PART 1
December 2013
EMPLOYMENT LAW – GENERAL BACKGROUND76.2 Employment law – general background – scope of the Part
This Part of the chapter provides an overview of the main aspects of employment law, as follows:
Given the relative complexity and breadth of this area of law, and the official receiver’s involvement in only certain aspects (which are covered in greater detail in Part 2 to the chapter), this is intended to be a brief summary only.
Employment rights (and obligations) arise from both statutory protection and from common law (case law) precedent. For employment rights to arise there has to be a relationship of employer and employee, which is normally a question of fact demonstrated by the existence of an employment contract [note 1] [note 2] (see paragraph 76.5).
76.4 Defining the employment relationship
The key factor in establishing if parties have the relationship of employee and employer is the existence of an employment contract (see paragraph 76.5), and employment has been defined as ‘employment under a contract of employment, a contract of apprenticeship or a contract personally to do work.’ [note 3].
Where it cannot be found that there is a contract of employment, it is likely that the arrangement will be that of self-employment, under a ‘contract for services’ [note 4] and the various employment rights will not apply.
See paragraph 76.49 for the definition of employee as regards the ability to make a claim to the National Insurance Fund.
76.5 Existence of an employment contract
A contract of employment may be express or implied [note 5] [note 6], in writing or oral [note 7]. The existence of a contract of employment is a question of law [note 8] and, whilst the label that the parties apply to the arrangement is persuasive, it is not determinative [note 9]. In deciding that a contract of employment exists, a court or tribunal will seek to identify the following features:
Certain statutory employment rights are extended beyond employees to ‘workers’ [note 18]. The definition of worker includes employees, but also includes one who agrees, under contract, to perform personally any work or services for another party who is not a professional client of his, or one who is in the employment of a government department (but not a member of the armed services) [note 19] [note 20].
The term ‘worker’ would generally include agency staff, contract workers or freelancers, which persons would not normally be included under the definition of employee.
76.7 Company directors as employees
Without more a company director is not an employee of the company of which he/she is a director [note 21]. If, however, there is in place a service agreement, or similar, with the necessary features of an employment contract (see paragraph 76.5), then the director will also be an employee, even if the director is the sole director and sole employee [note 22].
If the person works full time as a managing director then there may be a presumption that he/she is also an employee [note 23], but as with other enquiries into employment, it is a question of fact and law [note 24].
76.8 Indicators of a director as an employee
It has been held [note 25] that the main factors in determining the question of a director’s employment were:
Guidance on statutory requirements relating to directors’ service contracts is provided in paragraphs 75.105 to 75.106.
76.9 Partnership cannot be an employer; partner cannot be employee
As a partnership has no separate legal identity (see paragraph 53.19) it cannot employ people. Often, the partnership name will be on an employee’s employment contract, but this is just as convenient shorthand for the names of the partners (see paragraph 53.136 for the effect of this principle so far as concerns insolvency).
Similarly, on the basis that a person cannot make a contract with him/herself, a partner cannot be employed by his/her own partnership [note 26].
76.10 Terms of an employment contract
The terms of an employment contract may arise from the express statements (written or oral) of the parties to the contract [note 27], written rules of the employer (even those in the form of a notice posted to the workplace wall) [note 28] [note 29], custom [note 30] [note 31] [note 32] [note 33], statutory standards, implied terms (see paragraph 76.11) and/or collective agreements with trade unions.
76.11 Implied terms of an employment contract
Even if not detailed expressly, a contract of employment (see paragraph 76.5) will commonly contain implied duties on the employee (see paragraph 76.12) and employer (see paragraph 76.13).
In this context, a term will be implied if it is so clear that the parties to the contract would have considered it to be a term even though they had not expressly stated it, or if the inclusion of the term would be necessary to give the contract practical effectiveness [note 34] [note 35].
76.12 Implied terms of an employment contract - employee
Even if not detailed expressly, a contract of employment (see paragraph 76.10) will commonly contain implied duties on the employee, as follows:
76.13 Implied terms of an employment contract - employer
Even if not detailed expressly, a contract of employment (see paragraph 76.10) will contain implied obligations on the employer, as follows:
In addition to the contractual rights afforded them (see paragraph 76.10), employees and, in some cases, workers (see paragraph 76.6) have statutory rights/protections in respect of the following:
Employment Tribunals are, in essence, courts which specialise in hearing complaints that a person’s statutory employment rights (see paragraph 76.14) have been breached.
Before bringing a claim before a tribunal, the employee must have exhausted an internal grievance procedure [note 84].
