Employment Review - December 2018

Welcome to our final employment update for 2018. This month we take a look at a salutary tale arising from a Christmas party, the Morrison’s data breach, a case where statistics weighed against the Co-op in a discrimination claim and one which illustrates than bonuses may not be contractually binding. Other topical issues are mental health in the workplace and the gender pay gap, as well as flagging up what 2019 has in store for HR professionals.

After a successful nationwide seminar programme running through the year, we will look forward to welcoming you to our offices again in 2019 – keep an eye out for invitations to join us for latest updates on topical employment law issues in the coming year.

Finally, it gives me great pleasure, on behalf of the Freeths employment, pensions and immigration team, to wish you Seasons Greeting’s and a very Happy New Year.

Christopher Sing Partner 0345 017 1345christopher.sing@freeths.co.uk

Company held liable for Christmas party injury

With the festive season approaching, this case serves as a warning when it comes to keeping company and social affairs separate.Bellman v Northampton Recruitment Limited

After the Christmas party for Northampton Recruitment, employees had adjourned to another venue to continue drinking into the early hours. Conversation turned to work matters and the MD lost his temper and punched a salesman in the face, resulting in him falling and suffering a fractured skull and a traumatic brain injury.

The salesman claimed seven-figure damages against the company but this was rejected by a judge who ruled that it was not vicariously liable for the MD’s conduct. This was because the office party had ended several hours before the attack, the gathering at the hotel was for social purposes and the assailant’s behaviour had nothing to do with his employment.

However, the Court of Appeal upheld the salesman’s challenge to that decision, finding that the MD was at the time attempting to exercise his authority over his subordinates and was not merely one of a group of drunken revellers whose conversation had turned to work. The attack arose out of a misuse of the position that had been entrusted to him by the company and, as a result, the company's vicarious liability was established. Compensation has yet to be determined, but given the severity of his injuries will be a substantial amount.

Practical pointers:

whilst you won’t want to be the Grinch at Christmas, it is well worth considering adopting a Party Policy, which sets out the parameters of acceptable and unacceptable behaviour with the sanctions for non-compliance. At the very least, consider writing to your employees prior to the Christmas party to remind them it is a work event and they are expected to maintain the usual standards of conduct. 

Mental health in the workplace

With employers being more aware of the importance of good mental health in the workplace, new guidance from the CIPD and Mind should be of interest. Given that only 42% of employers feel managers would be able to spot early signs of poor mental health in employees, the guidance is aimed at helping to improve their response to this issue. Our anecdotal experience also reveals that a large proportion of employment issues have anxiety, stress and depression woven into the facts. The guidance includes information, resources and tools to enable managers to support struggling employees effectively. 

Statistics can be persuasive in discrimination claims

Statistical evidence is rarely enough in itself to prove discrimination in the workplace. However, of 81 stores in their South Wales region, the Co-op did not have a single non-white manager. This certainly had an impact on an Employment Tribunal’s decision in this case.

Mr G Brando Calderon v Co-operative Group Ltd

The case concerned a mixed-race man who had served as one of the chain’s store managers in London. He accepted a provisional demotion to deputy manager and a substantial reduction in his pay when he moved to the region. He expected to swiftly progress to a store manager’s role but that did not happen.

After he launched proceedings, the ET noted that the fact that all the chain’s store managers in the region were white was not, by itself, proof of discrimination. In upholding his race discrimination claim, however, it found that, because of his race, he had been either consciously or subconsciously treated less favourably than white applicants for manager positions. His aspirations had been ignored and he had not been given the same career progression opportunities as his white counterparts. The failure to engage him in administrative duties was also discriminatory.

His complaints of harassment and age discrimination were rejected, as were other aspects of his race discrimination claim. Compensation will be assessed at a further hearing if settlement terms are not agreed.

Practical pointers:

 perhaps this is a reminder for employers to not only undertake equal opportunities monitoring, but also to actually use it to determine the success of equal opportunity policies or otherwise, and take any steps that may be necessary to address underlying issues.  ‘Measure to manage’ is best achieved by at least an annual review of your statistics and we would recommend that your equal opportunities policy identifies a senior stakeholder in the business for the review and its frequency. 

Gender pay gap determines women’s choice of employer

A survey by the Equality and Human Rights Commission has revealed that 61% of women take an organisation's gender pay gap into consideration when applying for jobs. The results of the survey, which was commissioned to help identify whether gender pay gap information has an impact on staff motivation and behaviour, suggest that companies with a smaller gender pay gap will benefit from a broader range of talent. The poll also showed that 58% of women would be less likely to recommend an employer if it had a gender pay gap, indicating the reputational damage that companies could encounter as a result of failing to address gender pay issues.

Practical pointers:

think carefully about the narrative that accompanies your gender pay gap statistics.  The narrative should appropriately reflect the story of your business and outlining proactive initiatives in place to close any gender pay gap is a very practical way to address negative scrutiny. 

Supermarket Chain Vicariously Liable for Errant Employee’s Data Breaches

In a scenario which would be every employer’s worst nightmare, the Court of Appeal ruled that Morrison Supermarkets was indirectly liable for the actions of an employee who leaked its payroll data onto the Internet

WM Morrison Supermarkets plc v Various Claimants

The IT worker, who bore a grudge against the retailer, placed personal details of almost 100,000 employees on a file sharing website. He was convicted of fraud, together with offences under the Computer Misuse Act 1990 and the Data Protection Act 1998 (DPA), and was sentenced to eight years’ imprisonment.

