Employment Newsletter Spring 2017
1. An introduction from Hari Menon
2. British Gas Trading V Lock- an article by Lucy Bairstow
3. Policing the lunch break at Lloyd’s of London- an article by Claire Millns
4. Pimlico Plumbers and Charlie Mullins V Gary Smith- an article by Tim Wilkinson
We welcome Spring with a customarily interesting mixed bag of articles from members of our Employment Team. Lucy Bairstow explains the consequences for the calculation of holiday pay following the decision of the Court of Appeal in Lock v British Gas and the refusal of permission to appeal by the Supreme Court. Claire Millns considers the working hours alcohol ban imposed by Lloyds of London and explores the law on drug and alcohol testing in the workplace. The recent and well publicised decision of the Court of Appeal in Pimlico Plumbers v Smith, yet another authority on the distinction between a worker and a self-employed contractor, is commented on by Tim Wilkinson.
There is enough space here for me to mention one timely development. This is the judgment of the Court of Appeal, handed down on 15th March 2017- O’Brien v Bolton St Catherine’s Academy [2017] EWCA Civ 145. It is an object lesson for employers in getting their tackle in order when dismissing someone for ill health. The claimant was a teacher who was dismissed on ill-health grounds. In the ET she succeeded in establishing that her dismissal was unfair and also that it amounted to discrimination under s.15 of the Equality Act 2010. The employer’s appeal was allowed by the EAT. The claimant then appealed successfully to the Court of Appeal.
The claimant had been off sick following an assault by a pupil. By the time of her dismissal she had been absent from work for over a year. She had adduced evidence at the internal appeal stage which ostensibly indicated that she was fit to return to work. The appeal panel was not convinced by this evidence and upheld the dismissal. It did not seek further medical opinion to confirm or refute the claimant’s evidence as to her fitness to work.
The ET took the view that the appeal panel should have obtained expert evidence on the issue of whether the claimant was fit to return to work and the additional time it would have taken for this step would have made no material difference to the employer. In the proceedings, the employer relied heavily (as it had to) on the statutory defence in s.15. The ET was unimpressed by what it regarded as the employer’s scant evidence on this point, as it was with the fact that the employer had not really addressed the issues going to the substance of the statutory defence in the internal dismissal hearing and subsequent internal appeal. The ET accordingly held that the claimant’s dismissal was disproportionate in the context of s.15 and also unfair. The majority in the CA saw nothing wrong with the ET’s approach, especially since the EAT had not allowed the appeal on any ground relating to perversity.
This was a 2:1 decision of the CA and it is difficult not to have some considerable sympathy for the employer. There is a powerful dissent from Davis LJ who described the claimant’s evidence as to her fitness as “demonstrably half-baked “and the ET’s decision as “unacceptably purist”. That aside, this case emphasises the importance of employers anticipating a potential s.15 / unfair dismissal claim when dismissing an employee for ill health and addressing any points that may be relevant to the statutory defence in the internal process. Running, or being seen to run, the statutory defence for the first time in the ET, may cause it to ring hollow. The other point to take from this case is that it is unsafe to reject an employee’s assertion that he or she is fit to return to work without subjecting it to expert scrutiny.
There are two other features of the case worth mentioning. First, the CA emphasised that where there is an initial decision to dismiss, followed by an appeal which upholds the dismissal and where the dismissal is impugned as being discriminatory, an examination of the s.15 statutory defence should focus on the composite decision and not just on the initial decision or internal appeal. Secondly, whilst acknowledging the different tests for unfair dismissal and s.15 discrimination, the majority accepted that a s.15 justification defence for a dismissal which fails as being disproportionate can properly also be considered as failing the test for reasonableness of a dismissal under s.98(4) of the Employment Rights Act 1996. Underhill LJ (delivering the leading majority judgment) observed that “The law is complicated enough without parties and tribunals having routinely to judge the dismissal of such an employee by one standard for the purpose of an unfair dismissal claim and by a different standard for the purpose of discrimination law.”
Hari Menon, March 2017.
British Gas Trading Ltd v Lock: British Gas refused leave to appeal by the Supreme Court in the long-running, pivotal case concerning Holiday pay and Commission payments.
It was announced on 28th February 2017, that the Supreme Court has refused permission for British Gas to appeal against the Court of Appeal’s decision in the case of British Gas Trading Limited v Mr Z. J. Lock (1) Secretary of State of Business, Innovation and Skills (2) [2016] EWCA Civ 983.
As practitioners will be aware, calculating holiday pay has become more complex over recent years.
