Employment

Blowing the whistle- a look into the protections afforded to those who decide to speak out
19 April, 2017

The protections afforded to employees who decide to raise complaints of wrongdoing with their employers have been brought to the forefront as Jes Staley, the Chief Executive of Barclays, has come under investigation by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) after admitting he had broken rules on protecting whistleblowers and used the bank’s internal security team to attempt to identify individuals who had sent anonymous letters complaining about the recruitment of a senior employee.

What is whistleblowing?

This is where a worker or employee discloses information on certain suspected wrongdoings or malpractices in the workplace to their employer (in most cases) or a third party, such as the FCA or the press, for example information which in their reasonable belief tends to show the commission of a criminal offence.  A disclosure of information by a whistleblower usually relates to something that impacts on either the employer or a third party, but may not impact on them personally. 

Overview of current UK legislation protecting whistleblowers

 Under the Public Interest Disclosure Act 1998 (PIDA) a two-tier protection mechanism is in place for whistleblowers:

  1. The dismissal of an employee is automatically unfair if the reason for their dismissal is that they have made a protected disclosure; and
  2. A worker is protected from being subjected to any detriment as a result of making a protected disclosure.

For a whistleblower to qualify for protection they must have made a ‘qualifying disclosure’ in accordance with s43B Employment Rights Act 1996 (ERA) which also must be made in a way which meets the requirements for ‘protection’.  For a qualifying disclosure to be protected the main factor taken into consideration is the identity of the person to whom the disclosure is made i.e. whether they are internal or external to the employer.  Further to this, changes to the ERA in 2013 added a new requirement for those raising whistleblowing allegations to have a ”reasonable belief” that the disclosure is made in the ”public interest”.

A case to watch out for in 2017

Chesterton Global v Nurmohamed

In this case the claimant employee brought a whistleblowing claim alleging that Chestertons were deliberately manipulating the accounts to give him a lower commission income, which also affected around 100 other senior managers.  On appeal, the Employment Appeal Tribunal confirmed a fairly low threshold for the ‘public interest test’ and that it is the worker’s “reasonable belief” that matters.  There was no need to assess whether the disclosure was of real interest to the public, so long as the worker’s belief that the disclosure was made in the public interest was objectively reasonable.  The decision in this case was reiterated in Underwood v Wincanton Plc confirming that the ‘public’ can be interpreted as a subset of the public as opposed to a whole, even if this subset consists only of fellow employees.  That case concerned a written complaint by drivers about their terms and conditions of employment and the allocation of overtime.  The ‘public interest test’ can therefore be satisfied even if a relatively small group of people are directly affected by the subject-matter of the disclosure. 

The case of Chesterton will be reviewed by the Court of Appeal in June 2017 and when this appeal is decided it will be important for developments of the ‘public interest’ requirement of a whistleblowing claim and whether this low threshold will be maintained or reversed.

Is the current protection enough?

In the UK over the past two years the number of whistleblowers who have reported grievances to the FCA has dropped.  The common hypothesis for this decline is that not enough protection is offered by regulatory organisations such as the FCA, nor by employer organisations to those employees who decide to speak out. 

Current whistleblowing legislation puts no positive obligation on employers to encourage whistleblowing or implement a whistleblowing policy, and the protection offered by current UK legislation for whistleblowers has come under scrutiny and criticism over the years.  This criticism has been further compounded by the recent publication of the Law Commission’s report setting out proposals to reform the Official Secrets Act.  This called for a significant increase in prison sentences for those who decide to reveal state secrets, which was met with an outcry from whistleblower charities and civil liberties groups.

The Barclays whistleblower investigation provides a serious test of the whistleblowing provisions that came into effect in the financial services sector in 2016, alongside the senior managers and certification regime which is targeted at improving individual accountability in this sector and which is intended to promote an open culture encouraging employees to raise concerns about poor behaviour as a key element of good corporate governance.  There are concerns that these whistleblowing regulations have not gone far enough to protect whistleblowers and there is speculation that this investigation will lead to demand for more meaningful scrutiny and accountability of financial institutions by the regulators. 

Despite recent legislative changes and increased emphasis on supporting whistleblowers, there are concerns in some quarters that the regimes for the protection of whistleblowers still leave a lot to be desired.  Whether the media attention surrounding the Barclays investigation will resonate into the wider corporate culture is still to be seen.  What is clear is that whistleblowing needs to be addressed by all companies and employer organisations alike in order that effective systems are put in place to provide employees with the necessary safeguards.


Self-employed contractors – can SME’s benefit from the new government portal and challenges to the rules?
7 April, 2017

Last month HMRC launched a web portal called the Employment Status Service (ESS) with the primary aim of helping public sector bodies to determine the tax status of their contractors https://www.gov.uk/guidance/check-employment-status-for-tax, but the site can also be used to give guidance to the private sector for those employers wanting to ensure they are not facilitating tax avoidance by their contractors.

