Can you put a price on love?

JonathanGolden

 

Should you be entitled to damages when no loss has been suffered?

Sometimes an employee has clients who give their work to an employer only because a particular employee works there, and the employer will lose those clients’ custom once the employee leaves.

Sometimes that employee has post-termination restrictions that prevent them from still dealing with those loyal clients after leaving, but they continue to deal with them anyway.

Strictly speaking, the employer has suffered no loss (because the clients would have gone anyway) but there has still been a breach of contract by the employee.

The idea of Wrotham Park damages is to address that situation: where an employee breaches their restrictive covenants, but the employer suffers no loss because of this.

The problem is that this situation is, essentially, a licence to kill (or at least a licence to breach a contract) that sits uncomfortably with upholding a contract and the principle of fair play.

The Supreme Court decided that Spring 2018 was the right time to return to this thorny issue, known as Wrotham Park damages.

In Wrotham Park, the principle of a “hypothetical bargain” or “licence fee” damages was introduced, by which the courts awarded damages based on the price the employee would have negotiated to be released from their restrictions.

This unrealistic and hypothetical after-the-event situation made commercial sense, but was untested and seemed to break the principle that you have to suffer a loss before getting damages.

Recently the Supreme Court, having reviewed this carefully, came to the conclusion that, generally, an employer can only claim for their financial loss.

The Supreme Court was also not prepared to move away from the idea that identifying the value of the loss is essential to an award of damages for breach of contract, but that if the breach by the employee can be shown to damage a valuable asset, or if a protected right is infringed, then “negotiating damages” can be used (an esoteric concept and one that’s likely to be limited to intellectual property and confidentiality rights being infringed by the departing employee).

As a result, an employer will either have to show loss of business or goodwill (which may be impossible) or seek damages based on the gain made by the departing employee by breaching their contract (restitutionary damages – another esoteric concept in employment law).

This leads us to questioning the price of love.

The reason is that, for the moment, an employee with a very loyal personal following can breach their restrictions and can still come out of the situation smelling of roses.

The solution for the employer is commercially romantic, rather than legal:   never allow any one person in your organisation to own the client – companies must ensure that their key clients are looked after by a team of staff interacting with the client at various levels within the organisation; and make your clients love your organisation, not individuals.

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Changes to watch out for in April

CarolineLeaver

Below is a round up of the changes in employment law we can expect in the next few weeks:

Employment tribunals and compensatory awards – The maximum compensatory award will increase from £74,200 to £76,574 (subject to the limit of one year’s pay which has existed since July 2013) in respect of dismissals that take place on or after 6th April 2014.

Employment tribunals and a week’s pay – The maximum of a week’s pay increases from £450 to £464 in respect of dismissals and other entitlements on and from 6th April 2014. A week’s pay is used to calculate, amongst other things, the basic award for an unfair dismissal and the statutory redundancy payment.

It is worth bearing in mind that if an employer is about to commence a redundancy process, there will be a saving to the business if the redundancies are completed before 6th April 2014.

Employment tribunals and discrimination questionnaires – Discrimination questionnaires will be abolished from 6th April 2014. Although some employers found questionnaires cumbersome as collating the information could be onerous and they saw little value in them, others found them useful to prompt a quick resolution, either through early settlement or showing that no discrimination took place, and so preventing unnecessary proceedings.

Instead of questionnaires, there will now be a new ‘informal’ approach. The government considers that this non-legislative approach, which is set out in Acas guidance, will be “fairer for all” and that this will enable businesses to better challenge any unreasonable requests for information. The guidance has now been issued by Acas and includes advice on how individuals can ask questions and why employers and service providers should respond. http://www.acas.org.uk/media/pdf/m/p/Asking-and-responding-to-questions-of-discrimination-in-the-workplace.pdf

Therefore, repealing the statutory questionnaire procedure does not prevent individuals who believe that they have been discriminated against from using other means of obtaining information. It will simply remove the statutory mechanism, not the scope for establishing facts about whether discrimination has occurred. There is no legal obligation to answer any questions. However, a Tribunal may look at whether a business has responded and, if so, how they have responded as a factor when considering their decision on a discrimination claim. Also the Tribunal can actually order a business to provide answers as part of the process in any event. These are issues a business would need to weigh up when considering whether to reply and what to say.

Employment tribunals and Acas conciliation – the early conciliation scheme will start on 6th April 2014 and there will be a transitional period between 6th April and 5th May 2014 during which time prospective claimants can participate in early conciliation which will become mandatory in respect of claims presented on or after 6th May 2014. The intention behind the introduction of conciliation periods is to give the parties an opportunity to settle any claims before a claim is submitted, thereby reducing claims and making the tribunal system more effective.

Before lodging a claim, a prospective claimant must send Acas information of the claim in the prescribed manner and then Acas will forward this information to a conciliation officer. The officer must try to promote settlement within one month and if settlement is not reached, either because settlement is not possible in the conciliation officer’s view or the period expires, the officer must issue a certificate to that effect. A claimant may not submit a claim in tribunal without this certificate.

The introduction of fees in the employment tribunal on 29th July 2013 and the effect they have had on the number of employment tribunal claims (please see our earlier blog on this topic) may have a significant effect on the parties’ willingness to settle.

