Employment Law Issues - Essay Example

A difficult balance has to be struck between attaining a degree of legal certainty in law of employment whilst doing justice to individual cases based upon the particular facts of the case. With reference to determining employee status, applying the implied contractual terms of the contract of employment, the process of unfair dismissal, and equal treatment in employment, assess the extent to which such a balance can be said to have been achieved. The continuous development of different working structures to accommodate the modern business environment has rendered the complex area of employment law a legal minefield. The significant variances in contemporary working relationship structures have compounded the need for legal certainty whilst simultaneously ensuring that justice is served in individual cases. The focus of this analysis is to evaluate how far the law goes to strike an appropriate balance between legal certainty and “just decisions” in context of the central legal areas of unfair dismissal, employee status and discrimination law. If we firstly consider employee status, section 230 of the Employment Rights Act 1996 (ERA) defines an employee as “an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment”. The section 230 definition has been criticised for being ambiguous1 and it is necessary to refer to the common law test for defining the status of an employee, which isn’t without its limitations. The starting point for determining whether an individual is an employee is the “control” test2. This was established in the case if Yewens v Noakes3, where Bramwell LJ asserted that “A servant is a person subject to the command of his master as to the manner in which he shall do his work4”. However, socio-economic developments in the labour market have changed the shape of employment status, thereby undermining the suitability of the control test as a sole determinant of employment status5. This was further acknowledged by the Court of Appeal in the case of Walker v Crystal Palace FC6, where the control test was given a different slant by focusing on whether the employer had the right to control the background arrangements for the work such as when and where the work was done, payments and holiday entitlements. However, the Walker extension of the control test was further developed into the “integration” test as propounded by Lord Denning in the case of Stevenson Jordan and Harrison v MacDonald & Evans7 “…under a contract of service, a man is employed as part of the business and his work is done as an integral part of the business; whereas under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it8”. This area of law is inherently complex, compounded by the difficulty of applying established legal principles to what Pitt refers to as the “shamrock organisation,” where firms have different types of workers including permanent full time workers, supply workers, and the flexible workforce9. As such the integrated test is difficult in reality to apply to the modern labour market. As such, in recent years, courts and employment tribunals (whilst taking account of the integrated test) now lean towards a multifactor approach, taking into account all possible relevant factors and weighing them against each in order to determine if an individual is an employee10. Whilst this clearly appears to be a pragmatic approach in reflecting reality, it clearly undermines legal certainty and the fundamental doctrine of judicial precedent. The judicial preference for a multifactor approach was asserted in the case of Market Investigations v Minister of Social Security11. In this case, Cooke J highlighted the following non-exhaustive factors as relevant to determining the issue of whether or not an individual was an employee: whether or not the worker provides personal service, control which “will no doubt always have to be considered, although it can not longer be regarded as the sole determining factor”12, whether the employer or the worker provides the tools and equipment, whether the worker hires his own helpers, what degree of financial risk the worker takes, if any; what responsibility for investment and management the worker has, and if the worker directly profits from good work. A case that is often utilised as a prime example of the multifactor approach is the decision in the case of Ready Mixed Concrete v Minister of Pensions and National Insurance13. Additionally, although stated to be self employed in the contract, it was held that the relevant test was the substance of the contract in practice. This was reiterated in the cases of Ferguson v Dawson14 and Massey v Crown Life Insurance15, where it was held that the express label given to the employment status as between the parties was a relevant consideration, however the overriding factor was to consider the substance of the contract between the parties. Moreover, in the case of Lane v Shire Roofing Limited16 it was held by the Court of Appeal that even if paying tax on self employed basis, the relevant question was whose business was being carried out on this occasion? If the answer was that it was the company’s as opposed to the individual’s own business, then this was a factor operating in favour of employment status. In the Ready Mixed Concrete case, it was held that a balancing act had to be undertaken and whilst many of the circumstances pointed towards a contract of service, the fact that the drivers paid for and maintained the lorries, meant that the drivers had effectively assumed part of the economic risk under the contract. As such, they could not be stated to be properly under a contract of service and therefore were not employees. Whilst these decisions pertaining to employee status clearly fly in the face of established employment law principles, they are arguably necessary to achieve a just result and prevent employer abuse of power in imbalanced bargaining scenarios. However, the fundamental flaw of these decisions is the fact that the judiciary have articulated their decisions under the language of “legal principles” whereas they are in fact case by case determinations. Perhaps the central problem is that the judiciary are expanding the test for employee status within the confines of precedent and established principles of employment status whereas the complex reality of business/worker relationships requires a case by case approach to strike the necessary balance. Another problematic area once employee status is defined, are the exact terms of contract particularly with regard to the right to vary and impose restrictive covenants to protect business interests. Section 4 of the ERA provides that employers have a legal obligation to inform employees of any purported changes to their terms and conditions within a month of the proposed change. However, there is no actual right to unilaterally vary terms and conditions of employment and any such rights must be agreed to by an employee17. Furthermore, implied principle incorporated into every employment contract is that if an employer insists on unilateral variation of contract, it will constitute an employer breach of the employment contract18. With regard to restrictive covenants, the House