As a result of the EAT decision in Bear Scotland Limited v Fulton and another [2015] ICR 221, the calculation of statutory holiday pay should now include contractual, non-guaranteed overtime (that is, overtime that the employer can require the employee to work, but has no duty to offer) and, although not considered as yet at appeal level, there have also been some cases in which Tribunals have decided that voluntary overtime should be included.
Now, with the Supreme Court’s decision effectively ending the judicial process for British Gas, the calculation should include a representative element of results-based commission normally earned.
This will result in significant pay-outs, not least for those whose claims have already been lodged and stayed pending the outcome of this case.
It is also likely that many employers will look to review their holiday pay arrangements and also consider their exposure to potential historic liability.
However, with the Court of Appeal having been careful to confine its decision to the facts of the instant appeal, there remain unanswered questions and it seems that the uncertainty and complexity, not just surrounding the question of quantification but other related questions, will continue, cases will need to be scrutinised on their own facts and we may well see similar litigation continue.
Further and looking further forward, there are some who have commented that the decisions in Lock and Bear will in any event have to be treated with caution, post Brexit.
Background to Lock:
Mr Lock was employed by British Gas as a salesman.
He had statutorily defined “normal working hours” and his remuneration package included basic salary plus commission based on the number and type of contracts he had negotiated (and which had “gone live”).
His remuneration did not vary with the amount of work done during his “normal working hours”, rather the payment and amount of commission was based on the outcome of his work.
When he took holiday, he only received basic pay and this was significantly less than his normal pay.
It was argued that this presented a disincentive to take annual leave.
Mr Lock, backed by UNISON, originally brought his claim before the ET in April 2012 as the lead claimant for a very large number of claims.
The case was referred to the CJEU in November 2012.
In light of the CJEU’s decision; namely that, as a matter of EU law, Article 7 required commission payments of the type earned by Mr Lock to be taken into account in the calculation of holiday pay, the matter was remitted back to the ET for determination on whether domestic law, in the form of the WTR, could be read consistently with EU law and if not whether words could and should be added in interpreting those regulations so that the calculation of a week’s pay was in conformity with EU law.
This was, of course, necessary if Mr Lock was to succeed in his claim against British Gas.
The ET found that it was possible to read words into the WTR (Regulation 16(3)) in order to overcome the incompatibility between EU law and domestic law.
British Gas challenged the approach of the ET but the EAT agreed with the ET.
British Gas then appealed to the Court of Appeal.
In October 2016, the Court of Appeal confirmed the EAT’s decision, affirming the finding that the ET had not erred in reading words into the WTR to make domestic legislation consistent with EU law.
However, the Court of Appeal did stress that its judgement was confined to Mr Lock’s case.
Further, there having been discussion as to whether the form of wording that the ET’s judgement implied into the WTR was appropriate, the Court of Appeal agreed that the wording was expressed too widely and favoured an appropriate amendment to the ET’s judgement, more clearly confining it to the circumstances of Mr Lock’s case; namely just to contractual results-based commission.
Implications:
The confirmation brought about by this ruling has been awaited by Mr Lock and “others” for almost 5 years.
Whilst it means that they will benefit, there remains unanswered questions both in respect of their own claims and in respect of other, similar holiday pay claims.
The decisions of the CJEU, the ET, the EAT and the Court of Appeal have all concerned the issue of interpretation of domestic law.
Although the Court of Appeal noted the agreement that the requirement to include commission payments in holiday pay applies only to the basic EU right to 4 weeks holiday and that the holiday pay should be calculated by reference to Mr Lock’s average remuneration over the 12 weeks before the calculation date, Mr Lock’s losses are yet to be quantified and it is likely that the case will return to the ET to determine the appropriate level of compensation.
Further, considering the fact that there are employees working across a range of sectors under comparable arrangements, it seems likely there will be debate as to which types of commission need to be included, the precise calculation and implementation in practice.
In addressing the discussion that had taken place during the course of arguments relating to different types of cases raising other questions, the Court of Appeal stated that its judgment was not intended to answer such questions.
It therefore remains uncertain as to how the conforming interpretation might apply, for example, to a salaried banker who receives a single, large, results-based annual bonus.
The Court of Appeal recognised that there may well be a question as to what his/her “normal remuneration” is and how, if at all, the calculation ought to reflect his/her bonus.
Similarly, for the worker who only becomes entitled to commission at a certain point when a certain level of turnover etc. is reached and thus does not receive commission for some months of the year.
The Court of Appeal also recognised the fact that the reference period may differ in different cases.
Some have also warned that the decision, based on the WTD, could be at risk if the UK opts for a hard Brexit. The argument runs that the government could introduce new legislation to exclude commission from holiday pay and Tribunals would not face scrutiny from Europe.
It seems to the author though that this is speculation and it should be assumed, for present purposes, that the decision will stand.
