Author Archives: Paul Samuel

About Paul Samuel

After graduating with an honours law degree from University College London, I qualified as a solicitor in 1973 and as a member of the State Bar of California in 1983. Having gained extensive experience of company and commercial Law since qualification, I began to specialise in employment law in 1999 when with Alain Cohen I founded Ashby Cohen Solicitors Limited. I live in London and Berkshire and am married with two children.

U.S. Principals and U.K. Agents: a not so special relationship

In an increasingly International world, UK agents are finding themselves being appointed agents in the UK for foreign principals. If the agent in the UK is retained to promote the sale of goods in the UK then the agent will have the benefit of the Commercial Agents (Council Directive) Regulations 1993 (“the Agency Regulations”). In particular the agent will have the right to receive a termination payment on the agency coming to an end, even where the agency contract terminates at the end of its fixed term.

Many principals are US corporations seeking to expand their business in the UK via agents. The agency contracts put forward by US principals almost invariably provide that the laws of a specified US State should have exclusive jurisdiction to hear any dispute and that the laws of that State should apply. The concept of an agent being entitled to a termination payment on an agency contract coming to an end is not recognised in the US whereas the Agency Regulations are a product of European law intended to give protection to commercial agents; they provide that the right of a commercial agent to claim a termination payment cannot be overridden by agreement between the parties. So where does the UK commercial agent stand as regards making a claim under the Agency Regulations?

Having a claim and pursuing a claim in the courts are two different things. It is not enough just to issue proceedings in England – those proceedings have to be served on the US defendant. A UK agent needs the permission of an English court to serve court proceedings issued in England on a principal in the US. In order to obtain that permission, the claim must fall within one of the “jurisdictional gateways” listed in the procedural rules to be followed when conducting proceedings in the English court system.

In the case of Fern Computer Consultancy Limited v. Intergraph Cadworx & Analysis Solutions a commercial agent brought a claim in England against a Texas principal under the Agency Regulations. The agency contract provided that the courts in Texas should have exclusive jurisdiction and that Texas law should govern. The English court held that the claim under the Agency Regulations did not come within any of the “jurisdictional gateways” and refused to grant permission to serve the English proceedings on the Texas principal. This meant that the Texas principal had managed to escape having to make a termination payment under the Agency Regulations by reason of having an agency contract which required that the proceedings making that claim had to be brought in Texas and where the Texas court would not recognise the right of an agent to receive a termination payment. The English court was unhappy with the result and indicated that if the proceedings were to be framed as a claim that the failure to pay the termination payment provided for by the Regulations was a breach of statutory duty then the claim would pass one of the “jurisdictional gateways” listed in the procedural rules and permission would be given for the English proceedings to be served on the Texas principal in Texas. This would then open up a way for the English court, when it heard the case, to award a termination payment to the agent under the Agency Regulations (notwithstanding that the agency contract provided that the Texas courts had exclusive jurisdiction and that Texas law applied).

The agent in Fern was also claiming for unpaid commission but because this was a claim under the agency contract (in other words a contractual claim and not one under the Regulations) it fell squarely within the exclusive jurisdiction of the Texas courts which the agency contract provided for and accordingly the unpaid commission claim would have to be pursued in those Texas courts.

Having obtained a judgment in the English Court, this would leave the agent with the problem of having to enforce that English judgment against the US principal in the US. Having a judgment and enforcing a judgment are again two different things. If the US principal does not pay, an agent who has obtained a judgment in the English Court against his former principal has the task of enforcing that judgment against the principal in the US. Although there is a longstanding trading and commercial relationship between the two countries, there is no treaty or convention in force between the UK and the US on reciprocal recognition and enforcement of judgments. Enforcement of foreign court judgments is mainly a matter for each State to rule upon, rather than involving Federal law. The laws and procedures of each State vary. Some States require only that the English judgment be recorded at the Court to trigger that State’s enforcement procedures whilst others require the holder of the English judgment to start a new action setting out how the English judgment came about and how it complies with that State’s rules for the recognition and enforcement of foreign judgments.

