NOTE FROM THE EDITOR

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1 INSIGHT IN-DEPTH: APRIL 2016 UK: EMPLOYMENT VICARIOUS LIABILITY AND CASE REPORTS FOR MORE INFORMATION, PLEASE SPEAK WITH A MEMBER OF OUR UK EMPLOYMENT TEAM: LIZ BUCHAN PARTNER EBUCHAN@WFW.COM ANGHARAD HARRIS PARTNER AHARRIS@WFW.COM ASHA KUMAR PARTNER AKUMAR@WFW.COM JANET SIMPSON PROFESSIONAL SUPPORT LAWYER JSIMPSON@WFW.COM ANNA ROBINSON SENIOR ASSOCIATE AROBINSON@WFW.COM RHODRI THOMAS SENIOR ASSOCIATE RTHOMAS@WFW.COM DEVAN KHAGRAM SENIOR ASSOCIATE DKHAGRAM@WFW.COM ELLIOTT MARSH SENIOR PARALEGAL EMARSH@WFW.COM NOTE FROM THE EDITOR The government announced in the Budget in March that, from April 2018, it would tighten the scope of the income tax exemption for termination payments. Currently, certain forms of termination payments are exempt from employee and employer national insurance Contributions (NICs) and the first 30,000 is income tax free. The proposal is an attempt to prevent employers who manipulate the rules by structuring arrangements to include payments that are ordinarily taxable such as notice and bonuses to minimise the tax and NICs due. The new legislation will align the rules so employer NICs will be due on those payments above 30,000 that are already subject to income tax. The first 30,000 of a termination payment will remain exempt from income tax and the full payment will be outside the scope of employee NICs. Also, in response to a consultation on simplifying the tax treatment of termination payments, the government proposes to introduce legislation so that all payments in lieu of notice and certain damages payments are taxed as earnings. In addition, the foreign service exemption will be abolished. The Committee on Women's Rights and Gender Equality, part of the European Parliament, has published an opinion calling for action to address the perceived failure of the revised Parental Leave Directive to achieve its objectives in terms of work-life balance, female labour market participation and men's share of childcare. It notes in particular that unpaid or low-paid family-related leave results in low take-

2 2 Watson Farley & Williams up rates and that only 2.7% of those taking parental leave in 2010 were men. The committee calls for parental leave to be both non-transferable and paid. Currently, the Directive provides for a minimum of four months' unpaid leave per child for each employee, of which at least one month cannot be transferred between parents. In Great Britain, the whole 18-week entitlement is non-transferable. The committee believes that low uptake, especially among fathers, can only be addressed by introducing adequate incentive-based financial compensation during leave, and by moving to a system based on non-transferable leave. It also calls for the overall entitlement to be increased from four to six months. On a similar topic, it was recently reported that the take-up rate for shared parental leave currently stands at a staggeringly low 1%! On 1 April, the Government introduced a new mandatory national living wage (NLW) for workers aged 25 and above, initially set at 7.20 a rise of 50p relative to the current National Minimum Wage (NMW) rate. The NMW will continue to apply for those aged 21 to 24, and this year, perhaps not coincidentally, has not gone up and stays at 6.70 per hour. Janet Simpson Finally, as our office refurbishment is nearly complete we look forward to seeing you in our brand new seminar room at the first Briefing of 2016 on 10 May when Anna and Rhodri will look at Managing the Virtual World in the Workplace. Janet Simpson Editor INSIGHT IN-DEPTH VICARIOUS LIABILITY Vicarious liability refers to a situation where someone is held responsible for the actions or omissions of another person. In a workplace context, an employer can be liable for the acts or omissions of its employees, provided it can be shown that they took place in the course of their employment. In general, if the person who caused the harm was an independent contractor, rather than an employee, then the employer will not be subject to vicarious liability. There are, however, exceptions to this rule. For example, if an employer fails to supervise an independent contractor properly or negligently appoints an incompetent contractor, then the employer can be liable for harm arising as a result. There have been two recent cases, which have looked at different aspects of vicarious liability. In Cox v Ministry of Justice the Supreme Court had to consider whether vicarious liability could arise in non-employment relationships where the wrongdoer is integrated into the defendant s operation and the defendant has created the risk of wrongdoing by assigning responsibility to the wrongdoer. In Mohamud v Morrison Supermarkets the question for the Court of Appeal was whether an employer was vicariously liable for a violent assault by one of its employees on a customer. In Cox, C was the catering manager at a prison and she worked in the kitchens with the prisoners. One of the prisoners accidentally dropped a 25kg sack of rice on her back. She sued the MoJ for personal injury, arguing that it was vicariously liable for

