The state we’re in
Date: 12 March 2010
Authors: Ian Smith
Issue: Vol 160, Issue 7408
Categories: Features, Employment
The last month has seen case law on some points both fundamental and newsworthy. We have seen the Court of Appeal’s rejection of the appeal in the case of British Airways and the employee wanting to wear a cross necklace in defiance of the company’s dress code (Eweida v BA plc [2010] EWCA Civ 80, [2010] All ER (D) 144 (Feb)) and also that court’s decision in the Buckland case which was widely reported in the press in terms of “Professor wins case about dumbing down university degrees” but which was of much greater legal significance for ridding the law on constructive dismissal of the heresy that the range of reasonable responses test applies to such dismissals, under which the ex-employee could only succeed in showing constructive dismissal if he could prove that the employer’s behaviour was so bad that no reasonable employer could possibly have behaved in that way, ie that the employer had not just behaved as too much of an Alan (B’Stard) but as a grade one Olympic standard Alan (Buckland v Bournemouth University [2010] EWCA Civ 121, [2010] All ER (D) 299 (Feb)).
However, it is suggested that the three cases reported here may be even more important in the long run. Ironically, in these days of over-regulation by statute, they all concern serious issues of common law.
Variation of contracts
Bateman v ASDA Stores Ltd [2010] UKEAT/221/09 is potentially an important case, going to the heart of the common law on variation of contracts, represented a big win for the employer in a case involving a large part of its total workforce and (from a legal perspective) explores the issues left over from the leading case of Wandsworth LBC v Da Silva [1998] IRLR 193, CA. The question raised was the effectiveness of a contractual clause allowing the employer a power of unilateral variation.
The supermarket employer wanted to make major changes to basic terms and conditions for a large section of staff; 9,330 employees agreed but 8,700 did not and a test case was brought on their behalf to challenge the employer’s decision to go ahead and impose the changes. The employer did so under a clause in their company handbook (by reference to which the contracts were made) which said that the company “reserved the right to review, revise, amend or replace the contents of this handbook, and introduce new policies from time to time reflecting the changing needs of the business and to comply with new legislation”. Did this allow the imposition of these changes? In spite of strenuous arguments for the employees across a range of issues (perhaps the most fundamental of which was that the clause must be confined to changing minor matters, not major contractual terms) the EAT under Silber J held that it did so allow.
Wandsworth was considered and applied. In it, Woolf MR said that a court should be wary of a unilateral variation clause and if it is ambiguous it should be construed against the employer (especially if it could lead or had led to a harsh result for the employees); see eg Securities and Facilities Division v Hayes [2001] IRLR 81, CA. However, the point remains that this option is not open (on ordinary contractual principles) if the clause is unambiguous, and that was held to be the case here.
Harvey queries (at para A [395]) whether an unambiguous variation clause could still be attacked under any general principles. It mentions the obiter remarks in Wandsworth that if the employee’s complaint was not the clause itself, but the oppressive way it had been used, it might be possible to attack that as a breach of the implied term of trust and confidence. That possibility was adverted to in Silber J’s judgment but it had not been pursued because there was little evidence of oppressive conduct. In particular, there was a finding of fact that “there was an extensive consultation process concerning ASDA’s wish for its store staff to adopt the new regime” and the company had sought to ensure that no employees suffered a reduction in pay (a fact reflected in the nature of most of the claims in the test case, which were for declaratory relief only). The lessons for an employer, as to both drafting and exercising a unilateral variation clause, are clear.
Garden leave update
Standard Life Health Care v Gorman [2010] IRLR 233, CA is a case about agency, rather than employment, but it is worth mentioning here because it contains Court of Appeal approval for a hitherto controversial case on the interaction between garden leave and employee misconduct. Several agents of the company resigned to work for a competitor without giving the notice required under their agency contracts and arguably in breach of their duties of good faith in the period leading up to resignation. Those contracts contained clauses allowing suspension for breach of contract by the agent. The company refused to accept the resignations, held them to their notice requirements and suspended them without pay during those notice periods. It obtained an interim injunction to enforce this decision; this was then upheld by the Court of Appeal.