The advice for an agent about to enter into an agency with a US principal where the agency contract provides that the courts of a specific US State are to hear any dispute and are to apply the laws of that State to that dispute, is for the agency contract to spell out that upon termination the agent will be paid a sum ascertained by reference to a formula, e.g. a sum equal to the commission earned by the agent in the last 12 months of the agency or whatever formula the parties agree upon. Non-payment according to the formula will be a breach of contract and the agent should be able to obtain judgment in the US court for the formula sum without too much difficulty – or at least the formula approach should facilitate an out of court settlement being reached fairly quickly before the legal costs mount up. Unlike in the case of Fern, he will not have to go to the trouble and expense of issuing proceedings in England putting forward a claim under the Regulations and obtaining permission to serve those UK proceedings on the US principal before having his substantive case heard before the English Court. Moreover, enforcement of that judgment should be straightforward as it would be given by the courts of the State where the principal can be expected to have assets to satisfy it.

Missed sales target might not deprive a commercial agent of a termination payment

An agency agreement is of course a contract between the principal and the agent. The approach of English law is that both parties to a contract are free to make whatever bargain they want. Agency agreements often contain a clause that if the agent does not meet a specified sales target, then the principal can terminate the agency without notice and without having to pay the agent anything. Under the “freedom of contract” approach, the clause is quite clear and the agent having agreed it, is bound by it. On this basis, a principal might think that with such a clause in the agency contract, he can rely on it to end the agency and get away without having to pay the agent anything. This is not necessarily so, especially if the agency is one where the Commercial Agents (Council Directive) Regulations 1993 apply (“the Regulations”).

The Regulations were introduced to protect commercial agents (as defined), particularly when the agency ends. They contain rules which override freedom of contract, for example the Regulations impose minimum notice periods. Another area where they override freedom of contract relates to an agent’s entitlement to a termination payment.

The Regulations provide for a termination payment to be made to the agent when the agency ends. In effect, they state that the principal cannot exclude this right (thus overriding freedom of contract) except in one instance. This instance is as follows: the right to a termination payment does not arise where the principal has terminated the agency contract because of default attributable to the agent which would justify immediate termination by reason of the agent’s failure to carry out his obligations. In other words, for a principal to escape having to make a termination payment, the agent’s failings must be so serious that the Court, looking at the nature and consequences of the breach, decides that the principal was justified in terminating with immediate effect.

On the face of it, the agent’s failure to reach the sales target is a breach which the contract expressly says entitles the principal to terminate without having to give notice and without having to make a termination payment. The parties were free to agree this and this is what they agreed. Yet if freedom of contract were to prevail the parties could specify that any breach – however minor and inconsequential – would entitle the principal to terminate with immediate effect and without making a termination payment.

But there might be many reasons why the target was not met – it might be because of a general deterioration in the market, or because of the principal not making deliveries on time or because the products have gained a poor reputation in the market place or because a competing product has entered the market. None of these reasons can be put down to “default attributable to the agent” or to his failure to carry out his obligations. In these circumstances, it is thought that the agent is likely to have a good claim to a termination payment notwithstanding that the agency was terminated because the sales target was not reached. Of course, the agent’s claim would be stronger again if the sales target clause was merely for the agent to use his best endeavours to reach the target rather than simply that the target would be reached.

If a principal wants to include a sales target then, as well as giving himself the right to terminate if the target is not met, he might be wise giving himself the option in the agency agreement to convert the agency (if it was an exclusive one) into a non-exclusive one or to amend the territory. In this way, he postpones the obligation to make a termination payment because any such obligation only arises on a termination and not upon a partial termination nor upon a conversion to non-exclusivity – in legal terms a reduction in territory or conversion would be viewed as a variation of the agency contract in accordance with the provision in the contract which allows for this and which the parties had agreed at the outset. Also, a benefit of reducing the extent of the territory would be that the agent would not have so many customers to cover as before and so, in theory at least, would have more time to devote to the customers he has left to service (but because the agency continues, the principal will still be liable to pay commission to the agent on sales by the principal to those customers in the removed area whom the agent had acquired as customers for the principal and if the agency had been converted from an exclusive to a non-exclusive one, again the principal would have to pay commission to the agent on sales to customers whom the agent has previously acquired).

The legal position surrounding a termination because an agent has failed to reach a sales target is not clear. A lot will depend on the precise wording of the sales target clause and the circumstances leading up to the failure to meet it. However, an agent should not think that he necessarily forfeits his right to a termination payment and a principal should not think he necessarily escapes his obligation to pay one, if a target is not reached and the agency is terminated. Of course, an agent would be best advised not to have agreed a minimum target clause in the first instance.

What is Redundancy?

