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Employment News March 2009
We have tried so far this year to avoid focussing too intently on the economy but the current procession of stories has meant that we have given in.
Over the last month, we have advised clients on issues as diverse as TUPE, Whistle Blowing, enforceability of bonuses and Disability. Nobody has asked for our advice on the establishment of a care home for distressed bankers.
We thought it would be useful, therefore, to look at two topics in some more detail; firstly, the scope for employers to renegotiate deals that have been contractually agreed and secondly runners and riders in the forthcoming legislation stakes.
Sir Fred Goodwin
Sir Fred, known to his friends as Fred the Shred and to his enemies by an epithet that we would not wish to repeat; we are dedicating this section to Sir Fred. If it were not for his determination to grab a pension that would pay the annual heating bills for a thousand hard pressed OAPs, we might not have been inspired to write this piece.
Changes to Contractual Terms
The current economic climate means that many employers are looking at how best to change terms and conditions to save money. These might be changes to working patterns as well as pay, bonuses and perks. One popular area at the moment is the compulsory scheduling of holidays to manage cyclical downturns.
Clearly changes in terms can be accomplished by agreement between the company and its staff. Unless there is a binding commitment through works council or trade union, the probability is that these changes will need to be agreed with each and every employee. Where the changes are significant, it may be possible for an employee who has given apparent consent to claim undue influence in that he or she was pressured into accepting changes against his/her judgement.
A change can be imposed on notice. In dealing with a group of employees then probably the longest period of the group is the best notification. However, the real consequences of this are that the existing employment contract is being brought to an end and employment being offered on new terms. An employee who is disaffected will have the option to claim unfair dismissal and an employee who resigns may be able to claim constructive dismissal if the changes of terms and conditions are significant. The issue came before the Employment Appeal tribunal in the case of Darby & Still v The Law Society of England & Wales. In this instance, the term of engagement that the Law Society wanted to change was that relating to company cars. They failed to achieve a variation of the employment contracts by negotiation and therefore gave notice to impose the new terms. The appeal tribunal held that the employees had been dismissed and re-employed on less favourable terms. In this instance the appeal tribunal did not have to decide whether the dismissal was unfair, simply whether the dismissals had taken place.
In the current employment climate, it is likely that companies will take the view that the changes to staff terms and conditions are necessary for economic survival and possibly as an alternative to redundancy. In this case, it may be possible to argue that a termination of employment for an employee who refuses the changes could be a dismissal for “some other substantial reason”. Indeed, in the case of Grampian Country Food Ltd v McInally, the Appeal Tribunal held that the dismissal of a single employee who refused to adopt changed terms and conditions was reasonable since it would have led to discontent amongst the employees and could disrupt industrial harmony.
If the changes are likely to cause significant hardship to employees, then it may be worth considering whether the deal can be made easier in some shape or form. This might be a lump sum, for example based on the “basic award” from a tribunal eg £350 per year of service, or decreasing the earnings over a period. Employees may well have financial commitments that they cannot reschedule, such as mortgage obligations. Whilst those on tracker mortgages have seen significant reductions in payments in the last six months, those on fixed rate deals may have seen no reductions, leaving household budgets very pressed. Care is needed in reducing pay.
Discretionary Payments
Where the earnings of an employee are largely calculated by reference to on target earnings, then great care must be taken in how any discretionary bonus scheme is applied. There is an assumption that the employer will not exercise his discretion irrationally or perversely. This was emphasised in the case of Cantor Fitzgerald International v Horkulak. In this case, the court held that Cantor Fitzgerald was entitled to set and maintain performance indicators for its staff but said that Mr Horkulak’s manager had made no effort to resolve difficulties with Mr Horkulak and simply asserted his authority through foul and abusive language. The Court of Appeal held that the bank would have been in breach of contract if the discretion was exercised irrationally or in bad faith. However, in the case of Commerzbank v Keen, the Court of Appeal held that the court would need to see an “overwhelming case to persuade it that the level of a discretionary bonus payment was irrational or perverse where a great deal depended on the discretionary judgement of the bank in fluctuating market and labour conditions”.
In the current economic climate, provided the approach to discretionary bonuses is consistent and not discriminatory then we believe that the employer has a good chance of saying that the payment of discretionary bonuses can be withheld. Clearly not everybody in the banking sector agrees with this view as the Evening Standard of 3rd March shows.
