Following the Court of Appeal (“CA”) decision (reported here) that an employer can potentially be liable for historic holiday pay entitlements where a worker has taken leave but not received holiday pay, the CA has released a revised judgment, adding a postscript and an appendix.
The appendix sets out reformulated wording of the Working Time Regulations 1998 (“WTR”), which takes into account the CA’s judgment as to how these should be read in order to be compatible with holiday pay case law under Article 7 of the Working Time Directive, in respect of the basic entitlement to four weeks paid annual leave.
The CA has suggested the following wording to be read into Regulation 13(16) of the WTR:
“Where in any leave year an employer (i) fails to recognise a worker's right to paid annual leave and (ii) cannot show that it provides a facility for the taking of such leave, the worker shall be entitled to carry forward any leave which is taken but unpaid, and/or which is not taken, into subsequent leave years.”
This replaces the previous wording included in the earlier judgment of the Employment Appeal Tribunal (“EAT”), which was suggested to take account of the principles established in King v Sash Window Workshop and another (C-214/16) EU:C:2017:914.. However, the CA held that the EAT had wrongly interpreted King in doing so, and whilst it acknowledged that it had “no power to draft regulations”, it suggested the above wording correctly reflected EU law.
Employers affected by or interested in the CA decision should review the judgment in conjunction with this appendix.
In this judgement, the Court of Appeal held that under Regulation 13 of the Agency Worker Regulations (“AWR”) (which implement the Temporary Agency Workers Directive (the “Directive”)), the right of agency workers to be informed by their hirer of any relevant vacancies does not extend to the right to be able to apply for these vacancies.
The Claimant was employed by the Respondent, an employment agency and wholly owned subsidiary of Royal Mail which provides agency workers exclusively to Royal Mail. During the Claimant’s posting to the Leeds Mail Centre as an operational post grade (“OPG”), vacancies for permanent positions in relation to sorting work at the Leeds Mail Centre were put on a notice board and offered first to OPG staff who were already in permanent positions, directly employed by Royal Mail.
The Claimant was told by the Respondent that he would not be eligible to apply for these internal vacancies unless they were also publicised externally, at which point he would be in competition for the roles with external applicants.
The Claimant subsequently brought a number of claims at the Employment Tribunal (“ET”), including a claim that under Regulation 13(1) of the AWR, he was entitled as an agency worker to apply for these internal vacancies so as to not be disadvantaged in comparison to employees in permanent positions.
The ET upheld the Claimant’s Regulation 13 claim at first instance. The Respondent appealed to the Employment Appeal Tribunal (“EAT”) arguing that the ET had misinterpreted the purpose of Regulation 13. The EAT held that whilst agency workers do have the right to be informed about a vacancy with their hirer, the AWR do not give them the right to apply for these vacancies. The EAT held that the purpose of Regulation 13 is for workers to be notified of any vacancies on the same basis as directly recruited employees, and to be given the same level of information about these vacancies as is given to direct employees. The Claimant appealed the EAT’s decision, arguing that the right to be told of vacancies implicitly included the right to apply for these jobs.
The Court of Appeal (“CA”) upheld the EAT’s decision. In its reasoning, the CA stated that the right to apply for vacancies is simply not in the wording of the Directive, and there is no suggestion that there was any intention by the European Commission, the European Council or the European Parliament to confer such a right at the time of drafting the Directive. Rather, the Directive recognises that temporary workers and permanent workers are not comparable in every respect.
This CA gave a literal interpretation to the wording of the AWR in this case and concluded that the right to be informed of relevant vacant posts is a narrow one. End users of agency workers will welcome the clarity that has been provided on this issue. The decision serves as a reminder that agency workers are not intended to have completely equal status under the Directive to those in permanent positions; they are a separate category of worker with limited equal treatment rights.
In this unusual case, the High Court (“HC”) granted an injunction to prevent the Respondent from removing a contractual benefit through termination and re-engagement. The HC held that it was necessary to imply a term into the affected employees’ contracts to the effect that the Respondent’s right to terminate the contracts on notice could not be exercised for the purpose of removing or diminishing the employees’ entitlement to that benefit.
