UK Employment Law case updates - August 2017

Latest UK Employment Law case updates - August 2017

1. Holiday pay: the EAT turns up the heat on employers (again)
2. "Interested in" enforceable covenants? Don't prohibit shareholdings in competitors
3. Beware: employers may bear responsibility for mishandled medical examinations

Dudley Metropolitan Borough Council v Willetts and ors (EAT)

Entirely voluntary overtime, out-of-ours standby, and callout allowance payments that are made with sufficient regularity, fall within the scope of 'normal remuneration' and should therefore be included when calculating holiday pay. Mileage allowances should also be taken into account to the extent that they are taxable as a benefit in kind.

The claimants worked as 'quick response operatives', and regularly volunteered to perform duties in excess of their contractual obligations. They were paid extra for these additional hours, but their employer did not include such overtime payments, out-of-hours standby pay, or call-out allowances within their holiday pay. There was no dispute as to the entirely voluntary nature of this work: employees could drop on and off the overtime rotas to suit themselves.

In line with the overarching principle established by earlier cases addressing holiday pay (e.g. British Airways v Williams and Lock v British Gas), the tribunal confirmed that all payments that are sufficiently regular and settled – in the sense that a consistent pattern of work/payment has been in place for a material period – so as to justify the description of 'normal remuneration' should count towards holiday pay. This is the case even if benefits are not guaranteed, or are intrinsically linked to tasks required under the contract. Excluding such entitlements would risk workers suffering an unjustifiable financial disadvantage as a result of taking their annual leave entitlement.

Employers should take a common sense, case-by-case approach when determining the 'normal remuneration' of their workforce for the purposes of holiday pay. The overriding focus should be on what the worker would have received in reality (based on their usual and sustained working pattern) if they had not taken leave, and not on whether payments were made in respect of contractual, discretionary or entirely voluntary work. The items mentioned above, along with other variable elements of pay such as commission and performance-related bonuses, should all be considered.

Egon Zehnder Ltd v Mary Caroline Tillman (Court of Appeal)

The Court of Appeal has reversed a recent High Court decision, confirming that a non-compete clause preventing an employee from becoming "interested in" a competitor company for the six months following termination, was "impermissibly wide" and therefore void.

Full details of the background facts and our comments on the original High Court decision, which upheld the covenant, can be found here. In brief, the High Court held the restraint was reasonable, even though the employee was junior when it was entered into, because she was a 'rising star', had unusually strong client connections and unique access to confidential information for someone at her level of seniority – the clause was therefore upheld as reasonably necessary to protect the employer's legitimate business interests.

The employee appealed to the Court of Appeal, arguing in particular that a prohibition on being "interested in" a competing business, without any applicable carve-out, was unambiguous in barring any shareholding in a competitor – even one share held for investment purposes – and was therefore impermissibly wide. The employer resisted this, and asserted that the specific words in question could be severed in any event to leave a valid and enforceable covenant.

The Court of Appeal agreed with the employee, noting that a shareholder would always be "interested in" a relevant company, no matter the size of their shareholding. To decide otherwise would be contrary to the phrase's natural, conventional interpretation and inconsistent with previous authority. Any possibility of severing this aspect of the covenant was dismissed on the grounds that: (1) severance can only be used to strike out distinct covenants, not the constituent parts of a single covenant; and (2) the remainder of the restriction was too broad regardless, as on a natural interpretation it still prohibited any shareholding in a competitor.

This decision effectively illustrates that: (1) restrictive covenants can be attacked and invalidated based on theoretical restrictions that are not restraining the relevant employee in practice (the employee in this case wanted to work for a competitor, not hold a minor shareholding); and (2) any non-compete that does not carve out a small neutral shareholding risks being held void. Employers may wish to audit the employment contracts of key individuals to ensure compliance with point (2) above.

Various claimants v Barclays Bank PLC (High Court)

Employers may be vicariously liable for sexual assaults committed by their nominated practitioners during compulsory medical examinations, where the employer-doctor relationship can be considered sufficiently similar to employment; and where the unlawful acts are closely connected to such employment or quasi-employment.

This case involved over a hundred historic claims of sexual abuse brought by former job applicants and current employees, allegedly committed during mandatory medical assessments required under the employer's application process between 1968 and 1984. The complaints centred on one doctor, who died in 2009, but in respect of whom the police later concluded there was sufficient evidence to prosecute. When pursued by the victims directly, the employer argued that this doctor was never more than a purely independent contractor, who did not carry out its business, and so vicarious liability could not arise.

The High Court disagreed, applying the well-established test for vicarious liability that requires: (1) the relevant relationship purporting to create vicarious liability to be one of employment, or akin to employment; and (2) the wrong to be sufficiently closely connected with that relationship. The relationship was held to be one of quasi-employment on the basis that the assessments had been compulsory, performed on the employer's behalf and under its broad control, and otherwise an 'intrinsic part' of its business activities. Even though the relevant acts occurred in the doctor's own home, the employer had instructed specific parts of the assessments (including chest measurements) and was responsible for the risks arising.

In respect of limb (2), the Court was satisfied that the sexual abuse was carried out during the appointments required by the employer, and so was 'inextricably interwoven' with the performance of such duties by the doctor.

In reaching its decision, and constructing the justification set out above, the Court was evidently influenced by a desire to achieve an outcome it considered 'fair, just and reasonable', taking into particular account the fact that the doctor in question had died and that action against the wealthy employer was the only legal recourse now available to the claimants.

The decision highlights that employers should beware that vicarious liability can, in some circumstances, arise outside of traditional employment relationships; and should therefore frequently assess the risk profile of all outsourced work performed on their behalf. Employers may be able to take some steps to protect themselves in this regard through the use of contractual warranties and indemnities with a third party, and by establishing, promoting and enforcing clear policies and procedures.