David v C Plus - Case Study Example

David v C Plus Introduction C Plus’ decision to revise David’s salary and withdraw his bonus raises issues relating to variation of an employment contract, discrimination and reasonable notice. Separate and apart from those issues, the manner in which the managing partner dealt with David’s objections/complaint do not correspond with the statutory requirements of The Employment Act 2002 (Dispute Resolution) Regulations 2004. Each of these issues are considered below. Variation of an Employment Contract On the facts of the case for discussion David has an employment contract with C Plus setting out the terms and conditions of his employment. Those terms include the payment of 40,000 pounds annually and a discretionary bonus of 6,000 pounds provided he meets company deadlines. Although the bonus appears to be a flexible term in the sense that the company may at its discretion decline the payment of the bonus, the annual salary is a fixed term, agreed between the parties. A contract of employment is in many ways no different from a commercial contract in that it contains an exchange of agreements by which the parties are bound to observe.1 Like a commercial contract, an employment contract cannot be waived unilaterally unless the contract itself makes specific provision for variations of the type undertaken, although the contract may be varied by operation of statue without either parties’ consent.2 On the facts of the case for discussion there are no statutory provisions applicable to David’s salary under the contract with C Plus. It therefore follows that the variation could not be effected by the employer without David’s consent. It would appear that C Plus may be erroneously relying on a Section 4 Statement under the Employment Rights Act 1996 which permits variation of a Section 1 Statement.3 A Section 1 Statement is typically issued following the initial stage of employment and sets out the terms of employment. A Section 4 Statement will reflect changes to a Section 1 Statement. However, since a Section 1 Statement is not a contract in and of itself, but evidence of the existence of a contract,4 an employer can only logically rely on the validity of a Section 4 Statement if the employee to whom it relates agrees or does not voice an objection to it.5 Even if the employer fails to voice his or her objection to the Section 4 Statement the court may still deem it ineffective.6 David did however, voice his objection to the variation of his salary under the initial contract and by doing so makes the Section 4 Statement/variation of the contract invalid. He will therefore have a claim against C Plus for breach of contract. This may include payment of the additional 5,000 pounds deducted from his salary on a prorated basis. It may also include an order for specific performance in that C Plus may be ordered to pay David 40,000 pounds annually in accordance with the contract of employment. In order to substantiate this claim, David may wish to produce evidence of his ongoing contractual terms. If he does not have a written contract he will need to produce evidence of his salary up to the time of his employment. This may also be substantiated by virtue of a Section 1 Statement. David will also be required to produce evidence of his having approached the managing partner and voiced his objections as this will provide proof that he was not a party to the variation of the employment contract. Any action for these remedies can be commenced by lodging a complaint with the employment tribunal.7 Ultimately, David may wish to bring an action for unlawful deduction of wages.8 The claim must be brought within three months of the last reduction.9 Additionally, the implementation of radically new terms of the contract in the reduction of wages may be interpreted as constructive dismissal and/or the implementation of an entirely new contract.10 In this regard David may have a claim that he was unfairly dismissed from the initial contract of employment. Notice Even if C Plus was at liberty to vary the terms of the employment contract so that it altered or modified David’s salary, C Plus did not follow established protocol. That right may exist in a form of flexibility clauses in the contract. However, it has been ruled that flexibility clauses can only provide for unilateral variation of a minor and non-fundamental term of contract.11 Be that as it may, if C Plus has a contractual right to vary terms of the contract David will have no redress save and except reasonable notice of the change.12 In general, common law and the Minimum Notice and Terms of Employment Acts 1975-1991 require that reasonable notice be given of termination and changes in the terms of employment.13 The position was explained by the employment tribunal in Curust Hardware Ltd. v Elaine Dalton [1993] ELR 10 as follows: “The remedy for default on a term of a contract lies in contract law and such remedy would have it basis in compensation rather than penalty. In the Minimum Notice and Terms of Employment Act 1973-1991 there is no provision for a penalty to be imposed on either the employee or employer for failure to comply with the Act. There is however, a provision for payment of compensation by an employer to an employee for any loss sustained by the employee as a result of the employer’s failure to give notice.”14 C Plus did not provide David with any notice at all. The letter to David informing him of the wage reduction clearly stated that the deduction would be effective immediately essentially meaning that David would receive a reduced salary without having the benefit of reasonable prior notice of the same. According to the ruling in Curust, David will have a claim for compensatory damages in respect of the reduced pay since he did not receive reasonable notice of it. However, it is unlikely that the reduction is lawful as previously discussed so that damages for unreasonable notice of reduction of wages will only add to the damages for breach of contract and unfair dismissal. Bonus Although the bonus appears to be a flexible term of the employment contract, David will still have a claim for breach of contract for C Plus’ failure to pay the bonus. Section 13 of the Employment Rights Act 1996 provides for the enforcement of a bonus contained in an employment contract provided the