When a factory or an office closes down completely, it is clear that the employees who work there are redundant. However, the situation is not so clear cut if the factory or office continues as usual, but only some of the people who work there are to be “let go”. There is in fact a definition of redundancy contained in Section 139(1)(b) of the Employment Rights Act 1996 which provides so far as is material:

“(1) For the purpose of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to–

(b) the fact that the requirements of that business –
(i) for employees to carry out work of a particular kind, or
(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer,

have ceased or diminished or are expected to cease or diminish.”

The important feature of the definition is not whether the need for the job (“work of a particular kind”) done by the employee has ceased or diminished (or is expected to do so). Instead, the question is whether the requirements for employees to do that type of work has ceased or diminished. In other words, the amount of work needed to be done might remain the same or it might even increase but if it can be done with a reduced head count then there is a redundancy situation.

It follows from the definition that there are 3 tests to be considered when deciding whether redundancy was the reason for dismissal. The first is to ask whether the employee has been dismissed. The second is to ask whether the requirements of the business for employees to carry out work of a particular kind have diminished – in other words whether there was a redundancy situation. The third is to ask whether the dismissal is “wholly or mainly” attributable to that redundancy situation.

The first test, dismissal, is rarely in dispute. Except where an employee provides credible evidence querying the need for redundancies, an Employment Tribunal will not investigate the business case as to whether there needed to be any redundancies, so that the second test again is not usually in dispute. The dispute is most likely to be about the third test, as to whether the dismissal was “wholly or mainly” attributable to the redundancy situation. If there is a genuine redundancy situation but notwithstanding this, the Tribunal finds that in fact it was not the cause of the dismissal, the employee will not have been dismissed by reason of redundancy. This means that the employer will not have shown what was the reason for the dismissal. The burden is on the employer to show what was the reason for the dismissal so that having failed to do that, an unfair dismissal claim would succeed without further need for fact finding and decision by the Employment Tribunal.

If the employer establishes that redundancy was the reason for the dismissal, the procedure adopted in selecting the employees becomes crucially important in assessing the fairness of the dismissal. The employer needs to follow a fair procedure. He will need to identify the group of employees from which the redundancies will be made, often referred to as “the pool”. When it comes to deciding upon the pool, then provided the employer genuinely applies his mind to the question and acts reasonably in determining it, the decision will not normally be open to question. Other aspects of a fair procedure involve the employer formulating and applying appropriate selection criteria, consulting in a meaningful way with the employees in the pool and allowing them to make comments and representations, looking for suitable alternative work for the employee, and giving the employee a right of appeal.

If the Tribunal makes a finding that the dismissal was procedurally unfair, it will then ask itself what would have happened if the employer had carried out a fair procedure. It might decide that even if a fair procedure had been carried out, the result would still be a dismissal. In this case, it would award compensation for the period which it estimates that it would have taken the employer to carry out a fair procedure – if it is thought that the procedure would have lasted, say 4 weeks, then the award would be 4 weeks’ compensation.

Another approach which the Tribunal might take is to find that there was a chance that if a fair procedure had been followed, the employee would have retained his job and would award compensation based on that chance. The loss of the chance of the employee retaining his employment following a fair procedure, will fall in the range of 0-100%. For example, if the employee was say 1 of 4 employees who might potentially have been made redundant, then the dismissed employee had a 3 in 4 change of keeping his job meaning that the Tribunal would award him only 75% of what he has lost as a result of being dismissed; put another way, there was a 1 in 4 chance that he would have lost his job so that his loss as a result of his dismissal is reduced by 25%. It might even he that the Tribunal combines both approaches rather than adopting one or the other.

Commercial Agents – Agreement Interpretation

When a couple get married there is a warm glow of optimism but sometimes the warm glow wears off and the couple end up in a bitter divorce. It is something similar with an agency relationship.  In both cases those involved end up wishing they had thought more carefully before they made the commitment.  This was probably the sentiment of the parties to a case which was heard in the High Court in June 2016.

The case involved a Mr Monk and an Irish food company called Largo Foods Limited. Mr Monk was engaged to provide input into how best to market Largo’s snack food “Velvet Crunch”.  After a couple of years, in January 2011, the parties entered into a written agreement.  When the agreement ended, Largo disputed that Mr Monk was an agent at the start of their relationship, but conceded that he was in the period after the written agreement was entered into.  This concession was made notwithstanding that the written agreement described the arrangement as one of consultancy. If Mr Monk was an agent, then because the agency involved goods, he was a commercial agent under the Commercial Agents (Council Regulations) 1993 (“the Regulations”).

