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May 2012 Updates

Settlement offers and breaking the 'chain of causation'

The recent case of Konczac v BAE Systems (Operations) Limited provided useful guidance on a Claimant's duty to mitigate (i.e. limit) their loss and consider settlement during the course of an Employment Tribunal Claim. If an employee refuses to accept a settlement offer, this can be seen as a failure to mitigate their loss.

However, this was not the case on the facts of this claim.

The Employment Tribunal decided that the Claimant's medical condition, and her inability to work, had been caused by the on-going litigation with the Respondent. It decided that she should have accepted a reasonable settlement offer made by the Respondent.

It decided that by refusing the offer, she failed to mitigate her loss. It therefore limited her loss of earnings claim to the date that she turned down the offer. It reasoned that her refusal to accept the offer broke the chain of causation between her dismissal and her losses.

The Employment Appeal Tribunal disagreed. It decided that there was no evidence that the Claimant had been wholly unreasonable in refusing the settlement offer and that she was perfectly entitled to pursue her claim in the Employment Tribunal.

TUPE ? organised grouping of employees

The Employment Appeal Tribunal decided in Seawell v Ceva that even if an employee spends 100% of their time working for a single client, they are not necessarily assigned to an organised grouping of employees for the purposes of a service provision change. This means that their employment may not transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

This is at odds with the widely held opinion that a reasonable way to determine which employees will TUPE transfer to a new service provider is to look at the percentage of time that the employee spends on the work in question. However, it should be noted that the decision in this case supports previous appeal decisions, so the assumption that employers can rely on evaluations of time spent on a contract is not always correct.

The Claimant was employed by Ceva Freight (UK) Ltd, which provided logistics and freight forwarding arrangements for Seawell, a company which owned offshore drilling platforms. Seawell then decided to run the service "in house" and terminated this arrangement.

Seawell was not the only client of Ceva, but the Claimant spent 100% of his time working on the Seawell contract. Other employees spent smaller percentages of time on this contract and the rest of their time on other contracts.

The Tribunal decided that either the Claimant alone could be seen as an organised grouping of employees or, alternatively, if the organised grouping of employees included the Claimant and some of his colleagues, the Claimant was assigned to that organised grouping of employees as he spent 100% of his time on the service. On these alternative bases, the Employment Tribunal decided it was correct that the Claimant should be transferred under TUPE.

The Employment Appeal Tribunal disagreed. There was no evidence that there was a group of employees specifically organised for this particular contract. An organised grouping of employees should be a deliberate "putting together" of a group of employees for the purpose of the work.

There was no such conscious employee grouping in this case. As such, there was no service provision change and no relevant transfer.

Payment in lieu of notice and undiscovered conduct

The Court of Appeal's decision in Cavanagh v William Evans Ltd has changed the way employers should treat a payment in lieu of notice in the event that, after an employee's dismissal, they discover that the employee had committed gross misconduct during their employment.

Previously, in such circumstances, an employer could withhold the payment in lieu of notice, even if the employee's contract of employment provided for summary termination with pay in lieu.

The Court of Appeal has now decided that this is not correct.

The company decided that the Claimant's role was redundant and summarily terminated his service agreement, which provided for six months' pay in lieu of notice. It then discovered that the Claimant was guilty of gross misconduct prior to his employment ending. It therefore did not make the payment. Had the company known about the gross misconduct at the time, it would have ended the Claimant's employment in response to the repudiatory breach of the service agreement and discharged itself from the liability for pay in lieu of notice.

The Court of Appeal decided the Claimant had acquired an accrued right to the payment, as his contract had been summarily terminated under the relevant contractual provision. There was no provision in the service agreement denying him the right to the payment in lieu if the company subsequently discovered that he had committed a prior act of gross misconduct. Nor was there any general principle of contract law barring or extinguishing his right to recover the pay in lieu as a debt from the company. The principle that a claim for wrongful dismissal could be defeated by relying on evidence of misconduct discovered after the dismissal did not provide the company with a defence to a debt claim.

TUPE and pension liabilities

In the recent case of Procter & Gamble v SCA the High Court clarified a highly important issue; namely, whether early retirement pension rights transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

In 2007 Procter & Gamble (P&G) sold one of its businesses to SCA. TUPE applied and some employees transferred into SCA's employment.

The P&G defined benefit pension scheme offered early retirement benefits. SCA did not want to take on any pension liability.

TUPE does not allow any entitlements of a pension scheme that relate to old age, invalidity or survivors' benefits to transfer to a new service provider. However, early retirement benefits are not mentioned in this exclusion, and do transfer under TUPE.

The High Court made the following points:

  • Even though the early retirement benefit was a discretionary entitlement, it still fell within 'rights and obligations' transferring under TUPE.
  • The discretionary power (to be exercised in good faith) to provide early retirement benefit therefore passed to the new employer.

The High Court also considered whether this applies to liability for all early retirement benefits or only liability in respect of the enhancement until normal retirement age. The transferring employees were already entitled to deferred pensions from the P&G Fund. This meant that they were not entitled to also claim SCA pension benefits which substantially duplicated deferred pension benefits.


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