Dismissing an employee

Dismissing An Employee - be honest!

Our lead software lawyers are Imogen Finnegan and Helen Monson who are experts in all employment law matters.

Here is an interesting case - Rawlinson v Brightside Group Ltd [2017] UKEAT 0142_17_2111 (21 November 2017) - which highlights the risks to an employer of not being honest about the reasons behind the dismissal of an employee.

Dismissing an employee - the case facts

In December 2014 Brightside Group, an insurance business, employed Mr Rawlinson as their in-house lawyer – Brightside’s “Group Legal Counsel”.

Mr Rawlinson’s employment contract gave him a 3 month notice period.

Shortly after Mr Rawlinson’s engagement, Brightside appointed a new CEO – a Mr Wallin. Mr Wallin became concerned early on about Mr Rawlinson’s performance and started an internal investigation within the business. Mr Rawlinson was aware that the senior management considered certain matters needed to be addressed but detailed concerns were not raised with him.

The upshot of the internal investigation was that by the end of March Mr Wallin decided that Mr Rawlinson’s position was untenable for reasons of his performance. Without communicating this to Mr Rawlinson the company began contingency planning for how to deal with accessing legal advice following Mr Rawlinson’s departure. The intention was to give Mr Rawlinson his 3 months notice and make him work that period to try and ensure a smooth transition.

On 14 April Mr Rawlinson met with senior management but was not told about the intention to dismiss him. During that meeting, Mr Rawlinson asked whether any further feedback had been received about him and was told it had not.

By 5 May, nothing had been communicated to Mr Rawlinson and Mr Wallin was frustrated that little progress had been made in terms of contingency plans. He raised his concerns with the Company Secretary who, at a meeting with Mr Rawlinson on 14 May dismissed him, informing him that the company were going to take a different approach to sourcing legal advice in the future and would use external legal advice reporting into the CEO. Mr Rawlinson was told he was being given three months' notice and his dismissal would be confirmed in writing. He was deliberately not told that he was being dismissed due to concerns regarding his performance “to soften the blow”.

Mr Rawlinson was shocked by the decision to dismiss him and told the Company Secretary that, as Brightside were outsourcing the legal services to an external law firm, TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) would apply meaning that he would become an employee of the law firm that the work was being outsourced to. Mr Rawlinson asked for the name of this law firm but the Company Secretary declined to comment because of course there was no law firm.

In response to the Company Secretary’s failure to provide the name of the law firm, Mr Rawlinson said that he considered Brightside to be in breach of contract and that he would therefore not work his notice period.

Mr Rawlinson brought various claims in the employment tribunal. He claimed that Brightside were in breach of TUPE for failing to inform and consult him on the outsourcing of the legal function and he also brought a claim for constructive wrongful dismissal, contending he resigned in response to a fundamental breach of contract, namely the implied obligation in every employment contract that the employer will not act so as to breach the duty of mutual trust and confidence that exists between the employer and the employee.

The employment tribunal rejected the TUPE claim finding that there was no relevant transfer.

The employment tribunal also found that the implied obligation on employers to maintain trust and confidence had not been breached stating that Brightside had not been obliged to give Mr Rawlinson a reason for the termination of his employment. Brightside was not legally required to give Mr Rawlinson feedback on his performance or to warn him of the intention to dismiss him.

Mr Rawlinson appealed the decision.

Dismissing an employee - the decision

The employment appeals tribunal found in favour of Mr Rawlinson. The tribunal concluded that in all but the most unusual of cases, the implied term (that an employer will not act so as to breach the duty of mutual trust and confidence that exists between the employer and the employee) had to import an obligation not to deliberately mislead. That did not necessarily place the employer under a duty to volunteer information but if the employer chose to volunteer information, it should do so in good faith.

Dismissing an employee - comments

If you are dismissing an employee, honesty is almost always the best policy. Perhaps Brightside thought they was doing Mr Rawlinson a service by not being candid about the real reasons for his dismissal. On the other hand, maybe Brightside were just trying to look after themselves. They wouldn’t have wanted a row with Mr Rawlinson – would you want to tell your in-house lawyer that you were dismissing him because he wasn’t up to his job? When looking at the case the appeals tribunal noted that Brightside had not been “entirely altruistic” – they had wanted Mr Rawlinson to work his notice period and to keep him on-side to help with an orderly hand-over.

Whatever the motivation, coming up with what Brightside thought was an inoffensive way to deal with Mr Rawlinson’s dismissal backfired. Mr Rawlinson thought that Brightside were being deliberately obstructive with him by failing to tell him the name of the outsourced law firm. As a result, he resigned immediately so there was no orderly 3 month hand-over and Brightside ended up in the employment tribunal.