The clause in the January 2011 written agreement dealing with how long the agreement was to last read:

“The consultancy arrangement will operate for a three year period subject to the completion of a successful review in January 2012. Assuming both parties are satisfied with the arrangement following this review, both parties will commit to a further two year consultancy period.”

Although a clause in an agency agreement dealing with how long the agency is to last is a fundamental one, it would seem safe to assume that when they entered into the agreement neither Mr Monk nor Largo gave much thought to the clause which is deceptively straightforward.

In January 2012 Largo terminated the agreement mainly because it did not think that it would get value for money in continuing it. The termination caused Mr Monk and Largo to look more closely at the agreement and query what the clause meant. Mr Monk argued that the clause meant that the agency would only come to an end if there had been a review which allowed him a fair opportunity to put his case and that Largo had to conclude in good faith that Mr Monk’s performance had on an objective basis been unsatisfactory when compared to the sales projections which the parties had discussed around the time when the agreement had been entered into.  Largo contended that the clause gave both themselves and Mr Monk the unfettered right not to continue with the agreement after one year.  If Mr Monk’s interpretation was correct, it opened up the possibility of his claiming damages for what he would have earned during the remaining 2 years of the agreement. In the event the Court decided that Largo’s interpretation was the correct one meaning that their termination of the agreement was lawful.

In the course of putting forward his case on what the clause meant, Mr Monk argued that Largo could only terminate the agency agreement if it did so in good faith. First of all he argued that the obligation of good faith was implied at common law. The Court rejected this. He had another string to his bow and this was that the Regulations provide that “in his relations with his commercial agent a principal must act dutifully and in good faith.” This meant that there was no need to argue that a duty of good faith was implied at common law as the Regulations expressly stated that it applied.  However, the Court thought that there was a big difference between a principal’s dealings with an agent for the purposes of performing an ongoing agency agreement and a clause which dealt with the termination of the agency relationship.  This led the Court to conclude that the duty of good faith expressly mentioned in the Regulations did not apply to the exercise of the right to terminate an agency.

Mr Monk was left with a claim for pipeline commission under Regulation 8 and for compensation under Regulation 17 of the Regulations. At the end of the trial, Mr Monk put forward a compensation claim under Regulation 15 which was just short of £1.8 million. The Court awarded him £275,000. In addition it awarded him just over £74,000 for his Regulation 8 pipeline commission claim. The Judge had cause to comment that unrealistic awards of compensation would not serve the longer term interests of commercial agents as a group, but simply deter principals from retaining them.

The lesson for commercial agents is firstly to look very carefully at the wording of any agreement which they are asked to sign at the start of the relationship and secondly to put forward realistic claims for compensation at the end of the relationship.

The criminal law of bribery in commercial agency relationships

The Bribery Act 2010 reformed the criminal law of bribery in the United Kingdom. It abolished the bribery offences that had previously existed at common law and in statute, and extended the offence of bribery to cover all private sector transactions, where it had previously been confined to transactions involving public officials and their agents. This extension makes it important for commercial organisations and agents to be aware of how the new law operates, in particular in the light of the offence created by section 7.

Under section 7(1), a commercial organisation (an incorporated body or partnership) which is formed or incorporated in the United Kingdom and/or carries on business in the United Kingdom commits an offence if a person associated with it bribes another intending to obtain or retain business or an advantage in the conduct of business for that commercial organisation. An agent is a “person associated” by section 8(3).

In such a case, the commercial organisation will be criminally liable unless it can show, on the balance of probabilities, that it had adequate procedures to prevent bribery in place: section 7(2). If convicted, the commercial organisation can be fined an unlimited amount and may be barred from bidding for public contracts. It is not necessary that the agent have a connection with the United Kingdom. According to the government’s explanatory notes to the Act, the United Kingdom court will have jurisdiction as long as the commercial organisation is formed or incorporated in the United Kingdom and/or carries on business in the United Kingdom.

Section 9 requires the Secretary of State for Justice to publish guidance about procedures which commercial organisations can put into place to prevent persons associated with them from bribing. The current version of the guidance is available from the Ministry of Justice website. The guidance contains principles that a commercial organisation should take into account when implementing procedures to prevent their agents from bribing.

First, the commercial organisation’s procedures must be proportionate both to the nature and complexity of the commercial organisation’s activities and to the risk it faces. Therefore, the more complex the commercial activities undertaken by the organisation, and the more at risk it is of one of its agents bribing another person (e.g. if it carries on business in countries known for official corruption), the more stringent the procedures will need to be. However, the procedures must also be clear, practical, accessible and effectively implemented and enforced.

