Varying terms and conditions – A salutary lesson to all

CarolineLeaver

Re-Use Collections Limited (Re-Use) v Mr Keith Sendall (1) and May Glass Recycling Limited (May Glass) (2) deals with some important issues that employers need to know about:

What can be considered specific consideration (i.e. “value given by the employer”) for the purposes of accepting new terms and conditions?

Whether an employer can enforce restrictive covenants against a former employee where there has been no specific consideration given?

Re-Use is a glass recycling business and had originally been a family run business (set up in 1922 by Mr Sendall’s grandfather).  The business left family ownership and was transferred into the ownership of Re-Use.  Mr Sendall joined the family business in 1980 and remained an employee until his employment ended on 1st May 2013.   He was manager of the depot at Dagenham, Essex.

Mr Sendall become embroiled in legal action with his former employer, because whilst employed by Re-Use he had directly been involved in setting up a competing business (May Glass) in breach of his duty of fidelity and good faith to Re-Use.

This case deals with a number of legal issues, including whether Mr Sendall owed a fiduciary duty to Re-Use (which it was decided he did not).  But for the purposes of this commentary, I am focusing on whether the express restrictions – confidentiality and restrictions in relation to post-termination conduct, including non-solicitation and non-dealing with restricted clients and prospective clients – in Mr Sendall’s contract of employment, could be enforced against him.

Mr Sendall was given a new contract in October 2012 (five months before he resigned) which included a number of new restrictions on him.  Mr Sendall debated the changes but eventually signed and returned a copy of the contract of employment to Re-Use on 22nd February 2013.

This issue centred not on whether there had been acceptance of the terms, but on whether consideration had been given (i.e. what had the employer given to Mr Sendall in exchange for him agreeing to new terms and conditions).

When restrictions are entered into after the start of employment, this is a variation to the existing contractual relationship and requires express consideration (i.e. something of value) in order for the restrictions to be enforceable.

Re-Use’s position was that consideration had been given since the new terms were introduced as part of a package under which benefits were conferred upon Mr Sendall, including a pay rise. Alternatively,  they argued that continuing to employ Mr Sendall after the contract was produced was good consideration.

The Court rejected Re-Use’s position on the following grounds:

  1. When the Court looked at the ‘package of benefits’ in detail it materialised that Mr Sendall had already enjoyed these benefits before the introduction of the new contract terms, or in the case of the life assurance cover being increased from 2x to 4x salary the Court found no evidence to link this change to the introduction of the new contract.
  2. Mr Sendall had received an increase in salary in January 2013 but on the evidence there was nothing to show that the salary increase was linked to entering the new contract (there were pay increases at that time company-wide rather than only for those entering the new contracts) and there was nothing to make it clear that the pay increase was conditional on accepting the new terms.
  3. Finally, in relation to the continuing employment point, the Court found that there was no evidence to link a continued willingness to employ Mr Sendall with his willingness to sign the contract of employment.  In particular, there was no evidence (expressly or implicitly) to show that a refusal to sign would or might lead to dismissal or another lesser sanction.

The Court found that no consideration had been given and the post-termination restrictions were unenforceable.  This could be potentially very damaging for many employers in similar situations.

So what do employers need to consider when introducing new restrictions during employment?

  1. Give consideration for the restrictions and ensure that this consideration is ‘new’ consideration and not just rehashing an employee’s existing benefits.
  2. The consideration needs to have value to the employee if it is going to incentivise them to accept the new terms – for example, a one off cash payment or John Lewis gift vouchers.
  3. You need to make clear in correspondence dealing with the introduction of the new changes that the consideration being offered is in return for the acceptance of the new terms and conditions.  Make the link.
  4. You need to ensure that the contractual documentation and letters dealing with the proposed changes support the business’s position and do not undermine it.  In this case, the new contract referred to the old salary rather than the new increased salary that the employee was supposed to be receiving in return for accepting the new terms. Another error was to refer in the pay increase letter (sent in December 2012) that aside from the salary increase all other terms and conditions remained the same.
  5. Finally, if you are going to look to rely on the ‘continued employment is good consideration’ defence then make sure that somewhere in the documentation you refer to the consequences of not accepting the new terms i.e. if you do not accept the terms, then your employment may be brought to an end.

Whilst these may seem to be “techie” points, this is the latest in a line of cases dealing with variations.  See our December blog here dealing with another case.

 

Virtual Reality and ET collide

WynLewis

The Employment Tribunal system has brushed with Virtual Reality: you may be liable for more employees than you think. How?

