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The role of employment law and courts in the UK?
Like in any developed economy employment law seeks to regulate the balance of power between the accumulation of capital in the form of business and enterprise on the one side and those who through the use of their labour- either physical or intellectual - can convert and translate commercial ideas into goods and services for the benefit of society. Certainly in mixed economies capital and labour are mutually interdependent and to achieve economies of scale and respond to the demands of the mass market the entrepreneur and the inventor have to negotiate with labour or their representatives – the trade unions. In the UK while that freedom to negotiate has been reduced by legislative intervention – both at domestic and European level – referred to as a “floor of rights” the labour or employment bargain is expressed in terms of, and in accordance with, the principles of the law of contract.
As has already been explained while many workers have their terms and conditions of employment negotiated collectively – through trade unions or elected workplace representatives – the legal nexus between the employer and the workers is in the form of individual contracts – usually but as we will see not exclusively in the form of the contract of service or, in the rather more egalitarian term, the contract of employment.
Unlike in other legal systems, in the UK while the collective agreement may have de facto normative effect it has no such effect de jure. As has been explained nothing in our law prevents collective agreements from having binding legal effect but the fact is that neither employers nor trade unions wish them to be legal contracts.The result of this attitude is to create in the individual contract of employment the vehicle through which the legal relationship between the employer and the worker is regulated. Without the individual contract of employment incorporating (usually by express wording) terms from the collective agreement (or indeed some other generic document like an Employer’s Handbook) the collective agreement is of no overriding legal or formal effect on terms and conditions of employment.
One consequence of this is that ultimately the resolution of disputes between employer and employee is through the regime of law of contract and the province of the ordinary courts and the specialist employment tribunals and this places them in a strategic position when it comes to developing and modernising the content of the employer/employee bargain.
Of course the employment relationship is not static. A business’s need to respond to new market conditions and compete with new entrants into the market may require revision of contracts of employment negotiated in more favourable times and to achieve this the properly drawn modern contract of employment will contain some mechanism for amendment or alteration usually at the instance of the employer. Today flexibility is at the heart of the modern business be it retail, production or the service industry in general and in order to obtain the efficiency that a flexible workforce can bring most employers will attempt to insert into their contracts of employment a right of variation or amendment. Of course an unfettered right to vary the terms of a contract is attractive for employers butthe exercise of such a right is carefully overseen by the courts and permitted only in accordance with the established tenets of contractual interpretation.
However before an employment judge can consider whether an employer has the right to vary the contract he/she first of all has to find the contract! This may seem surprising but the fact is the terms of the contract are to be found in many different documents. Employers today produce many documents some of which will be regarded as contractual but others not. Accordingly one of the first tasks when confronted by a simple dispute about the contract of employment is to sift through the morass of paper in which the terms of the contract are often to be found.
While legislation in the form of Part I of the Employment Rights Act 1996 requires employers to provide employees with a Written Statement containing certain written terms and conditions of employment, odd though it may seem, the Written Statement is not of itself contractual and is not required to contain all of the employees terms of employment!
The result of this is that the employee’s contract might be contained in a conglomeration of documents some given to employeespersonally like letters of appointment and others commonly in generic documents like Employee Handbooks, Collective Agreements, Human Resources Manuals, Employers’ Policies and Company Information Folders. (Many of these generic documents today frequently exist only in electronic form and in at least one recent case (Department of Transport v Sparks 2016 EWCA Civ 360) it was found that the form which contained the paragraph critical to the litigation had been deleted!)
Having identified the various documents the employment judge may then have to determine whether a particular term of the document is contractual in nature or is it merely a statement of policy or intent. In Sparks (above) the Court of Appeal had to determine whether the following paragraph which appeared in the Staff Handbook was of contractual effect or simply a statement of how management would intend to manage sickness absence.
“Where in any 12 month period an employee has taken a number of short term absences as sick leave which exceed 21 days his/her line manager will discuss attendance with you. Only if you have exceeded these trigger points will the line manager take the matter further..”
The Department of Transport contended that this part of the Handbook was not contractual butmerely a statement or code of management practice. However the Court of Appeal disagreed and concluded that it was “apt” for inclusion in the individual contracts of employment.
