Emp Update UK 0908

By Dean Jones, Elizabeth Lang

09-2008

Cases

ECJ Judgment – Associative disability discrimination

Background

The European Court of Justice (“ECJ”) has followed the Advocate General’s landmark opinion in Coleman v Attridge Law (and Another) that associative discrimination, in the context of direct disability discrimination and harassment, is prohibited by the EC Equal Treatment Framework Directive. “Associative discrimination”, in this regard, can be described as less favourable treatment of a non-disabled person by the employer, on grounds of his or her association with a disabled person.

Facts

Sharon Coleman, a working mother, provided primary care for her son who suffers from a rare lung disease and is disabled. In 2005, Ms Coleman resigned from her position as a legal secretary with Attridge Law. She presented a claim in an Employment Tribunal for direct disability discrimination, disability related discrimination, and harassment and victimisation under the Disability Discrimination Act 1995 ("DDA"). The focus of her case is that she had suffered detrimental treatment due to her association with her disabled son.

Ms Coleman’s claim includes allegations that she was unfairly refused flexible working arrangements, had been called "lazy" when she wanted to take time off to care for her son and was accused of using her child to manipulate her working conditions.

Though Ms Coleman is not disabled, she sought to rely upon the DDA which, on a literal reading, only provides protection for persons who meet the statutory definition of "disability". She argued however that this is contrary to fundamental principles of European, anti-discrimination law, as set out in the Equal Treatment Framework Directive, which prohibits discrimination “on grounds of” disability.

Her case was referred to the ECJ for a ruling on the scope of the Directive. The ECJ agreed with Ms Coleman’s case.

Decision

It held that associative discrimination, such as that allegedly suffered by Ms Coleman, is prohibited by the Framework Directive, which seeks to prevent all forms of discrimination on grounds of disability.

Effect on employers

It is anticipated that this ruling will have a far reaching effect on employers and be of immediate benefit to workers within the UK who care for the disabled.

The UK’s Employment Appeal Tribunal has already indicated that it believes that the DDA is capable of a purposive interpretation to include associative discrimination, though exactly how this will be addressed remains to be decided.

It is clear however that the ECJ’s decision will support claims being brought by employees for associative discrimination and is likely to provide carers, in appropriate circumstances, with a new cause of action against their employer. As a protective measure, employers should carefully review their practices, policies and procedures to ensure that they do not operate in a way that could trigger claims of associative disability discrimination.

The case now returns to the original Employment Tribunal for a decision.

Coleman v Attridge Law and Law (ET/2303745/2005)

High Court Case – Employee with no Post Termination Restrictions Liable to Ex Employer for Breach of Duty of Fidelity

Background

There have been a number of recent cases in which the Courts have upheld restrictive covenants against departing employees. Restrictive covenants may be contained in employment contracts, and in some cases contracts such as shareholder agreements may restrict employees. They are also bound by implied duties including the duty of fidelity towards their employer. Directors and some senior management will also owe fiduciary duties towards their employer.

Facts

Three employees of Kynixa left to join a competitor. One was a director and another was a senior employee. Both of these were found to owe Kynixa fiduciary duties. They were also bound by restrictions in a shareholder agreement which prevented them from competing with Kynixa and soliciting their customers and employees for 12 months from the date on which they ceased to be connected with Kynixa. The other employee was more junior and had no express post termination restrictions in her contract. Before they left all three employees misled Kynixa about their plans. They all resigned within one month of each other and joined a competitor, contrary to the information they had given to Kynixa about their plans. The Court upheld the covenants in the shareholders agreement as being reasonable in the circumstances, eventhough they were drafted widely. The two senior employees were also found to be in breach of their fiduciary duties and duties of fidelity.

Significantly, the more junior employee, who was not bound by any post termination restrictions, or any fiduciary duties, was held to be in breach of her duty of fidelity towards Kynixa. The Court held on the facts that her failure to inform Kynixa of the approaches made by the new employer to the employees was, on this basis, a breach of contract. It said that a crucial aspect of the duty of fidelity which is implied into every contract is loyalty, and that her omissions were not consistent with that concept.

