Employment and Immigration Law Legal Updates 22/7/2008

Garden Leave and the 'right' to work

In SG & R Valuation Service Co v Boudrais and Others (2008) EWHC the High Court held that an employer can sometimes force garden leave onto employees even where there is no provision in the contract to do so.

Facts

Mr Boudrais and Mr Smith were two directors of SG&R Valuation Service Company LLC (SG&R) when they gave 3 months notice under their contracts with the intention of joining a competitor. There was strong evidence the employees had collected confidential information belonging to SG&R, were intending to take business opportunities to the competitor and had solicited fellow employees. It seemed they were to receive £60,000 each for taking 'working tools and know-how' to the competitor and there was an intention to damage SG&R.

SG&R insisted on a period of garden leave to delay the date when the employees joined their new employer. This was resisted by the employees on the basis that there was no garden leave clause in their contract, therefore they had a right to work.

By SG&R not providing them with work, the employer was in breach of contract entitling the employees to leave and work elsewhere. SG&R sought an injunction enforcing a period of garden leave.

Judgment

The court upheld the employer's right to put the employees on garden leave. Whilst there was an implied duty for the employer to provide work, this was subject to the employee not having, through a prior breach of contract or some other duty, "rendered it impossible or reasonably impracticable for the employer to provide work". As the employees had done just that, thus showing that they were not ready and willing to work in accordance with their contract, they had no right to be provided with work and the employer could insist on a period of garden leave.

Comment

The decision provides crucial guidance for employers to determine how the right to work is affected in a garden leave scenario when the employees demonstrate they are not ready and willing to work. The decision must be borne in light of the surrounding circumstances that there was intention to join a competitor, evidence demonstrating the employee's breach of contract and intention to harm the employers business. In practice, it is often difficult for an employer to provide such evidence.

The National Minimum Wage - Tips, Gratuities and Service Charges

'A tronc is a special pay arrangement used to distribute tips, gratuities and service charges. Commonly a tronc is a central pool of funds in which some or all of the tips and service charges paid by customers are distributed to employees.' (Tips, gratuities and service charges: Tronc arrangements: About troncs, HMRC website)

The method for distributing the funds in a tronc is a matter for the 'Troncmaster', 'Tronc Committee' and/or the 'Tronc Members' (the workers receiving the benefit of the funds).

The National Minimum Wage Act 1998 and the National Minimum Wage Regulations 1999 ('the Regulations') govern the minimum hourly rate of pay that workers should receive. In this ENews, we include a reminder of the National Minimum Wage (NMW) rates that apply.

The Regulations state that 'all money paid by the employer to the worker' should be counted towards the NMW and that excluded from this is 'any money payment made by the employer to the worker representing amounts paid by customers by way of a service charge, tip, gratuity or cover charge that is not paid through payroll'. Evidence of payments showing that an employer is paying the NMW should be capable of being collated into a single document.

The Employment Appeal Tribunal (EAT) has recently clarified what constitutes a 'money payment made by the employer'. In this case, HM Revenue and Customs served enforcement notices on three employers; Annabels (Berkeley Street) Limited, George (Mount Street) Limited and Harry's Bar Limited. The notices required the employers to pay arrears of NMW as their workers were not receiving the minimum rates.

All of the employers operated troncs whereby each week they paid an amount equivalent to any tips, gratuities or service charges received from customers into a bank account held by troncmasters, who were senior managers of the employers and whose contractual duties included the operation of the troncs. Funds from the troncs were issued under separate payslips to the workers' basic wages.

The employers appealed the enforcement notices to an Employment Tribunal (ET) claiming that by taking into account the workers' basic wages together with their shares of the troncs, they were actually receiving in excess of the NMW. The ET upheld this appeal and rescinded the enforcement notices on the basis that any payment out of the troncs was made by the employers as the troncmasters were employed by them to distribute the funds of the troncs. In addition, the ET held that the employers paid their workers in two parts but that these could still be collated into a single document as they were both paid through the payroll system. HMRC appealed to the EAT who upheld the appeal.

It was held that the funds within the troncs belonged to the troncmasters prior to it being paid to the workers as the employers had no right to ask for the money back and no power on how it should be distributed (save for in accordance with the rules of the troncs). Each distribution from the troncs therefore could not have been 'a money payment made by the employer'.

The EAT held that the ET was right to decide that the payments from the troncs could be collated into a single document with the workers' wages. Had the appeal been raised on this point alone, it would have been dismissed. However, the EAT was able to decide the appeal on the first issue alone.

