Important Employment Law Issue - Assignment Example

MEMORANDUM The HR Director AB plc d: February 8, 2006. Legal Counsel. Madam/Sir: After a thorough examination of the issues relating to your recent cost cutting strategies that you have clarified to our firm and the related issues of sale of a part of your agency to a competitor with the outsourcing of some customer services to an Indian concern, we have identified the following salient legal issues for your consideration. (a) A strike has been called for by the members of the trade union Unifi wherein all employees of your organization are being called upon to participate in the strike, to express the opposition of the employees to the proposed cost cutting measures of your firm. It has been brought to our notice that the employees of AB have been approached by Unifi to participate in a strike, which will also involve picketing your firm’s premises in numbers large enough to prevent customers and employees from entering the premises for work or to conduct business. There are certain illegalities that may be highlighted in this situation which could form the basis for an action in tort by AB plc. The first aspect to be considered is that of balloting. The Trade Union reform and Employment Rights Act of 1993 specifies that the “appropriate period” specified for balloting and securing of votes shall be from the day the scrutineer is appointed.1 Moreover such balloting and counting of votes is to be carried out by an independent person.2 Such independent scrutiny of the strike ballots does not appear to be in accordance with the required procedure in the case of Unifi activity. Moreover, the vote for the strike cannot strictly be deemed to be a majority since only 2000 out of 7500 members in total have supported a strike, therefore Unifi does not have sufficient ground to render a notice in reference to a strike of the employees at AB plc premises. TUPE regulations also require that election of representatives and balloting be carried out in such a manner as to allow employees sufficient time to cast their vote as was found in the case of Ashford School & Anor vs Nixon and Ors2a. In reference to picketing, there is no “legal right” to picket. However, peaceful picketing has been allowed in law.3 But this does not include trespass or nuisance, neither will it include any mass effort at intimidation or restraining of employees or customers from entering AB plc premises. The proposal of Unifi to place employees in large numbers at AB premises may be illegal, as was laid out in the case of Gate Gourmet London Limited and Transport and General Workers Union.4 While a proposal was mooted to limit the numbers of workers picketing, the Court did not grant this but clarified however that peaceful picketing according to the Code required that “in no circumstances does a picket have power under the law, to require other people to stop or to compel them to listen or to do what he wants them to do.”5 Therefore the purpose of deterrence identified by Unifi may be contradictory to the persuasion that is all which is permissible under the Code. Moreover, picketing may also be actionable in tort if the specific provisions for peaceful picketing laid out under Section 220 of the Picketing Code are not adhered to. Another aspect that must be considered in this connection is that unions may be held liable under tort law; they can be sued for any unlawful activity under industrial tort. A notable example of this is the case of Lumley and Gye6, a third party persuaded one of the parties to a contract to break it off, which was deemed to be actionable under tort.7 Therefore Unifi activities could be potentially viewed as third party interference in the contract that exists between AB plc and its employees. (b) An employee who is dismissed shall be deemed to be dismissed for redundancy if the requirements of the business for the particular kind of work performed by the employee have ceased to exist8. Since AB plc is selling off a portion of its business and outsourcing some of its other business activity, therefore its requirement for employees for such work has been diminished and/or no longer exists, hence redundancy arises. The Employment Rights Act also provides for redundancy as one of the fair reasons for dismissal9. Therefore AB has the right to legally dismiss its employees on grounds of redundancy. The test for redundancy was first set out by the Courts in the case of Safeway v Burrell10, wherein a three stage procedure was set out as follows: (a) was the employee dismissed? (b) whether the organization’s requirement for employees to carry out such work had diminished and (c whether such diminution of work is the reason for dismissal. The House of Lords later confirmed this three way test in the case of Murray & Anor v Foyle Meats.11 When an organization is considering dismissal on grounds of redundancy, it is also required to consult the concerned Trade Unions and provide them complete reasons and justification for the dismissals proposed. Employee representatives must be contacted so that those potentially in danger for dismissal can also be warned of the impending move. Section 188 of the Trade Union and labor Relations Consultation Act (1992) sets out the duty of employers to consult with the trade unions in the event of impending dismissals. Section 195(1) spells out the fact that dismissals due to redundancy are categorized as being “for a reason not related to the individual concerned.” The requirement to consult arises especially in a case where more than 20 employees are involved within a 90 day period, as was laid out in the case of GMB v Man Tuck & Bus UK12. In the event that an employer fails to consult and inform employees about proposed dismissals on redundancy grounds, then this could hold them liable for claims of unfair dismissal, and this is what occurred in the case of Mugford v Milford Bank plc13 The consultation is mandatory, especially in the case