Secondly, it is vital that the top level management of the commercial organisation is committed to fostering an anti-bribery culture. This involves assessing the organisation’s own risks (see the example given above), carrying out due diligence in respect of its agents, carrying out appropriate training to ensure that the procedures mentioned above are understood and followed throughout the organisation, and subjecting the procedures to monitoring and review so that improvements can be made where necessary.

These principles will be taken into account by a court in deciding whether or not a commercial organisation had adequate procedures to prevent bribery in place under section 7(2). However, it should be remembered that the guidance document is just that – guidance. It is not law, and the courts will not interpret guidance as strictly as they would interpret, for example, legislation or a contract. Nevertheless, a commercial organisation applying these principles rigorously should not go far wrong in preventing bribery by its agents. One thing which a principal can do to help protect itself, is to include a clause in the agency agreement that the agent will comply with the Bribery Act 2010.


Can staff handbooks be contractual?

When an employee starts work with an employer, the employee will usually be given a copy of their contract of employment. In many cases, they will also be given a copy of the employer’s staff handbook. The contents of staff handbooks vary from employer to employer, but they will often contain further details of the terms and conditions set out in the contract of employment, together with the employer’s policies on (for example) redundancy, guidance notes and suggestions for good practice on the part of both employer and employee.

What may not be appreciated by both employers and employees is that part or all of a staff handbook may form part of the contract of employment, and therefore be legally enforceable in courts and tribunals. Whether this is so will depend on whether the contracting parties (i.e. the employer and employee) intended part or all of the staff handbook to form part of the contract of employment. In order to discover whether this is what the parties intended, it is necessary to consider several factors:

  1. The importance of the handbook to the working relationship between the employer and the employee.
  2. The certainty of the provisions of the handbook. If the handbook is written in vague or general terms, it is less likely to form part of the contract of employment.
  3. The compatibility of the provisions of the handbook with the contract of employment. If the contract of employment and the handbook contradict one another, the contract of employment will override the handbook.
  4. The “workability” and business sense of the provision. The parties will not be taken to have intended to include provisions in the contract of employment that are unworkable or do not make business sense.

The courts have repeatedly stressed that the employment documents (i.e. the contract of employment and the handbook) must be read as a whole, and that whether or not a handbook or parts of a handbook form part of the contract of employment will ultimately depend on the precise terms of those documents. Therefore, previous court decisions on differing sets of employment documents are of limited assistance.

However, the key question to be asked in cases such as this was set out by Lord Woolf in Wandsworth LBC v D’Silva. In determining whether a handbook will form part of the contract of employment, employers and employees should ask themselves whether the handbook (or the relevant part of the handbook) is to be read as conferring rights on the employee or as setting out no more than good practice which the employer is intended to follow. If it is the former, then the handbook (or the relevant part) is likely to form part of the contract of employment. If the latter, it is less likely that the handbook will form part of the contract of employment.

This is a difficult and technical area of law, and it will not always be possible for the question above to be definitively answered in a particular case without the intervention of a court or tribunal. However, employers can minimise the risk of costly legal proceedings by being certain, when drafting staff handbooks, whether they are intending that handbook to be a contractual document or merely a statement of good practice.

Similarly, employees would do well to ask for early clarification from their employer as to what the employer considers the status of the staff handbook to be. It is not suggested that these practices will remove the need for court proceedings entirely, but they can assist employers and employees in constructively reaching a common understanding of the contents of the employee’s contract of employment.

Non-EU Commercial Agency Contracts

Where a commercial agent in the United Kingdom enters into an agency agreement with a principal from another EU Member State, questions of jurisdiction, choice of law and enforcement are relatively straightforward, thanks to the unified EU regime for determining jurisdiction and choice of law and allowing for enforcement of judgments. However, problems can arise where a UK-based agent contracts with a principal based outside the EU (for example, in the USA), and it is particularly important for the agent to pay attention to any jurisdiction and choice of law clauses in the agency agreement.

The problem arises in situations where the agency agreement itself is governed by a law other than English law, and the UK-based agent seeks to bring a claim under the Commercial Agents (Council Directive) Regulations 1993, for example for compensation on termination of the agency agreement.