Effect on employers

This is a significant case in that a relatively junior employee with no express restrictions in her contract was found to be in breach of contract for failing to inform her employer of plans she knew were taking place regarding a team move. It would seem to strengthen the position for employers who have not put in place adequate post termination restrictions and who, on the facts, are able to assert that an employee has acted in a disloyal manner. Ultimately the Courts will decide on this matter based on the facts of a particular case.

Kynixa Limited v Hynes and others 2008 EWHC 1495

High Court Enforces a Liquidated Damages Clause against an Employee who Renegued on Employment Contract by Failing to Join

Background

Liquidated damages clauses must represent a genuine pre-estimate of loss or risk being found to be unenforceable as a penalty clause. Liquidated damages clauses under which the employer must pay a specified sum to an employee for terminating employment in breach of contract are increasingly used in senior employment contracts, and have been enforced by the Courts (Murray v Leisureplay plc 2005). Some employment contracts contain ‘no show’ clauses which provide for payments by the employee to the employer for failing to start work after having entered into an employment contract.

Facts

The employee was identified as a suitable candidate for a senior and specialised broking role. The employer calculated the likely revenue he would produce and negotiated his remuneration based on this and his likely start date. The employee took extensive legal advice on the date on which he was likely to be released from his current employer based on his contract, and on the terms of the new employment contract, including the ‘no show’ clause. He was advised it was likely to be enforced against him if he changed his mind about the job.

He was subsequently persuaded not to leave his current employer. The employer sued him for £300,000 which was the sum payable under the ‘no show’ clause pursuant to the formula which had been agreed. They had in fact incurred a loss of in excess of £2,500,000 and they could demonstrate that they had tried but failed to find a replacement for the employee.

The employee claimed the clause was a penalty and therefore unenforceable. Based on the facts, the Court upheld the payment as a valid liquidated damages provision. They considered that in comparison with the loss sustained the sum was not ‘extravagant or unconscionable’ one of the established tests for determining whether or not a clause is a penalty. They also took into account the fact that the employee had a strong bargaining position and that he had been legally advised before signing the contract.

Importantly the Court did not accept that damages should be limited to the cost of replacing the employee. They saw no reason that consequential losses should not be recovered in circumstances where a replacement cannot be found immediately.

Effect on employers

This is potentially significant for employers. Although ‘no show’ clauses are only likely to be relevant in limited cases, they may become used more frequently, particularly for senior and specialised roles. Also, the Courts’ comments about the extent to which damages can be recovered from employees who act in breach of contract may encourage more employers to take action against not only employees who do not start work having signed an employment contract, but also employees who leave their jobs in breach of contract, causing financial loss.

Tullett Prebon Group Limited v Ghaleb El-Hajjali [2008] EWHC 1924 (QB)

Time Limit for Bringing Equal Pay Claims against a Transferor Employer is six Months from the Date of Transfer

Background

The time limit for bringing an equal pay claim is six months from the termination of the employment to which the claim relates, and in standard cases six years of arrears going back from the day before the claim is lodged can be awarded. Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’), the employment contracts of employees employed in the business that transfers transfer to the new employer on their existing terms and conditions. In addition, the acts or omissions of the seller before the transfer are treated as having been done by the transferee (with an exception for old age, invalidity or survivors benefits under occupational pension schemes). In this case, the EAT had to determine whether claimants who had been transferred under TUPE could bring claims for equal pay against both the transferor and the transferee and whether the claims were brought in time.

Facts

On 1 July 2001 the claimants transferred from a health trust to a private contractor pursuant to TUPE. In December 2006 they made claims for equal pay and sought to recover pay going back six years using comparators who worked for the trust but did not transfer to the contractor. Their claims were in respect of employment prior to 1 July 2006 with the trust and with respect to employment with the contractor after 1 July 2006.

The trust argued that the principles in the House of Lords case of Powerhouse Retail Limited v Burroughs 2006 should apply to claims for equal pay. In the Powerhouse case the employees had claimed equal pay in relation to their pension entitlements, and it was held that since the claims related to a period of employment prior to a TUPE transfer the time limit ran from the date of the transfer. The claimants argued that the facts could be distinguished as in Powerhouse there was no ongoing breach by the transferee. In addition, occupational pension rights do not transfer pursuant to TUPE in any event.

