Employment Law Newsletter – June 2013

Enterprise and Regulatory Reform Act 2013

On 25th June 2013, most of the provisions in this Act relating to whistle-blowing will come into force. Therefore, if the principal reason for a dismissal is that a worker made a protected disclosure, then the normal two year qualifying period for unfair dismissal and the cap on the compensatory award are circumvented. 

Whistle-blowing will be confined to protect those who make disclosures which are made in the reasonable belief that it is made in the public interest. ‘Public interest’ is not defined, but it would cover something that affects a class of people and not just one individual. 

The provisions also expand whistle-blowing protection to those who make disclosures in bad faith (i.e. motivated by money or spite), but if the tribunal finds that the disclosure was made in bad faith then it will have the power to reduce compensation by up to 25%.

Can a compulsory retirement age of 65 be justified? 

The long saga of Mr Seldon’s case has possibly come to an end! Mr Seldon was a partner in a law firm. He brought a claim of age discrimination against the firm when he was forced to retire at the age of 65 under the partnership’s mandatory rules. Last year, the Supreme Court remitted his claim back to the employment tribunal to consider a number of issues, in particular whether 65 was an appropriate age or whether another age could be used.

Last month, the employment tribunal found in favour of the firm of solicitors. It held that a compulsory retirement age of 65 was a proportionate means of achieving the legitimate aims of workforce planning and retention of staff. Therefore, the compulsory retirement provisions in a law firm’s partnership deed were objectively justified for the purposes of age discrimination.

This case is not authority that all companies can justify the mandatory retirement age of 65 so if your business has a specified age for retirement, you must consider whether the age can be justified as being proportionate in achieving a legitimate aim of the business.

Football manager awarded full 3 year salary despite being dismissed after 57 days

Henning Berg was appointed as Blackburn Manager on a 3 year fixed term contract in November 2012. He was dismissed after only 57 days in post. His dismissal triggered a clause in his contract, which provided that he became entitled to a payment of basic salary for the balance of his fixed term – this is estimated to be a payout of £2.5million!

Initially, the Club admitted the claim and sought time to pay. It then applied to the High Court to withdraw its admission on two grounds: (1) that the Managing Director had agreed the contract without the authority of the club’s owners and (2) that the clause in question constituted a penalty and was therefore invalid.

The High Court found that the football club was contractually obliged to make the full payment to Mr Berg because (1) there was no evidence to suggest that the Managing Director’s authority was restricted, and (2) a payment would not be a penalty because it was a sum of money payable under a contract on the occurrence of a specific event, rather than being payable upon breach of contract (i.e. not a penalty).  This is a reminder that the law on penalties does not apply where the trigger for payment is not a breach of contract. It is important to be very careful when drafting clauses that provide for compensation for termination of contract before end of fixed term; the employer should be wary of circumstances arising where the contract is terminated much earlier than the end of the fixed term and the employer will then be contractually obliged to make the full pay-out.

Consultation Periods – Recent Case Law

A land-mark case, decided at the beginning of this month, has resulted in the former staff of Ethel Austin getting a share of a £5million redundancy payout.

The trade union for the former staff have successfully challenged UK legislation that only requires a collective consultation where there are 20 or more redundancies at one establishment. It was argued that EU law provides that a collective consultation is required in circumstances where there are 20 or more employees being made redundant across all the employer’s sites, and not just one site.

This decision could cause a significant increase in costs for employers who wish to make large scale redundancies across a number of sites or stores if they do not follow proper procedure. An employer cannot avoid a consultation by virtue of the fact that there are only a handful of redundancies at one site or store. If there are large scale redundancies across numerous sites and stores then the employer must have a collective consultation. This case confirms that failure to carry out the consultation may result in all the employees who are many redundant being awarded a protective award. This can be particularly costly; much more expensive than carrying out a proper consultation in the first instance.

In the case of AEI Cables v GMB, the Tribunal found that it was unreasonable for an insolvent employer to have to continue trading for 90 days in order to comply with 90 days consultation rules.  

AEI had suffered financial difficulty and it received advice from its accountants that, unless it reduced costs, there was a risk of the company trading whilst insolvent.  As a result of this, the directors could incur personal liability and also criminal liability for fraudulent trading. Following an unsuccessful request for an overdraft, the directors made 124 employees redundant with immediate effect, and without necessary consultation, in order to reduce costs.

The workers successfully claimed in the Employment Tribunal that there had been a breach of the duty to consult. The employment tribunal made 90 day protective awards to each employee. AEI appealed. In this case, the EAT acknowledged that AEI failed to consult, but it considered the reason why it had failed to do so. On the facts, the company could not trade lawfully following the advice from the accountants and therefore could not comply with the required consultation period. The EAT held that some consultation could have taken place so the 90 day award was overturned and reduced to 60 day awards. The case confirms that the EAT may be prepared to reduce the protective award if there are mitigating reasons to explain why the employer could not comply with the consultation period.

We remind you that from the 6 April 2013 the requirement for a 90 day minimum period in respect of large scale redundancies has been reduced to 45 days. The claims referred to above were made before these changes came into effect and so the 90 day period applied to these claims, but the principles set out in the judgments still apply 


Share this article

This entry was posted in , . Bookmark the permalink.