Case Round-Up: June 2012

In this month’s round-up, Mark Shulman consultant solicitor with Keystone Law looks at whether an equity member of a limited liability partnership has “worker” status, how Tribunals should approach compensation for discrimination where there is more than one Respondent and whether subsequently discovered misconduct could deprive a managing director of his contractual pay in lieu of notice.

Mark Shulman, Consultant Solicitor at Keystone Law

Could an equity member of a limited liability partnership be a worker, enabling her to pursue a complaint of detrimental treatment on the grounds of whistleblowing? Yes, said the EAT in [Bates van Winkelhof v Clyde & Co & Anor UKEAT/0568/11/RN](). Under section 230(3)(b) of the Employment Rights Act 1996, a person is a worker where:

(1) there is a contract;

(2) he or she undertakes to do or perform work or services personally;

(3) the work or services are to be done or performed for another party to the contract;

(4) that other party is not a client or customer of a profession or business undertaking carried on by the worker ("the exclusion proviso").

The Employment Judge held that the Claimant had not met the final requirement in (4) above on the basis that as an equity member of the LLP sharing in the profits generated from her work, she was in business in her own right.

**Protection for those in a "subordinate position"
In the EAT, Peter Clark J said that the issue as to whether a partner or equity member was a worker, was a novel one. He referred to the approach of Langstaff J in the previous case of Cotswold Developments Construction Ltd v Williams [2006] IRLR 181** when it had been said it was necessary to:

"[…] focus upon whether the purported worker actively markets his services as an independent person to the world in general (a person who will thus have a client or customer) on the one hand, or whether he is recruited by the principal to work for that principal as an integral part of the principal's operation..."

In Bates van Winkelhof, when considering which side of the line the Claimant fell, she was found to be in the "subordinate position" referred to in Byrne Brothers v Baird [2002] ICR 667 (which identified "the need for protection of workers who are in a subordinate and dependent position") and as referred to by the Court of Justice of the European Union in Allonby v Accrington & Rossendale College [2004] ICR 1328 (where it was said that the term "worker" should not include independent providers of services who are not in "a relationship of subordination with the person who receives the services"). The EAT held that essentially the Claimant was in a subordinate position because she had agreed to devote her full-time attention to the business of the LLP (rather than to the world at large) and she was an integral part of its operation. She was therefore a worker within section 230(3)(b).

Are all types of partners workers?
The EAT's judgment seems to leave open the question of whether worker status applies to all types of equity partners. When considering whether the Claimant's position was subordinate and dependent, the EAT recognised that "…such a description may not easily apply, certainly to a full equity partner or…a senior equity member who was wholly dependent on a share of the organisation's profit for his or her remuneration".

The Claimant had a minimum guaranteed fixed share (i.e. was a fixed share partner) and so was considered to be in a subordinate position and dependent on the LLP. The same reasoning arguably may not apply where an equity partner's profit share is variable and entirely dependent on the income from the business. But even in those circumstances, it could (depending on the facts), still be said that the "exclusion proviso" in section 230 does not apply because the LLP is not a client of the equity partner and also that the partner is an "an integral part of the principal's operation" (as stated in Cotswold Developments). We shall have to wait and see whether the position is clarified in a future ruling.

What is the correct approach in awarding compensation for unlawful discrimination where there is more than one Respondent? In Catanzano v Studio London Ltd (In Administration) UKEAT/0487/11/DM, the EAT reviewed various case authorities and decided that a Claimant was entitled to an order that each Respondent was jointly and severally liable for compensation.

The facts were that the Claimant was summarily dismissed after giving birth and coming back to work part-time with the First Respondent, the employer (R1). The Tribunal found that she had been unfairly dismissed and had suffered sex discrimination. Two other Respondents, (R2 and R3) were the Claimant's managers. Following her dismissal the Claimant put in a grievance which was dealt with by R1in a manner that "fell woefully short of satisfactory".

Following the usual previous practice of apportionment as permitted by Way and Anor v Crouch [2005] ICR 1362, the Employment Tribunal decided that R1 would be liable for an award of £3,000 for injury to feelings and that R2 and R3 should each be liable for 20 per cent of that (£600 each). However, only R1 would be liable for the 25% uplift in compensation arising from the failure to follow the ACAS Code of Practice in relation to the Claimant's dismissal. The Claimant appealed, arguing that the Tribunal should have:

* made each Respondent jointly and severally liable; and * added the 25 per cent uplift to the £3,000 and also made each Respondent jointly and severally liable for the whole of the award including the uplift.