Between 2007 and 2009, following a reorganisation of the Respondent’s distribution centres which involved some closures and relocations, the Respondent offered employees “Retained Pay” as a contractual package to protect the monetary value of their existing terms as against new, less favourable, terms. This offered the employees a form of pay protection as an alternative to a lump sum redundancy payment and was used to incentivise employees to relocate. Affected employees were told that their entitlement to Retained Pay: (i) would remain for as long as they were employed in the current role; (ii) could not be negotiated away; and (iii) would increase each year in line with any general pay rise. The benefit was said to be “guaranteed for life”. The collective agreement setting out such terms was negotiated and agreed between the Respondent and USDAW, the trade union recognised by the Respondent for collective bargaining.
In January 2021, the Respondent formally announced its intention to remove Retained Pay. Affected employees were offered an advance payment of 18 months’ Retained Pay in exchange for its removal, failing acceptance of which they would be terminated and re-engaged on new terms (without the Retained Pay). USDAW applied to the HC for a declaration that that there was an implied term in the employees’ contracts which prevented the Respondent from terminating those contracts for the purpose of removing or reducing the employees’ right to Retained Pay. USDAW also applied for an injunction to prevent the Respondent from terminating the affected contracts. The Respondent argued that it was contractually entitled to terminate by way of notice and that the employees had no remedy unless the dismissal was effected in breach of contract.
The HC held that the intention of the contracting parties was that the Retained Pay was to be “permanent” and thus in effect “for as long as the relevant employee is employed by [the Respondent] in the same substantive role”. If the Respondent was permitted to terminate and re-engage the employees, their entitlement to Retained Pay would not be permanent. The HC therefore held that a term should be implied into the employees’ contracts to the effect that the Respondent’s right to terminate on notice could not be exercised for the purpose of removing or diminishing the right of the affected employee to Retained Pay. The HC granted final injunctive relief to restrain the Respondent from giving notice to terminate the relevant contracts.
Although the very definitive and permanent nature of the Respondent’s commitment to USDAW in respect of the Retained Pay was quite unusual, the case nevertheless provides a helpful reminder to employers that the way in which a particular payment or benefit is presented to employees can have an impact on the ease with which it can later be changed or removed.
Flexibility should be built in wherever possible. It is always important to give careful consideration to how best to implement proposed contractual changes, for example through consultation and consensual variation as opposed to fire and re-hire, which should be a last resort and could in extreme cases be restrained by the court, as happened in this case.
In this case, the Employment Appeal Tribunal (“EAT”) held that, where an employee gave notice of resignation and the employer made a payment in lieu of notice and brought forward the termination date pursuant to a contractual term in the employee’s employment contract, there was no dismissal for the purpose of section 95 of the Employment Rights Act 1996. The EAT also held that the circumstances in which the EAT will depart from its own previous decisions are tightly circumscribed; as a result, they were bound by a previous EAT decision in Marshall (Cambridge) Limited v Hamblin  ICR 962.
The Claimant resigned on 16 April 2019 by giving nine months’ notice which would expire on 16 January 2020. He continued to work his notice period but on 19 December 2020, the Respondent invoked a clause in the Claimant’s employment contract which purported to allow the Respondent to “terminate the employee’s employment forthwith” by paying the Claimant’s salary, excluding bonuses to which the Claimant would have been entitled during the remainder of the notice period, bringing his employment to an immediate end. The Claimant bought a claim of unfair dismissal.
In the Employment Tribunal (“ET”), it was held that the Claimant had not been unfairly dismissed or dismissed at all. The Judge cited Marshall (Cambridge) Limited v Hamblin, in which the employer had relied on a contractual term permitting it to waive or shorten the period of notice to bring forward an employee’s termination date following that employee’s notice of resignation. In that case the EAT had held that the resignation did not become a dismissal as a result of the employer’s exercise of its contractual right to bring forward the termination date and make a payment of salary in lieu of the outstanding balance of the notice period. The Claimant appealed this decision.