The government were supportive of Mr Lock in the appeals.
Assuming the decision will stand, and notwithstanding the uncertainty which remains over the calculation of holiday pay, it does appear likely that it will have wider implications for employers operating commission schemes or that regularly make other payments in addition to basic salary which are intrinsic to the job, who may need to review whether they need to alter their practices, in terms of holiday pay, but also to consider whether they may be exposed to claims for under-paid holiday pay.
Lucy Bairstow, March 2017.
Policing the lunch break at Lloyd’s of London; swapping one headache for another?
“The London market historically had a reputation for daytime drinking, but that has been changing and Lloyd’s has a duty to be a responsible employer, and provide a healthy working environment. The policy we’ve introduced aligns us with many firms in the market.Drinking alcohol affects individuals differently. A zero limit is therefore simpler, more consistent and in line with the modern, global and high performance culture that we want to embrace.”
This quote comes directly from a bold new policy introduced by Lloyd’s of London in February this year to eradicate lunch time drinking by its staff. The policy prohibits staff from drinking alcohol between the hours of 9.00am to 5.00pm, Monday to Friday, and so, for Lloyd’s workers at least, it is goodbye to the boozy lunch, the lunch time pint or the midday glass of celebratory champagne.
It is understood that the ban has been introduced in response to the high level of alcohol-related grievance and disciplinary issues and it is no doubt hoped by Lloyd’s that the number of such incidents will reduce as a result of the ban. However, while the policy may eliminate one post lunch headache, will it simply create another for anyone tasked with policing it?
If an employee is suspected of drinking alcohol in breach of the policy, it seems that there are two main options open to Lloyd’s in response:
1. Turning a blind eye. This may be the simplest option where there are suspected minor breaches of the policy. The obvious danger of such an approach is to make the ban largely meaningless. In addition, those who are subjected to disciplinary action for breach of the policy may justifiably complain they have been treated unfairly because of inconsistent treatment.
2. Commencing an investigation with a view to potential disciplinary action for misconduct. If the employer decides to dismiss the employee for gross misconduct, unless the member of staff has admitting to drinking alcohol in breach of the policy, there may be some difficulty in gathering sufficient evidence to satisfy the three limb test commonly considered when determining the fairness or otherwise of a misconduct dismissal as set out in British Home Stores Ltd v Burchell [1979] IRLR 379.
Most obviously, there are two forms evidence might take. The first would be in the form of statements from colleagues who witnessed the consumption of alcohol. However, colleagues may not be willing to provide such statements, especially if to do so might incriminate them, and asking for statements may have an adverse effect on workplace morale. The second would be in the form of results from alcohol testing on the relevant employee.
Can the employer require an employee to submit to alcohol testing? Such testing is less common, and thus may be harder to justify, in an office environment, where an employee is not using dangerous machinery or engaging in work which may harm others.
If the employer wishes to test employees for alcohol, its request to do so must be reasonable and proportionate in the circumstances. The Information Commissioner’s Employment Practices Code considers the importance of explaining the reasons for the presence of a drug or alcohol policy in a staff handbook and the consequences for workers of breaching the policy. It is also good practice to set out the form the testing will take and how tests results will be used.
If the request to test is reasonable and proportionate, and the employee refuses to submit to testing, that refusal may amount to misconduct, for failing to follow a reasonable and lawful instruction, and itself result in disciplinary action. Whether that refusal would constitute misconduct will depend on a range of factors, such the reason for testing, the method proposed, the reasons the employee is being asked to undergo testing and the reasons the employee may have for refusing.
Even if an employer has carried out testing in accordance with a fair policy, it may still encounter difficulties in showing that the tests results are reliable. A case concerning the suspected use of cocaine at work, First Bristol Ltd v Bailes UKEAT/0526/13 demonstrates that a positive result may still be open to challenge because of other relevant factors. In Bailes these included the fact that the employee was handling bank notes likely to be contaminated with cocaine and that he had commissioned his own hair strand test which proved negative.
While these factors are clearly case specific, one can imagine a number of factors which an employee may raise in response to a positive alcohol test in order to challenge its reliability or explain a positive result. For example, in 2014, London tube driver Alex McGuigan was dismissed for testing positive to a random alcohol breathalyser test which he alleged showed a false positive caused by his diabetes and/or faulty testing equipment. Mr McGuigan’s grievance does not appear to have progressed to an employment tribunal but such was the strength of feeling against his dismissal that the RMT union drivers backed strike action over it. That is clearly an outcome any sensible employer will wish to avoid.