As this was at the interim stage, the court did not have to decide the issues between the parties, only holding that it was arguable that the company had a good case and that the balance of convenience was in its favour. However, on the law the court held that the judge had been right to draw an analogy with employment law and to apply the case of S G &R Valuation Service Co v Boudrais [2008] IRLR 770, HC which had held that an employee in breach of contract loses any “right to work” that he has, so that an employer may insist on him serving out his notice, but not actually working, thus allowing his “neutralisation”. Waller LJ at paras 26 and 27 approved Cranston J’s judgment in that case, and also passages on the point Harvey both before and after his judgment : ‘In any event I come back to the decision of Cranston J in S G &R Valuation Services v Boudrais. We have been shown passages in Harvey on Industrial Relations and Employment Law to which Cranston J referred. We have indeed a more recent edition of Harvey. That would indicate that the editors of Harvey would approve of the decision of Cranston J. That appears from paragraph 785. So if the question is whether the view taken by Cranston J is arguable, I reach the conclusion that it is. It seems to me strongly arguable that in the circumstances of a case such as this, where the employer discovers that the employee has been in serious breach of duty and in breach of good faith, and then discovers that the employee is tied effectively to a rival already…then the employer has, even if he keeps the contract alive, no obligation to provide work; that obligation to provide work being interdependent with the obligation of the employee to act loyally.’ Longmore LJ expressed a similar view at para 34.
While the decision is largely confirmatory (though no less welcome for that) it may add one dimension to the employment law position—if the employee were to be remunerated (wholly or partly) by commission or payment by results (as these agents were) it would presumably be lawful to suspend during the enforced notice period without that payment.
Breach of contract
Safeway Stores Ltd v Twigger [2010] EWHC 11 (Comm), [2010] All ER (D) 90 (Jan) is possibly a case to watch. In form, it was an application for summary judgment and striking out of the claim. This was refused and so the actual decision was (only) to allow the claim to proceed to trial. In spite of this, the point at issue is so unusual and potentially important, and the judgment of Flaux J in the Commercial Court so long and comprehensive on the various laws applicable, that the judgment has considerable significance.
Can an employer sue the employee for damages for breach of contract? The answer has always been “yes, but it simply does not happen in reality, so don’t worry”. Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555, [1957] 1 All ER 125, HL is the well-known old case showing that there can (at least in theory) be an action by the employer for negligence by the employee leading to damage to the employer’s property or liability on the employer in damages to a third party. However, the instant case had a further twist—what if the employee’s breach causes the employer to be liable to a criminal or administrative penalty ? Can the employer recover some or all of that from the employee? Here, the company had been found to be in breach of competition law, it claimed because of the misdeeds of the defendant ex-directors and ex-employees (so that it is not a case just about directors’ duties). The company faces a fine of £10.7m and seeks to recover this amount (plus £200,000 legal expenses) from the defendants. However, there is the problem that this is not just a question of tort-type damages, and leads to deep questions of public policy on the nature of criminal or administrative penalties. According to Flaux J’s erudite judgment the issues (which were all held to be triable) fall into three main categories:
(i) Ex turpi causa—the company has been held liable under competition law, so can it now rely on that wrongdoing to maintain its cause of action against the defendants?
(ii) Fines—as a refinement of that (general) point, given that the nature of a fine is personal to that wrongdoer, can that person lawfully try to shift the fine on to someone else?
(iii) Statutory interpretation—can it be said that the intent of the competition legislation is to penalise the company, and that that intent would be negated by passing on the liability to individuals within it?
As to (i) and (ii), the normal approach would debar the company’s claim but the complication arises that the old case law on this suggests an exception where the company is not itself blameworthy and is only liable because of the actions of the staff. This is likely to be the key issue at trial, along with the “interpretation” point in 3. Watch this space, because this could be an important case on potential liabilities on higher level management. One final point (from the purely employment law viewpoint) arises at para 125 which stresses that the case raises issues from several different areas of law but also is at pains to point out that the possibility of employee liability here is not new: “In my judgment, it is important in assessing these arguments to have in mind that the causes of action upon which the claimants rely in the present case are not new or revolutionary. They involve the application of well-established principles of contract, company law, employment law and tort. I do not accept [the] submission that this claim would extend the existing law. It would simply involve the application of existing law to the particular facts of this case. It is only the facts and not the law which can in any sense be said to be novel.’ (emphasis added).
Professor Ian Smith, barrister, emeritus professor of employment law at the Norwich Law School, UEA, & an editor of Harvey on Industrial Relations and Employment Law
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