Welcome to the October 2009 edition of Need to Know.  This month we look at the recent legislation whereby employers can no longer include tips as part of the national minimum wage. 

We also look at when an employee is (or is not) an employee, when a dismissal letter becomes effective and when a person is disabled.

Finally we consider a High Court case on whether customer invoices are sufficiently confidential to be protected by law.

Please contact a member of the employment team if you have any queries in relation to the issues set out below or any other employment-related query.

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Service not included -  taking tips out of the national minimum wage

Dismissal letter only effective when read by employee

Am I still disabled? The "likely" test lowers the bar

Employee or not an employee

Are invoices confidential information?

The recent Court of Appeal decision in Gisda Cyf v Barratt has confirmed the general approach that, where an employee is summarily dismissed by letter, the effective date of termination ("the EDT") is the date that the letter is read by the employee and not the date that it is sent or delivered.

The respondent, Lauren Barratt, worked for the appellant, a charity based in Wales. She was spotted at a private party and was alleged to have indulged in "inappropriate behaviour" by one of the service users, who was also at the party.

She was summoned to a disciplinary meeting on 28 November 2006 and was told to expect a letter informing her of the outcome on 30 November. Gisda Cyf posted a letter by recorded delivery on 29 November stating that she had been summarily dismissed.  The letter was delivered on 30 November, but signed for by somebody other than Ms Barratt.

This was because Ms Barratt had left home early on 30 November to visit her sister in London, who had recently given birth, and Ms Barratt did not return home until late on 3 December. She read the dismissal letter on 4 December and brought a claim for unfair dismissal on 2 March 2007.

The normal deadline for a claim for unfair dismissal is 3 months from the EDT and the issue was whether her claim had been brought in time.

Both the Tribunal and the EAT followed existing case law and held that, where summary dismissal is by letter, the EDT is the date that the employee reads the letter (or has had a reasonable opportunity of reading it) rather than the date it is posted. They drew the line at situations where the employee has deliberately left home to avoid reading the letter or avoided opening it.

The Court of Appeal upheld the decision.

This case confirms that the employer must bear the risk of a dismissal letter not being seen or read when delivered. This can cause confusion and uncertainty as to the actual EDT, and it is advisable for employers to take all steps to make sure the dismissal letter is read, eg, by giving the letter to the employee in person.

Where this is not the case and an employer dismisses by a posted letter, by fax or by email, it needs to be aware that the EDT will be the date on which the letter is read (or could reasonably be expected to be read) rather than the date on which it was sent.

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Service not included -  taking tips out of the national minimum wage

Dismissal letter only effective when read by employee

Am I still disabled? The "likely" test lowers the bar

Employee or not an employee

Are invoices confidential information?

Last year's House of Lords decision in Lewisham v Malcolm created, in many cases an insurmountable hurdle for employees bringing disability discrimination claims.  The Malcolm comparison-test effectively allows an employer to dismiss a disabled employee on sick leave if the employer can show it would have treated a non-disabled employee in the same set of circumstances (ie, absent from work) in the same way, including the same length of absence. 

The EAT gave some comfort to employees when it refined the Malcolm decision earlier this year. In Fareham v Walter, the EAT held that such a dismissal could still be unlawful if the employer could have made reasonable adjustments to avoid the dismissal; the reasonable adjustment identified here was allowing the employee to return to work on a phased basis.

In a further important case in this area, SCA Packaging Limited v Boyle (which started life in Northern Ireland), the House of Lords has significantly widened the meaning of "disability" under the Disability Discrimination Act 1995 ("DDA").

Under the DDA a disability is a physical or mental impairment which has a substantial and long-term adverse effect on the ability to carry out normal day-to-day activities". 

Mrs Boyle suffered from hoarseness and vocal nodes.  The condition affected her ability to speak and to socialise.  After surgery, she was advised to follow a voice management regime to reduce the stress on her throat and voice.  Whilst on the voice management regime, Mrs Boyle's nodes and hoarseness did not return.  Mrs Boyle brought a DDA claim when her employer developed plans to remove partitions near her desk despite opposition from Mrs Boyle and her surgeon.  SCA argued that Mrs Boyle was not disabled as her condition no longer had an adverse effect on her day-to-day activities.

Schedule 1 to the DDA states that "where an impairment ceases to have a substantial adverse effect on a person's ability to carry out normal day-to-day activities, it is treated as continuing to have that effect if that effect is likely to recur."