The Regulations are mandatory, and do not allow parties to contract out of their terms. However, in order to permit a non-EU based principal to be served with a claim under the Regulations, the contract in respect of which the claim is brought must be governed by English law. This produces the result seen in the case of Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc. In that case, the judge did not see how he could give permission to Fern, the UK-based agent, to serve Intergraph, the principal, based in Texas, with a claim under the Regulations in respect of an agency agreement governed by Texan law. The judge noted that this result appeared to allow a principal based outside the EU to contract out of the Regulations, notwithstanding the mandatory nature of the Regulations. The judge described this as “an odd state of affairs”.

The answer may lie in how the claim is pleaded. Given that the Regulations are a statute, a breach of the Regulations (for example, failure to pay compensation on the termination of an agency agreement) appears to be a breach of statutory duty. A breach of statutory duty is usually capable of founding a claim in tort, and it is likely that the damage for such a tort would be sustained in the UK, as the UK-based agent is complaining of a failure to pay monies due to him in the UK. This would allow a tort claim based on breach of statutory duty to be served on the principal outside the EU.

However, this question has not been resolved by the courts, although it was alluded to in the Fern Computer Consultancy case. In these circumstances, UK-based agents contracting with principals based outside the EU should pay particularly careful attention to any jurisdiction and choice of law clauses. If no such clauses are included in the draft agency agreement, it would be wise to ask for their inclusion before finalising the agreement. Otherwise, it may not be possible to invoke the Regulations and the agent may miss out on compensation to which he would otherwise be entitled.

Vicarious liability and the “close connection” test

This piece is the second of two dealing with the recent Supreme Court decisions in Cox v Ministry of Justice and Mohamud v WM Morrison Supermarkets. This piece will consider the judgment in Mohamud’s case.

The leading judgment in Mohamud’s case was given by Lord Toulson, with whom the other four justices agreed. Lord Dyson gave a short concurring judgment. Mohamud’s case deals with the second stage of the vicarious liability inquiry – what is the connection between the employee’s employment and the action for which the claimant seeks to make the employer liable?

Mr Mohamud was on a car journey from Birmingham to London. He stopped at the petrol station attached to the Morrison’s Supermarket in Small Heath, Birmingham. He asked Mr Khan, an assistant serving behind the counter, whether he could print some documents from a USB stick. Mr Khan replied that he could not, and followed up with a volley of foul-mouthed and racist abuse towards Mr Mohamud. Mr Mohamud left to return to his car. He was followed by Mr Khan, who warned him not to return to the supermarket and then subjected him to a serious assault involving several punches and kicks.

Mr Mohamud sought damages from WM Morrison Supermarkets, Mr Khan’s employer, in the Birmingham County Court. The judge found that there was not a sufficiently close connection between Mr Khan’s employment and his actions in assaulting Mr Mohamud for the supermarket to be vicariously liable for Mr Khan’s assault, and dismissed Mr Mohamud’s claim. This was because Mr Khan’s job was to serve customers at the counter. Mr Khan’s decision to follow Mr Mohamud to the car therefore broke the connection between his employment and his actions. The Court of Appeal agreed. Mr Mohamud appealed to the Supreme Court. His lawyers argued that the “close connection” test should be replaced with a test of “representative capacity”. Sadly, before the case could be heard by the Supreme Court, Mr Mohamud died from an illness unrelated to his claim. The Supreme Court case therefore proceeded on behalf of his estate, with his son substituted as the claimant.

Lord Toulson stated that while the “close connection” test may be imprecise, it was undesirable to attempt to lay down a definitive list of criteria for what would amount to a “close connection” because of the almost infinite number of factual scenarios in which questions of vicarious liability arise. He stated that, in the simplest terms, the court has to consider two matters; first, the nature of the employee’s job, and secondly, whether the nature of the job and the wrongful conduct were so closely connected as to make it just to hold the employer liable for the employee’s wrongful conduct.

Lord Toulson (and Lord Dyson, in his short concurring judgment) did not consider that the “close connection” test should be replaced with the “representative capacity” test argued for by Mr Mohamud’s lawyers. However, he did consider that the judge and the Court of Appeal had applied the “close connection” test too narrowly by holding that Mr Khan had broken the connection by following Mr Mohamud to his car. Lord Toulson considered that this was so for two reasons; first, it was an unbroken sequence of events, and secondly, after following Mr Mohamud to his car, but before the attack, Mr Khan had warned Mr Mohamud not to return to the supermarket, i.e. his employer’s premises. He therefore purported to act on his employer’s behalf.