A similar outcome is seen in Allen v TRW Systems Ltd (EAT /0083/12) which concerned enhanced redundancy terms, that is, redundancy compensation more generous than the statutory scheme. A “policy” that such enhanced payments would be made was agreed with the employer’s Works Council and in order to resist formal trade union recognition with its attendant obligations of disclosure and bargaining and to assuage the fears of the workforce that redundancies were imminent, the enhanced redundancy policy wasformally added to the Employee Handbook. This was also followed by letters to the workforce which undertook that the enhanced policy would remain until 2011. When the plant closed in 2010 the employers refused to implement the policy arguing that although it was in the Handbook it was not part of the contract of employment. Although the employee’s Written Statement made no particular reference to the Enhanced Redundancy Policy it did refer to the Employee Handbook and the term about enhanced payments was held by the Tribunal to be “apt” for inclusion in the individual contracts - a question that is more easily answered by a tribunal consisting not just of a judge but also experienced lay members.
In such a situation the test is whether the circumstances show that the employers had demonstrated an intention to become contractually bound by the policy, an issue that has to be determined objectively and not by the employer’s “ private intentions”. In this case according to the Employment Appeal tribunal the circumstances (formally inserting it into the Handbook and writing open letters to the workforce promising to retain the enhanced policy) clearly demonstrated the employers intended to become bound by the policy.
It is interesting to note how over the years the attitude to incorporation of redundancy packages has altered – a matter recognised by Judge Richardson in Allen where he observes that “in changed conditions employers are less willing to countenance such payments” which has led to a “steady flow of litigation seeking to enforce contractual entitlement to an enhanced payment as a contractual term.”
Turning now to the question of variation, because the relationship is contractual, any changes to it require the agreement of the other party and unless the employees have agreed to their terms being negotiated and changed through their trade union or other workplace representatives this could mean negotiating with each employee individually and to obviate such an eventuality, today in drawing up their employment contracts many employers insert terms allowing for unilateral variation. Absent such a right and intransigence on the part of some or all employees the alternative of dismissal of those who do not agree followed by the offer of re engagement on new terms is possible but a high risk strategy (See for example Hollister v National Farmers Union 1979 ICR 542, CA).
Having the right unilaterally –if only after an attempt to reach agreement - to change the terms of the contract of employment is seen as essential in the modern business environment. However, and particularly in light of the various and disparate sources of the contractual terms and the effect on important terms of the contract like pay and bonuses, the courts have insisted on the right to be expressed in “clear and unambiguous words”. This was made clear by Lord Maclean in McDonald v Lord Advocate (Court of Session 20 January 1999, unreported) whose view was endorsed by the Court of Appeal in Securities and Facilities Division v Hayes (2001 IRLR 81, CA).
Thus inNorman v National Audit Office (EAT 0276/14) the employee’s letter of appointment included the following text.
“The following paragraphs summarise the main current terms and conditions of your employment at NAO.
Detailed particulars of conditions of service are to be found in the relevant sections of the H R Manual. They are subject to amendment: any significant changes affecting staff in general will be notified through Management Circulars, Policy Circulars or General Orders while changes affecting your particular terms and conditions will be notified separately to you.
The H R Manual is available on the NAO Intranet and at H R Headquarters.”
The NAO proposed to rely on this “right” to amend in order to reduce entitlement to paid sick leave and privilege leave. However the letter of appointment was held to be “nowhere near being clear and unambiguous” and although any changes that could be made had to be “notified” that fell short of evidence that the employer had taken the right to change unilaterally.
In order to achieve the right to alter unilaterally the contract terms the wording must leave no doubt as in Bateman v ASDA Stores 2010 IRLR 370 where the contract provided
“The company reserves the right to review, revise, amend or replace the contents of this Handbook and to new policies reflecting the needs of the business.”
However even standing such a clause an employer must not act contrary to the implied duty of trust and confidence by acting capriciously or unreasonably in exercising the right and in this case the employers had acted consistently with that implied obligation by attempting to avoid significant reductions in pay and had engaged in lengthy consultations prior to the change being implemented.
A further difficulty for employers seeking to rely on clauses which permit variation of the terms of the contract is the contra proferentem rule which in the event of ambiguity a tribunal may resort to. However if the term is a term which seeks to enshrine a right of unilateral variation ambiguity itself will deprive the term of the effect argued by the employer.
