Employment Update December 2009

TUPE transfers and the duty to consult

The Court of Appeal in Royal Mail Group Ltd v Commercial Workers Union has made a decision which impacts upon employers duty to consult employees when facing a transfer of employment under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’).

The case concerned a transfer of offices from the Royal Mail (RM) to WH Smith (WHS).  The Commercial Workers Union (CWU) represented the workers at the affected offices.  RM genuinely believed that no employees would transfer under TUPE.  CWU challenged this belief at the employment tribunal as not genuine, and succeeded.  RM thereafter successfully appealed to the Employment Appeal Tribunal.  CWU then appealed to the Court of Appeal.

The question for the Court of Appeal was whether it was sufficient for an employer to have a genuine belief about possible TUPE transfer consequences (as RM argued), or if a belief was insufficient and they had to give legally and factually correct advice to their employees (as CWU argued).

It is useful to set out the statutory context.  Regulation 13(2) TUPE provides that employers should, in good time (though no defined period of time is given), consult their employees and provide them with information about the various consequences of their change of employment.  In particular, the employer must disclose:

• The fact that the transfer is to take place, the date or proposed date of the transfer and the reasons for it;
• The legal, economic and social implications of the transfer for any affected employees;
• The measures which the employer envisages it will take, in connection with the transfer, in relation to any affected employees or, if it envisages that no measures will be so taken, that fact; and
• If the employer is the transferor, the measures, in connection with the transfer, which [it] envisages the transferee will take in relation to any affected employees who will become employees of the transferee after the transfer…or, if it envisages that no measures will be so taken, that fact.

An employment tribunal may award up to 13 weeks pay per employee, with no cap on the amount of weekly pay, for failure on the part of an employer (as transferor) to consult.  A tribunal can make both the transferor and transferee jointly and severally liable.

The challenge for the Court of Appeal was to decide whether this test was:

• Objective, i.e. the belief of the employer in question did not matter.  If objectively justifiable information was not given, then, irrespective of the employer’s intention, they would be liable to the employees concerned (known as ‘strict liability’); or
• Subjective, i.e. the information given may not be correct, but the employer in question (to the best of its knowledge) believed it to be accurate; or what the judge termed a genuine belief about the legal, economic and social implications of the TUPE transfer.

In the end, the Court of Appeal opted for the second interpretation.  They did not accept CWU’s interpretation of Regulation 13(2) as imposing such an onerous duty, and even strict liability, on employers.

The case looks like good news for employers faced with complicated TUPE transfers.  However the burden in proving whether the belief in the accuracy of the information provided was genuine remains.  This will ultimately turn on the facts of the case and how a tribunal views them on the day, which already applies to employment claims anyway.  In effect the decision has not worsened employers position, but neither has it made the position easier to argue. 

The Disability Discrimination Act 1995 (DDA) requires employers to ensure that their premises, or any provisions, criteria or practices applied by them, do not substantially disadvantage any disabled employees, or even job applicants, when compared to a non-disabled person.  If so, the employer must take reasonable steps to address the offending practices or feature of the workplace.  This is known as the duty to make “reasonable adjustments”.

Unless the employer does not know, and could not reasonably know, that the employee or applicant suffers from a disability (and thus likely to suffer substantial disadvantage), failure to make reasonable adjustments is an act of discrimination.

It is clear that employers bear a fairly onerous burden in making reasonable adjustments, as the duty can be one of constructive knowledge, i.e. notwithstanding the fact that the employer does not know that the employee/applicant is disabled, if they could reasonably have found out that fact, they will be guilty of discrimination.  This issue of employer’s knowledge was key in Department for Work and Pensions v Alam.

Mr Alam worked for the Department of Work and Pensions (DWP).  He was suffering from depression and financial difficulties.  On leaving his workplace early without permission (to go for an interview for a second job), he was disciplined and given a 12 month written warning.  He challenged this in the employment tribunal.  The tribunal upheld Mr Alam’s claim in saying that, at the time of the dismissal, because he was suffering from depression and unable to control his feelings, he was, for all intents and purposes, ‘disabled’ within the meaning of section 1 of the DDA.  The employer should have known of this, and therefore made reasonable adjustments to its absence and disciplinary procedure to cater for Mr Alam’s depression, and in failing to do so had applied a “provision, criterion or practice” which substantially disadvantaged Mr Alam and thus discriminated against him.  It was unreasonable to demand that Mr Alam either ask for or get permission from his line manager before leaving his workplace, or face receiving a disciplinary sanction of a twelve month written warning.  The DWP challenged this ruling.

The EAT upheld the appeal, casting doubt on the decision of the tribunal in several respects:

• It was not true to say that the only options open to the DWP were to either request Mr Alam ask for permission to leave work early, or to discipline him.  They could have taken no action, or made an informal response such as talking about his depression and offering assistance.  As such the DWP’s practice was not a “provision, criterion or practice” which substantially disadvantaged Mr Alam.
• In determining whether the DWP was under a duty to make reasonable adjustments, two questions had to be asked:

1. Did the employer know both that the employee was disabled and that his disability was liable to affect him in the manner set out in section 4A(1)?  If the answer to that question is “no” then there is a second question, namely,
2. Ought the employer to have known both that the employee was disabled and that his disability was liable to affect him in the manner set out in section 4A(1)?  