In reaching this decision, Lord Toulson distinguished this case from another case of an assault by a petrol station attendant, Warren v Henlys Ltd. In that case, a customer had an angry confrontation with a petrol station attendant, who accused him of trying to avoid payment. The customer became enraged by the way the attendant spoke to him. After paying for the petrol, he complained to a passing police officer about the attendant’s conduct and persuaded the officer to return to the petrol station with him. After the officer had spoken to the customer and the attendant, the attendant assaulted the customer. The petrol station was held not to be vicariously liable for the attendant’s assault.

Lord Toulson stated that, in Warren’s case, the action of the customer in leaving, speaking to the police officer and then returning had changed the relationship between the customer and the attendant so that there was no longer a close connection between the attendant’s employment and his assault on the customer. In this case, Mr Khan’s verbal abuse of Mr Mohamud at the counter was followed immediately by his following Mr Mohamud to his car, telling him not to return, and then physically assaulting him. The “close connection” was therefore intact.

It is easy to see how the Supreme Court’s decision meets the justice of this case. Mr Mohamud was subjected to a vicious and unprovoked assault by an employee of the supermarket while that employee was at work, and it seems unjust that the supermarket should escape liability simply because the physical assault took place by Mr Mohamud’s car rather than at the counter. What is more problematic is the distinction drawn between this case and Warren’s case. Whilst the customer in Warren’s case did leave the petrol station, he was returning to complain about the attendant’s conduct as an employee and was assaulted for complaining about the attendant’s conduct as an employee. The distinction between the two cases therefore seems very narrow, and may mean that this case is not the definitive statement on “close connection” that some have taken it to be.

Vicarious liability in “relationships akin to employment”

On 2 March 2016, the Supreme Court handed down two judgments dealing with the law of vicarious liability, i.e. when an employer (or someone in a position akin to an employer) can be liable for the acts or omissions of an employee (or an individual in a position akin to an employee). The judgments are intended as companion pieces and were produced by the same five justices, although they were delivered separately because the claims and issues are separate. This piece will consider the judgment in Cox v Ministry of Justice, and a separate piece will consider the judgment in Mohamud v WM Morrison Supermarkets.

The leading judgment in Cox’s case was given by Lord Reed, with whom the other four justices agreed. Lord Reed stated that two questions have to be answered when considering vicarious liability:

  1. What is the relationship between the individual who committed the act or omission and the person or organisation sought to be made liable?
  2. What is the connection between that relationship and the act or omission of the individual?

Cox’s case deals with the first question.

Mrs Cox was the catering manager at HM Prison Swansea. She was in charge of all aspects of catering at the prison, and supervised four other employees and 20 prisoners. The prisoners worked in the kitchen pursuant to the requirement in the Prison Rules 1999 that convicted prisoners do useful work for not more than 10 hours a day.

On 10 September 2007, Mrs Cox and four prisoners were transporting kitchen supplies from the ground floor of the prison to the kitchen stores. One of the prisoners dropped a sack of rice, which burst open. Mrs Cox bent down to prop the sack up and prevent spillage. Whilst she was bent down, another prisoner dropped a different sack of rice onto Mrs Cox’s back, causing her injury.

It was accepted that the prisoner had been negligent and that, had the sack of rice been dropped by an employee rather than a prisoner, the Ministry of Justice would have been vicariously liable for that employee’s negligence. However, the Ministry’s case was that it should not be held vicariously liable for the negligence of a prisoner working in the prison.

The Ministry stated that the relationship between the prison and a prisoner working in that prison is not like that between an employer and an employee. Several reasons were given for this:

  • First, there is no contract of employment.
  • Second, a prisoner is compelled to work by the Prison Rules 1999, and the prison can only select those prisoners who happen to be in the prison at the time to work there. The voluntary aspect of the employment relationship (where an employer chooses whom to employee and an employee chooses whom to work for) is therefore absent.
  • Third, the main purpose of a prisoner working in a prison is not for the “benefit” of the prison, but to rehabilitate the prisoner and to equip them with the skills and knowledge to find work on release.
  • Fourth, a prisoner (unlike an employee) has no interest in furthering the aims and objectives of the prison.

Lord Reed rejected these arguments:

  • First, he stated that it is long-established that a contract of employment is not essential to vicarious liability.
  • Second, he stated that the element of compulsion under the Prison Rules 1999 bound the prisoner into a closer relationship with the prison than would be the case for an employee, thus strengthening rather than weakening the case for imposing vicarious liability on the prison.
  • Third, the work that prisoners did was clearly of “benefit” to the prison. The work formed an integral part of the operation of the prison, and if it were not done by prisoners it would have to be done by employees. It would therefore be unjust to allow the prison to take the “benefit” of the work done by prisoners without assuming the “burden” of vicarious liability for acts or omissions of prisoners whilst working in the prison.
  • Fourth, it was naïve to suggest that employees always act in furtherance of the aims of their employer, just as it was naïve to suggest that prisoners working in a prison never act in furtherance of the aims of the prison.

