Mills & Reeve: HR Law Live

Settlement payment still due, despite employee’s breach of confidentiality clause

The High Court has ruled that an employer remained legally liable to pay the remaining sums due under a COT3 settlement, despite the employee’s breach of a confidentiality clause in the settlement agreement. This decision doesn’t establish any new law, but is a useful reminder of the contractual framework within which these agreements operate.

The COT3 agreement reflected the terms of settlement of employment tribunal proceedings reached with the assistance of ACAS. It contained a number of relatively standard provisions, including a confidentiality clause. Under this clause, both parties agreed, subject to limited exceptions, to keep “the fact of and terms” of the agreement “strictly confidential”. The only unusual feature of the agreement was that that settlement sum was payable in 47 weekly instalments, rather than as a single lump sum.

After paying a number of instalments, the employer discovered that the employee had breached the confidentiality clause by disclosing the fact of the settlement and the amount of the payment to a single third party. It then stopped making any further payments. In response the employee issued proceedings in the county court to recover the balance of the agreed settlement sum. The employer countered by seeking a declaration that no further sums were due because of the breach of the confidentiality clause. The county court judge ruled in favour of the employee, and this has now been confirmed on appeal.

The key point was that the confidentiality clause could not be regarded as a “condition”, so that any breach, however minor, by one party, would relieve the other party of its obligations under the agreement. Instead, it was an “intermediate term”, which meant that the impact of a breach would depend on its gravity. If it was particularly serious, that would amount to a “repudiatory” breach, which if “accepted” by the innocent party would relieve it of any further obligations under the agreement. Otherwise the innocent party would need to bring a claim for damages, or perhaps proceedings for an injunction, to enforce the clause.

For an employer’s perspective, this case illustrates the difficulty of enforcing confidentiality obligations in settlement agreements. It is true that the drafting can be altered so that the payment of the settlement sum is made conditional on the employee complying with their confidentiality obligations, but this is not a particularly practical solution if the breach occurs after the full settlement sum has been paid, since the employer would then be obliged to issue proceedings to recover the money.

Another approach is to stipulate in the agreement exactly what happens if an employee fails to comply with their confidentiality obligations, with a proportion of the settlement money being repayable, depending on the seriousness of the breach. However, such wording can be tricky to draft and time-consuming to negotiate. In any event it can be difficult to recover money from a former employee, once the settlement sum has been paid over.

Employers should be alive to these considerations when deciding whether to include confidentiality obligations in settlement agreements in the first place. In the light of recent experience and regulatory guidance, in many cases it may not be appropriate to include confidentiality obligations at all. In others, careful drafting may be required to make it clear to the employee exactly what the clause requires, and the scope of the permitted exceptions. These related issues are explored in more detail in our earlier article here.

New employment practice directions address impact of Covid-19

Three new or revised employment tribunal practice directions have been published in recent weeks, as the system continues to grapple with the impact of the coronavirus pandemic. Looking beyond its immediate impact, there have also been two new policy-related developments, both of which could shape the future of employment tribunal litigation.

Practice directions

• Review of March Covid-19 direction: a recent review of the original direction has confirmed that tribunal users should still work on the assumption that hearings due to take place from 29 June onwards will remain listed. However, it does not necessarily follow that hearings listed before that date cannot go ahead remotely in appropriate circumstances.
• Guidance on vulnerable witnesses and parties: new guidance was issued on 22 April which emphasises the need to identity vulnerability among tribunal users as early as possible. Among other things, this may involve setting “ground rules” before a vulnerable witness gives evidence. The practice direction does not directly address the impact of Covid-19, but notes that it may well have an impact on pre-existing vulnerabilities.
• Electronic signatures: given that tribunal judges continue to work remotely for the most part, a new practice direction makes the necessary adjustments to the way their decisions are signed.

All three directions can be accessed from the employment tribunal directions home page.

