2017 UK Employment Update

September 12, 2017

So far, 2017 has seen a number of interesting legal developments in UK employment law and the pace is set to continue with important regulations coming into force early next year.  A brief overview of key developments which we believe will be of interest to our clients is provided below.  More detailed information on each topic is available by clicking on the italicised links to the appendix below.

Gender Pay Gap Reporting and the EU General Data Protection Regulation

All employers who employed more than 250 employees as at 5 April 2017, need to file a gender pay gap report by 5 April 2018 in accordance with the provisions of the Equality Act 2010 (Gender Pay Gap Information Regulations) 2017.  We considered the Gender Pay Gap Regulations in our last alert which can be seen here.  In addition, the EU General Data Protection Regulation ("GDPR") comes into force on 25 May 2018 and it elevates data protection to a board level issue.  We are currently helping clients in a number of business sectors to ensure compliance with their obligations under both the Gender Pay Gap Regulations and the GDPR.  

Protecting Your Business from Competing Employees

We consider the impact of three cases concerning post-employment restrictions comprising decisions of the High Court which held that: an employee was under no obligation to disclose their intention to compete even when asked a direct question; a 6 month restrictive covenant was enforceable despite the fact that it had been entered into when the employee was very junior; and, finally, an employee who stole confidential information from his previous employer and subsequently destroyed relevant evidence in breach of a court order should be imprisoned for contempt of court. 

UK Collective Consultation Rights to Extend to Cover Overseas Employees

In a decision which will be of particular interest to those UK businesses with significant overseas workforces, the Employment Appeal Tribunal has recently ruled that employers may have to collectively consult with overseas employees under UK rules when proposing to make collective redundancies.

Whistleblowing Update

We consider two recent decisions of the UK Court of Appeal which provide useful guidance on the protection afforded to whistleblowers under UK law.  In the first decision,  the court considers the requirement for any such disclosure to be in the "public interest" and in the second case, the court considers whether a whistleblower qualifies for protection under UK law where he is employed by one legal entity but makes a protected disclosure to a connected entity.

Discrimination Update

Dress code in the workplace has been a hot topic in the UK and the EU this year and we consider the impact of a number of interesting decisions of the higher courts in the EU.

Monitoring Employees’ Personal Messages

We consider a decision of the European Court of Human Rights ("ECHR") which found that a Romanian employer had breached an employee’s right to privacy by reading his personal messages which he had sent from his employer’s systems. While not directly binding on employers in the UK, the UK courts are, for the present, required to interpret UK law consistent with decisions of the ECHR.

Updates on the ‘Gig-Economy’

The gig-economy has sparked a lot of media interest in the past few months. In a gig economy, where the prevalence of "free-lance workers" and the desire for flexible working has increased, it is difficult to determine who is truly self-employed, a worker or in fact an employee.  The gig economy is currently being investigated by several different bodies and the Taylor Review has recently made several recommendations aimed at clarifying the law governing employment status.


The EU General Data Protection Regulation

The new requirements of the GDPR are onerous and non-compliance carries serious financial and reputational risk. Employers will therefore need to take a number of steps before the implementation date in order to ensure compliance, including conducting data protection audits and putting in place relevant internal and external procedures and policies.  The key changes of the GDPR include: 

  • Extra-territorial scope:  The GDPR will apply not only to controllers and processors established in the EU but also to those outside the EU who offer goods and services to, or monitor EU data subjects.
  • Changes to requirements for valid consent: The GDPR will require consent to be given by clear affirmative action, rather than being implied.
  • Increased burden on data controllers: The GDPR will introduce a raft of new obligations for data controllers and places onerous accountability obligations on data controllers to demonstrate compliance.
  • Direct obligations on data processors: For the first time, data processors will have direct compliance obligations, and they may be liable to the same sanctions as data controllers.
  • Additional data subject rights: Under the GDPR, existing data subject rights will be enhanced, and new data subject rights will be introduced.
  • Increased sanctions: In the event of a breach of the GDPR, data controllers and processors may be subject to fines of up to the greater of 4% of annual worldwide turnover for the preceding financial year, or 20 million Euros.

