Frontline UK Employment Law Update Edition 24 2023 - Case Updates

1. Chief Constable of Police Service of Northern Ireland v Agnew [2023] UKSC 33
2. Mid and South Essex NHS Foundation Trust v Stevenson & Others [2023] EAT 115
3. Ponticelli v Gallagher [2022] EAT 140
4. Rajput v Commerzbank AG and another [2023] EAT 116

1. Chief Constable of Police Service of Northern Ireland v Agnew [2023] UKSC 33 (LINK)

In this case, the UK Supreme Court (“UKSC”) ruled that employees can claim for historic underpayments of holiday pay even where there are gaps of more than three months between deductions. To rule otherwise, in the UKSC’s view, would produce unfair consequences.

The Claimants were police officers and civilian staff employed by the Respondent, the Northern Ireland Police Service. The Claimants brought claims for underpayments of holiday pay dating back to November 1998, having received only their basic pay, rather than their normal pay (which would include payments for compulsory overtime), when on annual leave during that period.

The Respondent accepted that there were underpayments, and that compulsory overtime should have been included, but disputed how far back in time the Claimants could recover.
The parties each relied on provisions in the Employment Rights (Northern Ireland) Order 1996, which broadly correspond to the Employment Rights Act 1996. These provided that claims could only be made for underpayments made up to three months before the claim was brought, unless there was a “series” of underpayments (which, according to existing Employment Appeal Tribunal case law, was a set of deductions with a maximum of three months between each). A claim could therefore be made for all underpayments in such a series, provided that the last underpayment in that series took place within three months before the claim was brought.

Amongst the issues before the UKSC were the questions of whether the Claimants could claim underpayments which were separated by a gap of more than three months, and, if so, whether such underpayments formed part of a “series”.

The UKSC answered “yes” to both questions and dismissed the appeal.

In relation to the first issue, the UKSC took the view that, with holiday pay, there will often be cases where payments and corresponding deductions take place more than three months apart, due to the employer failing to properly meet its obligations. If those deductions otherwise would have constituted a series, imposing a mandatory three month minimum gap between deductions “could indeed produce unfair consequences”, by allowing a canny employer to space out unlawful payments over a period of over three months, or preventing an employee who took holiday on occasions more than three months apart from bringing a claim. This unfairness would be exacerbated for an employee where each relevant underpayment was small, but in aggregate was substantial.

While there would of course be cases where a worker’s failure to bring a claim within three months would be time-barred, extending this to situations with a gap of over three months between the act complained of and any preceding acts would frustrate the purpose of the “series” extension in the legislation.

On the second issue, the UKSC held that whether two or more deductions could amount to a “series” under the legislation was a question of fact, with regard to all the circumstances, including the similarities and differences between deductions, their frequency, size and impact, how they came to be made and applied, and what links them together. For example, a series did not need to be a contiguous set of events, but could be a set of deductions which followed each other in time, or a set of unlawful deductions which were interrupted at one point by a lawful payment.

In this case, the alleged series of deductions was in relation to the same thing (holiday pay), and each deduction was factually linked to its predecessor by the same common fault (that it was calculated using basic pay and not normal pay). While there would not have been unlawful deductions from regular wage payments between these holiday payments (while the Claimants were working), those lawful payments did not of themselves interrupt the series.

This decision firmly closes the door on the argument, frequently run by employers seeking to mitigate exposure to historic holiday pay claims, that a gap of more than three months between unlawful deductions breaks the “series” and prevents claims for prior underpayments. The decision is relevant to all types of unlawful deduction, not only those related to the underpayment of holiday pay. Employers in Great Britain do however remain insulated from significant historic liabilities by the Deduction from Wages (Limitation) Regulations 2014, which place a two-year backstop on unlawful deductions claims. There is no equivalent legislation providing for a backstop in Northern Ireland.

2. Mid and South Essex NHS Foundation Trust v Stevenson & Others [2023] EAT 115 (LINK)

In this case, the Employment Appeal Tribunal (“EAT”) ruled that the fact that it would have been reasonable for an employee to accept an offer of alternative employment in a redundancy situation, does not of itself mean that the employee has acted unreasonably by refusing it. In such circumstances, the employee is not excluded from their entitlement to a statutory redundancy payment under ss. 135 and 141 of the Employment Rights Act 1996 (“ERA 1996”).