Two other significant developments

• Rapid consultation by Civil Justice Council: the CJC have launched a rapid response consultation, to run for the first two weeks of May, to look at the impact of the measures adopted so far in the civil justice system in response to Covid-19. It states that the evidence collected by the review “will be invaluable in shaping the way forward for the civil justice system, both immediately and in the longer term”.
• Law Commission reports on employment law hearing structures: this report makes a total of 22 recommendations which are designed to make enforcement of employment rights more effective. The more radical proposals include extending the time limit for bringing all types of claim in employment tribunals to six months and broadening the scope of their jurisdiction to hear breach of contract claims, including raising the limit on the compensation they can award to £100,000.

More guidance issued to help employment tribunal users during pandemic

On 19 March, the Presidents of the employment tribunals in England and Wales and Scotland directed that all hearings listed to start by 26 June should be converted to case management hearings by telephone or “other electronic means”. The resulting uncertainty for tribunal users has now been alleviated by the publication of a FAQs document for tribunal users, plus a tracker, which explains which courts and tribunals are open, staffed or suspended during the coronavirus outbreak.

The FAQs document includes answers to 21 different questions, and concludes with a list of weblinks. Useful information includes:

• An explanation of how respondents can arrange for copies of ET1s to be sent to an e-mail inbox when their premises are closed because of the outbreak
• The status of directions: generally those relating to hearings listed up to 26 June will be suspended pending the case management hearing, but those in relation to hearings starting on or after 29 June will remain effective 
• The etiquette that applies to video hearings
• How best to communicate with employment tribunals during the current crisis

Covert monitoring not necessarily breach of Article 8 privacy rights

The Grand Chamber of the European Court of Human Rights has ruled that the use of covertly obtained CCTV footage to dismiss a group of Spanish employees for theft had not infringed Article 8 (the right to a private life) or Article 6 (the right to a fair trial). In reaching this decision it has overturned last year’s judgment from a smaller panel of judges which was in favour of the workers concerned.

The Grand Chamber had a close look at how the footage had been collected and used. It needed to assess whether its use in unfair dismissal proceedings amounted to a breach of the Spanish State’s obligations to safeguard the Article 8 rights of its citizens. This involved a “proportionality assessment” – in this case striking a balance between the rights of the workers involved to a private life and the legitimate interests of the employer to identify and sanction the workers who were stealing from it.

The Grand Chamber set out a list of factors to consider when making such an assessment, of which the following were particularly significant:

• Justification for monitoring: it had been triggered by a reasonable suspicion of serious misconduct by a number of employees, following stock discrepancies of up to €20,000 per month
• Where monitoring took place: it had taken place in the section of the supermarket open to the public, rather than in a private area
• Extent of monitoring: it had been conducted over a short period, and only individuals under reasonable suspicion of stealing were targeted
• Procedural safeguards: the employers had not informed the employees in advance of the monitoring, in breach of Spanish data protection legislation; on the other hand, in these circumstances prior notification would have defeated its purpose
• Use of the footage: circulation of the footage was strictly limited, and was not used for any purpose other than the disciplinary proceedings.

Weighing everything in the balance, the Grand Chamber decided (by a majority of 14:3) that the workers’ article 8 rights had not been infringed. It went on to find (this time unanimously) that there had no breach of Article 6 either. It placed the main emphasis on the overall fairness of the various domestic hearings. The Spanish courts had assessed (and rejected) the workers’ arguments that the evidence had been obtained in breach of Article 8. They had also looked at the totality of the evidence (the employer has also produced doctored till receipts) and noted that, although the footage had been obtained in breach of Spanish data protection law, the workers had been able to view it and had not challenged its authenticity.

How far is this decision relevant to employers in the UK, including private sector employers who are not directly subject to the European Human Rights Convention? Decisions involving other European jurisdictions do not always translate easily to the UK, but the following points can be made:

