What’s New in Employment Law? ELA Seminar, 3 December 2013 Contracts Andrew Smith, Matrix

What’s New in Employment Law? ELA Seminar, 3 December 2013 Contracts Andrew Smith, Matrix

Commerzbank AG • Attrill & Others v (1) Dresdner Kleinwort Ltd & (2) Commerzbank AG [2013] IRLR 548, CA • Appeal against the decision of Owen J, who had found in favour of the E bankers [2012] IRLR 553

Key Issues • Was the ‘town hall announcement’ intended to have legal effect / an offer capable of binding the employer? • If so, did the offer require acceptance (and if so, had the Es in fact accepted)?

Intention to contract • Well-established principles: • Objective test • In bilateral contract cases (i.e. where there is negotiation and/or some form of express agreement), the burden is on the party seeking to disprove intention to contract

3. Furthermore, this burden (of disproving contractual intent) will be heavier where there is a pre-existing contractual relationship 4. The court is entitled to take into account evidence that the agreement was executed in whole or in part

Commerzbank judgment • There was an intention to contract • The Banks were unable to rely on Clause 1.4 of the Staff Handbook to defeat the claims • There had been an effective unilateral variation

Clause 1.4: “The Company reserves the right to vary the terms and conditions described in this handbook and the terms and conditions of your employment generally. Such changes can only be made by a member of the Human Resources Department and must be communicated to you in writing. When the change affects a group of employees, notification may be by display on notice boards or Company Intranet”

CA held: • Clause 1.4 should be given a strict construction • No ambiguity on the facts – clear distinction between individual and group changes • Live broadcast of ‘town hall announcement’ (on company intranet) was sufficient

Significantly, CA held that the BoP was on the Banks to disprove an intention to contract, even though the promise was unilateral in nature (having regard to the pre-existing contractual relationship between the parties) • See obiter comments of Elias LJ regarding the gravity of this burden / ‘threshold test’ (paras. 80 – 81)

Application of objective test re: intention to create legal relations – relevance of the parties’ subjective beliefs? • Guiding principle: the test should operate in a way which avoids ‘an injustice’

“The purpose behind the rule is that if the recipient of the unilateral promise would in the light of all the circumstances known to him reasonably understand the promise to be intended to be legally binding, the other party should not be allowed to escape liability by relying on evidence unknown to the recipient to establish that there was no such intention. But a rule of this nature must not be allowed to work an injustice. So a party who in fact knows that the other party does not intend to create legal relations cannot seek to contend otherwise by asserting that the evidence, objectively analysed, supports his case. He knows the truth and should not be allowed to deny it”

On the facts, the Banks could not rely on the objective test to conceal from the courts evidence which pointed against its contention that there was no intention to contract

Incorporation • Was the town hall announcement “apt for incorporation”? • CA said yes • The term applied as a promise to individual Esand was sufficiently certain

Potential difficulties with enforcement (vis-à-vis individual Es)? • Any difficulties (which the CA considered to have been overstated) could be resolved / overcome • Analogy drawn with the Court’s role in distributing trust funds

Absurd / unreasonable consequences argument (following Malone v BA) • Also rejected by the CA • The Banks had taken a calculated commercial risk and should not be permitted to resile from their position

Acceptance • This issue did not strictly arise for determination, in light of the CA’s conclusions re: Clause 1.4 (the unilateral variation issue) • Nevertheless, the CA went on to state: • The ordinary requirement to communicate acceptance is designed to protect the offeror (i.e. to ensure that the offeror knows there is an agreement)

On the facts, there was no requirement for the Es to communicate acceptance of the offer Two reasons given by the CA…

Reason no.1 “…it is plain that the employer has dispensed with the need for any response to the offer at all. This was a promise without any disadvantage, actual or potential, of any kind to the employees. Nobody hearing the promise made in this announcement would for one moment expect the employee to be able to benefit from it only if he or she positively accepted the offer. It would be a wholly formal and unnecessary exercise; the only sensible implication is that all employees who might potentially benefit from the promise would be deemed to have accepted it…”

Reason no.2 • Furthermore, the (group) nature of the promise was “inconsistent with the notion of individual acceptance” • Potentially “bizarre results” if individual acceptance were a condition of entitlement

Acceptance cont. • Beneficial and adverse changes? Farnsworth v Lacy [2013] IRLR 198 • E commenced work in 2003 – initially no PTRs • New CoE in 2009: contained a pay rise, access to new benefits (including private medical insurance) and PTRs • New CoE never signed by C

Per Hildyard J: “…the person who alleged inferred or implied acceptance must show that the benefit invoked, being the act relied on as giving rise to the inference of acceptance, was only available pursuant to the contract in question, and that the invocation of that contractual right was in unequivocal terms, such as to be referable only to acceptance of that contract” (para. 30)

On the facts, C had impliedly accepted all the terms of the 2009 CoE; and was therefore bound by the RCs contained therein: “…in proceeding, without any form of protest, or reservation, voluntarily to apply for new benefits not previously available to him Mr Lacy must, in my judgment, be taken to have accepted the legal incidents of this new definition of his relationship” (para. 72)

Cf. the approach in Patsytems v Neilly [2012] IRLR 979, HC • Reasonableness of (an existing) PTR was to be assessed by reference to the point in time when C agreed to be bound by it, and not when his Ts & Cs (including a pay rise and extension of his notice period) were subsequently varied

Incorporation of CAs / Policies • Wording of the CoE: express or implied incorporation (of particular terms)? • Aptness for incorporation • Overall language / character of the CA or policy under consideration • Absurd / unreasonable practical consequences

