July quarterly case law update

For the next instalment in our quarterly case law series, we look back at some of the key cases since April 2020, and the lessons we can learn from them.

Unfair dismissal

1. In Gwynedd Council v Barratt, the Employment Appeal Tribunal (EAT) considered the fairness of using a competitive interview process in a redundancy exercise. The claimants were teachers that were made redundant after a reorganisation of school services in the Gwynedd area. As part of the redundancy exercise, the school held a competitive interview process for jobs at a new school rather than applying selection criteria or scoring.

The original Employment Tribunal (ET) had decided the dismissals were unfair due to a failure to provide a right of appeal, a lack of consultation and requiring employees to undergo competitive interviews for the same or very similar jobs to those they already held. Gwynedd Council appealed the decision.

The EAT dismissed the appeal, holding that the ET was entitled to reach that decision. The claimants had effectively been asked to “apply for their own jobs” without any way to challenge the redundancy process.

The case is a clear warning to employers that in certain circumstances requiring employees to undergo a competitive interview process in a redundancy situation is likely to be unfair. However, the comments of the EAT did not suggest this would always be the case. What was significant in this case was that the employees were having to apply for the same or substantially similar jobs to those they had already occupied. Comments from the EAT have left open the possibility that a competitive interview process as part of a redundancy exercise may be fair, if the new roles are substantially different from the old roles, for instance as part of a company re-organisation.

2. In Mr C Williams v The Governing Body of Alderman Davies Church in Wales Primary School, the EAT reconsidered an employee’s claim for constructive unfair dismissal and discrimination. Mr Williams was a primary school teacher with an accepted disability. He was suspended and subjected to two disciplinary procedures, the first in relation to child protection allegations and the second, over alleged breaches of the school’s data protection policy.

Mr Williams had raised a grievance and complained about the process followed by the school however, when he resigned, he said the last straw was learning that a colleague, subject to a connected disciplinary investigation, had been prohibited from contacting him.

Although the ET was highly critical of the process followed by the school and agreed that Mr Williams was influenced by this in his decision to resign, the ET decided that the “last straw” act Mr Williams relied on was an “innocuous” act and his claim for constructive dismissal therefore failed.

The EAT allowed Mr Williams’ subsequent appeal and decided the ET had incorrectly applied the law in relation to constructive dismissal. As there was prior conduct amounting to a fundamental breach which was not accepted by the employee, and which materially contributed to his decision to resign, his claim for constructive dismissal was made out.

In the EAT’s view, if the final act is “innocuous” this will only be fatal to constructive dismissal claims where the claimant has been found to have accepted the prior breaches by the employer. In those cases, the claimant will need to show the final straw act was more than “innocuous” or trivial. Employers should be mindful of this decision and consider that even a seemingly trivial act on their part could allow an employee to resign and assert constructive dismissal on the basis of earlier conduct.

Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and Changing Contractual Terms

3. In Ferguson v Astrea Asset Management Limited, the EAT considered whether beneficial changes to an employee’s contract following a TUPE transfer where the sole or principle reason for the change is the transfer itself, could be void under regulation 4(4) of the TUPE regulations.

It is accepted that regulation 4(4) renders detrimental changes to an employee’s contract void, if the sole or principle reason for the variation is the transfer itself. However, previous case law had found that employees could enforce beneficial changes agreed with the new employer and still have the benefit of avoiding detrimental changes.

In this case, the claimants were the directors of an estate management company. The sole estate they managed gave notice to terminate the contract and in their place another estate management company would take over running the estate. It was accepted that this constituted a TUPE transfer. During the notice period and prior to the transfer, the directors updated and reviewed their own contract terms, giving themselves generous guaranteed bonuses and rights to significant termination payments.

After the transfer, the new management company dismissed the directors and the directors sought to enforce the beneficial terms they said had transferred with them. They claimed that regulation 4(4) was limited to detrimental changes only.

The EAT disagreed and confirmed that neither previous case law nor regulation 4(4) prevented a tribunal from finding that beneficial contractual changes were void, if the sole or principle reason for the change was the transfer itself. The EAT found that the purpose of the protection under EU law is to safeguard the employee’s rights, that is, to prevent something undesirable, rather than to improve something. Even if their interpretation of the regulation was wrong, the EAT further found that the claimants were prevented from relying on the beneficial changes because of the abuse of EU law principle.

Whilst the case does not mean all beneficial changes will be void, for instance beneficial changes for economic, technical or organisation reasons entailing changes to the workforce will still be enforceable, it is still a welcome decision by employers, and we would suggest a common sense and fair balance of employee-employer rights.

Settlement Agreements and Confidentiality Clauses

4. In Duchy Farm Kennels Limited v Graham William Steels, the High Court considered whether the breach of a confidentiality clause by Mr Steels in a COT3 settlement released the employer from any ongoing obligation to continue making settlement payments.

Mr Steels had brought several claims against his former employer, Duchy Farm, in the employment tribunal. During proceedings and with the assistance of ACAS, the parties reached a settlement and confirmed the agreement in a COT3. The settlement monies were to be paid by instalments.

Amongst other things, the COT3 included a confidentiality clause and a warranty that Mr Steel had not and would not disclose the facts and terms of the agreement.

Duchy Farm became aware that Mr Steel had subsequently breached the confidentiality clause and had told a former colleague about the settlement. They immediately ceased making any further payments to him.

Mr Steel brought proceedings in the county court to enforce the terms of the COT3. Both the county court and the high court agreed the confidentiality clause was not a condition of the COT3 and in the circumstances, the breach was not a repudiatory breach releasing the employer from its obligations to pay the remaining instalments.

The case does not mean that confidentiality clauses can never be a condition of the settlement. Rather, the case is a warning to employers – if an employer considers confidentiality is a fundamental part of the settlement, they need to include an express term stating that the confidentiality clause is a condition, or they should include a specific remedy in the event that the employee breaches the confidentiality clause. Otherwise, any claim for breach of confidentiality may be limited and the employer may be left paying any settlement monies to the individual notwithstanding the breach.