People law in brief - August 2011

Focus point

As already hinted at in previous cases, the Supreme Court has confirmed in the case of Autoclenz v Belcher and others that, when determining an individual’s employment status, Tribunals will be able to set aside express contractual terms which are inconsistent with the reality of the relationship between the parties.

This case involved 20 car valeters who had a contract with Autoclenz to valet cars for auction. The jobs were advertised as being on a self-employed basis with the successful valeters being referred to as sub-contractors in their contacts. The valeters contracts contained a substitution clause and a clause suggesting that there was no mutuality of obligation between the parties.

The valeters were paid on a piecework basis and submitted weekly invoices, paying their own tax direct to HMRC. The valeters bought their own materials and uniforms from Autoclenz and paid for their own insurance. It was held that the contract terms permitting the valeters to provide substitutes and suggesting a lack of mutual obligations did not reflect the reality of the situation, as it was accepted in evidence during the first instance hearing that the valeters were ignorant of their right to engage substitutes and that none had ever done so. The true nature of the agreement was that the valeters were required to turn up to work every day and to notify Autoclenz in advance if they were unable to work.

It was held that the valeters were not self-employed contractors, they were employees and thus entitled to receive the national minimum wage and statutory paid annual leave. This case emphasises the fact that contractual terms which do not reflect the true situation of the parties can be disregarded by the Tribunal. 

This case highlights the importance for companies in ensuring that contracts for services reflect the true working practices of everyone involved. The Court in this case stated that only one party needs to claim that a clause in the contract does not reflect their intentions in order for the Tribunal to examine whether the contract could potentially be considered a sham. In practice this creates significant uncertainty in the already uncertain area of employee status. Any “self-employed” person who later wishes to claim employment rights could later allege the written agreement they have signed is a sham. Although they may not ultimately succeed in that claim, a Tribunal will have to look beyond the terms of the written contract in order to decide the case. This will make it harder to dispose of claims quickly at a preliminary stage and raises the risk of a Tribunal attaching undue weight to some aspect of the dealings between the parties that is not reflected in their written agreement. It also means that it becomes very difficult to draft any self-employed contract for services which is guaranteed not to create employment rights. However, careful drafting can still keep risks to a minimum.

Briefcase news

Entitlement to holiday when off work due to sickness has been a hot topic in recent years and that seems set to continue. Some uncertainty has been resolved by the EAT in the case of NHS Leeds v Larner. This case is authority for the proposition that the entitlement to paid annual leave of a worker absent for the whole of a pay year through sickness does not depend on the worker submitting a request for such leave before the end of the relevant pay year. NHS Leeds had sought to rely on their annual leave policies, which stipulated that carry over must be authorised in advance and should be discussed before returning to work when on sick leave. Mrs Larner was signed off sick for the whole of the holiday year, during which time she did not have any pre-arranged holiday, nor did she request any. Upon termination of her employment, the NHS said she was not entitled to pay in lieu in respect of the previous holiday year as she had lost her entitlement as she had not requested any leave. The EAT held that as a matter of law, she did not have the opportunity to take her annual leave as she is presumed to have not been well enough to do so. Accordingly, Mrs Larner was entitled to be paid for the annual leave that she had had no opportunity to take in that holiday year. Although this decision, on the face of it, is bad news for employers, it should be noted that the EAT also stated that the decision might have been different in the case of a fit employee who fails to make any request for leave during the whole of a pay year. More cases are likely to follow in relation to employees who have been off sick for part (but not all) of the holiday year but who have not requested to take holiday that accrued whilst they were off sick.   

The EAT in the case of M-Choice UK Ltd v Aalders has had to consider whether an employee’s summary dismissal during her notice period brought forward the effective date of termination, thereby depriving the employee of the one year qualifying period needed to bring a claim for unfair dismissal. In this case, the claimant was given 6 months notice of termination of her employment after she had worked for her employer for 6 months. The notice period given meant that the effective date of termination resulted in her acquiring the 12 months continuous service required to bring a claim of unfair dismissal. The Claimant brought an unfair dismissal claim before the notice period expired (which an employee is entitled to do). The employer then dismissed her summarily before the notice period had expired, and argued that as she did not have 12 months continuous service the Tribunal could not hear her claim for unfair dismissal. The Tribunal looked at whether the effective date of termination was the date of the end of the notice period or, whether the date been brought forward as a result of the summary dismissal. The Tribunal ruled that the effective date of termination was the date of expiry of the notice period, and therefore allowed the claim. The employer appealed and the EAT decided that where an employee is dismissed while they are working out their notice the date of the ending of their employment is brought forward from the date on which their notice would have expired to the date on which they were summarily dismissed, even if the effect of that is to leave the employee without the necessary period of continuous service to present a complaint of unfair dismissal. The Claimant still had a potential claim for automatic unfair dismissal (which does not require one years’ service) for asserting her statutory right of unfair dismissal.

In the case of Davies v Sandwell Metropolitan Borough Council (2011) the EAT held that the Tribunal had made a mistake by taking into account the fact that an employee hadn’t appealed against a final written warning as a relevant factor in considering whether the employer could later rely on that warning when dismissing. In this case Mrs Davies received a verbal warning after complaints were made about her conduct in a lesson, and following this she was suspended. During a disciplinary hearing, held to consider whether her conduct warranted a final warning, Mrs Davies produced new evidence undermining the credibility of the complaints made against her – including proof that two pupils who made complaints were in fact absent from her class on the date in question. The disciplinary panel refused to hear to new evidence on the basis that she had not produced details of it seven days in advance of the hearing, and proceeded to issue her with a final warning. Mrs Davies appealed but following discussions with her trade union representative regarding the risk of an unsuccessful appeal resulting in an increased sanction, she chose not to pursue the appeal. The following year further complaints were made against Mrs Davies and she was dismissed. Mrs Davies brought a claim for unfair dismissal. The employers reason for dismissal was, these new complaints, in conjunction with the final written warning, would give the reasonable employer sufficient reason for dismissal. The EAT concluded that the written warning was wrongly given. The fact that there had been no appeal against it did not save it from being invalid and therefore the employer should not have later relied on that warning. This case has been remitted back to the Tribunal to decide whether the dismissal was fair in light of the procedural defects in the final warning, regardless of the fact that there had been no appeal by Mrs Davies. This is a troubling decision if it means that in an unfair dismissal claim Tribunals will begin to go behind previously given written warnings, even where the employee has not appealed.

Watch this space.....

Earlier this year the government published its Consultation on Modern Workplaces which made proposals for a new system of shared flexible parental leave, an extension of the right to request flexible working, revisions to the way annual leave is dealt with under the Working Time Regulations 1998 and compulsory pay audits for employers found guilty of pay discrimination. This consultation has now closed and we await the results later this year.

And finally.....

From 1 October 2011, the national minimum wage will increase to the following:

• the main rate for workers aged 21 and over will increase from £5.93 to £6.08;
• the 18-20 rate will increase from £4.92 to £4.98;
• the 16-17 rate for workers above school leaving age but under 18 will increase from £3.64  to £3.68; and
• the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship will increase from £2.50 to £2.60.