conditions for paying the bonus are met. In such a case the employee may have a claim for unlawful deduction of wages.15 However, it has been held at common law that if a bonus is entirely discretionary the employee will have no claim in the event the bonus is withheld.16 In a later case however, the court ruled that an entirely discretionary bonus may be enforceable against the employer.17In Cantor Fitzgerald Intl v Horkulak [2004] IRLR 942, it was held that although the bonus was entirely discretionary, the employee was entitled to rely on it in the spirit of the relationship of trust and confidence in the employee/employer relationship if payment of the bonus was the norm in similar industries. Applying this case to David’s it appears that the other employees are still receiving their bonuses and David should therefore continue to receive his. The withholding of David’s bonus is therefore an unlawful deduction of wages and he is entitled to the remedies delineated above, provided he can produce evidence that the others are continuing to receive their bonuses. Discrimination C Plus can also be liable for discriminatory treatment of David. On the facts, C Plus’ economic policy is only affecting David while the remaining employees are continuing to receive their current salaries and discretionary bonuses. C Plus’ treatment of David can be interpreted as indirect discrimination because clearly David is being treated differently from other employees. Indirect discrimination occurs when an employer introduces a policy, practice, criterion or provision that disadvantages an individual or a certain group when compared to other employees.18 Moreover, the Equal Pay Act 1970 provides that all workers receive the same pay and other remuneration for similar work. Following a European Directive the Equal Pay Act 1970 was amended to fortify the requirements of equal pay for equal work.19 In addition Article 141 of the EC Treaty sets out a mandate for equal pay of all workers for similar work. 20 Article 141 requires that Member States ensure that workers are not discriminated against on the basis of unequal pay for equal work. By virtue of Section 2(1) of the European Communities Act 1972, Article 141 has direct effect in the UK.21 The ECJ explained the significance of Article 141 in Defrenne v Savena (no.2)[1976] ICR 544.22 In this case the ECJ stated that the general purpose of Article 141 was to ensure and promote fair competition and to promote and fortify social progress among the Member States.23 Article 141 has direct effect with the result that David may take action against C Plus for discriminatory pay policies by invoking Article 141 in either national courts or tribunals.24 He will be required to commence the action under a UK statute to this end he is advised to use the Equal Pay Act to commence the action.25 Article 141 permits complaints in pay discrimination, whether direct or indirect.26 A number of Equal Pay Directives have been implemented pursuant to Article 141 to safeguard against the kind of discrimination David is suffering with respect to unequal pay policies. The relevant Directives are: Equal Pay Directive 75/117/EEC. Equal Treatment Directives 76/207EEC, 2000/78EC and 2002/73/EC Directive on Reversal of the Burden of Proof 97/80/EC. These directives were combined with other discrimination directive and consolidated by EC Directive 2006/54/EC. Moreover, the Equality Act 2006 purposes to establish a new Equal Opportunities Commission for the regulation and enforcement of discrimination complaints. It is clear from the provisions discussed above that there is ample legal protection for David against the pay discrimination meted out by C Plus. He has a good chance of success and is advised to gather evidence of the ongoing practice in which his fellow employees are continuing to receive their bonuses and that their salaries have not been impacted by C Plus’ new economic policy. David should also be prepared to prove that his fellow employees are performing essentially similar work and hours as he is. Protocol The manner in which the managing Partner responded to David’s objections/complaint is inconsistent with the Employment Act 2002 (Dispute Resolution) Regulations 2004. The 2004 Regulations seeks to avoid the resort to legal action by encouraging employers to take a conciliatory approach to an employee’s complaints. The 2004 Regulations mandate that the complaint should be dealt with internally as far as it is possible to do so. Regulation 4 of the 2004 Regulations requires that employers considering disciplinary action or termination should take a three-step approach. First, the employer must notify the employee of the action contemplated, secondly the employer must arrange a hearing so as to allow the employer to heard on the issues. Thirdly, if the employer requests an appeal of the decision a hearing should be arranged with the most senior members of the company/establishment.27 Although C Plus sent David a letter he was never permitted the time or opportunity to heard with respect to the action taken against him. The managing partner’s dismissal of his complaint is evidence of the failure to follow protocol. C Plus failure to comply with the provisions contained in the Employment Act 2002 (Dispute Resolution) Regulations 2004.will go against it at the hearing of David’s complaint and will serve as evidence of the employer’s impropriety.28 Conclusion David has a good chance of success against C Plus. His claims are founded on indirect discrimination with respect to unequal pay, breach of contract, unlawful variation of a fundamental term of his contract, unlawful wage deduction and denial of a right to challenge the decision to reduce his salary and withhold bonuses. David is therefore advised to lodge a complaint with the employment tribunal and ensure that he is able to produce evidence of the pay deduction, the letter he received from C Plus, evidence of his complaint/objection and evidence that other employees are receiving higher wages and bonuses for equivalent work. Bibliography Bell, A.; Desmond, H. and Artill, D. Employment Law. (Sweet and Maxwell, 2006) Byrne, G; Moffatt, J.; Kennedy, M.; Shannon, G and Longain, M. Ni.. Employment Law. (Oxford University Press, 2006) Holland, J. and Burnett, S. Employment Law. (Oxford University Press, 2007) Read More