Protecting Your Business from Competing Employees

MPT Group Limited v Peel & ors [2017] EWHC 1222

The courts have grappled in a number of cases with the question of whether  a senior employee is required to tell their present employer that they intend to leave and compete with them.  The High Court considered this question again in a recent case involving a producer of mattress machinery and equipment.  Two employees resigned on the same day and denied they intended on going into partnership together.  Instead, both stated separate, personal reasons for leaving MPT.  Prior to leaving MPT, both employees copied considerable confidential information including customer and supplier lists, drawings, manuals and price lists.  Shortly after the expiry of their 6 month non-competition period, they incorporated a competing business and started selling competing products.  MPT argued that the former employees were obliged to tell the truth when asked about their intentions to compete, and, to do otherwise, breached their duties of good faith and fidelity.  The Judge disagreed. 

It is notable that in this case the two employees, whilst senior, were not directors of the company and as such did not owe fiduciary duties to the company.  Further, MPT could have imposed express obligations in their contracts of employment requiring them to reveal details of their own competing activities, but had not done so.  Employers who expect senior employees to divulge their own competing activities should ensure that this is stated expressly in their contracts of employment.

Egon Zehnder v Tillman

The High Court in Egon Zehnder v Tillman considered whether a 6 month non-compete should be enforced against a departing employee, Mrs Tillman.  At the time of her departure Mrs Tillman held a senior role at Egon Zehnder.  However, the non-compete was contained in a contract which she signed in 2004, when she was recruited as a junior consultant.  It has long been an established principle that the reasonableness of a restrictive covenant should be assessed at the point the contract is entered into, not the time of departure.   

Mrs Tillman argued that the 6 month non-compete was an unreasonable restriction at the time she joined Egon Zehnder due to the junior nature of her role and that, as a result, it should not be enforced.  The court disagreed.   Whilst the Court accepted that reasonableness should be assessed at the point the contract is entered into, the parties were entitled to consider their expectations for the future.  If, as it was found to be in this case, the employee is employed with the expectation of growing into a senior role, and was highly skilled for her level of seniority, that was a factor to be taken into account by the courts and in this case, made a 6 month non-compete reasonable. 

However, this wasn’t quite the last word on the matter.  Whilst not disagreeing with the High Court’s findings on the reasonableness of a 6 month non-compete for Mrs Tillman, the Court of Appeal nevertheless determined that her non-compete was unenforceable because it did not permit her to hold a minority shareholding in a competing business (a common carve out in such restrictions).

Thus the courts have given with one hand, but taken with the other.  The High Court decision is helpful in the case of employers who fail to update restrictive covenants when employees are promoted.  However, the Court of Appeal’s decision is a reminder of the importance of careful drafting when it comes to enforcing restrictive covenants. 

OCS Group v Dadi

In the case of OCS Group v Dadi the High Court imposed a six week prison sentence on a former employee of OCS Group who had breached a court order prohibiting him from disclosing confidential information and requiring him to preserve evidence.

Whilst the punishment may seem unusually harsh, particularly in circumstances where Mr Dadi admitted the deletions and tried to assist his former employer in recovering its confidential information, the case shows how seriously the courts will treat flagrant breaches of court orders.  Mr Dadi’s breaches were particularly serious given that following a court order requiring him to preserve hard copy and electronic documents, and in the full knowledge of that order, Mr Dadi deleted over 8,000 emails.

UK Collective Consultation Rights to Extend to Cover Overseas Employees

Application of collective consultation rights to overseas employees

In the case of Seahorse Maritime Limited v Nautilus International (a trade union) UKEAT/0281/16, the Employment Appeal Tribunal ruled that an employer’s collective consultation obligations under UK rules may extend to cover overseas employees of its UK business.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA") requires employers to collectively consult where they propose to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.  If a complaint for a failure to comply with section 188 is well-founded the employment tribunal can make a declaration to that effect and make an award to the claimant of a week’s pay (subject to the statutory limits) for each week up to 90 days. 