Retirement
Finally, we come to Sir Freddie Goodwin. Clearly there is a very strong sense of moral outrage throughout the country that one of the people believed to have brought the banking system to collapse in the UK could be so handsomely rewarded with his pension. However, we are not viewing this matter through the prism of moral outrage but rather more through the legal situation. Both Vince Cable and John Prescott have suggested that he be paid nothing and let him sue. A tempting response, perhaps, but only if there are sustainable legal grounds to argue against the payment.
We preface our analysis with the warning that we clearly are not privy to the details of Sir Fred’s case and are therefore talking hypothetically.
It is extremely improbable that his contract of employment would entitle him to retire aged 50 with this pension and it has emerged that this is indeed the case. Most final salary pension schemes are geared to an assumption that there would be a final pension geared to years employed. Nor is it likely that he qualifies for an ill health retirement. In some schemes years’ service can be credited where the medical evidence suggests that the employee will not work again before the normal retirement age. By process of deduction therefore, the probability is that the pension arrangements were part of a deal reached in return for a mutually agreed departure. By this stage, the government was the largest shareholder in the bank and it would seem that Lord Myners agreed to the arrangements on the back of information provided by the RBS board and it was the board who agreed the pension in return for his resignation. The reported £16 million pension pot comes at a time that RBS admitted it had made a record breaking £24 billion loss in 2008. The Guardian also reports that other large pension payouts have been agreed by what now amount to government owned banks.
How then can the bank/government argue for cancellation of a payment of the pension arrangements?
We reiterate that because of our lack of knowledge of the facts we are not looking at this specific case. There are obligations on directors to act in good faith. A director would be under a positive obligation to disclose misconduct. In reaching a compromise agreement, an employee may be under obligations to disclose information which may impact on the employer’s judgement. Very often this is an express term of the compromise agreement where the employee warrants that he/she is not aware of any circumstances that may give rise to a claim against the employer. In circumstances such as this, where the employer is a publicly listed company, there are considerable obligations connected with the company’s listing. If there were any failures to disclose or misrepresentations as to facts then an employer may well be able to re-open a compromise agreement.
Runners and Riders
Karl von Clausewitz described war as “a continuation of politics by other means”; just short of that is employment law. More than any other field of law perhaps, the law of the workplace is an expression of the social agenda of the government of the day. At the moment there appears to be a tussle between the Equalities minister Harriet Harman on the reforming left of the party and Lord Mandelson, the Business Secretary representing the “lovers of vintage burgundy” wing of the party. We analyse the field.
 | Maternity |
Form - This proposal has been promised for some time now and once would have been predicted to go the full distance.
Prediction - likely to fall sometime before the final fence. If the government is re-elected then it may be entered into future races but if not may never run again.
| Gender Pay Audit |
Form - Running strongly only six months ago but looking lame recently.
Prediction - will be withdrawn from race.
| Flexible Working |
Form - This measure was sired by the Work and Parents’ Taskforce and is considered a strong runner.
Prediction - likely to go the distance and indeed may be the only runner left.
| Minimum Wage |
Form - The minimum wage has been with us now since 1999 but is thought to be finding the recession rather heavy ground with a lot of pressure to abandon any rises in the minimum wage in 2009.
Prediction - early faller.
| UN Convention on the rights of disabled people |
Form - There is a long history of commitment to disability rights and has showed good staying power.
Prediction - Will finish, providing the government stays the course.
Our newsletter tracking programme detects the numbers of readers clicking on a particular news story. Determined that we should not be seen to profit from avarice, we will donate 10 pence to the Kings Limb Reconstruction Trust (to a maximum of £1,000) for every click on the Sir Fred Goodwin story. Tony Bertin was a patient of the reconstruction unit of Kings College Hospital, sometimes ironically known as the Kawasaki clinic. The Trust exists to look after the needs of patients whose lives have often been shattered as a result of orthopaedic injuries. The unit is also treating soldiers injured in Afghanistan and being cared for at Headley Court. Both Tony Bertin and Penny Hays are Trustees of the charity. If any reader is so minded, additional donations can be made by going to just giving.com.
Answer to Newsletter question: Sir Terry Wogan. He is the only one with a banking qualification.
