Latest Employment Law case updates - Frontline Edition 4 2020

1. The Commissioners for HM Revenue and Customs v Professional Game Match Officials Limited [2020] UKUT 0147 (TCC)

2. Duchy Farm Kennels Limited v Graham William Steels [2020] EWHC 1208 (QB)

3. East Coast Main Line Company Limited v Cameron UKEAT/0212/3101

4. Ferguson and ors v Astrea Asset Management Ltd [2020] UKEAT/0139/19/JOJ

5. Williams v The Governing Body of Alderman Davies Church in Wales Primary School [2020] UKEAT/0108/19/LA

6. B v Yodel Delivery Network Ltd (Case C-692/19) 

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1. The Commissioners for HM Revenue and Customs v Professional Game Match Officials Limited [2020] UKUT 0147 (TCC) (LINK)

In this tax case, the Upper Tribunal ("UT") decided that certain referees engaged by Professional Game Match Officials Limited ("PGMOL") were self-employed for tax purposes. The case centred on mutuality of obligations and control which are key factors in determining whether an individual is a deemed employee under the IR35 rules. 

PGMOL engages certain football referees to officiate primarily in leagues 1 and 2 of the English Football League but also in the Championship, FA Cup and occasionally in the Premier League. For these referees, refereeing is a serious hobby, done when the referees want to, in their spare time, fitted around other full-time employment and family life. Before the season starts, the referees are sent a number of documents (some requiring signature) which include a "Code of Practice", set of "Guidelines" and "Match Day Procedures". Much of the documentation is written in terms of expectation rather than legal obligation, but there are some provisions which amount to express legally enforceable rights and obligations, e.g. to provide a system of assessment and feedback, to provide training and coaching, and to provide health insurance and access to sport scientists. However, nothing in the documentation imposes any legal obligation on PGMOL to provide work or on the referees to accept work, and it is expressly stated that there is "no guarantee that match officials on the list will be offered any appointment…and match officials are not obliged to accept any appointments".

In the event of non-attendance at a match, the individual contracts simply fall away without sanction and without payment. Similarly, if it wishes to do so, PGMOL is free to cancel an appointment and replace the referee without breach of contract.

HMRC raised determinations that each individual engagement to officiate at a particular match was a contract of employment and therefore PAYE and class 1 NICs were due on the referees' fees and expenses. However, the first tier tribunal ("FTT") concluded that the referees were not employees, on account of insufficient mutuality of obligations and control. The UT agreed with the FTT, stating that in the absence of an obligation on PGMOL to provide at least some work (or some consideration in lieu of work) or in the absence of an obligation of the referee to undertake at least some work, there would be insufficient mutuality of obligations to characterise the overarching contract as one of employment.

They also did not accept that "a contract which provides merely that a worker will be paid for such work as he or she performs contains the necessary mutuality of obligation to render it a contract of service".

The decision may prove specific to its facts but does highlight the importance of mutuality of obligations in determining employment status, including in IR35 cases, and provides additional helpful guidance as to the level of mutuality required to form a deemed employment contract for tax purposes. The Check Employment Status for Tax ("CEST") tool developed by HMRC to facilitate a determination of whether a contractor is inside or outside IR35 is repeatedly criticised for not sufficiently taking into account mutuality of obligations and this judgment may lend some weight to the arguments for HMRC to revisit the tool before April 2021, when new IR35 legislation, requiring private sector end users of limited company contractors to assess the employment status of those contractors and ensure the correct tax treatment is applied to their fees, comes into force.

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2. Duchy Farm Kennels Limited v Graham William Steels [2020] EWHC 1208 (QB) (LINK)

In this case, the High Court confirmed that payment of sums due under a settlement agreement cannot be avoided where an ex-employee is considered to have been in breach of a confidentiality clause, unless confidentiality is a genuine condition of the settlement agreement (a condition being, in legal terms, a provision that is central to the agreement, any breach of which entitles the other party to treat itself as discharged from any further obligation under the agreement).

Mr Steels brought employment tribunal claims against his former employer, Duchy Farm Kennels Limited ("Duchy"). A settlement was negotiated through ACAS and recorded on a COT3 form in which Duchy agreed to pay Mr Steels 47 weekly instalments of £330 in full and final settlement of Mr Steels’ claims. The COT3 included, amongst other things, a confidentiality clause under which the parties agreed to treat the agreement as strictly confidential. Having paid £2,960 to Mr Steels, Duchy discovered that Mr Steels had disclosed the settlement to a former colleague and ceased further payments on the grounds that Mr Steels' breach of confidentiality released it from its payment obligations. The County Court held, however, that the confidentiality clause was an intermediate term rather than a condition of the contract. Unlike a condition, the remedy for breach of an intermediate term depends on the effect of the breach at the time it happens, and only if the breach substantially deprives the other party of the whole of the benefit of the contract is it treated as a fundamental breach, discharging the other party from any further obligation. The Court held that Mr Steels' breach was not a fundamental breach. Duchy appealed the decision to the High Court.