Being honest with employees makes it less likely for the employer to trip up. It is worth bearing in mind that the “real” reasons for dismissal are likely to come out by the disclosure required if the employees makes a subject access request.

If you need any help dismissing an employee get in touch with Helen Monson or Imogen Finnegan.

London City Jobs Brexit

City Jobs Brexit: Coping with Redundancy

The way that City jobs will be affected by Brexit is still not clear but, in 2017, Deputy Governor of the Bank of England Sam Woods said that forecasts of 75,000 job losses were “plausible.” This figure has since been challenged but, with no real certainty in terms of what the true Brexit impact on jobs will be, many are preparing for round(s) of rapid redundancy.

City Jobs Brexit: employment in the City

Brexit day is still months away but the financial services industry is already proving a nervy place to be. The sector saw a 29% drop in job openings in the year to June 2018, as uncertainty over Brexit and employment slowed hiring. While it is now hoped that fewer jobs will move out of the financial services sector in London to Europe as a result of Brexit impact on the UK, more recent positive figures are not all that they seem. Goldman Sachs, for example, initially caused concerned by stating that it would be moving jobs to Paris but has now said it will also create 150 new jobs in London as part of its new Marcus retail bank. However, on closer inspection, 50 of the Marcus jobs will be in call centres, as opposed to financial services positions. So, the situation remains uncertain.

City Jobs Brexit: redundancies in the City

Given the dampened hiring climate in the City it’s crucial for anyone facing redundancy under these circumstances to get the best possible departure deal. It’s not currently known what hiring prospects in financial services will be like post-Brexit, which makes it even more important to secure the right exit package, whether that’s via redundancy pay or a settlement agreement.

City Jobs Brexit: Redundancy – the basics

  • You have the right to be given notice of redundancy. This is based on the number of years of service – 12 weeks’ notice for 12 years or more, one week’s notice for every year of employment for two to 12 years’ service and at least a week for anything below two years. These are the minimum periods of notice that an employer must give in law but your employment contract may contain longer notice periods.
  • You may not serve out your notice. An employer can offer pay in lieu of notice or you may be asked to take Gardening Leave, which means serving out the notice period away from the office.
  • You have the right to be consulted. Redundancy law requires employers to consult employees before dismissing anyone on redundancy grounds. Different time limits and consultation requirements apply, depending on the number of employees being made redundant.
  • Once you’ve received your redundancy notice you’re entitled to paid time off to look for other work (usually two days). You can also take unpaid leave for training and to look for another job, within reason.
  • Your employer may choose to offer you a settlement agreement rather than go through the redundancy process to determine redundancy pay.

City Jobs Brexit: The settlement agreement

Settlement agreements are often used in a redundancy situation as an alternative to redundancy procedures. They usually offer a cash payment in return for the employee waiving their rights to bring any kind of legal action against the employer.

In the UK, a settlement agreement must be in writing and will not be binding unless both parties have taken independent legal advice. If you are in a redundancy situation and presented with a settlement agreement, it’s crucial to take legal advice to ensure the agreement is valid but also so that you get the best possible deal.

City Jobs Brexit: What’s the purpose of a settlement agreement?

To bring an employment relationship to an end on agreed terms. In a redundancy situation, the use of a settlement agreement is often to save the time and resources involved in going through the full redundancy process. Settlement agreements are legally binding documents and so should not be signed without a sound understanding of the contents.

City Jobs Brexit: Are settlement agreements voluntary?

Yes. Employees being made redundant are not obliged to accept a settlement agreement that is on the table. If you refuse a settlement agreement then your employer will be required to go through the official redundancy processes in order to legally make you redundant.

City Jobs Brexit: Why do employers choose settlement agreements?

Employers like settlement agreements because they save time and money by avoiding the redundancy process. They also prevent a situation in which an employee feels that the redundancy process has not been properly or fairly handled and subsequently makes a claim against the employer for compensation for unfair dismissal. Once the settlement agreement is signed, as long as it was properly handled, the employee cannot make any future claims.

City Jobs Brexit: Why would an employee accept a settlement agreement?

As employers like settlement agreements, they tend to offer incentives to employees to make signing the agreement more attractive than going through a redundancy process. So, for example, the agreement will usually contain an offer to pay more as a settlement sum than an employee would receive if their employment came to an end via a standard redundancy process.

City Jobs Brexit: What type of clauses might you find in a settlement agreement?

1. Employee entitlement – this covers what the employee is entitled to in return for signing the agreement and could be a combination of:

a) Contractual payments including:

  • Payment in lieu of notice
  • Accrued, but not taken, holiday
  • Any benefits due during notice
  • Bonus payments
  • Stocks and shares

b) A compensation payment. Above the legal minimums, the amount of compensation offered is dependent on an employer. The first £30,000 is usually tax and National Insurance free.