The Northern Ireland Court of Appeal held that the word "likely" meant "could well happen", rather than the previous threshold test of "more probable than not".  Applying the "could well happen" test, it held that Mrs Boyle's vocal nodes were likely to recur if she did not follow the voice management regime and, therefore, despite the fact that she displayed no symptoms of her disability, she was considered to be disabled and thus protected by the DDA.  The House of Lords agreed.

With the threshold lowered for individuals to claim disability discrimination, employers should be careful not to overlook an employee's disability where the condition is masked/managed by medical treatment. 

The principle established by SCA is that if an employee is following a course of treatment on medical advice for a condition then, in the absence of any indication to the contrary, employers should assume that the "impairment" is likely to recur without the treatment.

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Service not included -  taking tips out of the national minimum wage

Dismissal letter only effective when read by employee

Am I still disabled? The "likely" test lowers the bar

Employee or not an employee

Are invoices confidential information?

In a dispute between two competing dairy companies, the High Court recently considered whether customer invoices are sufficiently confidential to be protected by law. 

JN Dairies Limited ("JND") supplied bread and dairy products to small shops.  JND's drivers kept daily records of all customer orders as its customers' requirements were not fixed.  These records were used by office staff to produce weekly invoices for each customer and left in the warehouse each Monday morning for drivers to distribute. 

S, an ex-driver of JND, took invoices left in the warehouse and handed them to J, a director of Johal Dairies Limited ("JDL") a direct competitor of JND.  S visited JND customers, on behalf of JDL, and told them that they would not receive a delivery from JND that day and therefore they should buy from JDL instead, at a cheaper rate. 

JND sought an injunction and damages against JDL and S, alleging breach of confidence.  At the initial hearing the injunction was refused. However, the case was later listed for a preliminary hearing to determine whether there was any actionable breach of confidence or misuse of confidential information. 

JDL argued that the information used was not confidential in a commercial sense and was of no value because the market was transparent and competitors had a good idea of the prices others were charging.  JDL also argued, even the information were confidential, it may have been confidential whilst the driver was employed by JND but he could not be restrained from using this information after his employment terminated.  JDL relied on the Court of Appeal case of Faccenda Chicken v Fowler, which established that only trade secrets, or information of equally confidential information, can be protected once employment has ended. 

The High Court rejected both arguments saying it was clear from the evidence that the information contained in the invoices was of considerable commercial value, given that both JND and JDL were in direct competition and that each attempted to win business from the customers of the other.  In addition, both JND and JDL took measures to protect the information contained in their invoices and S was paid £40,000 and given other benefits by JDL to provide the invoices. 

The High Court relied on Coco v A N Clark (Engineers) Ltd, a case which sets out the three requirements for a breach of confidence claim to succeed:

(i) the information itself must "have the necessary quality and confidence" about it;
(ii) there must have been communication in circumstances importing an obligation of confidence; and
(iii) there must be an unauthorised use of that information to the detriment of the party communicating it.

Turning to each principle, the High Court accepted that:

• the information (ie, the invoices) had the necessary quality of confidence as they were not in the public domain and disclosure by JND's employees would be a breach of their duty of good faith;
• S knew that customer invoices were commercially valuable information and that he had no right to obtain them or to pass them to anyone else without JND's authority; and
• there was an unauthorised use of the information in the advances made to JND's customers which caused a detriment to JND. 

This case might give some reassurance to employers, as it indicates that where information has been obtained by an ex-employee by illegitimate means, the relevant test is the Coco case, rather than the more difficult test in Faccenda.

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Service not included -  taking tips out of the national minimum wage

Dismissal letter only effective when read by employee

Am I still disabled? The "likely" test lowers the bar

Employee or not an employee

Are invoices confidential information?

On 13 October 2009 the Court of Appeal handed down its decision in Autoclenz v Belcher.

The case concerned a group of car valeters, engaged by Autoclenz, cleaning cars for British Car Auctions.  Autoclenz provided the valeters with cleaning equipment, for which they were charged 5% of their weekly pay.  It also charged them £9 per week for insurance. The valeters were paid on a piecework basis and had to pay their own public liability insurance.  When working they had to wear overalls with the BCA logo. All the valeters worked as sub-contractors. 

In 2007 the valeters accepted revised terms of contract. The new terms included a clause which stated that they did not have to carry out their work personally, but could send a substitute to do the work - a so called "substitution" clause.  The contract also contained a clause to the effect that Autoclenz did not have to provide work to the valeters and the valeters did not have to do any work that was offered. There was therefore, on the face of it, no "mutuality of obligation". The valeters were however required to notify the company in advance if they were not going to turn up for work on a particular day. The valeters paid their own tax and national insurance.