Over 5,000 affected employees launched proceedings against Morrisons but a judge found that the retailer had not directly misused, authorised or carelessly permitted the misuse of any of the relevant data. However, it found that the IT worker’s nefarious actions were sufficiently closely connected to his employment as to render the employer vicariously liable.

In challenging that decision, Morrisons argued that it, rather than its staff, was the IT worker’s intended victim and that the judge’s ruling had enabled him to achieve his objective of harming its interests. The finding of vicarious liability would place an enormous burden on the chain and other employers who found themselves in a similar situation.

In dismissing the appeal the Court found that the common law remedy of vicarious liability is neither expressly nor impliedly excluded by the terms of the DPA. If the retailer’s arguments were correct, a hypothetical employee who had money stolen from his bank account as a result of a data leak by a co-worker would have no remedy, save against the wrongdoer personally. Noting the large number and scale of recent corporate data breaches, the Court observed that it is incumbent on those exposed to potentially catastrophic losses to take out appropriate insurance. The Court's decision opened the way for the affected employees to seek compensation from the retailer in respect of any losses suffered. 

Bonus lawfully denied to employee being investigated for fraud

Many employment contracts, particularly in the financial services sector, incorporate entitlements to bonuses or share options. However, as a High Court case showed, employers usually retain a wide discretion whether or not to actually award them and they can be withheld on reasonable grounds.

This case concerned a former bank employee who was the global head of a division that had come under criminal and regulatory investigation in connection with, amongst other things, alleged assistance provided to US citizens in evading tax. A former client of the department had admitted conspiracy to defraud the US Internal Revenue Service and the employee had been referred to as an unindicted co-conspirator in those proceedings.

Following an internal investigation, the bank’s remuneration committee decided not to award the employee bonuses and share options that would otherwise have been due to him under his contract. The employee responded by launching a breach of contract claim on the basis that he had not been found guilty of any wrongdoing and that the committee’s decision was arbitrary, perverse and capricious.

However the Court noted that his contract stated in clear and unambiguous terms that the bank enjoyed an absolute discretion whether or not to award the bonuses or share options. The breadth of that discretion was reiterated in a settlement agreement that was signed on his departure from the bank and he had no realistic prospect of showing that it had been exercised in bad faith. The bank had in any event carried out a bona fide investigation and the committee’s decision was justified by the employee’s persistent failure to respond to the allegations made against him.

Practical pointers:

the courts will assess whether an employer has taken account of matters which they ought to have done when considering whether to exercise any discretion to pay; you’ll want to ensure you have clear evidence of any decision not to pay being rational and the factors used to determine payment were reasonable and appropriate. 

Looking ahead - what’s coming up in 2019

Use of NDAs in employment disputes

The government has announced that it will bring forward a planned consultation on the use of non-disclosure agreements in employment disputes. It intends to improve the regulation around such agreements and make it explicit to employees when a non-disclosure agreement does not apply and cannot be enforced. The announcement follows the high profile Court of Appeal decision to stop a newspaper from naming a British businessman accused of the sexual and racial harassment of staff.

Executive pay ratio reporting requirements

Regulations on executive pay ratio reporting requirements are to be introduced on 1 January 2019 for quoted companies with more than 250 UK employees, applying to financial years beginning on or after that date. First reports will therefore be made in 2020.

They will be required to include certain pay ratios for the relevant financial year in the directors' remuneration report. The pay ratios compare the total annual remuneration of the CEO to UK employees whose pay and benefits are on the 25th, 50th and 75th percentiles. These companies will also have to report how share price changes impact on shares receivable by directors under long-term incentive schemes during the relevant financial year and which corporate governance code or corporate governance arrangements they applied in the financial year. Other requirements are for a statement on how the directors have engaged with employees and had regard to their interests when making business decisions, and how directors have dealt with the duty to promote the success of the business.

Ethnicity pay gap

A consultation has begun on the introduction of mandatory ethnicity pay gap reporting for large employers, closing on 11 January 2019. The government is asking for views on what information should be reported to prevent undue burdens on business.

Taxation of termination payments:

Employer class 1A national insurance contributions, as well as tax, will now be payable on the element of a termination payment which exceeds £30,000 from April 2019.

Abolition of Class 2 NIC for the self-employed comes into force at the same time. 

On the horizon

Parental Bereavement (Pay and Leave) Bill remains in train, though won’t come into force until 2020. Once enacted, it will provide parents with 2 weeks paid leave if they lose a child under the age of 18.

Extension of IR35 to the private sector remains a possibility, as is extending the right of shared parental leave to grandparents – but there is no certainty on either of these. 

And finally….Tribunal statistics

It was always anticipated that the removal of tribunal fees would see a rise in claims and this has been borne out by latest ACAS figures, published at the end of October. These show that the number of Early Conciliation notifications received has gone up by 53% on last year, whilst the number of single claims lodged with employment tribunals has increased by a staggering 165%.

In order to submit most claims to an employment tribunal, prospective claimants must partake in mandatory early conciliation with ACAS. Whilst not all claims notified to ACAS proceed to the Tribunal, employers are clearly seeing a continuing rise in disputes since abolition of fees.

Awards can be high; out of the 536 claims which received compensation for unfair dismissal for in 2017/18, the average award was £15,007, but the maximum award was £415,227. The highest award for a discrimination case was £242,130 and was awarded in a case concerning disability discrimination.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.