ABG Employment Newsletter – June 2012

Reforms to employment law

The Government is proposing a number of reforms to employment law through the recently published Enterprise and Regulatory Reform Bill. The proposed reforms include the following:-

  • The early resolution of potential employment claims will be encouraged by introducing a new mandatory procedure under which claimants will be required to lodge claims with ACAS before employment tribunal proceedings can be issued. ACAS will then be under a duty to try to promote a settlement within a prescribed period. The claimant will only be able to issue proceedings if ACAS believe that settlement is not possible or no settlement is reached within a prescribed period. After an ET claim has been issued ACAS will be under a continuing duty to try to bring about a settlement.
  • Tribunals will be able to impose financial penalties on employers who lose employment claims if the breach of the employment right in question involves aggravating features. The penalty would be 50% of the financial award granted to the claimant, subject to a minimum of £100 and a maximum of £5,000. This will be reduced by 50% if the employer pays within 21 days.
  • Whistleblowing legislation will be amended so that, for protection to arise, the qualifying disclosure must be made in the public interest. This will reverse the case law decision of Parkins -v- Sodexho in which it was ruled that workers who complain about breaches of their own employment contracts are protected by whistleblowing legislation. The Government regards this as an unintended loophole which should be closed.
  • Compromise agreements will be renamed settlement agreements. This renaming is intended to reflect the traditional purpose of such agreements.
  • Finally there will be a power to change the statutory limit on the compensatory award in unfair dismissal claims and it is possible that different amounts may be specified for employers of different descriptions. This means that the cap may differ depending on the size of the employer’s business.

Bonus payments

In a recent bankers’ bonus case the Court ruled that the employer was contractually bound to pay bonuses after it had announced a guaranteed bonus pool with a view to retaining staff.

The claims were brought by a number of employees at an investment bank whose contracts entitled them to be considered for a discretionary annual bonus. It was the bank’s usual practice to announce an overall bonus pool in November and employees were then told how much their individual bonuses would be depending on their performance. In line with this practice the bank announced a guaranteed minimum bonus pool, but this was subsequently reduced following a drop in the bank’s revenue and earnings. In the meantime employees had received bonus letters notifying them that bonus payments would be adjusted if there were deviations from the pre-existing forecasts.

Despite the employees’ contracts describing the annual bonus as being discretionary, the Court ruled that the information given to the employees amounted to a promise that gave rise to a contractually enforceable obligation and was not simply a promise binding in honour only as the bank had argued. The Court further said that the subsequent inclusion of the provision making payment of provisional bonuses subject to review linked to the bank’s performance was in breach of the implied term of trust and confidence.

This is a decision which has important ramifications in that it shows that an announcement made to the entire workforce can give rise to contractual obligations if it is couched in sufficiently certain terms and an intention to create legal relations can be inferred. Great care should always be taken when drafting important announcements.

Worker status of LLP equity partner

In a recent case a former LLP equity partner (member) brought claims against the LLP for sex and pregnancy discrimination and whistleblowing claims. The Equality Act protects partners against discrimination because of a “protected characteristic”, but the issue for the EAT was whether the partner could bring the whistleblowing claim. Such claims can only be brought by “workers”, which includes employees.

Although the Employment Tribunal ruled that it did not have jurisdiction to consider the whistleblowing claims on the grounds that the equity member of the LLP was not a worker, this decision has been reversed by the EAT. It ruled that the partner fell within the statutory definition of a worker which includes an individual who works under a contract whereby the individual undertakes to do or perform personally any work or services for another party to the contract who is not a client or customer of any profession or business undertaking carried on by the individual. The EAT held it was plain and obvious that the LLP was not a client or customer of a professional business undertaking carried on by the former partner and that she satisfied all the other necessary statutory conditions to qualify for worker status.

This seems to be the first decision in which a partner/equity member of an LLP has been held to be a worker.

TUPE and service provision changes

The EAT has ruled that there was no service provision change in a case involving a single employee who spent 100% of his time working on a contract for a client.

The client took back the activities in-house which had previously been carried out on its behalf by a contractor. Such a situation can amount to a service provision change if the contractor employs “an organised grouping of employees whose principal purpose is carrying out the activities on behalf of the client”.

Although a single employee can constitute an “organised grouping of employees” in this context, on the facts of this case the employee was not such an organised grouping of employees whose principal purpose was carrying out the client’s activities. Although he spent 100% of his time working on the contract, he worked as part of a team whose principal purpose was not simply servicing this client’s contract, but the accounts of a number of clients.

Contractual PILON payable despite gross misconduct

The Court of Appeal has ruled that, where a contract contains a pay in lieu of notice clause enabling the employer to terminate by making payment in lieu of notice, the employer cannot avoid making the payment if it exercises this contractual right to terminate and then subsequently discovers that the employee had committed gross misconduct which would have entitled the employer to dismiss him summarily.

This situation can be distinguished from a case where there is no contractual PILON clause but the employer dismisses immediately with the intention of making a payment in lieu of notice. In these circumstances the employer can refuse to make any payment if, before making the payment, it discovers that there had been gross misconduct on the part of the employee. This is because the payment in lieu of notice would amount to damages payable to the employee for summary dismissal without notice, but a claim for damages can be defeated where it can be shown that, unbeknown to the employer, the individual employee was in breach of contract.

In the case considered by the Court of Appeal the company’s managing director was dismissed for redundancy under a restructuring. He was entitled to 6 months’ notice but his contract contained a pay in lieu of notice clause. The employer terminated his employment under this clause and the Court of Appeal ruled that in these circumstances the payment in lieu was contractually due to him as a debt. The employer remained bound to make the payment in lieu even though it subsequently discovered that the managing director had wrongfully procured a substantial payment into his pension fund some 2 months before termination.


The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Christopher Gigg 
+44 (0)115 934 3310

Kathryn Meir
+44 (0)115 934 3308