Businesses will need to exercise caution though as the system has faced criticism for inaccuracy and in relation to its functionality.  Concerns have also been raised that it fails to make a proper assessment of employment law.  The subtle differences between the rules to determine whether a person is self-employed for tax purposes and employment law purposes have caused confusion for a number of years.  One of the key tests to determine whether a contractor is genuinely self employed is if they can supply a substitute.  Just by indicating that a substitute can be supplied is adequate for the online tool to determine self employed status, however this will not be so clear cut for employment law purposes, which would look behind any agreement to determine whether a substitute could genuinely be supplied and if it would be acceptable in practice. 

Changes to IR35 Rules which came in on 6th April mean that public sector bodies will need to treat contractors as salaried workers unless they can prove they conform to IR35 rules.  Until now the onus has been on contractors to declare themselves “outside” of IR35 to avoid being taxed in the same way as permanent employees, and to conduct their business in a way that does not risk them being considered one.  It is worth using the online tool and keeping the assessment as evidence should HMRC carry out an audit.  Even if the status of the contractor has changed, this will be good evidence that they were previously assessed as self employed.  It is also advisable to have a contract for services in place which sets out the intention between the parties.

Some in the public sector have predicted as a result of the changes that there will be an exodus of self-employed contractors to the private sector, particularly in IT fields where there are already quite severe shortages of skilled professionals.  Currently reports have been largely focussed on large companies putting themselves forward to pick up disgruntled contractors, like IBM, Accenture and Capita, but smaller companies may also be able to benefit from a better recruitment environment.


Businesses beware – as gym chain Virgin Active found out – discrimination is not limited to employees. You may be liable for the actions of your service providers towards your clients!
3 April, 2017

The media has recently reported on a case in which an autistic man, Ketan Aggarwal, brought a successful disability discrimination claim against Virgin Active after he was insulted by one of their gym instructors.

Case

In 2015 Mr Aggarwal was attending a spin class at the gym when one of his fellow cyclists complained that the music was not motivating enough. Mr Aggarwal agreed with her, and as a result, the instructor is said to have yelled: ‘Don’t tell me how to do my job’. Then at the end of the class it was alleged the instructor shouted over a microphone that Mr Aggarwal was ‘stupid’ and rudely dismissed his opinion in front of a class of 30. 

Mr Aggarwal claimed that he had previously made gym staff aware of his autism, so made a complaint to Virgin Active about the way that he had been singled out by the instructor. When Virgin Active failed to take any action, Mr Aggarwal brought a claim against the company.

Mr Aggarwal was successful and Virgin Active was ordered to pay him £1,200 in damages, plus £190 in costs.  It was also ordered to apologise to Mr Aggarwal and to consider amending its equality training to staff and consultants.

Issues

Liability

Gym instructors are often engaged as independent contractors rather than as employees. However, under the Equality Act 2010 businesses can be liable for the acts of agents such as independent contractors, so it’s important to ensure that your equality policies apply to all employees, officers, consultants, contractors, volunteers and agency workers.

Training

You should also consider running training sessions for all such staff to make them aware of their legal duties under the Equality Act 2010. These steps are aimed at ensuring that discriminatory acts do not occur in the first place, but will also help show that the business has taken such steps as are practicable to prevent discrimination, should a claim be made against it.

Costs

The courts have the power to award compensation in discrimination cases for injury to feelings, so the claimant doesn’t have to show that he has suffered any financial loss. There may also be a costs order, as was the case here. The £190 costs order made in this case was low because Mr Aggarwal represented himself, after going to the library to learn about discrimination law. However, those with legal representation can incur costs running into thousands of pounds.  

Publicity

Also, as shown by this matter, a claim brought against you by one of
your clients could result in negative publicity and damage client relationships.

The Equality and Human Rights Commission has produced some specific advice and guidance for gyms and health clubs, which you can access here.


Employment challenges in the home care sector
30 March, 2017

We share some of the employment challenges faced by our clients in the social care sector, in the wake of the BBC Panorama report this week that scores of care companies are withdrawing from their contracts with local authorities and 69 care providers have closed in the past three months.

As widely reported, the precarious state of the social care sector has knock-on effects for the NHS, with high numbers of hospital patients “bed-blocking” as they await the availability of a home care package.  The demographics of the UK population meanwhile are set to escalate the demand for social care services for decades to come.  According to the ONS, the percentage of the UK population aged 65 and over is predicted to increase to nearly 25% by 2045, and the Centre for Workforce Intelligence estimates that at least two million more carers will be needed by 2025 in England alone to cope with growing demand.

Trends in minimum wage compliance and employment costs

The primary concern among care providers is that increasingly the funding provision for adult social care is failing to meet the growing employment costs which they necessarily incur. This is in the context of the National Living Wage rate increasing next month from £7.20 to £7.50 per hour and on target to increase to around £9.00 per hour by 2020.

Focussed enforcement action by HMRC, together with various union and media-led campaigns, are at the same time not only reinforcing principles of due compliance with minimum wage legislation, but also developing the boundaries of what can properly be classified as working hours for these purposes.