The significance of incorporating clauses that require the workforce to adapt to new conditions (flexible working clauses) can be seen in what is in truth a collective dispute between the trade union and employer and it is very doubtful if ASLEF, in negotiating flexibility terms in the contracts of their train driver members, imagined they would be to its disadvantage. However that is precisely what seems to have occurred in Govia Thameslink Railway Ltd v ASLEF(High Court April 2016). The contracts of employment of train drivers required that they would work with “full flexibility and perform such duties as the employer may from time to time stipulate.” The employer wished to increase capacity and passenger comfort by replacing 10 carriage trains with 12 carriage trains but the drivers’ trade union (ASLEF) advised its members that there was no agreement that they would operate the new 12 carriage trains. The employer applied for an injunction on the basis that in light of the flexibility clause in the drivers’ contract it was arguable that ASLEF would be found - at trial - to have induced its members to break their contracts. In such a case whether an injunction would be granted would ultimately depend on the balance of convenience a matter entirely at the discretion or the court. Taking into account the inconvenience to the public (the trains were to be used on the Gatwick Express line), the employer’s operations and that the new trains had improved safety features the High Court had ample scope to grant the injunction. More often than not the balance of convenience will be in favour of the status quo.
In the great majority of cases the employment relationship is expressed through the contract of employment or contract of service. However today there is a growing number of workers who offer their labour through the so-called “independent” contractor’s contract - the contract for services. Indeed in some industries there is little choice – the only type of contract offered by the employer is the contract for services. Unlike the contract of employment whose termination is closely regulated by statute the independent contractor’s contract for services can be terminated simply by giving whatever notice the contract requires. The lack of statutory protection against unfair dismissal and entitlement to compensation in the event of redundancy puts the employer of the contractor in a position of being able to alter terms and conditions simply by terminating one contract and offering to re employon terms more in keeping with an employer’s preferred new business model. In such a relationship there is no need take a right to vary the contract.
A question that frequently arises however is whether such “independent” contractors are truly employed under a contract of employment. Often when such contracts are examined they are found to have terms very similar to the employment contract like performance targets, leave entitlements and duties of confidentiality. In one important respect they purposely and usually by express provision distinguish themselves from the contract of employment. For the latter to exist there has to be mutuality of obligation, that is to say, there has to be a duty on the employer to provide work when it is available and a duty on the employee personally to do the work when it is provided. In the absence of such mutualitythere can be no contract of employment and in order to prevent the contractor’s contract for services being regarded as a contract of employment the employer will frequently insert into the contractor’s contract a term that there is no duty on the employer to provide work and there is no duty on the contractor to do work when it is provided. However it is now recognised that unless this a true reflection of the relationship it will not prevent an employment tribunal or court concluding that in reality the contract is one of employment with all of its statutory rights protecting against unfair termination and redundancy. The seminal decision of the Supreme Court in Autoclenz Ltd v Belcher 2014 UKSC 41 emphasises that individuals are frequently presented with contracts which contain express clauses deliberately inserted by employers and designed to ensure the contract cannot be one of employment - and therefore conferring valuable statutory rights on the individual. According to the Supreme Court in order to determine the true nature of the contract, employment tribunals must have regard to the relative bargaining power of the contracting parties. In this respect the Supreme Court has recognised that the contract of employment is often not an “arms-length” contract and is unlike other commercial contracts. The terms of the contract of employment have to be seen and evaluated in their particular factual matrix. Thus the fact that the contractual documents expressly provided that the individuals would work as self-employed contractors, that there would be no mutuality of obligation and that the individual would be free to appoint a substitute was held not to reflect the true agreement. The individuals worked full time and exclusively for one employer, in practice did not substitute another worker, were given detailed instructions as to how they would work, their invoices were actually prepared by the employer, they worked in teams of cleaners, they had to buy uniform- bearing logo from Autoclenz who also deducted 5% for the materials the individuals needed and insurance. In spite of the express statements in the contractual documentation the individual workers were in law employed under contracts of employment.
Finally another strategy adopted by some employers – particularly in the offshore oil and construction industries – is to require that the contractor provides his/her services through the vehicle of a limited company. This can be seen as advantageous for the individual too who can take his income in the form of dividends and enjoy more generous tax allowances. It is also popular with TV personalities and other celebrities. In Keppel Seghers Ltd v Hinds 2014 ICR 1105 in order to obtain work as a consultant engineer in the construction industry Hinds – a health and safety adviser – was required to operate through his own personal service company in which he was the sole shareholder and director. However Hinds was recruited personally by an employment agency acting for Keppel and the agency introduced Hinds and not his company to work for Keppel. However the only contracts were between the agency and Hinds’ personal service company. There was no direct contractual relationship between Hinds and Keppel. He could not therefore be an employee or worker employed by Keppel. However the definition of employee and worker is extended for the statutory provisions dealing with Whistleblowing (Employment Rights Act 1996 sec. 43(K) so that – according to the Employment Appeal Tribunal - there is no need for a contract of any type between Hinds (the individual who performs the services) and Keppel – the organisation that requires his services. The statute has to be construed in such a way that it provides protection to the Whistleblower!