76.16 Employment tribunals – hearing
An Employment Tribunal hearing is normally in front of a specialist employment judge, a lay-person from a panel of those selected by BIS following consultation with employers’ organisations and a lay-person from a panel of those selected by BIS after consultation with employees’ organisations, though the panel may be limited to one lay-person if both parties agree [note 85]. Similarly, the hearing may be in front of the judge only if so ruled [note 86].
76.17 Employment tribunal claim – insolvency
Where the bankrupt is bringing a claim in an Employment Tribunal, the guidance in Chapter 31.9, Part 8 should be followed.
Where a claim is being brought against the insolvent, as an employer, the guidance in paragraph 76.63 should be followed.
76.18 Dispute resolution – ACAS code
The Advisory, Conciliation and Arbitration Service (ACAS) have produced a guide to disciplinary and grievance procedures (http://www.acas.org.uk/index.htmx?articleid=2174) and, whilst adherence to the code is not compulsory, it is admissible is evidence before an Employment Tribunal [note 87] (see paragraph) and the Tribunal can take account of the extent to which it was followed when awarding damages [note 88].
The main features of the code are that a disciplinary proceeding should include a written invitation to a meeting, a grievance should be in writing, with both procedures including a meeting (with a right to be accompanied) and a right of appeal.
76.19 Protection of employee rights where business transferred
The legislation [note 89] provides protection to employees where there is a ‘relevant transfer’ of an undertaking. Such protection being, in essence, that the employees are retained by the transferee, subject to their agreement [note 90], under existing contract terms [note 91] [note 92].
A relevant transfer (which would apply to both public and private sector undertakings) may include a transfer by sale of the undertaking from one legal entity to another [note 93], or may be where a part of the undertaking is contracted out, passed from one contractor to another, or ‘insourced’ (that is, taken from a contractor back to the client business [note 94]. A transfer of share-holding does not qualify as a ‘relevant transfer’ [note 95].
76.20 Transfer of employment rights in insolvency
A relevant transfer (see paragraph 76.19) does not occur where the employer is in formal insolvency, the transfer is conduced after insolvency and is instigated by the liquidator or trustee [note 96] [note 97] [note 98], but would occur where the transferor was subject to administration proceedings [note 99].
76.21 Transfers of undertakings – rights protected/transferred
As outlined in paragraph 76.19, the legislation [note 100] provides protection to the employees of an organisation where that organisation is transferred (through contracting out, privatisation, sale or takeover). The main rights are:
Any dismissal in breach of these terms, or failure to ‘carry over’ the existing terms and conditions leading to resignation, will usually be considered an unfair dismissal (see paragraph 76.26) [note 102].
76.22 Continuity of employment
Most of the statutory employment protections outlined at paragraph 76.14 are available only to employees who have attained a minimum period of employment (which can be between one month and two years depending on the protection). The calculation of the length of continuous employment is with reference to the legislation [note 103]. In particular, a person’s employment by a particular employer is considered to be continuous unless the contrary can be shown [note 104]. There will normally be no break in employment where the employee transfers to an associated business [note 105], or where there is a transfer of the employer’s undertaking [note 106] (see paragraph 76.19).
76.23 Termination of employment
Under common law, a contract of employment may be terminated or otherwise ended by:
Where an employee has been continuously employed for a period of one month or more, he/she is entitled to receive at least the following period of notice before dismissal [note 111]:
An employee is entitled to a written statement of the particulars of the reasons for the dismissal [note 115].
76.25 Termination without notice
Termination without notice (summary dismissal) is allowed where the termination is by reason of the employee’s conduct [note 116], but such dismissal is generally wrongful (see paragraph 76.30) unless it can be shown that the conduct of the employee was such that it prevented further satisfactory continuance of the relationship [note 117] [note 118].
Where an employer fails to give the statutory notice period, it must pay compensation equal to the pay attributable to the notice period [note 119] [note 120].
In simple terms, a claim for unfair dismissal is a claim by an employee that that he/she ought not to have been dismissed from his/her job (it was ‘unfair’ to have done so). The primary remedy for an unfair dismissal claim is to reinstate the employee to the job from which he/she was unfairly dismissed, or re-engage him/her in an alternative job (see paragraph 76.28). Protection from unfair dismissal arises from statute rather than case law [note 121]. A dismissal may be unfair even if it was conducted within the terms of the contract (see paragraph 76.10).
Unfair dismissal applications are heard by an employment tribunal (see paragraph 76.15).
Where the bankrupt is bringing a claim for unfair dismissal, the guidance in Chapter 31.9, Part 8 should be followed.