The EAT dismissed the appeal. Although it expressed doubts about the reasoning in the earlier Hamblin case, it held that it was bound by the precedent set in that case. The decision was not manifestly wrong in law as there were arguments that might reasonably be advanced in its defence that themselves were not manifestly wrong, even though the case had not been decided on the basis of those arguments. Therefore, where an employee has handed in their resignation and later the employer invokes a clause in the employment contract to terminate the employment before the end of the notice period by making the necessary payments by reference to the remainder of the notice period, it remains arguable that this does not amount to dismissal. However, permission to appeal has been sought from the EAT and a decision from the Court of Appeal may end the scope for such an argument.
Claims of this type are relatively rare, as in most cases compensation will be limited to a basic award plus any financial loss suffered in the period between the date of early termination and the date on which notice would originally have expired. Where an employee has been paid in lieu of notice, such loss is likely to be minimal unless substantial additional sums (such as bonus payments) would otherwise have been payable in the interim period and are not included in any payment in lieu.
In this case, the Employment Appeal Tribunal (“EAT”) held that a waiver of claims contained in a COT3 agreement was wide enough to cover a claim brought after the COT3 had been signed by both parties.
The Claimant was employed by the Respondent between March and May 2014. After his employment was terminated, he brought proceedings against the Respondent for race discrimination. This claim was settled via ACAS conciliation, with a COT3 settlement agreement entered into on 1 March 2018. The COT3 included wording to settle all claims “arising directly or indirectly out of or in connection with the Claimant’s employment with the Respondent, its termination or otherwise … even though the Claimant may be unaware at the date of [the] agreement of the circumstances which might give rise to it or the legal basis for such a claim”. The Claimant subsequently issued a new claim against the Respondent for victimisation under the Equality Act 2010 (“EqA 2010”). In this claim he alleged that when applying for a job with a wholly owned subsidiary of the Respondent based in Germany, the Respondent had refused his request for a reference which led to his application being rejected. This rejection had occurred before he signed the COT3.
The Employment Tribunal (“ET”) struck out his claim at a preliminary hearing on the basis that it was ‘fanciful’ to suggest that the Respondent could be held liable for the German company’s rejection of the Claimant’s job application, and the claim therefore had no reasonable prospect of success. The ET also found that the claim for victimisation was in any event validly waived as a result of the COT3 settlement agreement. The Claimant appealed to the EAT.
The EAT allowed the appeal on the strike-out decision, holding that the ET Judge erred in concluding that that the victimisation claim had no reasonable prospect of success. The Claimant’s claim that the Respondent engineered the German subsidiary’s rejection could give rise to a good claim under s112 EqA 2010, whereby anyone who ‘knowingly helps’ another to contravene the EqA 2010 could be held liable for unlawful discrimination. The EAT held that this should have been considered by the ET despite the specific s112 EqA claim not being included in the Claimant’s ET1 claim form.
However, the EAT ultimately dismissed the Claimant’s appeal on the basis that the claim for victimisation was precluded by the COT3 agreement.
The EAT noted that the COT3 was drafted widely, applying to all claims arising directly or indirectly out of or in connection with the Claimant’s employment with the Respondent. Any claim under s112 EqA 2010 involved an indirect link with the Claimant’s employment with the Respondent. The EAT concluded that a connection with previous employment may not be a necessary legal ingredient of all claims under s112 EqA 2010 but it was an essential factual element of this particular claim, meaning that it fell within the terms of the COT3. Further, the clear wording in the COT3, stating that the waiver was intended to apply even if the Claimant was unaware of the legal basis for the claim, meant that the waiver covered the claim even if he had been unaware of it at the time of signing the COT3.
This case emphasises the importance of a clearly drafted waiver in COT3 and settlement agreements. Templates should be regularly reviewed and refreshed to ensure that they cover all potential claims.