• Employment tribunals: this latest guidance from the European Court of Human Rights must be taken into account when assessing the fairness of a dismissal, since they are obliged by the Human Rights Act to read domestic legislation, where possible, compatibly with relevant convention rights
• Data protection: this case did not address data protection issues head on, simply noting that in the view of the Spanish courts the evidence had been obtained in breach of Spanish data protection law. Unlike in Spain, covert monitoring is allowed in the UK in exceptional circumstances. This latest decision will need to be taken into account when making the required impact assessment before embarking on any covert employee monitoring. Guidance from the Information Commissioner's Office makes it clear that covert monitoring will only be acceptable in rare cases.
• Admissibility of evidence: the impact of this case is more limited in relation to the admissibility of evidence obtained in breach of Article 8, or data protection legislation. In either case, there appears to be no Human Rights presumption against the inclusion of such evidence: it is merely one factor to weigh in the balance when considering the overall fairness of the hearing. Much the same approach is currently adopted in the UK, whether in the employment tribunal or the ordinary civil courts. However, there is no doubt that the more serious the breach, the less likely the evidence is to be admissible, all other things being equal.
• Earlier rulings: two years ago the Grand Chamber issued a ruling in a Romanian workplace privacy case that came down on the side of the worker. That case was about workplace monitoring of an instant messaging account, and that time it decided that the employers had infringed the worker’s Article 8 rights. It is helpful to consider these decisions together when assessing whether proposed workplace monitoring is likely to be in breach of workers’ privacy rights.

Rejecting generous settlement offer not necessarily unreasonable conduct

The Employment Appeal Tribunal has overturned an employment tribunal costs order, made mainly because the claimant had turned down two offers of settlement. It has also said that an offer to pay £500 for legal advice on the first of these offers was “wholly unrealistic”.

We will come back to the £500 later, but it is worth explaining the background first. As is widely known, costs do not “follow the event” in the employment tribunal (unlike in the ordinary civil courts). Apart from in certain specific circumstances, there is no power to make a costs order unless the paying party has either acted “vexatiously, abusively, disruptively or otherwise unreasonably”, or the case (or defence) they are pursuing had “no reasonable prospect of success”. It is therefore not surprising that costs orders are rare. In the year 2018/19 the official figures show that over 120,000 claims were presented to the employment tribunal, but only 209 cost awards were made (roughly 75% of them in favour of respondents).

In this case the employment tribunal had made a costs order of £20,000 against an unrepresented claimant who had pursued a long and complex discrimination and unfair dismissal claim. Before the liability hearing, she had been offered £50,000 to settle all her claims, and £500 plus VAT to pay for legal advice to assess the offer. She rejected the offer. At the hearing all her discrimination claims were dismissed, though her unfair dismissal claim was upheld because there had been some procedural unfairness in the disciplinary process.

After the liability hearing, she received another offer. This time she was offered £1900 (equivalent to her basic award for unfair dismissal) in full and final settlement of the proceedings. That would have precluded her appealing and any application for costs from the respondents. She rejected that offer too. The remedies hearing went ahead and she was awarded precisely the sum she had previously been offered.

There was no suggestion that her claim had no reasonable prospects of success, although the ET said that she should have been aware that there were “significant difficulties” with her case. So the key question was whether refusing these offers amounted to unreasonable conduct. The ET thought it did. The EAT overturned the decision, saying that this issue had not been addressed in the right way.

The EAT said that in many cases there will be more than one reasonable course of conduct. It thought that in this case the tribunal had substituted its own view of the matter, rather than putting itself in the shoes of the claimant, as it was required to do. It is at this point that the £500 comes in. The offer to contribute this amount towards her legal costs was made so that the claimant (who had no legal representation) could get an informed view of her prospects of success and the value of the settlement offer. However, in such a complex case, the EAT thought that, while this would have been enough to get advice on the terms and effect of the proposed settlement agreement, it was unrealistic to expect she could also have obtained legal advice on the merits of her claim for that sum. The respondent’s costs application will now have to be reconsidered by the employment tribunal.

It follows that his case does not set a new benchmark for what employers should offer towards an employee’s legal costs so that they can obtain independent advice on a proposed settlement agreement. However, once litigation has started, it does illustrate how an offer to contribute to legal costs on top of a settlement sum can be seen as inadequate, if a respondent later wants to use the rejection of the settlement offer as an example of unreasonable conduct.