In November 2007, Mr Belcher and a number of his colleagues claimed that they were employees and were therefore entitled to unpaid wages and holiday pay.

The  Employment Judge decided that the valeters were employees (or at the very least workers) because of the degree of control Autoclenz had over them and the fact that, in reality, the valeters could not send a substitute and did have to do work that was offered to them.

The EAT overturned this decision and held that the valeters were not employees. The written terms were not a sham and there was no mutuality of obligation.  The EAT did find however that the valeters were "workers" covered by the Minimum Wage Regulations and the Working Time Regulations.

The Court of Appeal took a harder line. It held that the offending clauses should be disregarded as they did not represent the "true agreement between the parties".  The term removing any mutuality of obligation between the parties was inconsistent with the notification clause.   Similarly, the substitution clause in practice did not genuinely reflect the rights and obligations of the valeters as no real substitution had actually taken place.  It was not necessary to find that that the parties had intended the express written terms to mislead others.

As employees, the valeters were therefore entitled to the whole range of employment rights including the right not to be unfairly dismissed, maternity and redundancy pay. 

Historically, Tribunals have paid considerable attention to the written contract in determining whether someone is, or is not, an employee.  Following this judgement, Tribunals may look much more closely at the facts and reality of the relationship in deciding whether workers are employees, despite any label of "self-employed contractors" or other description.

Home

Service not included -  taking tips out of the national minimum wage

Dismissal letter only effective when read by employee

Am I still disabled? The "likely" test lowers the bar

Employee or not an employee

Are invoices confidential information?

A recent change in legislation, effective from 1 October 2009, means that employers can no longer include tips as part of the national minimum wage.

The two key pieces of legislation involved are the National Minimum Wage (NMW) Act 1998, which gives workers the right to a minimum hourly rate of pay; and the National Minimum Wage Regulations 1999, which set out remuneration that counts towards the national minimum wage. 

Before the regulations were amended, employers could use tips/service charges/gratuities to count towards the NMW, as long as they were paid through payroll.  From 1 October 2009 however, tips will no longer count towards the NMW, whether paid through payroll or not. All workers are entitled to the NMW in addition to any tips/gratuities received from customers. 

The amendment follows a court of appeal decision on a case involving a nightclub, Commissioners for HMRC v Annabel's (Berkeley Square) Ltd. The nightclub used a "tronc" system, commonly used for distributing tips. All tips were paid into the bank account of one person, the "troncmaster", who then distributed the tips to staff.

The Court of Appeal held the tips were not 'pay' - ownership of the money passed from customers to the "troncmaster", not the employer. As the money did not belong to the employer, it could not count towards the NMW.  The employees were entitled to receive both the NMW and their tips. 

In its consultation on the regulation changes, the Government highlighted that, when customers leave a tip, they expect it to go to workers in addition to their wages rather than to benefit the employer by counting towards the national minimum wage.

Employers should remember they could be liable to a penalty if HMRC discover they have failed to pay the NMW and workers will be entitled to arrears of wages paid at the current rate. 

The NMW increased, on 1 October 2009, to:

£5.80 for workers aged 22 and over (from £5.73)
£4.83 for workers aged 18 – 21 (from £4.77)
£3.57 for workers aged 16 and 17 (from £3.53)

A best practice code is available on the BIS website, developed by organisations such as the British Hospitality Association and the TUC.  HMRC has also published help sheets to provide guidance for employers on service charges and cover charges.   

The consequences of this case are not necessarily good ones. Employers, particularly in the hospitality industry, will bear additional costs.  These costs could either be passed on to customers or, as many expect, employers will simply cut staff numbers.

The Department for Business Innovation and Skills (previously BERR) estimated earlier this year that 60,500 workers could be affected by this amendment. The British Hospitality Association suggested it had come at the worst possible time for restaurants, already struggling with falling takings. 

Although it seems fair that restaurant workers should be able to keep tips on top of their wages, this is a low margin sector and employers may struggle to pay the NMW. Waiting staff can earn a great deal in tips and, although restaurant operators might be seen as exploiting those staff, the arrangements worked in practice. Relaxing the rules, although it might seem fairer, may ultimately lead to staff losing their jobs.

Home

Service not included -  taking tips out of the national minimum wage

Dismissal letter only effective when read by employee

Am I still disabled? The "likely" test lowers the bar

Employee or not an employee

Are invoices confidential information?