Monthly Archives: October 2015

Can an agent bring a discrimination claim against his principal?

In the 19th Century the relationship which we now call “employer and employee” was referred to as “master and servant”.  The law did not interfere much with the relationship – the philosophy was freedom of contract.

Today the law interferes everywhere in the relationship and business complains that it is tied up with red tape (the phrase apparently derives from the tape which was used to bind important orders which European rulers issued to administer their territory as distinct from the everyday administrative instructions which were bound with string).

A significant area where the law has interfered with the relationship is the area of discrimination.  The Equality Act 2010 prohibits an employer from discriminating against an employee with a “protected characteristic “. The Act lists the protected characteristics as:

  1. Age
  2. Disability
  3. Gender reassignment
  4. Marriage and civil partnership
  5. Pregnancy and maternity
  6. Race
  7. Religion or belief
  8. Sex
  9. Sexual orientation

An agent is not an employee in the traditional sense and most written agency agreements contain a boilerplate clause that the agent is acting as an independent contractor and that nothing in the agreement creates an employee/employer relationship between the agent and the principal.

However, the Equality Act defines “employment” to mean:

“Employment under a contract of employment, a contract of apprenticeship or a contract personally to do work”.

and goes on to provide that a reference under the Act to an employer or an employee is to be read with that definition in mind.

The question then becomes, is an agent who sells goods and services on behalf of a principal doing so under “a contract personally to do work”.  First of all there must be a contract – an oral contract will do, a contract does not have to be reduced to writing.  An agent/principal relationship would satisfy this test for there to be a contract.  But is it a contract “personally to do work”?

The question of what is a contract under which a party undertakes “personally to do work” has bothered the courts.  The question was considered in a case* which reached the Supreme Court (previously known as the House of Lords).  The case involved a provision in an arbitration agreement which required the arbitrators to be of a particular religious faith and the question was, was this discriminatory?  If it was, it would allow one of the parties (who wanted to do so) to appoint an arbitrator who was not a member of that faith.  The 3 judges in the Court of Appeal ruled that the provision was discriminatory which meant that they found that the arbitrator was an employee within the extended definition for equality law purposes.  The Supreme Court accepted that the contract between the parties and the arbitrator, would be a contract for the provision of personal services by the arbitrator.  However, because the arbitrator in carrying out his duties as arbitrator would not be in a position of subordination to the parties who appointed him, the requirement that he be of the specified faith was held not to be discriminatory.  In doing so, the Court confirmed that:

“The essential questions in each case are whether, on the one hand, the person concerned performed services for and under the direction of another person in return for which he or she received remuneration; or on the other hand he or she is an independent provider of services who is not in a relationship of subordination with the person who receives the services.  Those are broad questions which depend upon the circumstances of a particular case.  They depend upon a detailed consideration of the relationship of the parties.”

It would be usual for a written agency agreement to impose obligations on the agent to attend sales meetings and trade exhibitions, to maintain a record of customers and potential customers, not to act for any competing principal in the agreed territory and to agree to meet sales target volumes.  There is frequently no reference to delegation or if there is, it is that the agent is prohibited from delegating his duties.  Agents come in all shapes and sizes but often they are “one man bands” who, depending on the particular circumstances, may well be in a position of subordination.  Neither the fact that HMRC treats the agent as self-employed nor that the written agreement records that the parties agree that the agent is self-employed are binding, if the other elements necessary to bring a claim are present.

So far as the writer is aware, there have been no reported cases of an agent bringing a claim for discrimination against a principal.  Probably this is because of the valuable rights which a commercial agent has on termination under the 1993 Regulations where the agent would be arguing that he is a “self-employed intermediary” – although there seems no reason why an agent cannot argue that he is self-employed for the purposes of the 1993 Regulations and at the same time is “employed” within the meaning of the Equality Act.

What the definition of employee in the Equality Act does, is to open up the possibility of an agent who is not a commercial agent within the 1993 Regulations (because the agency covers services and not goods) being able to bring a discrimination claim including bringing a claim that the agency was terminated because the agent was within one of the protected characteristics, e.g. was pregnant or gay or was of the “wrong” race (race includes nationality) or religion.



*Hashwani v. Jivraz [2011] UKSC40

Notice period earnings and unfair dismissal compensation

If an employer does not give his employee the notice period provided for in the employee’s employment contract, the employee can bring a claim for damages for breach of contract (commonly called “wrongful dismissal”).  The employee has however to give credit for any earnings he might have received from elsewhere during what should have been his notice period.  This is understandable as if he did not have to give credit for those earnings he would be in a better position than if the employer had complied with the contract and required the employee to work the notice period (so that the employee would not thereby have had the opportunity to earn elsewhere during the notice period).

It could be expected that the same thinking would apply in the same circumstances where an employee brought a claim for unfair dismissal.  However, there is a longstanding principle called the “Norton Tool principle” so named after the case of Norton Tool v. Tewson which was heard as long ago as 1972.  This says that it is good industrial relations practice for an employer who has unfairly dismissed an employee to have to pay the employee his lost full earnings during the notice period, even though the employee has generated earnings from another job during that notice period.

The rationale for the principle is that an employer who chooses to bring the employment to an end without giving the notice which the contact requires should (in the absence of gross misconduct by the employee) offer to make a payment in lieu of notice at the time of dismissal.  That is good industrial relations practice and where it is followed the employee who obtains employment elsewhere during the notice period is not required to pay back to the employer any part of the pay in lieu which he has received.  An employer who fails to comply with that practice should not be in a better position than he would have been in, if he had followed the practice.

It is a limited exception to the wider principle that an unfairly dismissed employee cannot be awarded compensation which is more than the actual loss suffered by the employee (Dunnachie v. Kingston-Upon-Hull City Council in the House of Lords).  Because it is, in the words of the Court of Appeal in Stuart Peters Ltd v. Bell, an exception which is “rooted in good practice rather than in wider considerations of justice or logic” the scope of the Norton Tool principle is not to be extended.

In line with this thinking, the Norton Tool principle does not apply where the employment is not brought to an end by the employer dismissing the employee but rather by the employee resigning from his employment in circumstances which justified him in doing so (commonly called “constructive dismissal”).  Therefore an employee who resigns and claims constructive unfair dismissal has to give credit for his earnings from alternative employment during the notice period, whereas an employee who was actually dismissed by his employer does not have to do so. (Stuart Peters Ltd v. Bell in the Court of Appeal).

An employee who has been paid for his notice period cannot claim that sum again as part of his unfair dismissal compensation because he obviously suffers no loss of income for that period.