The rights of overseas staff have taken up many column inches in recent years; employees in virtual reality less so. Recently a problem arose about someone who was both overseas and virtual; and this wasn’t the subject of a science fiction novel.

The issue is this: how far removed (physically or otherwise) from Great Britain does someone have to be before they lose their right to protection from unfair dismissal or discrimination? The answer is: nobody really knows for sure.

Since 2012, the test has been something like this: “where an employee’s place of work is not GB, is the connection with GB sufficiently strong that Parliament would reasonably have intended that an employment tribunal should deal with a particular employee’s claim?”.

That’s quite vague; also the cases have usually dealt with people who spent at least some of their time working in the GB office of the employer against whom they were bringing a claim, so the outcomes have been less than consistent.

Modern work practices mean that you don’t have to be in the office; sometimes not at all. In fact you don’t really need to be in the same country, so long as you have a decent Internet and phone connection that keep you in touch.

In this case, Mrs Lodge (an Australian citizen) was employed from February 2008 by two UK charities (Dignity & Choice In Dying and Compassion In Dying) to work in the UK as their head of finance. But from January 2009 she moved to live and work in Australia (in the same role, doing everything remotely for the same UK employers, but paying Australian tax and pensions and only visiting the UK three times each year – for 2 weeks and for 2 separate days) for the next 5 years, until she resigned in June 2013 having been told she would be the subject of a disciplinary process after a grievance.

That, from a GB perspective, was so remote working as to be seriously virtual.

Strangely (which was the oddest aspect of this case) the Employment Tribunal found that it wasn’t reasonable to assume that Parliament would have intended Mrs Lodge to be able to claim unfair dismissal in GB (even though it was quite happy to deal with her breach of contract claim). Sensibly, the Employment Appeal Tribunal disagreed about the unfair dismissal issue: it said that Mrs Lodge was like someone who had been posted abroad for the benefit of the home employer and that, because everything was managed from GB, she could claim unfair dismissal.

So what’s the lesson here?

It is that central (i.e. GB-based) management of overseas staff – especially if there is no regional or in-country management, and if issues like discipline and grievances are managed from GB, especially if there are no local, in-country employment contracts – will enable remote workers to bring claims; and could, in theory, enable people who have never even been to GB to do so too.

And the practical steps to take?

If this is a risk, then the practical steps are to introduce local management and delegated authority; to have a local contract; and to make that contract subject to local law (but that, in itself, has problems if you aren’t familiar with what that means and don’t have competent local lawyers). Although even this is unlikely to sever any link between the GB and “roving” regional personnel.

I’ve dealt with several of these cases for global charities. They need careful preparation before effective structures are set up in a way that exposes a GB employer to the least potential liability.

And you thought holidays were supposed to be relaxing…

Anna Moyle

The Employment Appeal Tribunal (EAT) recently announced their decision in 3 separate cases which all looked at the issue of how to properly calculate a worker’s holiday pay. As a result the cases were heard together and the EAT was able to give a single decision. You have probably heard plenty of talk about this already as the EAT’s decision was of such importance to businesses and workers that even the national press has been following the story.

To put it simply, the EAT had been asked to decide how holiday pay should be calculated and in particular whether certain types of payments, such as overtime and commission, should be included in that calculation in addition to a worker’s basic salary. In the event that workers may have been historically underpaid holiday pay, the EAT also needed to decide in respect of how far back a period potentially as long ago as 16 years they should be able to bring claims.

The very real risk to businesses was that they had been historically calculating holiday pay at too low a rate with the result that millions of workers had potential claims for unlawful deductions of wages stretching back for at least 6 years and possibly even as far back as 16 years, which is when the Working Time Regulations became law.

The EAT’s decision means that substantial claims for back payments of holiday entitlements are unlikely, at which businesses can breath a very big sigh of relief. However, many businesses will now have to pay more generous holiday pay because they will need to change the way they calculate this.

To help your business decide how to calculate its holiday pay liability (past and future) and to help you navigate the remaining uncertainties please read the attached guidance.

To read our full briefing note Click Here

You did, You didn’t, You did, You didn’t

WynLewis

Varying terms and conditions of employment can be a risky business.
How often have you, as an employer, wanted your employment terms and conditions to be just a little bit different?

How often has this wish led you to decide that you needed to change those terms and conditions, but were concerned about how to go about doing it effectively?

Faced with this situation, some employers just “do it” and see what happens. It’s not a particularly bad ploy if the changes are modest; and it’s quite useful if you have a “we can change your terms and conditions” provision in your contracts. The reason is that if nobody objects to the change before or after their next salary has been paid, you’ve got a good chance that it will stick.