Historically, employees working outside Great Britain were excluded from the right to be collectively consulted, but this exclusion was removed by legislation in 1999.  Here, the Employment Appeal Tribunal considered it should apply the same principles to the extra-territorial effect of employees rights under TULRCA as it does under the Employment Rights Act 1996. This means that employees who work outside Great Britain can have the right to a protective award for a failure to collectively consult if they have a sufficiently strong connection to Great Britain and British employment law. When considering the strength of an employee’s connection to Great Britain and UK employment law, the domicile of the employee and the governing law of their employment contract will be important factors.

What does this mean for employers in practice? When considering whether a redundancy proposal meets the threshold for collective consultation under UK rules, an employer should consider the impact of the proposal not only on UK based employees working in the establishment in question but also others who may be based overseas but nevertheless have a sufficiently strong connection to Great Britain and UK employment law (such as UK nationals working abroad, particularly those on a temporary secondment overseas).

Whistleblowing Update

Since 2013 it has been a requirement under UK law that a worker who wishes to be afforded whistleblower protection must reasonably believe that he is making his disclosures in "the public interest".  In the case of Chestertons v Nurmohamed the Court of Appeal has now determined what the expression "in the public interest" actually means.

Mr Nurmohamed was a director in Chestertons’ Mayfair office and following his dismissal, claimed he was subjected to detriments on the grounds that he had made a number of protected disclosures about internal misreporting of Chestertons’ accounts which adversely affected his earnings in commission payments.  Whilst his disclosures related mainly to the impact of the alleged misreporting on his own earnings Mr Nurmohamed suggested that his employer look at the accounts of other offices which he suspected followed the same practices. The Employment Tribunal, the Employment Appeal Tribunal and the Court of Appeal upheld Mr Nurmohamed’s claim and found that his disclosures were in the public interest because there was sufficient evidence that the other directors were in his mind at the time he made the disclosures.

The Court of Appeal clarified that the public interest test has a subjective and an objective element, and that the courts should not substitute their own views for that of the worker.  A worker must believe they are making the disclosure in the public interest, but that interest does not need to be the predominate motive for making the disclosure.  Whilst Mr Nurmohamed’s disclosures related to a breach of his own contract of employment the Court of Appeal held that the facts of the case supported a finding that the disclosures were also in a wider public interest.  The court confirmed that factors such as the number of employees affected, the nature of the interests affected and the nature of the wrongdoing may all be relevant to the determination.  Ultimately, it is for the employment tribunal, as arbiter of fact, to consider all the circumstances.

In Day v Health Education England (HEE) and others, Dr Day brought a whistleblowing claim against HEE which was not his employer.  Dr Day was instead employed by Lewisham NHS Trust. 

The Court of Appeal found that Dr Day’s contract with the NHS did not preclude him in principle from also being classed as a "worker" (under the extended definition in whistleblower protection legislation), in relation to another employer, HEE.  It determined that a tribunal should make an assessment of whether HEE determined Mr Day’s terms of engagement, indicating that his claim could proceed against HEE should that be the case.

Discrimination Update

In Achbita and another v G4S Secure Solutions NV, the CJEU held that a headscarf ban resulting from a religious neutrality principle in the work place did not amount to direct discrimination because there was no evidence that the employee in question had been treated differently to any other employee.  The CJEU held that such a measure could constitute indirect discrimination but that it could potentially be justified in pursuance of the employer’s policy of upholding political, philosophical or religious neutrality in customer-facing roles.

