Employment Briefing - February 2014

Published byMartin Stephen

1st February 2014

• 12 month restrictive covenant deemed enforceable
• First and Second choice companions - the right to be accompanied at disciplinary or grievance hearings
• Dispute? What dispute? - Using the 'without prejudice' rule
• Paying the costs of a Tribunal claim - more from Portnykh v Nomura
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12 month restrictive covenant deemed enforceable

The length and geographic coverage of restrictive covenants can be contentious in employment contracts. There is a balance to strike between ensuring that any restrictive covenant provides adequate protection for employers whilst not being unnecessarily prohibitive to employees that the restriction will be deemed unenforceable.

Croesus Financial Services Limited v. Bradshaw is a rare example of a restrictive covenant case reaching trial.

Father and Son, David and Matthew Bradshaw, were ex-employees of Croesus Financial Services Limited. Restrictive covenants prohibited them from soliciting or dealing with Croesus’ clients for 12 months after the termination of their employment. The High Court held that in the particular circumstances of this case the length and scope of the covenant was enforceable for the Independent Financial Advisors. It extended no further than was necessary for the protection of Croesus’ business.

In terms of scope, David Bradshaw argued that the post-termination restrictions were unenforceable because they applied to all clients with whom he had any “personal contact in the course of [his] duties” in the 2 years prior to termination. However, the High Court found that only clients who Mr Bradshaw had engaged with in more than trivial business contact with were caught by that wording.

The Court commented that 12 month provisions of this nature appeared to be an industry standard. Evidence regarding the strength of the relationship between the Independent Financial Advisor and their clients and the pattern of contact they have with their clients supported Croesus’ argument that 12 month provisions were reasonable. Croesus relied on recurring income from their clients and advised many long-standing clients. The High Court noted that Croesus would need a substantial period of time to establish relationships between Mr Bradshaw’s clients and their new advisors employed by Croesus.

Much depends on the circumstances and the facts in each case where a restrictive covenant is to be agreed following termination. However, this case provides authority that a 12 month restrictive covenants of this nature can be enforceable. It may be possible to impose this length of prohibition in other professions where regular but annual contact with clients is the norm, such as insurance and accountancy.

The WJM Employment Team offers expert advice in this complex area, involving both drafting and enforcement considerations. It is an area where the employer often wants more than is realistic or achievable - our experience can help you find a mutually agreeable route through this thorny subject.

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First and Second choice companions - the right to be accompanied at disciplinary or grievance hearings

A worker’s right to be accompanied at disciplinary or grievance hearings by a fellow worker or union official can often be a source of further conflict in employer/employee disputes. The Employment Relations Act 1999 (“ERA 1999”) provides that the right applies when the worker “reasonably requests to be accompanied at the hearing”.

The EAT has confirmed in Roberts v GB Oils Ltd that an employer should not reject the requested companion on the basis that they consider the companion to be unsuitable.

Mr Roberts, an oil tanker driver, was dismissed for misconduct over allegations that his deliveries of oil had been contaminated. Prior to his disciplinary hearing, Mr Robert’s request for his first choice of companion at the disciplinary hearing was refused due to an on-going dispute between the company and his first choice companion (Mr Lean, a union official). However, the company was willing to accept his second choice.

At the subsequent appeal, Mr Roberts again asked for Mr Lean to accompany him. Both parties again agreed to his second choice. Following his dismissal, Mr Roberts claimed for compensation under section 11 of ERA 1999 for breach of the right to be accompanied at a disciplinary hearing.

The Employment Tribunal rejected that there had been any breach of his right because he was willing to accept his second choice. Neither Mr Roberts, his representative nor his Union had sought to challenge the employer’s refusal of his first choice.

The Employment Appeal Tribunal (“EAT”) followed its earlier decision in Toal v GB Oils Limited (a similar dispute involving the same employer and Mr Lean) and allowed Mr Roberts claim. It held that the ERA 1999 wording is clear – the right applies when a worker “reasonably requests to be accompanied at the hearing”. An employee has an absolute right to choose any companion. This contrasted with the ACAS Code of Practice, which pointed to a broader interpretation of ‘reasonable’ extending to the choice of companion.

Employers should be cautious about rejecting an employee’s choice of companion at a grievance or disciplinary hearing out of hand. However, if the employer thinks the employee’s chosen companion is unsuitable (i.e. perhaps because the companion is also subject to disciplinary action), the employer may wish to take a commercial risk. The compensatory limit for a breach of section 10 is two weeks’ pay. Also, where the employer’s decision for the refusal is reasonable, this should be reflected in the level of compensation, and indeed, the EAT indicated that such protection for the employer should be available.