This case is a useful review of the development of the law of vicarious liability, and it makes clear that an element of compulsion in a relationship between someone performing work and someone for whose benefit that work is performed will not necessarily negative vicarious liability. It is unlikely to have much application beyond its specific facts.

However, given Lord Phillips’ statement in 2012 that “the law of vicarious liability is on the move”, Lord Reed’s judgment is a valuable staging post in taking stock of the journey so far, and will be useful to those who are not employees, but are in relationships akin to employment, in establishing whether they or their “employer” will be liable for any acts or omissions in the course of that relationship.

“Forum Shopping” – Scotland takes control of its Employment Tribunals

Following the narrow vote in favour of Scotland remaining in the United Kingdom in September 2014, the UK government promised a raft of new powers to the devolved administration in Scotland. The Scotland Bill, currently being considered by the Westminster Parliament, is the legislation via which these new powers will be granted.

One proposal in the Scotland Bill is the devolution of tribunals. The control of tribunals is currently a matter reserved to the UK government. However, the new legislation would give the Scottish government power over all tribunals in Scotland, including the power to determine fees. The Scottish government, in its 2015-16 programme for government, has pledged to use this power to abolish employment tribunal fees, which have been charged to claimants seeking to access employment tribunals across the UK since July 2013.

The introduction of employment tribunal fees has been controversial across the UK, with the Green Party and the Labour Party calling for the reduction or abolition of fees, and a high-profile judicial review challenge by the trade union Unison, which was dismissed by the Court of Appeal in August 2015 (Unison has sought permission to appeal to the Supreme Court). However, the proposed abolition of fees in Scotland could be equally controversial, due to concerns about claimants “forum shopping”.

There is already some anecdotal evidence of employment claimants seeking to avoid employment tribunal fees by bringing low-value claims (e.g. for unlawful deduction of wages or breach of contract) in the County Court, where the fees are much lower. David Latham (former President of the Employment Tribunal in England and Wales) and Richard Fox (head of employment at Kingsley Napley solicitors) suggested as much to the Law Society Gazette in June 2014. It is possible that this accounts for a part (although certainly not the whole, and probably not even the majority) of the drop in the number of employment tribunal claims since fees were introduced.

However, if the Scottish government’s proposals for employment tribunals remain in their current form, employment tribunals in England and Wales could see their caseload reduced still further by claimants bringing cases in Scotland, rather than in England and Wales. This is due to a combination of the proposed abolition of fees and the proposal that Scottish employment tribunals be given jurisdiction over so-called “concurrent cases”.

The “concurrent case” proposal means that a claimant could bring a case against an employer whose business is headquartered in Scotland, even if the claimant is based elsewhere in the UK. If this proposal were to be implemented together with the abolition of fees in Scotland, it seems very likely that claimants based outside Scotland will look to bring claims in Scotland wherever possible. Both employers’ organisations, such as the Glasgow Chamber of Commerce, and lawyers such as the solicitors’ firm DLA Piper, have expressed concern about “forum shopping”, in terms of the burden it would place on employers facing an upsurge in employment tribunal claims and the administrative burden it would place on the Scottish employment tribunal system.

However, others have suggested that the majority of claimants in other parts of the UK will not find it financially worthwhile to pay for travel and (possibly) accommodation in Scotland simply to avoid employment tribunal fees. The future of the fees regime in England and Wales is also uncertain. Unison’s application for permission to appeal to the Supreme Court is still pending. Moreover, two reviews of tribunal fees are underway. The Ministry of Justice announced a review in June 2015, whilst the Justice Select Committee will examine employment tribunal fees as part of its inquiry into fee increases across the courts and tribunals. Neither review is likely to recommend the abolition of employment tribunal fees in England and Wales. However, it is plausible that employment tribunal fees could be lowered, further reducing the saving to be made by travelling to Scotland.

This is undoubtedly an area that both employers and employees will be watching closely in the coming months. There are so many permutations that it is not advisable to attempt to predict a final outcome. However, what can be said with some certainty is that the long-running controversy over employment tribunal fees shows no sign of dying down.