However, the CJEU reached the opposite decision in the case of Bougnaoui and another v Micropole SA.  In this case a customer of Micropole requested that one of its employees, Ms Bougnaoui, not wear a headscarf in the future.  Micropole raised the complaint with Ms Bougnaoui who was subsequently dismissed because she refused to comply with the customers’ request.  The employer argued that its neutrality principle was a "genuine and determining occupational requirement."  However, the CJEU held that an occupational requirement cannot include an instruction from a customer and accordingly found that Ms Bougnaoui was treated less favourably on the ground of her religion.

These decisions illustrate the need for employers to give careful consideration before adopting a dress code policy which could adversely impact employees in a protected group, whether that be on grounds of age, gender, religion, race, disability or otherwise.

Monitoring Employees’ Personal Messages

In Barbulescu v Romania, the employee was dismissed for breaching his employer’s internal policies when he used a professional Yahoo messenger account to send personal messages.  When the employee maintained that he had only sent work related messages from his professional account, his employer presented him with a transcript of personal messages which it had retrieved from the account, and terminated his employment. 

Mr Barbelescu filed a complaint in the Romanian Courts alleging that his employer had breached his right to privacy as set out in Article 8 of the European Convention on Human Rights.  At first instance, the court held that the employer was legitimately entitled to look at the messages because it had done so on the initial assumption that the messages would be work related, and it had a policy that strictly prohibited employees from using company computers or systems for personal purposes.  This decision was overturned by the Grand Chamber of the ECHR.

The ECHR considered whether the employee had a reasonable expectation that his messages would be private in circumstances where his employer had a policy against personal use, and had advised employees that it monitored electronic communications.  Whilst acknowledging that an employer has a legitimate interest in the efficient running of its company, the ECHR commented that an employer cannot expect its policies to reduce an employee’s private life in the workplace to zero.  The court determined that the employer had failed to strike a fair balance between the interests at stake, on the one hand its own business interests and, on the other hand, Mr Barbelescu’s right to privacy and considered that the employee’s privacy had been breached.  In reaching its decision the ECHR took into account a number of factors, but focused particularly on the fact that the employee had not been made aware of his employer’s monitoring policy before the monitoring was initiated, and that the policy did not make it clear that the content of personal communications would be monitored. 

This case is a timely reminder for employers to review their IT policies and procedures and ensure that adequate detail is provided as to the extent of any monitoring practices.

Updates on the ‘Gig-Economy’

Matthew Taylor was appointed by the Government to conduct an independent review of modern working practices and the impact of new forms of work on worker rights and responsibilities. 

The recommendations from the Taylor review include:

  1. changing the definition of ‘worker’ so that the obligation to provide personal service is no longer crucial;
  2. codifying the key criteria that define ’employee’ status into primary legislation;
  3. introducing the term ‘dependent contractor’ to refer to those who are workers but not employees;
  4. giving dependent contractors additional rights, such as the right to a section 1 statement of terms that employees currently enjoy, and
  5. adapting the ‘output work’ definition in the National minimum Wage Regulations 2015 to apply to those who provide services through a digital platform.

It will be interesting to see whether the recommendations such as the new term dependent contractor get taken up by the courts or the legislature in coming months.

Employment status is being simultaneously reviewed in the courts. In the case of Pimlico Plumbers Ltd v Smith, the Court of Appeal upheld the judgments of the ET and EAT that a plumber who was engaged as an independent contractor was to be considered a worker. We understand that an application to appeal this case to the Supreme Court has been accepted.  

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these and other developments.  Please feel free to contact the Gibson Dunn lawyer with whom you usually work or the following members of the Labor and Employment team in the firm’s London office:

James A. Cox (+44 (0)20 7071 4250, [email protected])
Amy Sinclair (+44 (0)20 7071 4269, [email protected])
Vonda Hodgson (+44 (0)20 7071 4254, [email protected])
Thomas Weatherill (+44 (0)20 7071 4164, [email protected])
Heather Gibbons (+44 (0)20 7071 4127, [email protected])
Sarika Rabheru (+44 (0)20 7071 4267, [email protected])
Georgia Derbyshire (+44 (0)20 7071 4013, [email protected])

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