The Claimants were employees of the Respondent, an NHS Trust, and each had the job title “Head of Human Resources”. Owing to a restructuring exercise, their roles became redundant. The Claimants were each offered alternative employment in the role of Senior HR Lead, but they refused the offers and were dismissed as redundant. The Respondent refused to pay redundancy payments to the Claimants, arguing they had unreasonably refused offers of alternative suitable employment and were thus not entitled to statutory redundancy pay. The Employment Tribunal (“ET”) concluded that although the offers were of suitable alternative employment, the Claimants had not acted unreasonably by refusing them, and so were not excluded from their entitlement to statutory redundancy pay.

On appeal, the EAT held that the questions under ERA 1996 of whether alternative employment is suitable in relation to an employee and whether an employee unreasonably refuses the offer should be considered separately, but that they may nonetheless be interrelated. For example, the more suitable the offer, the easier it may be for the employer to show the employee acted unreasonably by refusing it. It could also be helpful to ask how the facts “ought to have appeared” to the Claimants.

The EAT considered that the ET had applied the legal principles correctly. Specifically, the ET had taken into account that while the Claimants’ line management would have changed in the Senior HR Lead roles, their day-to-day operation at the Respondent would not have changed, it was not reasonable for them to anticipate reduced levels of autonomy or status, and there would be no substantive difference to their autonomy or status, had they accepted the role of Senior HR Lead. The ET had also held that the Claimants’ personal perceptions that the roles would have entailed a loss of autonomy or status had been “objectively groundless”. However, the ET went on to consider how the facts ought to have appeared to the Claimants. The ET had taken the view that the Claimants’ personal perception was that there would have been a loss of autonomy and status, they would have reported to a Head of HR, they were unconvinced about the planning for the new role and its credibility in the new structure, and no reports had been identified. Whilst objectively, these perceptions were groundless, subjectively (i.e. from the Claimant’s personal point of view) the ET found that they were not, and held that their refusal of the offer of suitable alternative employment was therefore not unreasonable.

This case demonstrates that the questions of whether alternative employment is “suitable” and whether an employee has unreasonably refused an offer of suitable alternative employment are separate and distinct. Just because an offer is of suitable alternative employment, this does not automatically render an employee’s refusal to accept it unreasonable, and when determining whether an employee has acted reasonably or unreasonably in refusing an offer of suitable alternative employment, the employee’s own subjective perception of the role is relevant.

Employers ought therefore to take care to dispel any inaccurate or misplaced perceptions by providing clear and comprehensive information about the alternative role on offer, including details of grading / seniority, reporting line and direct reports.

3. Ponticelli v Gallagher [2022] EAT 140 (LINK)

In this case, the Inner House of the Court of Session in Scotland (the “Court”) confirmed that an employee’s rights under a Share Incentive Plan (“SIP”) transferred under the Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”), despite not being mentioned in the employment contract itself. The transferee was accordingly obliged to provide a substantially equivalent replacement scheme.

The Claimant participated in a SIP under which he had bought shares in his employer’s parent company. Under the SIP, the parent company contributed funds for the purchase of two additional and matching shares. The details of this agreement were set out in a separate document outside of the employment contract which stated that the SIP was not part of the employment contract. Under the terms of the SIP the shares were required to be sold or transferred to the employee or into the parent company’s vested share account within 90 days of the cessation of his employment if there was a sale of the business in which the Claimant was employed.

The Claimant’s employment was transferred to the Respondent under TUPE and on transfer, his participation in the SIP was terminated and the shares were transferred to him. The Respondent offered a one-off payment to compensate for the end of the Claimant’s participation in the SIP but the Claimant rejected this, arguing that he had a contractual right to participate in an equivalent scheme post transfer.

The Court upheld the decisions of both the Employment Tribunal and Employment Appeal Tribunal (“EAT”) that the SIP was clearly connected to the Claimant’s contract of employment and therefore was covered by regulation 4(2)(a) of TUPE, which provides that the transferor’s “rights, powers duties and liabilities under or in connection with” the transferring employees’ employment contracts will transfer to the transferee. The Court noted the very wide language of regulation 4(2)(a) and emphasised that the Claimant’s rights under the SIP formed an integral part of the Claimant's overall financial package, with shares purchased through salary deductions. The award of further shares was linked to the transferor’s bonus scheme, and the Claimant would be financially disadvantaged if he was not provided with an equivalent scheme by the Respondent. Following the EAT decision in Mitie Managed Services v French [2002], where it is not possible for a transferee to replicate the scheme operated by the transferor (which will generally be the case for share plans and other incentive schemes linked to the performance or profits of the transferor), the transferee must implement a scheme of “substantial equivalence”.