In addition, while we don’t know the final outcome of the costs application, this case illustrates that a party making such an application is in a relatively weak position if it wishes to rely on a rejection of a settlement offer as the main basis for an costs application. Given that employment tribunals are essentially a costs-free jurisdiction, there is no equivalent to the Part 36 Offer regime that applies in the ordinary civil courts. In the employment tribunal, the party seeking costs is on much stronger ground if they can show that the claim had no reasonable prospects of success. A few weeks before this decision was published, the EAT upheld an order for the claimant to pay the entire costs of the proceedings (estimated at some £170,000 before detailed assessment) because the tribunal was of the view that the claim should never have been brought. However the typical costs order is more modest. Last year the median award was £2,400 and the average (distorted by one very high award of over £300,000) was £6,729.

Making covert recording is normally misconduct, but severity will vary

Last week’s decision from the Employment Appeal Tribunal gives some useful guidance about the rights and wrongs of recording workplace meetings.

The EAT said that it was good practice to say if there is any intention to record a meeting “save in the most pressing of circumstances”. An employee’s failure to do this would generally amount to misconduct, but not necessarily gross misconduct.

When assessing the impact of a covert recording on the employment relationship, the EAT has explained that an employment tribunal is entitled to make an assessment of the circumstances, including the following:

• The purpose of the recording: the purpose may vary widely from the “highly manipulative employee seeking to entrap the employer” to the “confused and vulnerable employee seeking to keep a record or guard against misrepresentation”
• The employee’s blameworthiness: has the employee been told that a recording must not be kept, or lied about making a recording?
• What is recorded: is it a meeting of which a record would be kept in any event, or a meeting where highly confidential material is discussed?
• Employer’s attitude: for example, is making a covert recording included as an example of gross misconduct in the disciplinary procedure?

In this case there was no evidence that the claimant had sought to obtain an unfair advantage from making the recording. She was flustered at the time and was not even sure that her device would record. She made no use of the recording in the course of the employer’s internal procedures. In fact, when the recording was eventually disclosed in the course of the tribunal proceedings, the contents were damaging rather than helpful to her case. 

In the light of all these circumstances the EAT did not interfere with the ET’s decision to make a relatively modest reduction in the claimant’s basic and compensatory award. It had already decided to make a 20% deduction for other reasons which were not the subject of the appeal. It decided to increase this deduction by 10% to 30% because, had the employer known about the covert recording at the time of her dismissal, it might “fairly have considered this to be a misconduct matter which then fairly led to dismissal”.

In this appeal there was no discussion about whether a transcript of the recording should have been admitted in evidence at the ET. In most routine cases an employment tribunal will be prepared to allow the content to be given in evidence, normally by means of a verbatim transcript, even it has been made secretly. But in some cases an employer may wish to challenge its admissibility, either because the information recorded is not relevant to the issues in the case, or because it contains confidential material which it would be damaging to reveal in a public hearing. The mere fact that the recording has been made secretly is not normally a reason for refusing to admit it in evidence, though there may well be other adverse consequences for the claimant, as we have seen in this case.

Law Commission consultation foreshadows further changes to ET procedures

The Law Commission’s recent consultation paper on employment law "hearing structures" takes a fresh look at the way employment disputes should be handled. Given the constraints imposed by current Government policy, it stops short of advocating radical reform. However, there are still some suggestions which, if adopted, could significantly re-balance the current employment tribunal system in favour of claimants.

The more eye-catching ideas include:

• Extending limitation periods: The Commission has suggested extending the standard time limit for bringing claims in the employment tribunal from three to six months. It is also consulting about whether the more claimant-friendly “just and equitable” test for extending the standard time limit should be applied across the board, rather than (as currently) being largely confined to discrimination claims.
• Widening breach of contract jurisdiction: Currently, breach of contract claims (up to a value of £25,000 ) can be brought in the employment tribunal only if the claim arises from the termination of employment or is outstanding at that point. The Commission proposes extending the jurisdiction to workers and is seeking views on removing the time-related restrictions (though not the other exclusions). It is also canvassing views about significantly increasing the financial limit, or even removing it altogether.
• Improving rules for co-respondents: There are a number of anomalous gaps in ETs’ powers to deal with multiple respondents on which the Commission is seeking views. These include whether tribunals should be able to apportion liability between co-respondents and allow one respondent to obtain a contribution order against another.

The Consultation remains open until January next year, after which the Commission will publish a final report. It will therefore be some time before any of these proposals see the light of day. They do however provide a good indication of the kind of changes to the employment tribunal system that are currently being considered in Government circles.