For further advice and assistance in relation to managing disciplinary and grievance procedures, please contact the WJM Employment Team.

Free Seminar: The Team will be hosting a mock Disciplinary Hearing in Inverness on 11th March as part of our Winter Seminar Series. If this is an area of Employment Law where you would appreciate further insight, places are still available and can be reserved through our Events page or by emailing invernessevents@wjm.co.uk with your details.

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Dispute? What dispute? - Using the 'without prejudice' rule

There are important distinctions which determine when an employer should have pre-termination negotiations (also known as protected conversations) with an employee and when “without prejudice” communications provide the employer with the necessary framework.

Pre-termination negotiations can be used even where there is no pre-existing dispute. Furthermore, they only apply to ordinary unfair dismissal cases, not discrimination claims or unfair dismissals where whistleblowing is alleged. In such situations, employers must be aware of the rules governing communications which seek to rely on the “without prejudice” rule.

The “without prejudice” rule means communications between parties which are exchanged in an attempt to resolve an actual or potential dispute and as such are inadmissible in any subsequent Court or tribunal proceedings.

The recent Employment Appeal Tribunal (EAT) case of Portnykh v. Nomura International plc provides some useful guidance for employers about when the “without prejudice” rule applies.

Mr Portnykh was employed by Nomura, who sought to dismiss him for misconduct. Nomura alleged that Mr Portnykh had approached them requesting that his dismissal be categorised as being for redundancy reasons. Correspondence (including a draft compromise (now settlement) agreement) was exchanged during negotiations between the parties. These were marked as being “without prejudice” communications.

However, negotiations broke down and a settlement could not be reached. Mr Portnykh brought a claim for unfair dismissal for making a protected disclosure (i.e. claiming he was a whistleblower).

The EAT held that the correspondence marked as “without prejudice” was not admissible as evidence. It held the employment judge making the initial ruling had incorrectly concluded that there had been no dispute between the parties that could attract “without prejudice” privilege.

The EAT made some interesting observations on when the “without prejudice” rule will apply:

• Negotiating an exit does not necessarily mean that there is an actual or potential dispute.
• The context of the correspondence will need to be considered in establishing whether a dispute exists.
• Negotiating a settlement agreement does not automatically mean there is an actual or potential dispute exists, although this will often be the case.
• Nomura and Mr Portnykh were discussing alternatives regarding the reason for dismissal. Therefore, a present or potential dispute existed and the ‘without prejudice’ rule applied.

Fortunately, the EAT has confirmed that the “without prejudice” rule is to be applied relatively liberally. However, unexpected approaches to an employee with a settlement offer where there is nothing to suggest an actual or potential dispute exists is still unlikely to attract ‘without prejudice’ protection. It may be necessary for an employer to fall back, where possible, on a ‘protected conversation’ in those situations.

Please contact the WJM Employment Team if you require further advice in this area.

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Paying the costs of a Tribunal claim - more from Portnykh v Nomura

The issue of fees was another interesting issue emerging from Portnykh v Nomura.

On 29th July 2013, the Government introduced a controversial fee structure for submitting and pursuing a claim in the Employment and the Employment Appeal Tribunal (EAT). It was hoped the fees would encourage mediation and negotiated settlement of disputes and to relieve the burden on the public purse. Claimants are now required to pay the issue and hearing fees up-front.

However, normally an employer who is unsuccessful at a hearing will be responsible for these costs if the employee’s claim is successful. This follows the basic principle: expenses follow success.

Having dealt with the interlocutory appeal, the EAT had to consider whether or not it should order Nomura to pay all or part of the Mr Portnykh’s fees in relation to the appeal. The EAT has the discretion to do so if the appeal is successful in full or in part.

The EAT provided some useful guidance on the matter and highlighted that a number of factors are taken into account, including:

• the fact that the appeal was a highly arguable matter in a difficult area;
• that it was an interlocutory or case management issue rather than a full merits hearing; and
• that Mr Portnykh had not behaved in a helpful or co-operative way.

Nevertheless, the EAT concluded that Mr Portnykh’s appeal was successful. Although not co-operative, his conduct had not significantly influenced the appeal hearing. The EAT also stressed that Nomura should not be in a better position following a decision against them.

However, the costs order was made conditional on Mr Portnykh’s application for fee remission (the outcome of which was not yet known) being unsuccessful.

If you require any further information regarding the issue of fees or whether it will be possible to apply for remission in raising a claim in the employment tribunals then please contact a member of the WJM Employment Team.

Further advice can be provided in relation to the recent decision to dismiss the application for judicial review by Unison in to the lawfulness of the introduction of the fee structure. The High Court in London confirmed that it may be necessary to review how the fee system will work in practice and see whether the regime will have a “disparate” effect.

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