of AB Plc that plans to dismiss many of its employees and consultation is not the same as warning the employees that they are to be dismissed. It is also necessary for an employer such as AB Plc that plans a large scale reorganization to also inform the Government about redundancies. It must notify the Secretary of State at the Department of Trade and Industry, using a specific form HR1 to clearly spell out the proposed redundancies with a copy to also be given to the employees union. The Company also needs to be extremely careful in its selection of employees for proposed dismissal. There are certain conditions under which a dismissal under redundancy will be automatically deemed to be unfair and may be liable for action. Some of these conditions are (a) redundancy is the primary reason for dismissal (b) while one employee is being dismissed on claims of redundancy, other employees in equivalent occupations in AB Plc are not being dismissed (c) the reason for redundancy is for reasons of maternity, pregnancy, dependant care. These are laid out under the Maternity and Parental leave Regulations 1999.14 Lastly, the employee’s membership or non membership in a Union cannot constitute grounds for dismissal under redundancy,15 just as trade recognition or de-recognition cannot constitute similar grounds for dismissal and will be deemed to be unfair16. Moreover, if the mandatory consultation is not carried out by the employers, the Courts can also choose to grant a protective award of up to 90 days of gross pay for every employee that is affected, as was the case in Smith and Another v Cherry Lewis Ltd.17 (c) When one firm sells off its assets to another under the TUPE transfer, there is the question of displaced employees to be dealt with and TUPE regulations specify the conditions under which the new employer will be obliged to take on employees fro the firm it is acquiring. A restrictive covenant placed upon an employee is however initiated during the time of hire. The purpose of a restrictive covenant is intended to protect confidential information that is relevant to the organization in question and to prevent the employee from disclosing such information to its competitors, especially if the employee is offered employment by one of its rival firms. In the case of David Brooker, his contract with AB plc which was signed at the time he was hired specifically states that for a period of six months after leaving AB Plc, he will not be permitted to work for any competitor in any form for a period not less than six months. The restrictive covenant throws a blanket over David’s alternative employment that is comprehensive and wide ranging. Restrictive covenants have however been enforced by the Courts, especially in the case of employment with competitors. In the case of Corporate Express Ltd v Day18, the existence of a restrictive covenant that was deemed to be reasonable. The defendant Ms Day went to work for a competitor firm and she had been responsible for 90% of the business carried on at the Plaintiff’s firm, there was a real danger that the confidential information and client portfolios she had access to would be used by her at the rival firm, which would adversely affect the business of the Plaintiff. In view of this, the restrictive covenant upon Ms Day was enforced and she was forced to leave her employment with the competitor form and seek employment elsewhere. There is however one aspect that must be taken into consideration in the case of David Brooker. Restrictive Covenants must be reasonable if they are to be held to be valid. In Ms Day’s case, such a Covenant was reasonable because of the vast amount of confidential information that was accessible to her, which could be used by the competitor firm. However, David Brooker does not handle confidential information at AB Plc, moreover, he has already been informed that may be dismissed under redundancy provisions. Therefore, the question is whether or not the restrictive covenant is permissible in his case. Firstly, he does not handle confidential information. Secondly, the provisions of the restrictive Covenant are too pervasive. It prohibits Brooker from working for “any competitor” , “in any form whatsoever”, apart from also setting out a mandatory minimum period of six months where Brroker cannot seek employment elsewhere. The terms of the Restrictive Covenant are thus such that it effectively bars Brooker from seeking employment and closes off practically all his avenues. The training that Brooker has will be valid only in comparable employment, which is likely to be available only with his competitors. Since the nature of his job is not a confidential one, such strict requirements as laid out by the restrictive Covenant may well be deemed to be too restrictive by the Courts. Moreover, another aspect that must be taken into consideration is the fact that some of the services of AB Plc are being outsourced and therefore there is a likelihood that TUPE regulations may not apply, which will result in a withdrawal of the protection afforded to the employees of AB Plc. In the case of ADI,19 Lord Justice May pointed out that “The Directive and TUPE regulations have a general purpose of protecting the employment of the employees of the first organization.”