One possibility is that some at least of these changes will be used as a counterweight to the reintroduction of fees, a move that, according to a recent statement from the Ministry of Justice, has still not been ruled out.

Disability: how much can an employer be expected to know?

The Court of Appeal has ruled on the extent of an employer’s obligation to find out whether a worker is a disabled person. This is an important issue, because an employer can be liable for failure to make reasonable adjustments (despite not knowing about a claimant’s disability) if it could “reasonably be expected to know” that he or she was a disabled person at the relevant time.

In this latest decision the Court of Appeal has endorsed the employment tribunal’s assessment that the claimant’s employer did not know the claimant was disabled and “did all they could reasonably be expected to have done to find out about the nature of the health problem” she was experiencing. That meant that the employer could not be made liable for failure to make adjustments, even though it emerged at the employment tribunal that the claimant had in fact been disabled in the lead up to her dismissal for poor attendance.

The Court of Appeal agreed that the employer had gone to considerable lengths to establish the medical position. Following correspondence with the claimant’s GP it had made a referral to occupational health consultants. On receipt of the initial report it went back with further questions, which resulted in a second report. After another period of absence there were further communications with the OH consultants as well as correspondence with the GP before the final disciplinary hearing took place.

The Court of Appeal supported the ET’s assessment that the employers had been entitled to conclude that it was not likely that the health problems the claimant was experiencing would last as long as 12 months. In addition, many of the absences were due to bouts of flu, or “very generalised references” to stress and anxiety, which “would not ordinarily lead an employee to think an employee is disabled”.

Although there was some criticism levelled at the OH consultants by the ET, the Court of Appeal agreed it had been reasonable to rely on their advice. It was not a case like Gallop v Newport City Council a few years ago, where the Court of Appeal had said that it was not necessarily reasonable to take an OH report at face value.  While an employer should not follow any expert evidence blindly, it is entitled to attach “great weight to the informed and reasoned opinion of an occupational health consultant”.

This decision is therefore reassuring to employers, who had been concerned about the impact of Gallop on their ability to rely on expert advice. However, it is worth emphasising that it is up to the tribunal to assess what an employer can reasonably be expected to know, and such a decision is not easy to overturn on appeal. In this case one reason why the employer failed to uncover the claimant’s disability was because she refused to allow the OH consultant access to her GP records. That may have contributed to the tribunal's assessment that there was a limit to the enquiries the employer could reasonably be expected to have made.

Our top 10 employment law issues for 2018

To mark the start of 2018, we have put together our review of the past year. We have selected the topics that we think have most engaged employment practitioners over the past 12 months and which are likely to continue to be significant in the year ahead.

Predictably enough Brexit tops the bill, as it did last year.  Other topics include the General Data Protection Regulation, corporate governance and the gig economy

ET and EAT fees refund scheme launched

Following completion of a pilot, the full refund scheme was launched yesterday. It enables litigants in the employment tribunal and Employment Appeal Tribunal to reclaim fees paid since their introduction in July 2013.

It allows for applications to be made online or by post, and reflects the details announced in the House of Commons last month.  In summary, those eligible for a refund under the scheme are:

• Litigants who paid a fee directly to the employment tribunal or the EAT and have not been reimbursed by their opponent pursuant to an order of the tribunal.
• Litigants who were ordered by the tribunal to reimburse their opponent their fee and who can show that they have paid it.
• Representatives who paid a fee on behalf of another person and have not been reimbursed by that person.
• The lead claimant (or representative) in a multiple claim who paid a fee on behalf of the other claimants.

However it appears that only individual claimants can apply online. Respondents will need to apply by e-mail or post using form 2R. It is not possible for respondents’ representatives to apply for a refund on their behalf, unless they have paid the fee and not been reimbursed by their client.

Employers should note that the description of form 2R online doesn’t cover all the possible permutations. For example it is clear from the form itself that it is possible for respondents to use the form to reclaim EAT fees and interlocutory fees incurred in the employment tribunal, including judicial mediation fees. Claims do not need to be confined to claimants’ fees that respondents were ordered to pay, as it suggests on the Government website.