Individuals may be more willing to settle (and may therefore settle for a lower amount) in order to save the issue fee. Employers, on the other hand, may show an increased tendency to “wait and see” whether the claimant is serious, and may therefore be less likely to settle (or less likely to offer anything other than a derisory sum in settlement) until after the fee has been paid.

Only time will tell.

Companions at disciplinary and grievance meetings – another fine mess?

WynLewis

Once again, the Employment Appeal Tribunal has managed to issue a judgment that many people think fails to reflect the reality of managing workers in the real world.

The judgment deals with who an employer must permit a worker to bring as a companion to a formal disciplinary or grievance hearing.

The Employment Rights Act 1999 provides that a worker may ask to bring:

  • a colleague
  • a trade union representative, or
  • a trade union official

to such a hearing; and sets out what that companion can (and can’t) do and that a failure to permit this can result in an employer having to pay compensation of up to 2 weeks’ pay.

This has worked well in practice:  people have tended to approach the issue sensibly by not inviting, or by refusing to permit a worker’s chosen companion who might be disruptive, or be involved or implicated in the investigation, or have an ulterior motive, or be inappropriate for another reason.

However in Toal v. GB Oils the EAT decided that the choice of companion is entirely up to the employee – even though this is contrary to the ACAS Code of Practice on Disciplinary and Grievance Procedures , which states:  “… it would not normally be reasonable for workers to insist on being accompanied by a companion whose presence would prejudice the hearing nor would it be reasonable for a worker to ask to be accompanied by a companion from a remote geographical location if someone suitable and willing was available on site“.

The point is that, while the worker must be reasonable in asking for a companion, the choice of companion – so long as they fall into one of the 3 categories mentioned above – does not have to be reasonable, because if it did, then it would create an additional complication of having to decide on whether an employer was reasonable in refusing someone.

So what is to be done from now on?

It seems there is a choice:

  • an employer must permit as a companion anyone (however unreasonable) whom the worker wishes, but manage the process very tightly; or
  • an employer may still require the worker to choose a different companion – which might run the risk of an award of compensation (see above) or, if the outcome of the hearing is dismissal, to a finding of a procedurally unfair dismissal (though the compensation ought not to be significant for this type of transgression – in fact the EAT suggested only £2 or so).

Whether this twist will have any effect in practice remains to be seen; hopefully most workers and employers are likely to adopt a pragmatic approach.

Change in the level of unfair dismissal compensatory award

CarolineLeaver

There is a new limit on the maximum compensatory award for unfair dismissals.   For terminations which fall after Monday, 29th July 2013, the limit of the compensatory award in most types of unfair dismissal claims is now 52 weeks’ pay or £74,200 (as at 1st 1 February 2013), whichever is the lower.  The limit remains at £74,200 for terminations on or before 28th July 2013.

Pre-termination negotiations

CarolineLeaver

On 29th July 2013, the law is changing so that evidence of “pre-termination negotiations” is inadmissible in ordinary unfair dismissal proceedings unless there has been “improper behaviour”.   Pre-termination negotiations means any offer made or discussions held, before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee. The Government’s intention is to give employers greater protection when offering settlement agreements outside the context of litigation.

All forms of harassment, bullying, intimidation and aggressive behaviour will be improper but setting out in a neutral manner the reasons that have led to these discussions and factually stating the alternatives if agreement cannot be reached (including the possibility of disciplinary action or a performance improvement plan) should not be considered improper behaviour.   Although before the change in law, there was nothing to prevent an employer having this type of conversation, there was a general nervousness about doing so in case the conversation was construed by the employee as evidence that the outcome of any subsequent disciplinary or improvement process was pre-determined and/or could give rise to a constructive unfair dismissal claim.

This change in law may offer some comfort to those employers who wish to have these frank and open conversations but it does not signal ‘open season’ for employers to bully or harangue employees into leaving and accepting settlement packages.  It is important to remember that this change does not apply to automatic unfair dismissals, discrimination or breach of contract claims.  There may also be an entitlement for the employee to attend any meeting with a companion (colleague or trade union member) as well as a 10 day cooling-off period, so employers should be cautious.

 

Tribunals – better, but still not good

WynLewis

The Ministry of Justice announced this week that the number of claims accepted by the Employment Tribunal service dropped again in 2011:  down by 15% to 186,300 per annum (give or take a few – the Government likes round numbers) and down by 21% on the previous year.

Why?  The main reasons may be that the number of multiple claims went down by 19% (but with individual claims dropping only 2%) and that many more claims were resolved by ACAS, or were withdrawn (possibly due to the increased risk of Claimants having to pay up to £20,000 (up from £10,000) costs awarded against them for claims that had no merit.

That said, practical experience is still characterised by hearings that are postponed at the last minute; or are cancelled on the day, due to lack of judicial personnel; or where Orders are sent to the parties long after the dates for compliance have passed.

Perhaps this is due to the fact that the overall “work in progress” of the Employment Tribunal service increased by almost 12% from 484,000 claims to 540,000 at the same time last year.  If the claims being recorded is going down, but the work in progress is going up, the logical conclusion is that cases are taking longer, or the tribunal service is getting worse.

We shall have to wait to see if the proposed amendments to be introduced by the Enterprise and Regulatory Reform bill will have an effect, over the next few years, on a system that, for many, is failing in its purpose.