ABG Employment Newsletter – October 2012

Employment law reform programme

The Business Secretary, Vince Cable, has now made a number of announcements outlining the next steps in the Government’s ongoing employment law reform programme. These announcements are part of the Government’s response to pressure from many employers to simplify and speed up the process of ending the employment relationship when it breaks down.

In its “Ending the Employment Relationship” consultation document the Government is proposing a reduction in the financial cap on unfair dismissal compensatory awards. It has not yet decided what any new cap should be: it could be set at an amount of between 1 and 3 x median annual earnings (this would be in the range £25K – £75K) or a number of weeks’ pay. Also the amount could differ for different types of employer.

In addition, as a way of encouraging employment disputes to be settled rather than litigated, the Government wants to encourage the greater use of compromise agreements (which would be renamed settlement agreements) to enable employment to be ended on agreed terms. The suggestion is to give employers more freedom to have discussions with an employee about a proposed termination deal outside the context of an existing dispute (which must exist for the legal without prejudice rule to apply) and not to have those conversations used in evidence in a future unfair dismissal claim.

In order to simplify the use of settlement agreements the Government is considering whether there should be a new ACAS Code of Practice which would include an optional model settlement agreement, optional model letters and a set of guidance notes. There could also be a guideline tariff to help parties set the amount of the severance payment.

As to the previous idea of compensated no fault dismissals for small employers, the Government has decided not to take this proposal forward.

Non-compete clause not validated by subsequent promotion

In a recent case the High Court refused to grant an injunction enforcing a non-compete clause because it considered that, at the time it was entered into, it had not been reasonable and the employee’s subsequent promotion could not turn an invalid restrictive covenant into a valid one. This is because the reasonableness and enforceability of a restrictive covenant has to be judged at the time it is entered into.

In this case the employee joined a software company in 2000 as an Account Manager on a salary of £35,000. His contract contained a 12 months non-compete clause. Subsequently he was promoted to Director of Global Accounts in 2005 and his salary was increased to £80,000.

In 2012 he resigned in order to take up employment with a competitor and so his employer sought an injunction. However the High Court refused to grant the injunction as it considered that, at the time it was entered into in 2000, a 12 months non-compete clause could not be justified in the case of an individual with the status and responsibilities which the employee had at that time as an account manager. The employer’s argument that the clause should be treated as entered into again when the employee was promoted to Global Accounts Director was rejected. He had signed an endorsement agreeing to a variation in his terms which stated that he acknowledged and agreed all other terms and conditions remained unchanged, but this was insufficient to turn the clause into a fresh covenant.

The Court also commented that, in any event, the 12 months duration of the non-compete clause was probably too long and a period of 6 months would have been sufficient.

This case shows that employers should keep restrictive covenants under review, particularly when an employee is promoted or there is any other change in circumstances. The best course of action would be to require the employee to sign a new contract containing the restraint clause or alternatively get the employee expressly to agree to the restrictive covenant afresh. It will not be enough simply to get the employee to acknowledge that previous terms remain unchanged.

Worker status of LLP equity partner – EAT decision overruled

In our June Ebrief we reported the decision of the EAT in a case brought by a former LLP equity member (partner) that the member/partner qualified as a “worker” for the purposes of the legislation on whistleblowing.

The EAT’s decision has now been overturned by the Court of Appeal which has said that the LLP member could not be a worker. The rationale for this ruling is that if the partnership had been a general partnership, rather than a limited liability partnership, the member would have been a partner under general partnership law and under the law on partnerships a partner cannot be an employee or a worker. In the circumstances the Court of Appeal saw no reason to treat a member/partner of a limited liability partnership any differently from partners in general partnerships.

Reductions in working hours and guarantee payments

During a period of lay-off or short-time working an employee may be entitled to a statutory guarantee payment under the Employment Rights Act 1996. This applies where the employee is not provided with work by his employer on any day when the employee would normally be required to work in accordance with his contract of employment.

In a recent case the EAT had to consider whether employees were entitled to guarantee payments when they gave their agreement to a revised working pattern under which they did not work on Fridays for several months. This temporary reduction in the working week was agreed by the employees’ trade union in order to avoid redundancies. The employees moved from a 5 day week to a 4 day week.

During the negotiations the union asked the employers to agree to pay guarantee payments, but the employers refused. The employees raised grievances over this, which were rejected, and so they then issued tribunal proceedings for failure to make guarantee payments.

The employees’ claims were rejected by the Employment Judge and the EAT as the temporary variation of the employees’ contracts had been clearly agreed. The result of the agreement on a revised working pattern was that the employees were no longer normally required to work on Fridays.

This seems a somewhat surprising decision as the purpose of the legislation on guarantee payments seems to be to cover the type of situation which arose in this case where employees are put on short-time working leaving them with reduced pay.


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