A ban on alcohol consumption in office hours may seem reasonable. However, practical and legal difficulties can arise in enforcing the policy (especially if low-level non-compliance is widespread and the related policies and procedures are not properly drawn up and publicised). Further, the policy may have an adverse effect on employee morale and even the way in which employees and others perceive the employer. For these reasons, an employer may wish to consider carefully the introduction of a no alcohol policy, especially one which applies to office workers. No doubt some Lloyd’s employees will benefit from the new policy in one way or another, whether they want to or not. The policy may reduce grievances and disciplinary action and may even improve performance. It is to be hoped it does all of those things and that it does not simply leave Lloyd’s with a different set of grievances and disciplinary actions to deal with, and thus a headache it was never expecting.
Claire Millns, March 2017.
In February 2017 the evolving case law concerning the so-called “gig economy”was supplemented by the Court of Appeal in the much publicised Pimlico Plumbers Limited (1) Charlie Mullins (2) v Gary Smith [2017] EWCA Civ 51. Although more a re-emphasis of previous considerations than ground-breaking dicta, this judgment nevertheless adds considerable weight to the growing number of first instance decisions in which those caught up in the gig economy have been held to be “workers” rather than “self employed contractors”.
The gig economy is characterised by supposed short-term contracts and typically involves individuals who are portrayed to clients as employees but internally characterised as self-employed contractors. In Mr Smith’s case, he had carried out plumbing work for Pimlico between 2005 and 2011. Of significance were two consecutive agreements, one in 2005 and one in 2009. The 2005 agreement referred to Mr Smith as a “sub-contracted employee” and contained a number of clauses seemingly contrary to him being self-employed. In contrast, the 2009 agreement specifically referred to the Claimant as a “self-employed operative” and contained clauses such as “For the avoidance of doubt, the Company shall be under no obligation to offer you work and you shall be under no obligation to accept such work from the Company “and [he would] “promptly correct, free of charge, any errors in your work”. The Claimant was required to submit invoices and provide his own tools.
The Employment Tribunal’s decision that the Claimant was not an employee was upheld by the Employment Appeal Tribunal. That decision was not appealed and accordingly the Court Appeal was only concerned with the distinction between “worker”and “self-employed contractor”. The ET had found, and the EAT had confirmed, that the Claimant was a worker. In essence, the two main questions for the Court of Appeal concerned a) the right of substitution; and b) the nature of the relationship.
As to substitution, paragraph 84 of the judgment is illuminating. Essentially, an unfettered right to substitute is consistent with self-employed status, whereas the effect of a conditional right to substitute will depend upon the conditionality. Examples are given: a right to substitute, subject only to the need to show equivalent qualifications, is inconsistent with personal performance; to the contrary, if a right of substitution only applies where the contractor is unable to carry out the work or, importantly in this case, the right is subject to approval of someone who has absolute discretion to refuse, such rights would generally be consistent with personal performance.
Notwithstanding a general practice of Pimlico’s operatives to substitute in other Pimlico operatives, the 2009 agreement could not be read as incorporating an unfettered right to do so (it tended to be when they had a more lucrative job available) (paragraph 88) and there was no scope for implying an unfettered contractual right to substitute (paragraph 89).
As to the nature of the relationship between the parties, the Court of Appeal reminded itself that there “is no single touchstone”, such as a relationship of subordination. However, subordination can be one of several relevant factors, including the existence or otherwise of obligations during breaks in work engagements (umbrella contracts). In Mr Smith’s case, the ET was entitled to find that he was obliged to work a normal 40-hour week (paragraph 109), and a lack of obligation to take on any one task was therefore not inconsistent with being a worker (paragraph 113). He was also required to use a van with the Pimlico logo and use a mobile phone issued by Pimlico. Having stood back and asked whether Pimlico could be considered the principal, and Mr Smith the subordinate, the ET was entitled to conclude that Mr Smith was a worker for the purposes of section 230 of the Employment Rights Act 1996.
As with all such cases, it was necessary for the courts to examine not only the terms of the contract but the reality of the situation in practice. Perhaps unusually when read in light of recent decisions on the gig economy, the considerations here were more in relation to the nature of the rights under the written agreement than with whether the written contracts accurately reflected the true relationship. However, what does seem clear is that the courts are willing to accept that gig-economy operatives are workers, notwithstanding how they are characterised within the relevant contracts. Pimlico v Smith follows the recent first instance decisions in Aslam and Others v Uber BV and Others (2202551/2015) and Dewhurst v City Sprint UK Ltd [ET2202512/2016]. As Sir Terence Etherton MR made clear in paragraph 94, deciding upon the status of a claimant involves an evaluative exercise. These issues are therefore likely to rumble on, notwithstanding an apparent trend towards worker status. For various reasons an appeal in Aslam v Uber is much anticipated.
Tim Wilkinson, March 2017.
