Types of covenant

• Non-competition – courts view this most restrictively, as most onerous

• Non-dealing – non-dealing with customers, suppliers and/or employees, even if
others attempt to leave with the relevant employee of their own volition
• Non-solicitation – will not actively pursue customers / suppliers / employees of
former employer

The court’s approach

• VOID and unenforceable unless…

o Protect Legitimate Business Interest; AND
§ Trade secrets
§ Trade interests
§ Stability of workforce
o No further than reasonably necessary
§ Duration
§ Geographical scope
§ The needs of the business – limited to employees the relevant
employee dealt with; ditto for customers
§ Duties of employee – restrictions should be governed by their former
role at the company (e.g. junior employee with no client contact
should not be subject to wide definition of customers, as he never
dealt with the company’s customers)

NB RCs not enforceable if employee successfully claims wrongful or constructive dismissal

(i.e. employer breaches contract)

PILON (payment in lieu of notice) Clauses

• Employer may dismiss without working notice period – usually pays salary +
contractual benefits that would have been earned during the notice period IN ONE
SUM
o NB here, vs gardening leave, the employee may then leave the company and
move to another company immediately
• If no PILON clause, termination of contract without notice, even where paying salary
+ benefits for length of notice period = breach of contract, and therefore cannot rely
on restrictive covenants in employment contract

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Settlement of disputes

Either:

(1) ACAS COT3

• ACAS conciliation officer has taken action under s 18 ETA 1996 + recorded a
settlement on a COT3 form

OR

(2) Settlement agreement

• Must satisfy criteria under s203 ERA 1996, otherwise employee will be able to bring
statutory claims against former employer
o In writing
o Relate to particular proceedings / specific claim
o Identify relevant independent adviser to employee as to effect of agreement
o Ensure that adviser covered by professional indemnity insurance
o State that conditions regulating settlement agreements are satisfied
• Wording of reference usually agreed as part of settlement agreement

• Settlement often expressed to exclude settlement of claims re: pension rights,

discrimination and personal injury, as these may often arise long after the employee
agrees the settlement
• However, it is unlikely in any even that the wording of an agreement would prevent
an employee from bringing a claim which was not and could not have been known at
the time of the settlement

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TUPE Regulations 2006

• Provisions apply on ‘relevant transfer’:

o Business transfer – where (part of) undertaking (business / ‘economic entity’)
transferred from one person / company to another
§ TUPE does not apply to share sales, as new shareholder steps into
shoes of old shareholder
§ TUPE applies to business sales => company sells business
o Service provision change – outsourcing of function to third party where
previously in house OR changes third-party provider

• Under common law, employees contracts are (under privity) with the employer +
therefore not transferred to new owner automatically => novation would be
required

• TUPE => on sale of business, contracts of employment automatically transferred to

transferee of business by operation of law, provided that:
o Transfer of (part of) undertaking situated in UK immediately before transfer
o Transfer of economic entity which retains identity after transfer; and
o Relevant employees employed in the undertaking immediately before the
transfer or would have been so employed had they not been unfairly
dismissed
§ Unfairly dismissed = dismissed because of transfer without ETO
(economic, technical or organisational) reason entailing a change in
the workforce for the dismissal

• Employees who object to being employed by transferee do not transfer =

termination for them upon transfer
• Variations to employment terms void unless:
o Terms of employment contract permit variation; OR

o ETO reason entailing a change in the workforce

o Employer agrees; and
o Employee agrees

• Transferee inherits all accrued rights and liabilities connected with the employment
contracts of transferred employees + any statutory rights + liabilities connected to
employment, except:
o Criminal liability
o Certain pension rights
• Must ensure that proper consultation takes place with employees as to the fact of,
reasons for and consequences of transaction

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