3 UK: EMPLOYMENT INSIGHT IN-DEPTH 3 the prisoner s negligence. The Court of Appeal held that the relationship between the MoJ and the prisoner was sufficiently akin to employment. The prisoner was so much part of the work, business and organisation of the prison that it was only right to make the MoJ answer for his negligence. The MoJ appealed to the Supreme Court. A COMPANY OUGHT TO BE LIABLE FOR TORTS THAT MAY FAIRLY BE REGARDED AS RISKS OF ITS BUSINESS ACTIVITIES The issue for the Supreme Court was whether, in the absence of any employment relationship, the Ministry could be held liable for the negligent act of the prisoner committed in the course of his activities in the prison kitchen. The Court referred to the case of Various Claimants v Catholic Child Welfare Society where it was held that a relationship that bore the same features as employment might be capable of giving rise to vicarious liability on the grounds of it being akin to employment, even where the parties were not bound by a contract of employment. A company ought to be liable for torts that may fairly be regarded as risks of its business activities. This reflects the changing nature of a modern workplace that is no longer exclusively categorised by traditional employment relationships. The Court then considered whether the negligence in question had occurred in the course of activities that were an integral part of the business of the prison. The word business did not necessarily require the pursuit of commercial activities and it was sufficient that the prison carried on activities in the furtherance of its aims of serving the public interest. A prisoner working in the kitchen was integrated into the operation of the prison, and C had been injured because of his negligence in carrying out the activities that had been assigned to him. The prison service was, accordingly, vicariously liable for the prisoner s actions, in spite of the relationship differing in many other respects from one of traditional employment. The Supreme Court therefore dismissed the appeal. In Mohamud v WM Morrison Supermarkets plc, M was assaulted and racially abused by K, an employee of WM, on the premises of the supermarket petrol station where K worked. When M brought a personal injury claim, a Recorder found that K s actions were beyond the scope of his employment and so WM was not liable for them. The Court of Appeal upheld that conclusion on appeal. It held that, while it was relevant that the assault took place at K s place of work and at a time when he was on duty, this did not establish a sufficiently close connection between the wrongdoing and the employment. Some factor going beyond interaction between employee and victim is required, such as an obligation upon the employee to keep order or an element of inherent risk of confrontation in the employment. M appealed to the Supreme Court. THE TWO DECISIONS OF THE SUPREME COURT ENDORSE EXISTING LEGAL PRINCIPLES ON VICARIOUS LIABILITY. M argued that the established close connection test ought to be replaced with a broader test of representative capacity namely, whether a reasonable observer would consider the employee to be acting as a representative of the employer at the time of committing the tort. The Supreme Court rejected this proposition, but, nevertheless, allowed M s appeal. The Court noted that K s job was to respond to enquiries by customers; he had been carrying out his duties when he responded to M in a foul-mouthed way. When he then followed M onto the forecourt and violently attacked him, he had still been purporting to go about his employer s business in giving M an order to stay away from the premises. K s motive for the attack was irrelevant. Taking all this into account, the Court concluded there was a sufficiently close connection between K s employment and the assault for WM to be held vicariously liable.

4 4 Watson Farley & Williams The two decisions of the Supreme Court endorse existing legal principles on vicarious liability, but illustrate an increasing willingness by the courts to look beyond the traditional view of the employer-employee relationship, and employment activities. In the Morrison Supermarket case they also address the issue that in cases of vicarious liability, the worse the behaviour of the employee, the easier it is for the employer to avoid liability on the basis that the employee was not acting in the course of his employment. CASES ROUND-UP Discrimination instruction to speak in English In Kelly v Covance Laboratories Limited K was employed as an analyst by Covance Laboratories Ltd (C Ltd). C Ltd was involved in animal testing, which had resulted in attacks on the company and its staff by violent activists, including activists working undercover within C Ltd. C Ltd had concerns regarding K s performance and conduct including frequently using her mobile phone at work and having long conversations in Russian on her mobile in the office toilets. The concern was that she might be an animal rights activist attempting to infiltrate the company and she was instructed not speak Russian at work in order that any conversations she had could be understood by English-speaking managers. When K objected that two Ukrainian colleagues also spoke Russian at work, their managers were asked to pass on similar instructions to those employees. With a threat of dismissal, K resigned and claimed direct race discrimination on the grounds of nationality or national origin and racial harassment. A tribunal dismissed the claim and the EAT dismissed the appeal. Although K had satisfied the first stage of the test in establishing that an instruction linked to an employee s race or national origins could amount to unlawful direct discrimination and harassment, the burden of proof shifted to C Ltd who were able to show that the instruction was because of their suspicions that she was an activist and not because she was Russian. C Ltd therefore had a reasonable explanation for their decision that was not related to her nationality. It was reasonable to react in this way in the context in which C Ltd worked. THERE HAVE BEEN A NUMBER OF RECENT DECISIONS ON THE REQUIREMENT TO SPEAK ENGLISH IN THE WORKPLACE. There have been a number of recent decisions on the requirement to speak English in the workplace. Previous cases have found that instructions given by a manager that an employee should not speak in her own language could constitute direct race discrimination and that language is an intrinsic part of nationality. Employers need very good reasons for controlling the use of other languages in the workplace, especially any attempt to prohibit non-english outside business operations. If there is a policy, it is advisable to provide that the policy is to speak English in the workplace (which is a neutral requirement) and not a requirement not to speak another language and that the policy is applied consistently to all nationalities and languages.