• If the answer to both questions is “no”, then the employer is under no duty to make reasonable adjustments.
• In the circumstances, the EAT found that both questions should be answered in the negative: the DWP clearly did not know that Mr Alam suffered from depression, and given that Mr Alam’s symptoms did not prevent him from asking permission to leave early, they could not reasonably have known he was disabled.

The EAT therefore upheld the DWP’s appeal.

The decision is clearly good news for employers in showing that the burden of constructive knowledge over the state of their employees health is not as onerous as it may seem in certain circumstances.  Nevertheless it demonstrates what employers should be aware of.  Employers would be advised to consider any similar ‘warning signs’ and try to carefully identify any provisions, criteria or practices at an early stage, before initiating any disciplinary action against potentially disabled employees.

Associative discrimination

The decision of the EAT in the long-running saga of Coleman v Attridge Law has been issued this month, highlighting the need for employers to reflect on ‘associative discrimination’.

The case concerned a former secretary of a law firm who brought a tribunal claim for ‘associative discrimination’, claiming that her employer discriminated against her by not affording her flexible working hours needed to care for her disabled son.

At present, the DDA prohibits discrimination in employment "against a disabled person" and harassment relating "to the disabled person's disability", but it affords no protection to non-disabled individuals from discrimination or harassment based on their association with a disabled person.

The employment tribunal referred this question to the European Court of Justice (ECJ).  In turn the ECJ held that, with reference to the Equal Treatment Framework Directive (to which the British courts must have regard), that so called ‘associative discrimination/harassment’ was indeed unlawful.  The case then returned to the tribunal, which held that it was obliged to interpret the DDA, so far as possible, as applying to associative discrimination.  The tribunal read additional wording into sections 3A(5), 3B and 4, so as to protect not only a disabled person but "a person associated with a disabled person".  This was challenged by Attridge and appealed a second time to the EAT.

The EAT held that it was obliged to give force to EU law (i.e. the Framework Directive) so far as it was not incompatible with existing discrimination law.  Since in the circumstances it would not be incompatible, and the fact that associative discrimination was already proscribed in other areas of discrimination law, there was no problem with interpreting the DDA as including associative discrimination.  The EAT went on to say that there was "nothing impossible" about adding words to the Act to cover associative discrimination, as long as the new meaning was compatible with the thrust of the Act.

The EAT went further in departing from the tribunal’s requirement that there should be “an association” between the disabled person and the third party alleging the discrimination.  It was of the opinion that there could be any relation between the two parties.

Employers are well-advised to take particular note of this decision as it has, in effect, created new provisions that would embody this ruling within the DDA (on the assumption that this decision is followed by subsequent tribunals and EAT judges).  In particular, employers should bear in mind that the judgment is not limited to carers or even those associated with a disabled person, and covers direct discrimination or harassment based on the disability of any third party.  Harassment / Dignity at Work Policies should be updated to reflect this. 

The Court of Appeal in Chagger v Abbey National plc has held that an employee’s future losses can include ‘unemployability’ due to the stigma attached to bringing legal proceedings.

Mr Chagger worked in a team of two people for Abbey.  He was selected for redundancy from a pool of two which included his colleague who was a white woman.  He claimed race discrimination as he was of Indian decent.

The Employment Tribunal upheld Mr Chagger's complaint and awarded him compensation in excess of £2.7 million.  This was on the basis that, despite making extensive efforts to mitigate his loss, Mr Chagger would never again be able to obtain employment in the financial services industry as he had brought a discrimination claim.

However the Employment Tribunal did not believe that his ex-employer should be liable for the decisions of new employers to refuse to hire him on the basis of the stigma attached to bringing a discrimination claim.  This aspect of the decision was upheld by the Employment Appeal Tribunal.

Mr Chagger therefore appealed to the Court of Appeal, which took a different approach.  Whilst accepting that generally it is for the employee to prove loss, in cases such as this where they believed there was a continuing future loss, the employer should be responsible for such losses caused by stigma.  The ‘stigma loss’ resulting from potential employers refusing to hire Mr Chagger was a direct result of the unlawful act of victimisation discrimination.  As such, it did not ‘break the chain of causation’ necessary for Mr Chagger to claim his losses.

A powerful policy argument, that in effect all employers could be forced to indemnify employees for career losses in such circumstances, was rejected as an exaggeration.

In determining the extent of the stigma loss, the Court of Appeal recommended that employment tribunals consider:

• The extent to which employees investigate their suspicions of being victimised by potential employers. This could take the form of either:

1. Initiating proceedings against those potential employers which unlawfully reject the employee’s job application, or,
2. Providing extensive evidence of attempted mitigation failing to result in a job (as in the present case).

• Allowing ‘stigma loss’ to be the only head of loss in some claims.

The Court of Appeal, however, have since sent this case back to the tribunal to reconsider the award of £2.7 million.

