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Employment – Case Law Update

Our Employment team take a look at some recent decisions in employment law cases…

Can controlling shareholders be employees?

A recent ruling by the Court of Appeal has determined that directors and controlling shareholders of insolvent companies, who can prove that they were also employees of their company, are entitled to claim payments from the National Insurance Fund (NIF) in lieu of redundancy, notice and holiday pay.

Lord Justice Rimmer rejected the view that an individual could not be an employee of a company if they were also a controlling shareholder. The court also gave guidance as to the factors a tribunal should consider in deciding whether a shareholder or director is in fact also an employee, including: whether the contract is genuine, the type of work undertaken under the contract, how the individual is remunerated and whether they have acted in accordance with the contract (for example, by not exceeding holiday entitlements).

Given that 12,000 claims on the NIF were made by directors of insolvent companies in 2008, a large proportion of which involve a controlling shareholder, this case is highly significant … and more claims are expected this year due to the recession. It also has wider implications because of the many other legal rights afforded to employees, such as the right to bring unfair dismissal claims.

Is your “discretionary” bonus scheme truly discretionary?

A bonus scheme described by an employer as “discretionary” and “not intended to be contractual” could nonetheless be binding on the employer, according to a recent decision of the Employment Appeal Tribunal.

The word discretionary in a bonus scheme may be attached to the decision to pay a bonus at all, its method of calculation or its amount. A court or tribunal must decide to what aspect of the scheme the word discretionary is attached and should also take into account the employer’s previous practice of giving bonuses.

An employer who wishes to retain absolute discretion of their bonus scheme will therefore need to make this very clear in the drafting of their employment contracts, handbooks and policies. Please contact us if you would like our Employment team to review your documentation free of charge.

When might an employee be entitled to legal representation at an internal dismissal hearing?

Employment Law currently provides the right for workers to be accompanied during disciplinary and grievance hearings by a fellow worker or a trade union official. However, in a recent High Court case, it was held that a music teacher facing disciplinary charges, for allegedly kissing a 15 year old student, was entitled to legal representation. The court stated that the gravity of the particular allegations, taken together with the very serious impact upon the claimant’s future working life, was such that they were entitled to enhanced protection under the Human Rights Act.

This is the first time a court has ordered a right of legal representation at an internal dismissal hearing and is unlikely to be the last.

We have experience in advising clients facing similarly serious allegations that warranted legal representation in internal disciplinary proceedings. So, if you are an employer looking for advice on running disciplinary and grievance hearings, or an employee who is due to attend a hearing, our team will be happy to assist.

When does an employer have a duty of reasonable adjustment in relation to a disabled person?

In this recent Employment Appeal Tribunal case, it was held that an employer is only exempt from the duty to make adjustments if each of four matters can be satisfied, namely that the employer:

  1. does not know that the disabled person has a disability; AND
  2. does not know that the disabled person is likely to be at a substantial disadvantage compared with people who are not disabled; AND
  3. could not reasonably be expected to know that the disabled person had a disability; AND
  4. could not reasonably be expected to know that the disabled person is likely to be placed at a substantial disadvantage in comparison with people who are not disabled.

 The Tribunal stressed that these are cumulative requirements and not alternatives.

 When is an employee not an employee?

 … or, in other words, to what extent can employers avoid the statutory obligations they owe to employees by drafting contracts asserting that the worker is not an employee?

This question was considered recently by the Court of Appeal, which held that a court or tribunal must look at the substance of the relationship and not just the label. If a worker claims that the written contract is a sham, the court must determine the true legal relationship between the parties.