of Lords asserted in the case of Nordenfelt v Maxim Nordenfelt Guns and Ammunition 19the general principle that a covenant in restraint of trade will prima facie be void unless it complies with the following two conditions: 1) The clause is reasonable as between the parties; and 2) The clause is reasonable having regard to the public interest. Furthermore, in employment contracts, it is presumed that employees are in an unequal bargaining position20 and as such, restrictive covenants will be scrutinised more severely than in other contexts. For example, in the case of Herbert Morris v Saxelby21, the House of Lords held that a restraint of trade clause would be void unless it was protecting some genuine proprietary interest on the part of the employer “whether in the nature of trade connection or in the nature of trade secrets22”. Furthermore, it would be void if merely aimed at avoiding competition or prevented an employee using personal skill and knowledge acquired during employment. Accordingly, a restrictive covenant cannot be too wide in subject matter and must not be too wide in terms of the geographical and temporal limits placed on the employee’s activities23. This will ultimately be a question of fact and in the Nordenfelt case a restraint lasting 25 years was upheld on a weapon inventor. This was justified on the basis of the claimant’s key position, the large payment he received as consideration for agreeing to the restraint, coupled with the fact that the industry he was involved in was global yet the restraint was limited to the UK. Conversely in the case of Mason v Provident clothing24, a restriction on trading within 25 miles of London for three years was held to be void when the sales representative had been working in Islington, which highlights the fact that the very special nature of employment relationships requires a different legal approach outside the parameters of commercial legal principles to strike an appropriate balance. However, even if a clause is too wide, the courts may sever the unreasonable part and enforce the rest25. Severance can only be carried out in respect of a separate, unenforceable promise and if the covenant is construed as one indivisible promise, it will either stand or fall as a whole26. For example in the case of Atwood v Lamont27, Court of Appeal refused to sever on the grounds that the clause was a single, indivisible agreement and the doctrine of severance was only enforceable in respect of separate promises. The issue as to whether clause regarding poaching of employees is valid has created problems28. In the case of Kores v Kolok29, the Court of Appeal refused to uphold a contract between two competing employers that neither would employ former employees of the other. In case of Hanover Insurance Brokers v Schapiro30 the Court of Appeal refused to enforce such a covenant on the grounds discussed in Kores. However, this hasn’t always been followed and ultimately will depend on the facts31. The issue of contractual variation commonly causes problems in unfair dismissal cases also due to the ambiguity of section 98(2)(c) of the ERA, which effectively operates as a catch all provision entitling employers to claim dismissal fair on grounds of “some other substantial reason of a kind to justify dismissal”. This formulation has been criticised as being vague and circular, effectively enabling any reason to be potentially fair, with the sole qualification that the reason must be “substantial”, which in itself is subjective32. Indeed case law has shown “a bewildering variety of reasons which have been held to justify dismissal on this ground, giving extra impetus to the point that it is really very easy for an employer to establish a potentially fair reason for dismissal33.” The most common category of cases emerging under the heading of substantial other reason which has created legal uncertainty is the needs of the business. Surprisingly some cases have enabled dismissal even in cases where there has been employer breach of contract. For example, in the case of RS Components v Irwin34, the employer found it was losing business because sales staff was moving to competitors and as such imposed a unilateral variation of employee contract with restrictive covenant, preventing them working for a competitor. The dismissal of an employee who refused to agree to the variation was held to be fair as the restraint of trade clause was held to be necessary to protect the employer’s legitimate interest. Similarly in the case of Hollister v National Farmers Union 35 dismissal of an employee objecting to variation to their employment contract to protect business interests was held to be fair. Lord Denning asserted that the relevant question was “whether the reorganisation was such that the only sensible thing to do was to terminate the employee’s contract unless he would agree to a new arrangement”36. The case law further indicates that an employer has wide discretion in changing employee’s conditions of employment for the worse under the justification of “some other substantial reason”. For example, in the case of St John of God (Care Services) Limited v Brook (1992) a charity run hospital faced with closure due to financial reasons, unilaterally varied employee contracts on inferior terms. Thirty out of 170 employees refused to accept and were dismissed. Their dismissal was held to be fair. However, whilst the law clearly needs to adopt a pragmatic approach and consider employer business interests, the current situation effectively creates a ridiculous paradox, whereby an employer breach of contract can effectively constitute a fair reason for dismissal. This further undermines the fundamental implied term of the employment contract that an employer cannot unilaterally vary a contractual term without consent by effectively forcing an employee’s hand. In conclusion, this analysis highlights the complex nature of employment relationship as symbolised by Pitt’s “Shamrock organisation” model. Whilst the reshaping of company/worker relationships arguably creates the need for a pragmatic case by case approach, the balance between the need for legal certainty and “justice” is ultimately dependant on the particular area of the employment relationship. This perpetuates complexity and uncertainty as to the parameters of existing fundamental legal principles as highlighted by the decisions relating to employer variation of contractual terms and unfair dismissal. As such, it is recommended that official debate be undertaken with regard to each facet of the employment relationship, with a focus on the problem areas in a view to establish cogent and consistent guidelines. Whilst by no means a panacea, such an approach could go towards creating an advisory guide framework within, offering a degree of flexibility in approaching employment disputes. BIBLIOGRAPHY Honeyball & Bowers (2006). Textbook on Labour Law. 9th Edition Oxford University Press. Painter and Holmes (2006). Cases and Materials on Employment Law. 6th Edition Oxford University Press. Gwyneth Pitt (2007). Employment Law. 6th Edition Sweet & Maxwell Selwyn’s Law of Employment (2006). 14th Edition Oxford University Publishing. Employment Rights Act 1996 Read More