76.27 Unfair dismissal – considerations for the tribunal
Assuming the employment tribunal is satisfied that the dismissal was a dismissal and not a resignation or termination by consent, it is for the employer to show the reason(s) for the dismissal and that that reason(s) was/were [note 122]:
76.28 Unfair dismissal – remedies
Where an Employment Tribunal finds in favour of a claimant in an unfair dismissal claim it will explain that it can make an order to reinstate the employee and ask the claimant if he/she wishes the Tribunal to make such an order [note 123] [note 124]. If the claimant is minded not to accept such an order, the Tribunal will instead make an order for financial compensation (see paragraph 76.29).
76.29 Unfair dismissal – basic awards and compensatory awards
When an Employment Tribunal finds in favour of a claimant in an unfair dismissal claim and reinstatement (see paragraph 76.28) is not possible/desirable, it must make a basic award, which is a payment based on a calculation relating to the length of service of the employee and his/her wages [note 125] [note 126] [note 127] [note 128].
Additionally, the Tribunal may make a compensatory award to take account of the employee’s immediate lost earnings, future lost earnings, lost fringe benefits, expenses, loss of employment protection and the manner of dismissal (where there has been reputational damage) [note 129] [note 130].
Finally, the Tribunal may also make a compensatory award where an order for reinstatement (see paragraph 76.28) is not (fully) complied with [note 131].
A claim for wrongful dismissal is a claim that the person was dismissed in breach of their contract of employment (where, for example, a contractual notice period was not given (see paragraph 76.24) or where an inefficiency procedure was not followed correctly). Fairness (or otherwise) (see paragraph 76.26) is not at issue – maybe, for example, the employee was inefficient and it was ‘fair’ to dismiss them, but the correct procedure (as provided for in the contract) was not followed. The remedy for wrongful dismissal is normally financial compensation. Wrongful dismissal is a concept of common law and claims are brought before the court.
Where the bankrupt is bringing a claim for wrongful dismissal, the guidance in Chapter 31.9, Part 8 should be followed.
76.31 ‘Constructive’ dismissal
An employee is entitled to bring their employment to an end where the employer is in breach of a fundamental term of the employment contract. Even though it is the employee’s decision to leave the employment, he/she will be considered to have been dismissed for the purposes of unfair dismissal (see paragraph 76.26) and redundancy (see paragraph 76.32) protection [note 132].
The employee is also likely to be able to seek damages for wrongful dismissal (see paragraph 76.30).
Leaving the employment in such circumstances is known as ‘constructive dismissal’.
A redundancy (for which compensation is payable – see paragraph 76.34) has occurred where a dismissal is wholly or mainly attributable to [note 133] [note 134]:
Under legislation, where the employment is terminated by the death, dissolution or insolvency of the employer it is automatically considered to be redundancy [note 135]. Where the official receiver is dealing with the redundancy of employees of an insolvent the guidance in Part 2 should be followed.
76.33 Consultation prior to redundancy
Before declaring a redundancy scheme, the employer must hold a consultation with the employees [note 136] [note 137] or, where the employee has more than 20 employees, with the employees’ representatives [note 138] [note 139]. The consultation must be fair and proper, at a time where there can be meaningful discussions [note 140]. Where the employer has failed to follow this procedure properly, the employees may, following a claim to an employment tribunal [note 141] [note 142] be awarded compensation in the form of a protective award (see paragraph 76.35).
A right to a redundancy payment arises where the employee has been continuously employed for two years or more at the relevant date (which date is essentially the date that the employment is ended) [note 143].
An employee loses a right to a redundancy payment if he/she refuses a reasonable offer of alternative employment from the employer [note 144].
The claim for a redundancy payment must be made within six months of the relevant date [note 145] and the amount of payment is based on the employee’s age, length of service and gross average wage.
Where the bankrupt has a claim for redundancy, the advice in paragraph 31.8.38 should be followed.
As outlined at paragraph 76.33, a protective award is an award made by an Employment Tribunal to an employee or group of employees where an employer did not properly consult prior to instigating a redundancy scheme.
The Tribunal can order the employer to pay a week’s pay to each employee for the period staring with the first dismissal or the date of the award and ending with a period determined fair by the Tribunal, but not exceeding 90 days pay, and subject to payments already made by the employer to the employee.
[note 146] [note 147] [note148]
As outlined at paragraph 76.14, it is unlawful to discriminate on a number of grounds, as follows [note 149]:
Where a bankrupt is bringing a claim for discrimination, the guidance in Chapter 31.9, Part 8 should be followed.
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