Seminars

We are hosting an online Lunch and Learn - Is it "time up" for Final Salary Schemes? - on 6 November. Click here for details and to register.

Equality Focus

BNP and race discrimination challenge
In June, the British National Party (BNP) was accused by the Equality and Human Rights Commission (EHRC) of breaching race relations laws by extending membership only to "indigenous British ethnic groups". The EHRC, which has a statutory duty to work towards the elimination of unlawful discrimination, started court proceedings against the BNP seeking written undertakings that the BNP would amend its constitution and membership criteria to ensure that it does not discriminate against members on racial grounds.

Following an undertaking by the BNP that a revised constitution would be put before its members next month and that it would use "all reasonable endeavours" to revise its constitution so that it does not discriminate on any "protected characteristic" (e.g. race or religion), the court proceedings have now been adjourned until 28 January 2010. The BNP has also agreed not to accept new members into the party until the revised constitution is in place.

Comment
While the challenge by the EHRC is an interesting example of the newly formed EHRC flexing its muscles, the Equality Bill, which is currently going through Parliament, may in any case force the BNP's hand, as it removes a provision that the BNP currently relies on to justify its membership criteria. However, with the first provisions of the Equality Bill not expected to come into force until Autumn 2010, the EHRC challenge has accelerated consideration of the issue.

News

Implementation of the Agency Workers Directive delayed
The Agency Workers Directive (AWD), when implemented, will give temporary staff who have worked for 12 weeks the same employment rights (including pay) as permanent staff which will mean more regulation and costs for businesses. As reported in previous bulletins there have been calls on the government to cut the cost of business regulation. The government, it seems, may be listening as the implementation of the AWD has been delayed until October 2011. The decision to delay is part of the Business Department's plan to cut the costs of regulation by £6.5bn by 2015 by not imposing unnecessary costs and administration on businesses.

Mike Emmott, employee relations adviser at the CIPD, said: “We’re pleased that the government has pushed back the implementation of the Agency Workers Directive to the last possible date.”

Comment
The delay gives businesses time to prepare for the AWD and the impact it will have. Earlier implementation when the country is recovering from recession may have seen businesses refuse to take on temporary workers which may have hindered recovery and prolonged unemployment. For the time being, employers who are not ready to commit to the costs of permanent workers, can hire temporary workers to assist in their recovery without breaking the bank or incurring the costs of ensuring compliance with the AWD. A win for those seeking employment and a win for businesses looking to employ. For the new consultation paper on agency rights click here.

Recent Cases

Compromise Agreements and "Entire Agreement" Clauses
Personnel Hygiene Services Ltd v Mitchell
Mr Mitchell (M) was employed by Rent a Crate Ltd under a service agreement which contained a number of restrictive covenants. M was a shareholder in Rent a Crate's parent company and he sold his shares to Personnel Hygiene Services Ltd (P). The Share Purchase Agreement contained restrictive covenants on the sellers, including M. M's employment terminated 6 weeks after the share sale and he entered into a compromise agreement with Rent a Crate and P. The compromise agreement contained different restrictive covenants from those contained in M's service agreement and in the Share Purchase Agreement. The compromise agreement also contained an entire agreement clause. P applied for an interim injunction to enforce the restrictive covenants in the Share Purchase Agreement. The High Court held that the covenants contained in the compromise agreement replaced those in the Share Purchase Agreement.

The Court of Appeal upheld the appeal from P and held that the covenants in the compromise agreement did not supersede those in the Share Purchase Agreement. It found that the compromise agreement was intended to replace the covenants in the service agreement only as it expressly referred to the service agreement and the restrictions in the compromise agreement covered the same points. The Court also found that it was hard to argue that the entire agreement clause in the compromise agreement resulted in the covenants in the Share Purchase Agreement being superseded, particularly as a number of other aspects of the Share Purchase Agreement would continue in existence.

Comment
When considering the exit of an employee via a compromise agreement, it is important for employers to think about all the contractual documentation between employer and employee to ensure that the compromise agreement deals with all relevant aspects of the relationship. In addition to an employment contract or a service agreement, particularly for more senior employees, there may also be a shareholder agreement or a share/business purchase agreement. If any such documentation exists, this should be flagged to the lawyer drafting the compromise agreement. Not every employer may be as lucky as P was here.

Employment Status and "Sham" Contracts
Autoclenz Limited v Belcher & Others
Autoclenz Limited (AL) contracted with self-employed car valeters to carry out work under AL's contract with British Car Auctions (BCA) to clean cars at one of BCA's sites.

The valeters:

• were referred to as sub-contractors;
• were entitled to provide a substitute in their place;
• were not obliged to provide their services and were offered no guarantee of work; and
• issued invoices to AL, were paid based on the number of cars they cleaned, and were responsible for paying their own tax.

The valeters issued claims in 2007 arguing that they were employees, claiming the national minimum wage (NMW) and unpaid holiday pay. The Tribunal decided that the contractual position did not match the position in reality and, as the valeters were under AL's control and fully integrated into the business, the valeters were employees. AL appealed to the EAT. The appeal was partly allowed – instead of finding that the valeters were employees, the EAT decided that they were workers and therefore, were entitled to the NMW wage and unpaid holiday pay.

AL appealed to the Court of Appeal (CA) who agreed with the Tribunal decision and held that the valeters were employees. On the facts, despite the wording of the contract, no one seriously expected the valeters to send a substitute and in reality they were expected to turn up to work every day to do the work provided. The CA held on this basis that there was sufficient control of the valeters by AL and there was an obligation on them to carry out the work provided which made them employees.

Comment
This case is one of a number which have compared the position in contractual documentation entered into by the parties and the true nature of the relationship and whether the contract is a "sham". Where there is a genuine dispute as to whether the contractual documentation accurately describes the relationship, the Tribunal should try to discover the "actual legal obligations of the parties". This will involve an examination of the written documentation as well as how the parties conduct themselves in practice. Employers should therefore try as far as possible, to ensure that their relationship with self-employed contractors reflects the contractual position.

By way of reminder, for an employment relationship to be established, there must be (1) an element of control exercised by the employer; (2) "mutuality of obligation" – i.e. the employer is obliged to provide work and the employee is obliged to do it; and (3) personal service – i.e. the employee cannot sub-contract the work to someone else. Where an individual is obliged to carry out a personal service but where no other elements of an employee relationship are present, the individual is likely to be a worker (and will be entitled to NMW and holiday pay).