Aptness for incorporation • George v Ministry of Justice [2013] EWCA Civ 324 • Q: had the terms of a collective agreement regarding when the MoJ should allow prison officers to take time off in lieu of additional hours worked been incorporated into C’s CoE? • CA said no

Inter alia, the clause was not apt for incorporation • No evidence that the parties intended the relevant clause to be individually enforceable by a prison officer • It was “simply part of a package of provisions whose purpose was to do no more than provide non-binding guidance as to the practice to be adopted…in relation to the granting of TOIL”

Contractual entitlement? • Allen v TRW Systems [2013] IRLR 699 • Cs sought compensation pursuant to an enhanced redundancy payment provision, contained in R’s redundancy policy • R said no contractual entitlement; C’s claim was rejected by the ET

Cs’ appeal allowed by the EAT • The ET had adopted an unduly narrow approach • The E handbook was capable of being a source of contractual obligation, and the ET ought to have considered it

R had agreed the policy with the advisory council and made it the subject of an express promise in the E handbook • That begged the Q: “How can an employer, having acted in this way, sensibly deny that employees could have a reasonable expectation that payment would be made in accordance with the promise?”

Case remitted to freshly constituted ET for reconsideration • All claims bar one subsequently settled • One remaining claim settled at CA stage: [2013] EWCA Civ 1388

Park Cakes Limited v Shumba [2013] IRLR 800 CA • Q: had R’s practice of paying enhanced redundancy payments become a contractually binding entitlement for Cs?

ET rejected the claim: it was “unable to infer that the enhanced terms were paid without exception” • EAT upheld Cs’ appeal • CA agreed with the EAT

The ET’s failure to find that the enhanced redundancy benefits had been paid in the past on at least seven occasions (between 1993 – 2006) was a material flaw in its reasoning • The case was remitted for re-hearing by a different ET • Helpful guidance provided by Underhill LJ (at paras. 29 – 37 in particular)

“...the essential question in a case of the present kind must be whether, by his conduct in making available a particular benefit to employees over a period, in the context of all the surrounding circumstances, the employer has evinced to the relevant employees an intention that they should enjoy that benefit as of right. ........It follows that the focus must be on what the employer has communicated to the employees. What he may have personally understood or intended is irrelevant except to the extent that the employees are, or should reasonably have been, aware of it”

Relevant considerations will typically include: • On how may occasions / over what period the benefits have been paid • Whether the benefits are always the same • The extent to which the benefits are publicised generally

iv. How the benefits are described v. What is said in the express terms of the contract vi. Equivocalness

Geys v Société Générale • Repudiatory breach • Common law rule: a repudiated contract is not terminated unless and until the fundamental breach is accepted by the innocent party • Employment law is no exception to that rule • Right to affirm and sue for damages

PILON clause: “SG reserves the right to terminate your employment at any time with immediate effect by making a payment to you in lieu of notice (or, if notice has already been given, the balance of your notice period)…”

Per Baroness Hale in the SC [2013] IRLR 122: • The PILON clause did not dispense with existing notification requirements • It was an “obviously necessary incident of the employment relationship that the other party is notified in clear terms that the right to bring a contract to an end is being exercised, and how and when it is intended to operate”

iii. Para. 58: “It is necessary, therefore, that the employee not only receive his payment in lieu of notice, but that he receive notification from the employer, in clear and unambiguous terms, that such a payment has been made and that it is made in the exercise of the contractual right to terminate the employment with immediate effect”

Does this require the PILON to be paid before termination is effective? • Importance of clear and careful drafting; and strict adherence to those terms • Time limits in the ET: possibility of different contractual and statutory dates of termination (i.e. EDT)

Penalty Clauses • Forefeiture / clawback provisions etc • Often feature in severance packages / compromise agreements • Increasingly prevalent in the current climate – fear of ‘reward for failure’ perception / regulatory issues

Imam Sadeque v Bluebay Asset Management (Services) Ltd [2013] IRLR 344, HC • Very helpful ‘one stop shop’ for applicable principles • Factual summary: £1.7m worth of fund units, due to vest in 2012

“Bad leavers” would forfeit the right to receive unvested fund units • Definition included “serious misconduct” • Conduct concerns  Compromise Agreement • Agreed that C would be treated as a “good leaver” for the purpose of the fund units, provided that he complied with the terms of the CA and his CoE

But: BB subsequently discovered that C had been guilty of competitive activity during the handover / GL period (which ended in Dec 2011) • BB withheld the fund units on the basis that C was a “bad leaver” • C argued that the ‘eligibility conditions’ were penal in nature and unenforceable

Decision • C’s arguments were rejected by Popplewell J • BB was lawfully entitled to withhold the fund units from C

General Principles • Starting point: “A penalty clause is a clause which, without commercial justification, provides for payment or forfeiture of a sum of money, or transfer of property by one party to the other, in the event of a breach of contract, the clause being designed to secure performance of the contract rather than to compensate the payee for the loss occasioned through the breach”

Is there a payment / forfeiture / transfer provision? • If so, is it triggered upon a breach of contract? • If so, what is the purpose / objective of the provision? • Is the provision without commercial justification?

(1) Payment / forfeiture / transfer provision • Need not be a payment of money • Importantly, however, the penalty doctrine does notapply to the loss of contingent rights

(2) Breach of contract • The penalty doctrine does not apply to cases in which the sum is payable of forfeit upon an event other than breach • See e.g. Berg v Blackburn Rovers FC [2013] EWHC 1070 (Ch)

What’s New in Employment Law? ELA Seminar, 3 December 2013 Contracts Andrew Smith, Matrix