This case emphasises the challenge for transferees in complying with their legal obligations to employees who participate in share-based incentive plans in connection with their employment with a transferor. Putting in place a scheme of “substantial equivalence” is likely to be a significant undertaking both in terms of cost and legal complexity. Prospective transferees should do careful due diligence as early as possible in a transaction involving a TUPE transfer, to ascertain what rights transferring employees may have, and assess the likely costs associated with providing substantially equivalent schemes against the potential exposure that may arise if they do not put in place a replacement scheme post transfer.

4. Rajput v Commerzbank AG and another [2023] EAT 116 (LINK)

In this case, the Employment Appeal Tribunal (“EAT”) ruled that the Employment Tribunal (“ET”) had incorrectly excluded a portion of the transferor’s business from consideration when determining the date of a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”), merely because it was situated outside the UK.

The Claimant was a senior compliance officer in Commerzbank’s Equity Markets and Commodities (“EMC”) business. The EMC business was made up of three key components: Asset Management, based in London, Luxembourg and Frankfurt; Exotics, Vanilla and Funds based principally in London and Hong Kong; and Flow Trading based in Germany but with five employees based in London. The Claimant brought a successful discrimination claim against Commerzbank in 2018. She subsequently brought a second victimisation and discrimination claim and was dismissed in March 2020.

In the meantime, in November 2018, Commerzbank had entered into a business purchase agreement with Société Générale for the sale of the EMC business to Société Générale’s London branch.

The transfer of the EMC business was effected in stages, but the majority of the business had been transferred by the end of September 2019. However, the Germany-based Flow Trading business, which was of significant value in the context of the overall purchase price, was transferred in 11 separate batches between October 2019 and May 2020.

It was common ground in the proceedings that the sale of the EMC business was a relevant transfer under TUPE and that the Claimant was assigned to the EMC business. The issue to be decided was when the relevant transfer had taken place and if it had occurred before or after the Claimant’s dismissal. The Respondents argued that the transfer date was 1 October 2019 (in which case it was possible that a purported dismissal by the transferor after that date was a nullity), whilst the Claimant’s position was that the transfer took place on 10 May 2020, which was when she said the business transfer had been completed.

The ET held that the transfer date was 1 October 2019, on the basis that the majority of the transfer had taken place by this date, except for Flow Trading, which was not part of the London operation.

The Claimant appealed, arguing that a relevant transfer is not complete until the transferee takes on “full and final” responsibility for the transferring business. She also contended that the ET made an error by failing to take into account the transfer of non-UK elements of the EMC business when determining the transfer date.

The EAT clarified that there is no rule that a business transfer which takes place in stages only occurs at the end of the series of transactions. Business transfers can unfold through a range of transactions, whether highly structured or loosely organised, and the question for the ET to determine was as laid out by the European Court of Justice in the case of Celtec v Astley [2005], namely, when did responsibility for carrying on the business transfer? It was not helpful or accurate to suggest that a relevant transfer only takes place when “full and final” responsibility for running the business has transferred, since a transferor may retain minor responsibilities long after the substantive responsibility has been taken over by the transferee.
The EAT also emphasised that the transfer of a business can be a relevant transfer under TUPE even if not all elements of the business are located in the UK. Although the EMC business was located in several jurisdictions, it was common ground between all parties that the business was situated in the UK immediately before the transfer and was therefore covered by TUPE. Furthermore, TUPE does not require an ET to only consider those parts of a business located in the UK when assessing when the relevant transfer occurred, and the ET in this case had been wrong to disregard the transfer of the Flow Trading component of the EMC business.

This case illustrates the difficulty, in staged transactions, of determining the date of the relevant transfer for TUPE purposes. It is not at all uncommon for business transfers and service provision changes to take place in phases or increments. Determining the date of transfer is a highly fact-sensitive assessment, and pinpointing the correct date is central to determining a number of important issues, including which employees will transfer and when to start information and consultation processes.