5 UK: EMPLOYMENT INSIGHT IN-DEPTH 5 Sickness absence conduct or capability? In Metroline West v Ajaj, A was employed by Metroline West Limited for 10 years as a bus driver and in 2014 he was dismissed for gross misconduct following an allegation that he had lied about his sickness absence. A alleged that he fell in water in the toilets at work and that he had suffered an injury. MW sent A to an occupational health doctor and the report stated that he was not fit for driving duties. MW had concerns about the genuineness of A s injury and arranged for covert surveillance of him when he attended work for a sickness review. Because of the surveillance the employer believed A s account of his injuries was inconsistent with what had been observed. As a result, the employer arranged for further surveillance and continued to meet with him. At a further meeting A was confronted with the surveillance footage which contradicted what he had reported about the extent of his injuries, and he was subsequently invited to a disciplinary hearing. A was dismissed for making a false claim for sick pay; misrepresenting his ability to attend work; and making a false claim of an injury at work. A s appeal was unsuccessful and he brought a claim for unfair dismissal. A Tribunal agreed with A and decided that he had been unfairly dismissed because, although the employer had a potentially fair reason for dismissal, there were no reasonable grounds for belief in the first two allegations, and the employer had failed to carry out a reasonable investigation. With regard to the third allegation, the Tribunal found that the employer did not have any basis to say that A had exaggerated his inability to work. The Employment Appeal Tribunal allowed MW s appeal the Tribunal had substituted the employer s reasoning for their own. The question for the Tribunal was not whether A was capable of walking or capable of sitting for long periods; the question was whether the employer had reasonable grounds to believe, based on a reasonable investigation, that he had misrepresented his injury and its effects. The essence of the decision of the EAT is in the following statement; an employee [who] pulls a sickie is representing that he is unable to attend work by reason of sickness. If that person is not sick, that seems to me to amount to dishonesty and to a fundamental breach of the trust and confidence that is at the heart of the employer/employee relationship. THE EAT HAS CONFIRMED THAT SALES-BASED COMMISSION MUST BE INCLUDED IN THE CALCULATION OF HOLIDAY PAY. Holiday pay The EAT has confirmed that sales-based commission must be included in the calculation of holiday pay. The decision in Lock v British Gas is that UK law can be read in a way which is compatible with the European Working Time Directive. L, a sales consultant at British Gas, brought a tribunal claim arguing that his holiday pay should include commission payments, which he would have earned had he been working. The European Court held that holiday pay under the Working Time Directive must reflect the normal remuneration the worker would have earned had he or she not been on leave. However, the European Court found that it was for national courts or tribunals to determine how holiday pay should be calculated to reflect a worker's entitlement to commission over the holiday period. A tribunal decided that the Working Time Regulations (WTR) must be applied so as to require holiday pay to reflect results-based commission but only for the four weeks of EU leave, and not for the additional 1.6 weeks leave granted under the WTR. This could be achieved by treating workers receiving such commission as having

6 6 Watson Farley & Williams earnings, which vary according to the amount of work done. Although the tribunal did not expressly confirm how to make the calculation, the implication was that the rate of holiday pay should be calculated according to the worker s average hourly rate (including commission) for the 12 weeks preceding the week in which the leave was taken. The tribunal in Lock based its approach on the EAT s judgment in the Bear Scotland case, which held that regular non-guaranteed overtime should be included in holiday pay calculations. The tribunal did not comment on, or contradict, the elements of the Bear Scotland decision, which set restrictive time limits for bringing claims. British Gas appealed the Lock decision on two grounds: That commission and non-guaranteed overtime are dealt with under different statutory provisions for calculating a week s pay and which use different language. The tribunal was therefore wrong to conclude that the Bear Scotland case was relevant to commission-based payments and to apply a similar approach. In any event, UK legislation could not be interpreted consistently with EU case law on calculating normal remuneration in the context of holiday pay. As the decision of the EAT was that UK law is out of step with what the Directive requires, the problem must be solved by the Government amending the legislation. Therefore, for the time being, commission should not be taken into account for holiday pay unless and until the WTR is amended. British Gas has also announced that they will appeal the judgment Publication code number: v1 Watson Farley & Williams 2016 All references to Watson Farley & Williams, WFW and the firm in this document mean Watson Farley & Williams LLP and/or its Affiliated Entities. Any reference to a partner means a member of Watson Farley & Williams LLP, or a member or partner in an Affiliated Entity, or an employee or consultant with equivalent standing and qualification. The transactions and matters referred to in this document represent the experience of our lawyers. This publication is produced by Watson Farley & Williams. It provides a summary of the legal issues, but is not intended to give specific legal advice. The situation described may not apply to your circumstances. If you require advice or have questions or comments on its subject, please speak to your usual contact at Watson Farley & Williams. This publication constitutes attorney advertising. wfw.com