2. A reference – agreed job reference wording should be attached to the settlement agreement and a clause inserted that requires an employer to refrain from any less favourable oral references.

3. Confidentiality – usually, employees will be required to keep the contents of the agreement confidential.

4. A “non-derogatory” clause – i.e. the employee cannot speak in a derogatory way about the employer. It’s a good idea to make sure that this is reciprocal.

5. Restrictive covenants – there may be restrictions in the agreement on who an employee can go on to work for in the future. Variations and waivers can usually be negotiated.

A redundancy situation is not something to ignore – the right support will be key when it comes to handling the process effectively. Settlement agreements can be complex but, if well negotiated, can help to secure a bright future.

Please get in touch with one of our specialist employment lawyers Helen Monson or Imogen Finnegan.

Contract for Services EM Law

Contract for Services?

Does your business engage consultants?

In a recent case (Sprint Electric Ltd v Buyer's Dream Ltd and another [2018] EWHC 1924 (Ch), 30 July 2018) the High Court ruled that, despite the litigants entering into what was called a “contract for services”, the true nature of the relationship was that of employer/ employee.

Surprisingly, this was a great result for the employer – it meant that ownership in the intellectual property rights in the software that the employee had developed belonged automatically to the employer. Remember – in a true contract for services / consultancy arrangement – the consultant will own the intellectual property in the materials that he or she creates unless the contract says otherwise. Not so for employees.

But while Sprint Electric may be popping the champagne the case will serve as a worrying reminder to businesses that just because they’ve called a contract a “consultancy agreement” or a “contract for services” and included “proper” consultancy clauses in it, this doesn’t mean the court (or HMRC) will agree. Our lead contract for services lawyers are Imogen Finnegan and Helen Monson who are experts in all employment law matters.

Here is a reminder of some of the things that the courts will look at to assess whether a relationship is one of employer/employee or client/consultant:

Contract for services - Factors indicating employment status

• The company is required to provide the individual with regular work and the individual must make themselves available to do the work.

• The individual is required to provide the contract for services personally. Either there is no right to appoint a substitute or any right of appointment is subject to the company's approval.

• The company controls what the individual does, how they do it and when they do it. However, those holding senior, professional or skilled positions may retain significant control over how they carry out their work but still be employees. The individual may also be expected to conform to standards of, for example, behaviour expected of others within the same working environment.

• The individual is not normally free to enter a contract for services with other organisations without the express permission of the company. The individual may be subject to restrictive covenants in their contract.

• The length of the engagement is not determined (with the exception of fixed-term contract for services) and does not relate to the performance of a specific task.

• The individual is paid a fixed amount on a regular payment date irrespective of performance targets or completion of a specific task (however, note that commission workers may be employees). They may receive a pension, bonus, private medical insurance, company car or other benefit and be entitled to company sick pay.

• The individual is integrated into the company. For example, they perform services which are similar to or substantially the same as those performed by an employee, their name appears on the internal telephone directory, they have a company e-mail address, they have a company business card.

• The company provides the individual with the facilities and equipment required by them to carry out their job.

• The individual is paid even if there is not sufficient work to keep them fully occupied. The individual assumes no financial risk in working for the company.

• The individual is not responsible for payment of income tax and national insurance contributions (NICs) on their earnings.

Contract for services - Factors indicating self-employed status

• The company is not obliged to offer work on a regular or frequent basis and the individual has no obligation to accept any work that is offered.

• The individual has the ability to determine when and how they work and is not under the direct supervision of the company.

• The individual is not required to carry out the contract for services personally and has an unqualified right to appoint a substitute.

• The individual is free to provide their services to whomever they choose without operating exclusively for one organisation.

• The individual is engaged for a finite period to carry out a specific task or project.

• The individual is paid on completion of a specific task or project or on a commission-only basis. They are not entitled to participate in any benefit schemes and will not normally be paid overtime.

• The individual is not sufficiently integrated within the company to have a defined role and does not perform services similar to or substantially the same as those performed by an employee.

• The individual provides their own equipment and materials in order to perform the contract for services.

• The individual risks their own capital in the business and will be personally responsible for any losses arising from their work. They may be required to correct any unsatisfactory work in their own time and at their own expense. Conversely, they may have the opportunity to profit from the success of the project.

• The individual is responsible for payment of their own income tax and NICs on their earnings and is responsible for registering for VAT if the level of their supplies exceeds the relevant registration limit.

If you need any help putting a contract for services together or if you want your consultancy / contract for services arrangements reviewed get in touch with one of our lawyers at EM Law. Neil Williamson, Helen Monson and Imogen Finnegan are specialists in this area.