The High Court dismissed Duchy's appeal. The Court noted that the mere existence of a confidentiality clause in the agreement did not indicate that confidentiality was of major importance to the parties. Confidentiality was not at the core of the agreement so the County Court was right to characterise the clause as an intermediate term rather than a condition. Furthermore, the High Court agreed with the County Court's analysis that there was no fundamental breach of an intermediate term.

This case should serve as a warning to employers that breach of a confidentiality clause may not always justify non-payment of sums due under a settlement agreement if the clause is not a condition, i.e. central to the agreement. Two possible solutions to this were suggested by the High Court: 

• The parties can make specific provision in the contract terms for what should happen if there is a breach of confidentiality.
• The parties can insist that the settlement agreement specifies that the relevant clause is a condition.

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3. East Coast Main Line Company Limited v Cameron UKEAT/0212/3101 (LINK)

In this case, the Employment Appeal Tribunal ("EAT") found that whilst length of service is a valid consideration when deciding whether a dismissal is unfair, it is not a relevant factor when assessing whether a summary dismissal is in breach of contract (a "wrongful dismissal").

Mr Cameron had worked for East Coast Mainline Company (the "Company") for nearly 35 years. At the time of the incident in question he was a shunter, responsible for safely moving trains between platforms. In 2015, whilst working a night shift, he authorised the movement of a train which resulted in a driver, who was standing between the moving train and his own, being "brushed" by the moving train. The Company deemed the incident a serious safety incident as Mr Cameron had failed to carry out adequate safety checks. The Company dismissed him for gross misconduct and he brought claims for unfair dismissal, discrimination and wrongful dismissal in the employment tribunal.

The tribunal dismissed Mr Cameron's claims of unfair dismissal and discrimination but upheld his wrongful dismissal claim. It placed weight on the Mr Cameron's long service and concluded that, in the circumstances, his conduct was not so serious as to justify dismissing him without notice.

On appeal, EAT held that the tribunal had been wrong to take into account Mr Cameron's length of service when determining whether his dismissal without notice was in breach of contract. The EAT stated that length of service should have no bearing on the question of whether an employee's misconduct was so serious as to justify dismissal without notice.

This decision offers useful clarity to employers considering whether summary dismissal is appropriate in a case of misconduct, and confirms that the key issue is whether the conduct is serious enough to justify dismissal without notice. Extraneous factors such as an employee's length of service are not relevant.

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4. Ferguson and ors v Astrea Asset Management Ltd [2020] UKEAT/0139/19/JOJ (LINK)

In this case, the Employment Appeal Tribunal ("EAT") held that Regulation 4(4) of TUPE, which deems any purported variation of a contract void if the sole or principal reason is the transfer (unless certain specific exceptions apply), applies to variations which are beneficial to the employee as well as those that are detrimental.

The four claimants were the only directors and employees of an estate management company, LPAM Limited ("LPAM"). LPAM had a sole client. The client served 12 months' notice of termination on LPAM, with AAM Limited ("AAM"), a separate estate management company, taking over the contract following the expiry of the notice period. The change of service provision from LPAM to AAM constituted a relevant transfer for the purposes of TUPE. Two months before the transfer took place, the four claimants had varied their own employment contracts to their advantage, including adding a guaranteed annual bonus of 50 per cent of their salary, a termination payment calculated by reference to their length of service as directors, and a 24-month notice period. The transfer went ahead and the four claimants became employees of AAM, but were dismissed soon after the transfer. The claimants brought various tribunal claims based on the terms of the varied contracts.

The tribunal dismissed the claimants' claims, finding that the changes made to their contracts before the transfer were void under Regulation 4(4) because the impending transfer had been the reason for the variation. The claimants appealed the decision to the EAT on the basis that only changes that were detrimental to them were void under Regulation 4(4). They did so in reliance on previous Court of Appeal case law in which it had been held that a transferee could not rely on TUPE to avoid being bound by new, more favourable, terms it had agreed with the employees. The EAT agreed with the tribunal that the reference ‘any purported variation’ in Regulation 4(4) should be construed to cover all variations, whether or not adverse to the employee. They distinguished this case from the earlier case law on the basis that (inter alia) the relevant transfers in those cases had been governed by the 1981 TUPE Regulations, which contained no equivalent to Regulation 4(4).