. However, in this instance, there is not likely to be a transfer of David Brooker’s employment to the organization that is buying a part of AB Plc, since it is not obligated to hire all the employees of the transferor firm, especially those such as Brooker who have been placed on redundancy. Therefore, the question that arises is whether the firm acquiring part of AB PLC is going to be interested in acquiring David Brooker’s contract and his restrictive covenant? Even in a case when the employee is employed with the transferor company immediately before the transfer takes place, the transferee may be unable to enforce restrictive covenants because according to regulation 5 (4A) , regulations 5 (1) and (2) of the Tupe transfer criteria will not apply. Since David is on the redundancy list, this therefore place shim a position where his future employment is not guaranteed and the job that he has in hand may also be lost. Therefore it is possible that the Courts may find the restrictive covenant in David’s contract too restrictive and rule that it is not “reasonable”. (d) Under the TUPE regulations, the new employer is bound to take over the contracts of employment of the employees on the existing terms and conditions.20 However, there is also the mandatory requirement for consultations with the employees. Any change to the terms of employment under a transfer condition may not be valid, even if the employees agree to it, as established in the case of Meade and Baxendale v British Fuels.21 Therefore, when an employee is hired by a firm, there is of necessity certain information which the employee may be required to provide, which will form a part of the records of the firm. In the case of a transfer, the information will be passed on to the transferee company, therefore it is unlikely that the employees will have much say in such information that is available n their records being passed on to the transferee company. However, the issue of employee consultation is an important one and the Courts have upheld the employee’s rights not to be a part of a transfer arrangement. For example, in the case of University of Oxford v Humphreys 22 regulations 5 (4a) and (4b) of the TUPE regulations were invoked, whereby it was established that an employee’s contract would not transfer if he indicates his refusal to comply with the transfer by informing the transferor that he objects to being employed by the transferee. When the employee thus exercises his right to objection, the employment will automatically terminate and therefore it follows that his records would not be made available to anybody else. Therefore since the employees complain of unauthorized transfer of their personal information, AB Plc needs to consider the fact that they had the obligation to consult the employees and check whether they wished to exercise their right to object to the transfer in which case their information, especially personal, sensitive information should not have been made freely available to the transferee. On the basis of the above, therefore, the following recommendations are made for your consideration: (a) A preliminary injunction be sought in industrial tort against Unifi on the grounds of illegal third party breach of the contract it has with its employees by provoking them to strike and disrupt traffic at its place of business. (b) A list of employees who may suitably fall under the category of redundancies be identified, which is then to be perused carefully to note whether any of them will have cause for action on unfair dismissal on any of the grounds that have been identified above in this document. (c) Armed with the list of redundancies, AB Plc engage in consultations with the Union members and employees in order to determine whether the recommendations on redundancies and the proposals for dismissal will be acceptable to the employees and what measures if any, can be worked out for placing the employees in other situations. (d) Determining during the process of consultancy what the grievances of the employees are in order to effectively prepare to address these issues and face them in Court if necessary (e) Make provisions to modify or adapt the restrictive Covenant associated with David Brooker’s contract. It is recommended that an amicable compromise be reached through negotiations with the employee which will enable him to take up his job while retaining the confidentiality of his employment and the nature of information that had been available to him during the course of his employment with ASB Plc. It would be in the interest of the firm to avoid a legal suit from Brooker. (f) Make immediate provisions to recover and close access to any personal information about employees that has been released to ABS and to secure the written permission of the employees to have such confidential information released to their future employers. (g) It will also be necessary to prepare to face up to a law suit that may be brought against the Company for divulging personal information about employees. It is possible that TUPE regulations on transfer may provide strong grounds to rebut such claims, however preparation is advisable. Bibliography: * Ashford School & Anor vs Nixon and Ors. (2002) UKEAT 666_00_1601 (16 January 2002) * ADI (UK) Ltd v Willer (2001) IRLR 542 at para 20 * Corporate Express Ltd v Day (High Court) QBD 2004 EWHC 2943 * 1992 Trade Union and Labour Relations (Consolidation) Act, Code of Practice, Picketing PL928 (1st revision) * Employment Code of Practice (Picketing) Order 1992 SI 1992/2176 * Gate Gourmet London Limited v Transport and General Workers Union (2005) EWHC 1889 QB * GMB v Man Truck and Bus UK (2001) IRLR 636 EAT (Advisory Bulletin 421) * Lumley v Gye (1853) 2 E and B 216 (118 English reports 749) * Lumley v Gye In Weir, T., 2000 A Casebook on Tort. Sweet and Maxwell: 584-588 * Murray & Anor v Foyle Meats (1999) IRLR 562 HL (Advisory Bulletin 403) * Mugford v Midland Bank plc (1997) IRLR 203 EAT (Advisory Bulletin 356) * Meade and Baxendale v British Fuels (1998) IRLR 708 * Section 139 (1) of the Employment Rights Act of 1996 * Section 98 of the ERA (1996) * Safeway v Burrell (1997) IRLR 200 EAT (Advisory Bulletin 353 * Sub Section 3A and Section 77 of Section 55 of the Trade Union Reform and Employment Rights Act of 1993 (c.19) [online] Available at: http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/legis/num_act/turaera1993420/ s55.html&query=Employment+Law+balloting&method=all; accessed 2/8/2006. * Smith and Another v Cherry Lewis Ltd (2005) IRLR 86, EAT * Transfer of Undertakings (Protection of Employment) Regulations 1981 * University of Oxford v Humphreys (2000) IRLR 183 Read More