Apportionment or contribution?
The Catanzano decision was given before the Employment Appeal Tribunal's judgment in [London Borough of Hackney v Sivanandan UKEAT/0075/10]() where the EAT disagreed with the approach in Way and expressed the view that it was unsoundly based in law.

Sivanandan was followed in the subsequent case of [Bungay and Anor v Saini and Ors UKEAT/0331/10]() and the EAT in Catanzano concluded that the principles as set out in Sivanandan and Bungay must now be regarded as correct. Accordingly:

* where the loss which is being compensated for in a discrimination case is attributable to what in a claim of tort would be described as concurrent tortfeasors (and in employment law as concurrent wrongdoers), it is an indivisible loss. * whilst Respondents may be able to claim for a contribution as between each other (under the Civil Liability (Contribution) Act 1978), there is no power for a Tribunal to make an assessment of such contributions; * as between the Claimant and the Respondents, each Respondent must be held jointly and severally liable for the whole amount of indivisible damage.

Catanzano was not a case in which the acts of discrimination on the part of R2 and R3 (for which R1 was liable) were separate in time or otherwise from those of R1 (i.e. there was indivisible loss). Accordingly, the Employment Tribunal in this case was wrong not to have ordered that the liability of all three Respondents for the injury to feelings award of £3,000 was a joint and several liability, regardless of whether they could seek a contribution from each other.

With regard to the uplift added to the award, R2 and R3 were not in any way responsible. It was the subsequent acts of R1 in its handling of the Claimant's grievance which was responsible for the uplift of the award. Therefore, the Tribunal had been correct in not ordering R2 and R3 to pay any part of that uplift.

Practitioners should note that there may be discrimination cases where the injury to feelings is caused by different acts of discrimination and is therefore 'divisible'. The Tribunal should then apportion to each discriminator, responsibility for that part of the damage caused by them (as confirmed by the EAT in Sivanandan). Where that applies, the Claimant would have to proceed against each wrongdoer for the relevant part of the loss claimed.

Could an employer resile from making a contractual payment in lieu of notice in the light of subsequently discovered gross misconduct? No, said the Court of Appeal in Cavenagh v William Evans Limited [2012] EWCA Civ 697. There are some useful general lessons to be gleaned from the case.

The Claimant had been the company's Managing Director ("MD") but was made redundant with six months contractual pay in lieu of notice. However prior to any payments being made it was discovered that the MD had wrongly procured a payment of £10,000 to his pension from company funds. The company withheld payment and proceedings for breach of contract were initiated by the MD.

Relying on Boston Deep Sea Fishing and Ice Company v Ansell (1888) 39 Ch D 339, the company contended that the actions of the MD were gross misconduct and that he had repudiated the contract which gave a complete defence to the debt claim.

However, the Court was persuaded that on the termination date, the company had exercised its contractual power under the MD's contract to terminate the service agreement without notice, but with pay in lieu. A debt by the company to the MD thereby accrued. The company was not subsequently entitled to resile from the contractual consequences of its choice by following the different route of accepting a repudiation in the light of the MD's earlier act of misconduct.

The Court explained that Boston Deep Sea Fishing did not say that after-discovered misconduct provided an employer with a defence to an action for payment of an accrued debt. An employer can defend a claim for damages for wrongful dismissal by using evidence of misconduct by the employee that was not known to the employer at the time of dismissal. In the Cavenagh case, the company was not seeking to justify its dismissal of the MD. There was no dispute that his appointment was terminated summarily and the consequence of the lawful termination was that the company became contractually bound to the MD for pay in lieu.

Counterclaims can be crucial
In the course of giving his judgment, Mummery LJ emphasised that his conclusions were based entirely on the pleaded issues and the arguments advanced. It was noted that:

* the company had not pleaded any breach of duty by the MD in not informing it of his gross misconduct; nor had it advanced any claim for damages or other relief against him in respect of such a breach (a director is under a fiduciary, to report to the company breaches of his fiduciary duties: Item Software (UK)Ltd v. Fassihi [2004] IRLR 928. * nor had the company pleaded that its agreement to make payment in lieu was void or voidable by reason of a vitiating unilateral mistake of the Company, which was known to the MD, but unknown to the company: Horcal Ltd v Gatland (1984) 1 BCC 99,089. * there was no provision in the MD's service agreement denying him the right to payment in lieu of notice if the company subsequently discovered that he had committed a prior act of gross misconduct.

The outcome of the case might have been different had the MD's service contract included an appropriate term and had there been counterclaims relating to breach of duties by the MD. However, no point arose on the MD's liability to the company on its counterclaim for recovery of the sum of £10,000: the MD accepted liability and had agreed to repay it.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.

Published: 10/06/2012 12:16

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