HMRC's Response

Following this decision, HMRC issued a news release confirming that tips, gratuities and service charges should be disregarded for the purposes of calculating the NMW. What may follow is employers amending their administrative procedures to ensure that they hold onto such funds prior to them being paid to their workers. However, HMRC has previously confirmed that it will be looking into this subject further.

HMRC state that it 'vigorously enforces the minimum wage across all employment sectors' which may not only involve investigating complaints made by workers in this regard but also visiting a sample of employers against whom no complaints have been made. In addition, the Employment Bill, mentioned in our last Employment and Immigration ENews aims to introduce penalty payments for employers who do not comply with the NMW, new inspection powers for NMW compliance officers and strengthened criminal offences in relation to the NMW.

The advice to all employers is to ensure that you are paying all your workers the correct rate of NMW.

REMINDER OF THE NATIONAL MINIMUM WAGE RATES
(Hourly minimum rates, save for the accommodation off-set)

From	1 October 2007	1 October 2008
Workers aged 22 and over	£5.52	£5.73
Workers aged 18-21 and those aged 22 and over doing accredited training in the first six months of employment	£4.60	£4.77
Workers aged 16 and 17	£3.40	£3.53
Accommodation off-set (maximum deduction per day from NMW where employer provides accommodation)	£4.30	£4.46

Recent Developments in Disability Discrimination Law

The Current Position

The test for determining disability discrimination is well established. The Disability Discrimination Act 1995 states that a person discriminates against a disabled person if:

'(a) for a reason which relates to the disabled person's disability, he treats him less favourably than he treats or would treat others to whom that reason does not or would not apply.

(b) he cannot show that the treatment in question is justified.'

In addition, the case of Clark v TDG t/a Novacold (decided in 1999) confirmed that an employee alleging discrimination on the grounds of their disability is not required to compare themselves with another person whose material circumstances are substantially the same (as is the case in other areas of discrimination). Therefore, for example, if a disabled person is absent for reasons related to their disability and subsequently dismissed as a result, it is not necessary for them to compare themselves with someone without a disability, taking absence. It is sufficient to question whether someone (whether or not they have a disability) not taking absence would have been dismissed.

This case, however, has recently been overruled by the House of Lords, throwing confusion into the subject of disability discrimination.

New Case Law

Mr Malcolm was a secure tenant of domestic property owned by the Landlord, the London Borough of Lewisham. Mr Malcolm had schizophrenia - this was not known to the Landlord at the time of letting the property. Mr Malcom subsequently unlawfully sublet the property and the Landlord successfully pursued proceedings against Mr Malcolm for possession of the property.

Mr Malcolm claimed that he had sublet the property, acting in an unreasonable manner, as a result of his schizophrenia and that the Landlord had discriminated against him on the grounds of his disability by taking possession of the property. It was initially held that there was no causal link between Mr Malcolm's schizophrenia and his unlawful subletting of the property but this argument was rejected by the Court of Appeal.

On further appeal to the House of Lords, Mr Malcolm's claim for disability discrimination was dismissed but not for the reason relating to the causal link. The House of Lords held that the decision in Clark was incorrect. Applying Clark to this case meant that the proper test in this case would have been whether Mr Malcolm had been treated less favourably than someone who would not have illegally sublet the property. This test was considered pointless. It was agreed that Mr Malcolm's eviction was not related to his disability as it was not sufficient simply to say that the illegal subletting was in some way related to his schizophrenia; it must have played a part in the decision making process. It was held that the decision to evict Mr Malcolm was a 'pure housing management decision that had nothing whatsoever to do with his mental disability'.

It was also held that for a respondent to be liable for disability discrimination it must have known (or at least ought to have known) of the disability in question. This throws previous case law, which states that knowledge of the disability is irrelevant, into disrepute.

Effects of the Case

This case may be housing related, but as the majority of cases referred to within it are employment based, it provides important developments for employers. Up until now, it has been reasonably easy for a claimant to establish a case of disability discrimination, leaving it up to the employer to prove justification. This recent development means that an employee's actual disability must be part of the reason for their unfavourable treatment, bringing the test for disability discrimination into line with other areas of discrimination (save for the defence of justification which is not available in other areas).

Equality Bill

Parliament produced a White Paper relating to the new Equality Bill on 26 June 2008 and is hoping to put the Bill forward in the next parliamentary session. The Bill aims to address current discrimination issues - perhaps it will seek to deal with the potential difficulties for employees posed by the decisions in this case. We will advise further on this point and the progress of the Equality Bill in our future e-newsletters.

These articles copyright © July 2008 Steeles Law llp. All rights reserved. These articles are intended for general guidance only and should not be relied upon without detailed legal advice on your specific circumstances which Steeles Law will be pleased to provide.