For example, it is now firmly established that the time spent by a carer travelling between their home visits counts as working time.  This presents a particular cost burden for the employer in rural areas, where the locations of home visits may be spread out, which may not be reflected in the contractual rates paid by the local authority.  The legal analysis of on-call and sleep-in arrangements in relation to minimum wage compliance is particularly complex and the subject of recent appeal decisions which are difficult to reconcile.  The absence of sector-specific HMRC guidance does not help care providers in this respect.  An example of the boundaries of minimum wage compliance being developed is the growing pressure for pre-employment training to be classified as working time and so attract entitlement to payment at minimum wage levels.

On top of salary costs, the 1% minimum employer pension contribution under auto-enrolment will increase to 3% by April 2019, and larger care companies (with payroll costs over £3 million) from this April will also bear the cost of the apprenticeship levy charged at 0.5% of their paybill.

The 64 million dollar question – or maybe that should be the £2 billion question – is how far the additional Government spending for social care announced in this month’s Budget will go to address these growing employment costs for care providers, and also towards meeting increasing demands for social care services which flow from an ageing population.

Recruitment and the Brexit impact

Related to the issues of pay and minimum wage compliance are the challenges which care providers are facing with recruitment and retention.  There is already a reported shortage of qualified carers nationwide, and in some regions there are particularly acute difficulties in recruitment, and hence the pressure on care providers to keep their pay-rates competitive both with local competitors in this sector but also with other local employers.

A final issue of serious concern here is the impact which Brexit will have on the social care sector, which is even more dependent on EU nationals than the NHS.  EU migrants comprise 7% of the social care workforce across the UK, the figure in the South-East being 10% and in London 12%.  The sector’s dependency on EU nationals has increased by over 40% in a period of two years, based on Government figures released last month.  Care providers are particularly vulnerable to the risk of an exodus of their European employees in the run-up to the UK’s exit from the European union, and are at the forefront of those calling for guaranteed residency rights for EU migrants currently working in the UK and contingency plans to ensure that there can be a continuing inflow of EU nationals post-Brexit to meet the staffing needs of the care sector.   


Employer claims £15m for breach of confidentiality, but High Court awards only nominal damages
13 March, 2017

In Marathon Asset Management LLP and another v Seddon and another [2017] EWHC 300 (Comm), the High Court  found two fConfidentialormer employees liable for breach of their duties of confidence after confidential files were copied and saved onto one of their USB drives before they left the business. However, the ex-employer’s claim for £15m in damages was rejected, and the ex-employees were instead ordered to pay a nominal sum of only £2.  

The former employer was an investment management business (Marathon).  For months leading up to his departure, one of the employees (Mr Bridgeman) copied a large volume of confidential files onto USB drives. He wanted to have access to these files, which contained documents relating to Marathon’s clients, funds and business operations, because he believed that they would enable him to “hit the ground running” in setting up a competing investment management business.  In actual fact, very few of these files were subsequently accessed and there was no evidence that he derived any material benefit from them.    

Another employee (Mr Seddon) saved a small number of files onto a shared drive, enabling Mr Bridgeman to copy those as well. These documents were never subsequently accessed.  

Mr Bridgeman admitted that by copying the files, he had breached his duty of fidelity and good faith to Marathon, and accepted that he had breached some of the restrictions in his employment contract.

There were therefore two main issues for the Court to consider:

  1. Whether Mr Seddon was liable for copying the files; and
  2. What, if any, damages should be payable?

Was Mr Seddon liable for copying the files?

Mr Seddon was found liable for breach of his duty of fidelity and breach of contract for placing files on the shared drive, because he did so with the intention that Mr Bridgeman would copy them.

However, Marathon sought to hold him liable for the files that Mr Bridgeman had copied. It advanced a number of arguments, which were ultimately unsuccessful. One of them was that Mr Seddon was liable for breach of a contractual duty to report Mr Bridgeman’s conduct. There was no express term in his contract requiring him to do so. The question was whether there was an implied duty as part of his duty of fidelity and good faith. It was found that this would depend on the circumstances, and in these circumstances the argument was rejected.  

What, if any, damages should be payable?

Marathon didn’t allege that either Mr Bridgeman or Mr Seddon had made any financial gain from their breaches, nor did it allege that Marathon had suffered any loss.

Instead, it argued that the ex-employees should pay the value of what they took, or what they would have had to pay Marathon for it to have agreed to release them from their duties of confidence in the first place. Marathon claimed that that figure would have been £15m.  Its arguments were rejected.

Many of the documents that had been copied contained information which could have been obtained from other sources, but not without time and expense. Leggatt J commented that he would have been able to assess damages by estimating the costs that would have been incurred in obtaining that information from other sources, but Marathon had failed to advance that argument.

Comment

Although the case focused on a number of complex legal arguments, the following practical advice can be taken from it:

  1. If you want to oblige employees to report the misconduct of their peers, it is advisable to insert an express clause into their contracts. g. an express duty to protect the interests of the business.
  2. If you are considering issuing proceedings against a former employee in breach of their obligations, make sure that you focus on the financial realities of the situation to assess whether or not it is worthwhile. You should consider whether you have suffered a financial loss or whether the wrongdoers have benefited from an illegitimate financial gain.

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