But you won’t want to do this if the change is more significant and involves something that isn’t clearly a policy that can be modified on notice and at your discretion. The reason is that you can get legacy claims crawling out of the employment woodwork many years after a change has been made – when you thought you were home and dry on the variations front.

Not being home and dry, but up the creek and wet without a paddle, can be damaging for the bottom line and does no good for staff relations either.

The reason is that, strictly speaking, any change to a contractual provision (no matter how small, and even though you have a “we can change your terms and conditions” provision in your contracts) requires consent. And if you don’t have consent, then the person who hasn’t agreed to the change can insist on the original version applying.

Subject, of course, to a wrinkle: an employer can also make it clear that a change – one that ought to require consent – will be regarded as effective unless an employee specifically objects to it.

This little wrinkle was the subject of the recent case of Wess v. Science Museum Group, when Mrs Wess failed explicitly to object to a reduction in her notice entitlement from 6 months to 12 weeks and was then dismissed approximately 9 years after the reduction in notice was first notified to her. The Employment Tribunal held she was, indeed, entitled only to 12 weeks’ notice after all – because not only had she not objected to the change in her notice entitlement, she had also objected and assented to other (unrelated) changes that had been made at the same time.

So: if you want to make a change and it’s more than a small one, either get agreement; or notify people of that change and cross your corporate fingers to see what happens; or make a few changes and see which ones are objected to. But don’t just sneak in a big change, because the difference between the old and the new terms may come back to bite you.

Shoot The Messenger?

JonathanGolden

Employers aren’t liable for insurance benefits which discriminate against certain employees, especially where there are no alternative insurance products in the market, so long as (and here’s the sting in the tail) they’ve explored what’s available in that market in the first place.

The case of Hall v Xerox UK Ltd, decided by the EAT, emphasises the need for employers to audit their contracts to make sure they are not responsible to employees for the 3rd party insurance benefits they offer, and also to take steps to check that the benefits they offer are in line with the market.  For this reason we offer an audit service, and strongly recommend that employers check their arrangements at least every 3 years.

Facts:  This case looked at a situation where a fixed-term worker (Mr Hall) was unable to have permanent health cover (otherwise known as income protection cover) because under the insurance policy provided by Unum, he was disqualified for cover, because his contract came to an end before the 26 week qualifying period expired.  Had Mr Hall been a permanent employee, he would have qualified for cover, as his illness lasted for longer than 26 weeks.

Question (1):  It was accepted that Mr Hall had suffered a detriment because of his fixed-term status and the question was whether Xerox was responsible for this unfavourable treatment of Mr Hall under the Fix-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.  The EAT confirmed that Xerox wasn’t Unum’s agent and so could not be liable for Unum’s discrimination.  Instead, the cause of the problem was Unum in refusing cover.

Question (2):  However, Mr Hall also argued that Xerox should have found a better policy which would have covered fix-term employees in the same way as permanent staff.  The EAT disagreed, because Xerox had no choice: its evidence was that there were no policies in the market which cover fixed-term employees in the same way as permanent staff.  However the EAT also said that if there had been suitable policies available in the market for fixed-term employees, and Xerox had chosen not to offer one, then Xerox (not the insurer) would have caused the problem by choosing cover which discriminated, and would then have been liable unless it could have justified its choice.  Unfortunately, the EAT decided not to consider whether the additional cost of a non-discriminatory policy would have justified such a choice, because in this case, there were no other policies available – although (for a company with the size, resources and bargaining power of Xerox) the cost differential ought to be minimal.

Comment:  This emphasises another point which (fortunately for Xerox) did not come up in this case:  some employment contracts (especially older ones) are drafted so that the employer contracts directly with the employee to provide the employee with the benefit, and if the insurance policy that the employer takes out to back up its contractual obligation does not match that contractual obligation, then the employer has to meet any shortfall.  If that situation had arisen here, Xerox would have been responsible for paying (say) 75% of Mr Hall’s salary (or whatever was the level of reduced salary payable by Unum as insurer) until he was able to work again or retired – potentially ruinously expensive if repeated for several people on PHI.

Lessons:  Overall this case emphasises that an employer is not liable where a 3rd party benefit or policy discriminates, but only if:

  1. Its contracts are drawn up properly, and
  2. It has researched the market to check that it can’t purchase a policy which is not discriminatory.


 

A helpful reminder to check your arrangements, or sign up for our audit service and ask us to do so on your behalf.