ABG Employment Newsletter – September 2012

Unfair dismissal claim by estate of deceased former employee

An unfair dismissal claim may be brought or continued by the estate of a deceased former employee. This was the situation in a recent case where, a few days after having been dismissed, the former employee died.

His claim succeeded, but an important point arose about how much compensation could be awarded. Under the terms of his employment he had been provided with life insurance which would have paid out a death-in-service benefit of about £85,000 if he had still been in employment at the time of his death.

The Employment Tribunal refused to include the loss of the death-in-service benefit as part of the compensation as they considered it was not a loss suffered by the deceased but was a benefit payable to his dependants. However, this decision has been overturned by the EAT which ruled that the loss of the payment was a real loss of substance incurred by the deceased employee. The benefit would have been paid if the employee had not been unfairly dismissed and in these circumstances the employers were ordered to pay compensation which included the amount which would have been payable on death.

Cases like this are likely to be quite rare in practice, but it is an interesting example of how employers may find themselves having to pay out substantial sums. Cautious employers may wish to explore the possibility of continuing to provide life insurance cover for former employees for a period of time following the termination of employment.

Non-solicitation clause binding on former director

It is a popular misconception that restraint of trade clauses can be disregarded with impunity on the basis that they limit the individual’s ability to earn a living through new employment. Nothing could be further from the truth and recent years have seen an increasing willingness on the part of the courts to enforce restraint clauses which are designed to protect the employer’s customer/client base and are not unreasonably wide.

A recent example involved the court ordering a former director to pay substantial damages for breaching a 6 months post termination restrictive covenant which prevented him from soliciting anyone who was a customer or client of his employers during his employment. On the director’s behalf it was argued that the clause should have been confined to customers with whom he had had dealings over the last 12 months of his employment. However the Court rejected this saying it was not necessary to make the clause reasonable. The covenant was considered to be reasonable given the director’s seniority and integral role within the organisation and the size of the employer’s client base. He was the Business Development Director of the company which was a small business providing security services. He played a prominent role in the business, was known by most of the customers and many of them saw him as the face of the company.

Cases involving the enforceability of restrictive covenants will be fact specific, but this case serves as a timely reminder that the courts will be willing to uphold such clauses where the context makes it appropriate to do so.

Directors with strategic roles not covered by TUPE transfer

TUPE will apply to a service provision change when there is a change of contractor responsible for providing a service or the service is taken back in-house by the client. In these circumstances individuals who form part of an organised grouping of employees whose principal purpose is carrying out the activities which form part of the service will fall within the scope of TUPE and their employment will be transferred to the new contractor or to the client.

When there is a service provision change it is necessary to be clear about which individuals are or are not assigned to the provision of the services. This point arose in a recent case where the EAT upheld a tribunal’s decision that the directors of a housing charity which provided services to a local authority did not transfer under TUPE when the service was taken in-house.

Although there was a service provision change, the directors carried out strategic roles in the charity and were concerned with its running and maintenance rather than with the provision of the services to the local authority. In these circumstances they fell outside the scope of TUPE.

The EAT considered various examples of where the line is to be drawn between employees who are dedicated to the provision of services to a client and those who are part of the transferor’s infrastructure and are not sufficiently connected with the client to form part of the organised grouping.

This was a case where the Council which took the services back in-house was the sole client of the charity. The EAT decision demonstrates that, where there is a single service organisation, it should not be assumed that the entirety of the staff in the organisation, including senior executives, will be transferred. If an executive’s role is strategic and concerned with the running of the organisation rather than the delivery of the services, the executive will not fall within TUPE.

Redundancy selection – pool of one can be fair

In a recent case an Employment Tribunal ruled that a golf club had acted unfairly when making the club steward redundant because it had effectively included him within a pool of one and had not considered a wider selection pool of other staff. His main role had been to manage the bar and the club decided to eliminate his role by combining the bar and catering operations so that his role could be performed by other members of staff. He was the only person employed as a steward and so the club had not put any other staff at risk.

This decision has now been overturned by the EAT which has pointed out that in appropriate circumstances it would be reasonable for an employer to focus on the single employee without having a wider selection pool. The test is whether the decision to use a selection pool of one is within the range of reasonable responses.

This decision demonstrates that in straightforward redundancy situations where a single role is eliminated, an employer may be acting reasonably if it decides to let the redundancy lie where it falls. Despite this ruling, however, employers are still well advised to make a mental check of whether the selection pool should be widened.

Change in terms following TUPE transfer makes dismissal unfair

A dismissal following a TUPE transfer will be unfair if it is for a reason connected with the transfer that is not an economic, technical or organisational reason entailing changing in the workforce (an ETO reason). In previous cases the Courts have said that “entailing changes in the workforce” means that there must be a change in the number of employees employed or a change in functions performed by employees.

This principle was applied in a recent case in which college staff were transferred under TUPE when the college took over a contract for the provision of offender learning at a local prison. Due to the economic situation affecting the education sector the college proposed substantial redundancies and changes to terms of employment, including substantial pay cuts, for the remaining staff. Those not at risk of redundancy were offered new contracts which involved the pay cuts. Those staff who refused to agree to the new terms were dismissed. The college then repeated the offer of employment on the new contracts, which the claimants in this case accepted and returned to work following their dismissals, but they then brought claims for unfair dismissal and sought reinstatement on their old conditions.

The Employment Tribunal and the EAT upheld the unfair dismissal claims. The reason for the dismissals was the refusal to sign new terms and this was held to be a reason connected with the transfer. Although the reason for the pay cut was an economic reason, it did not involve changes in the numbers or functions of employees. This meant it was not an ETO reason entailing changes in the workforce and in these circumstances the dismissals were automatically unfair.

The college was then ordered to reengage the claimants on their previous rates of pay, although the tribunal ruled that the previous salaries should be frozen without any pay increases until their colleagues who had agreed to new pay scales caught up. In other words the tribunal imposed pay protection or red circling of the old pay rates.

The outcome of this case is an interesting example of the tribunal finding a way to reinstate the employees on their previous salaries, but at the same time impose a pay freeze in line with classic red circling principles.

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

Christopher Gigg 
[email protected] 
+44 (0)115 934 3310

Kathryn Meir
[email protected]
+44 (0)115 934 3308