The EAT disagreed, and considered that the relevant wording in equal pay legislation refers to the ‘employment’ and not the employment contract. Therefore the relevant question was which employment the claim relates to. Following this approach, the 6 month time limit for claims against the transferor runs from the date of the transfer for all equal pay claims which derive from the equality clause against the transferor, at least with regard to the alleged breaches by the transferor. However, the EAT held that the equality clause ‘bites’ from the moment the conditions of its application are met, even where there has been no finding that there has in fact been unequal pay. What transfers is the contractual right derived from the equality clause. Therefore the claimant can enforce rights against the transferee that were previously enforceable against the transferor. In order to enforce rights in relation to the period of employment with the transferor, claims must be brought within 6 months from the transfer date. In relation to periods of employment with the transferee, claims must be brought within 6 months of the termination of employment with the transferee.

The EAT rejected the contractor’s argument that the claimant could not rely on a comparator who had not transferred from the transferor.

Effect on employers

This does not affect the principle that the transferee steps into the shoes of the transferor in relation to its acts or omissions. However, in order to secure those rights in relation to the equal pay for the period of employment with the transferor, claims must be brought within 6 months of transfer. This does not give any comfort to transferee employers who may subsequently be faced with claims of unequal pay deriving from a disparity which arose during the period of employment with the transferor. It seems clear from the EAT’s decision that a claimant may base a claim on an ongoing disparity with a comparator who has not transferred from the transferor. A transferee may be faced with real problems in defending any such claim, particularly if it has no contractual relationship with the transferor which would require the transferor to co-operate in litigation, although the Tribunal has the power to order disclosure from third parties to a claim in certain circumstances. Transferee employees should ensure that the indemnities received from transferors give them adequate cover to protect them against such claims, which could be brought substantially after a TUPE transfer has taken place.

House of Lords Judgment - disability-related discrimination

Background

The House of Lords has delivered an important decision that is likely to have a significant impact on the law of disability-related discrimination in the employment context, in London Borough of Lewisham v Malcolm.

The case involved a housing dispute under Part III of the Disability Discrimination Act 1995 (“DDA”), which deals with the management of premises.

Facts

Mr Malcom was schizophrenic and a secure tenant of Lewisham. He had sublet his flat without Lewisham’s consent in breach of his tenancy agreement. This entitled Lewisham to claim possession. He claimed that his actions in letting the flat were related to his disability and therefore, that Lewisham’s actions in seeking to evict him amounted to disability discrimination. At the time he let his flat, Lewisham were not aware of his disability.

Section 24 (1) (a) of the DDA provides that a person discriminates against a disabled person if 'for a reason which relates to the disabled person’s disability, he treats him less favourably than he treats or would treat others to whom that reason does not or would not apply’. As with other aspects of discrimination law, the test centres on the use of comparators, the law in respect of which, prior to Malcolm, was settled for many years by the Court of Appeal’s leading decision in Clark v Novacold.

In Novacold, the claimant had a back injury and was unable to work for a year. He was dismissed because of this and complained of discrimination. The Court of Appeal held that since his absence was related to his disability, Mr Clark’s treatment had to be compared with someone who was not absent from work. Accordingly, a finding of discrimination was made.

Decision

By a majority of 4-1, the House of Lords held that using the Novacold comparator (i.e. in these circumstances, someone who had not sublet their flat) would have "extraordinary far-reaching scope", and would not be correct.

The correct comparator in Malcolm was therefore a person without a disability who had sublet, and who would have also been evicted. With reservation, the House of Lords concluded that this "unattractively restrictive" definition of the true comparator was however, a "more meaningful comparison”. Accordingly, there was no finding of discrimination in this case.

The House of Lords also considered the issue of whether or not the alleged discriminator should be aware of the disability for a finding of discrimination to be upheld. Contrary to previous decisions, the Law Lords decided that the alleged discriminator can not be liable for discrimination if he is not aware of the disability. “Knowledge or at least imputed knowledge”, is necessary.

Effect on employers

Despite Malcolm relating a housing case, it is anticipated that it will be applied in the employment sphere, with the effect that it will be significantly more difficult for employees to bring claims.

If followed, a likely effect of the decision however is that the focus of the claimant’s case will shift to challenging the employer in respect of its duty to make reasonable adjustments, which can be a difficult burden to discharge. It is not safe therefore for employers to change their approach when dealing with disabled employees based upon this decision. Moreover, employers should continue to ensure that they are fully aware of their duties under the DDA.

 

Authors