The restriction on agreeing binding contractual changes in the context of a TUPE transfer continues to be a tricky issue for transferees on business sales and service provision changes. This decision at least provides helpful clarity on the enforceability of such changes, confirming that tactical pre-transfer changes to terms and conditions will not be binding on a transferee.

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5. Williams v The Governing Body of Alderman Davies Church in Wales Primary School [2020] UKEAT/0108/19/LA (LINK)

The Employment Appeal Tribunal ("EAT") has held that where there is conduct by an employer that amounts to a fundamental breach of contract, an employee can succeed in a constructive dismissal claim even where more recent conduct, which in itself is not a breach of contract, "tips" the employee into resigning.

Mr Williams had been suspended and subject to disciplinary proceedings for alleged misconduct. He had several complaints about the disciplinary proceedings, but ultimately resigned because another employee had been prevented from contacting him during the process, something Mr Williams alleged was the "last straw" triggering his constructive dismissal.

Whilst the tribunal found that the employer’s prevention of contact was entirely innocuous and reasonable in the circumstances, the EAT held that a tribunal cannot reject a constructive dismissal claim simply by looking at the alleged "last straw" and concluding that it was not of itself a breach of contract. It must also consider whether there is an earlier fundamental breach of contract that contributed to the resignation. In this case, the employer's prior conduct did amount to a fundamental breach.

The EAT also noted that the employee must not have affirmed the contract of employment following the earlier fundamental breach, and the eventual resignation must be at least partially in response to such conduct in order for a constructive dismissal claim to succeed. Mr Williams had not affirmed his contract and his claim was upheld.

This case emphasises that an employee may succeed in a constructive dismissal claim even if the event that finally triggers their resignation is not a breach of contract at all. It underlines the legal and factual complexity of constructive dismissal claims: much will depend on the evidence of the claimant about why he or she finally decided to resign.

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6. B v Yodel Delivery Network Ltd (Case C-692/19) (LINK)

In another decision on the vexed issue of "gig" economy workers and their legal rights, the European Court of Justice ("ECJ") recently considered whether a courier, engaged by Yodel as a self-employed independent contractor, was a "worker" for the purposes of the Working Time Directive (the "WTD").

The ECJ was asked for a ruling on this issue by the Watford employment tribunal. The tribunal was dealing with claims brought by a Yodel courier under the Working Time Regulations 1998 ("WTR"), which grants certain rights (notably the right to paid holiday) to workers but not self-employed contractors.
The courier was engaged under a services agreement stating that he was a self-employed independent contractor. He was not required to carry out delivery services personally but could sub-contract to someone of his choice, subject to certain minimum skills and qualification requirements. He used his own vehicle and mobile phone to perform the services, and was free to provide delivery services to others. He was not required to accept any parcel for delivery and Yodel was not required to use his services.

The definition of "worker" under the WTR includes a requirement that the individual works under a contract to perform services personally. The Yodel courier's right of substitution would therefore be fatal to a finding of worker status for the purposes of the WTR, but the tribunal wanted confirmation from the ECJ that this was compatible with EU law.

The ECJ pointed out that although the term "worker" is not defined in the WTD, previous case law has established that the essential feature of an employment relationship is a person performing services for and under the direction of another in return for remuneration. The ECJ also noted that a person's classification as an “independent contractor” under national law does not prevent that person being classed as a worker under EU law, if the individual’s independence is merely notional.

The ECJ noted that the Yodel courier had a "great deal of latitude" and that his independence did not appear to be fictitious. The Court therefore concluded that there did not appear to be a relationship of subordination between the courier and Yodel. It also confirmed that the definition of "worker" in the WTR and the requirement of personal service was not incompatible with EU law.

Whilst the ECJ held that it would be for the employment tribunal to make the final determination as to whether a self-employed independent contractor may be classified as a "worker", the above factors suggested that the courier would not be a worker for the purposes of the WTD. This paves the way for the tribunal to find that the claimant in this case is not a "worker" for the purposes of the WTR.

This case demonstrates that the question of whether an individual has rights as a worker or is a genuinely self-employed contractor is highly fact-specific. In the Good Work Plan (December 2018), the government stated that it would legislate to improve the clarity of employment status tests; however no such legislation has yet been put forward for consultation. No doubt this complex issue will now have slipped further down the government's list of priorities.