The Court of Appeal have identified factors which the tribunal should consider in making awards:

• Would the employee have been dismissed anyway irrespective of the unlawful discrimination? If ‘yes’ then the award should be limited.
• Has there been a breach in the applicable procedures, for example was the ACAS guidance in making an employee redundant not followed? If ‘yes’ then the award should be uplifted by a percentage the tribunal deems appropriate.

The case shows that claims for stigma loss are generally rare and confined to instances of discrimination.  However it demonstrates the potentially costly consequences of such claims for careless employers. 

Following on from our last bulletin where we noted the English High Court decision in R (on the Application of Age UK) v Secretary of State for Business, Innovation and Skills (the Heyday Case), the Government has launched a series of initiatives on the default retirement age.  At present the default age is 65.

The Government’s strategy – Building a Society for All Ages – aims to review the current default retirement age by 2010 rather than 2011 as originally planned.  It is a joint review by the Department of Work and Pensions and the Department for Business, Innovation and Skills (BIS).  To gain an insight into current attitudes of industries and employers, the Government has launched its investigation paper, the Survey of Employers’ Policies, Practices and Preferences (SEPPP).

On BIS’ website, the Government explains that it “is looking for evidence including, but not limited to, the following broad areas:

• The operation of the default retirement age in practice;
• The reasons that businesses use mandatory retirement ages;
• The impacts (positive and negative) on businesses, individuals, and the economy, of raising or removing the default retirement age;
• The experience of businesses operating without a default retirement age; and
• How could any costs of raising or removing the DRA be mitigated and benefits realised?”

The deadline for submissions is 1 February 2010.  Submissions can be emailed to draevidence@bis.gsi.gov.uk or sent by post to DRA Evidence, Department for Business, Innovation and Skills, V497, 1 Victoria Street, London SW1H 0ET.

Administrations update

The case of Oakland v Wellswood (Yorkshire) Ltd has muddied the waters on the law of continuity of employment in the context of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’).

Mr Oakland was an employee of ‘Oldco’.  On the date Oldco went into administration, their employment transferred to ‘Newco’.  Within a year of being transferred to Newco, Mr Oakland was dismissed.

Mr Oakland brought a claim for unfair dismissal, which was contested because he had been with Newco for less than one year meaning he could not bring a claim (section 108 of the Employment Rights Act 1996 requires an employee to have been continuously employed for a period of not less than one year at the date of termination of employment).

Mr Oakland argued that his time with Oldco should be included in working out the period of employment.  The question which therefore arose was whether there was continuity of employment of Mr Oakland from Oldco to Newco.

The Court of Appeal considered the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) and the applicable parts of the Employment Rights Act 1996 (ERA).

By way of background to the case, it is important to set out the relevant TUPE provisions:

• Regulation 8(6) of TUPE applies to insolvent businesses that are subject to "relevant insolvency proceedings" which are defined as being proceedings opened not with a view to the liquidation of the assets of the transferor and which are under the supervision of an insolvency practitioner.  This is generally held to cover administration, among other things.
• By contrast, Regulation 8(7) of TUPE applies to insolvent businesses that are subject to "bankruptcy or analogous insolvency proceedings" which are instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner.  This is generally held to cover bankruptcy, compulsory liquidation and creditors voluntary liquidation.
• Where the insolvent business transfer is caught by Regulation 8(7) some of the most fundamental TUPE protections for employees are removed in order to facilitate a sale.  Notably, the automatic transfer of employees principle does not apply.  This means that the seller's employees will not automatically transfer to the buyer.

The EAT held that administration need not always fall within Regulation 8(6) and could well fall within Regulation 8(7), meaning that the sellers employees did not automatically transfer.  This is now thought to be more likely in a case such as this one, where there is a so-called ‘pre-pack administration’, with a buyer already lined up to take on the assets and then wind up the Company.

Rather than dealing with the matter on the basis of the above TUPE provisions, the Court of appeal considered whether Mr Oakland's continuity of employment was preserved under Section 218 ERA.  This section provides that there is continuity of employment for employees who are TUPE transferred from one employer to another.  The Court of Appeal decided that there was continuity of employment under section 218, and so overturned the EAT’S decision.  Section 218 ERA applied to Mr Oakland’s benefit.  He had worked for Oldco for some three years, and just under one year for Newco, and therefore exceeded the one year minimum requirement.

The question of whether and in what circumstances the buyer in a pre-pack administration can avoid the automatic transfer of employees under TUPE will therefore have to be determined by another decision on the matter, as the Oakland decision is far from clear in this regard.  Buyers should nevertheless pay heed to this case meantime and be aware that if they are involved in pre-pack sales of assets of a Company in administration, they should not assume that Regulation 8(7) will automatically apply and that the seller's employees will not transfer under TUPE.

The matters covered in this ebulletin are intended as a general overview and discussion of the subjects dealt with.  They are not intended, and should not be used, as a substitute for taking legal advice in any specific situation.  Semple Fraser LLP will accept no responsibility for any actions taken or not taken on the basis of this publication.

For further information please contact: Alison Gow

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