What are the consequences of signing a settlement agreement and consequently bringing a claim?

The purpose of a settlement agreement (formerly known as a “compromise agreement”) is to set out the terms on which an employer and employee have agreed to settle any actual or potential claims which the employee might have against the employer.  It is more commonly used upon termination of the employment but can also be used to resolve any disputes during the course of the employment relationship.

The settlement agreement is a contract.  In exchange for the payment of sum(s) by the employer and other commitments, such as providing a reference and a commitment not to make derogatory comments, the employee agrees to withdraw and/or not pursue any actual or potential claims.

It is usually specified that the only three claims that an employee can bring after signing a settlement agreement and without penalty are:

  1. For personal injury claims not arising from discrimination and the symptoms of which the employee is not currently aware of;
  2. For accrued pension benefits; and
  3. To enforce the terms of the agreement.

Equally, the employer usually inserts a “claw-back” clause to the effect that if the employee breaches the terms of the settlement agreement or files a claim subsequent to signing, or has breached the employment contract unbeknownst to the employer, that some or all of the money paid will be repayable as a debt.   Usually, the employer will claim the right to add costs, expenses, interest and legal fees to that sum.  Providing that the money paid be recoverable as a debt means that the employer can proceed straight away to to obtain a default judgment for the amount and you cannot in effect raise any arguments to stop their obtaining such a default judgment.

However, what is the position if, following the signing of a settlement agreement, either party breaches its terms, or discovers that the other party lied during the settlement negotiations, or does something to create a new cause of action?

The position is more straightforward where the employer is the “injured party”.  If it transpires that the employee has breached his contract of employment prior to signing the settlement agreement (for example, by stealing money from the employer) or has subsequently been in breach of the non-derogatory provisions of the settlement agreement, or has lied about not having a new job, then the employer usually has a remedy available within the settlement agreement.  This would usually provide that settlement funds are withheld if not already paid, or alternatively that the funds are repaid.  Recent case law (Cavendish Square Holding BV (Appellant) v Talal El Makdessi (Respondent) and ParkingEye Limited (Respondent) v Beavis (Appellant)) suggests that a well-drafted claw-back clause is likely to be valid and enforceable even if the sum to be repaid is not a genuine pre-estimate of the loss that the employer suffers as a result of the breach.

The position is less clear when the employee is the injured party.  Any legal adviser will tell their client that prior to signing the settlement agreement, they need to be sure that they have no actual or potential claims that they are not willing to waive fully.  However, that is based on knowledge held by the employee at the time of signing.

Where an employee is induced to enter into a settlement agreement based on a statement by their employer that subsequently turns out to be untrue, then common law remedies of damages or rescission for fraudulent, negligent or innocent misrepresentation would usually be available.  However, difficulties are caused by the presence of an “entire agreement” clause in most settlement agreements, whose purpose it is to exclude an employer’s liability for pre-contractual statements that are not recorded in the final settlement agreement.  An employee would have to prove that an employer made a fraudulent misrepresentation to induce them to enter into the settlement agreement, fraudulent misrepresentations being incapable of being included within the ambit of the entire agreement clause.

From an employer’s perspective, having a well-drafted entire agreement clause will be key in ensuring that any claims for negligent or innocent misrepresentation will be excluded.

The Equality Act 2010 (s.108) states that discriminating against or harassing a former employee is unlawful.  The fact that a settlement agreement has been signed by an employer and former employee should not in theory preclude that employee from filing a claim, if the employer subsequently breaches the Equality Act

In Jessemey v Rowstock Ltd & Anr [2014] EWCA Civ 185, Mr Jessemey brought a claim for post-termination victimisation after he was given a bad reference for bringing previous discrimination proceedings.  The Court of Appeal helpfully confirmed that post-termination victimisation is unlawful and Mr Jessemey had a claim.

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.

What is Constructive Unfair Dismissal?

Disgruntled employees often ask if they have a claim for “constructive dismissal”.  They have heard the phrase but don’t quite know what it means.

Constructive dismissal is not defined as such in the Employment Rights Act 1996 which is the legislation which covers unfair dismissal.  However, section 95(1)(c) of that Act provides that an employee is dismissed by his employer if “the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct”. This is in effect the definition of constructive dismissal.  It should be noted that a constructive dismissal can be  either fair or unfair depending on the circumstances.

The above does not answer the essential question as to what are the circumstances in which the employee is entitled to terminate the employment contract.  In order to do so, three questions have to be asked.

The first question is whether the employer’s conduct amounted to a breach of contract. If it did the second question is whether the breach was a repudiatory breach, also referred to as a fundamental breach.  If there had been a repudiatory breach, the third question then arises which is whether the breach played a part in the decision of the employee to resign.

For there to be a constructive unfair dismissal there has to be a breach of contract by the employer.  A minor breach will not do.  It is also not enough that the employer has (in the eyes of the employee) acted unreasonably.  It has to be a repudiatory breach.  A repudiatory breach is a breach which the law regards as serious enough to entitle the employee to end the employment there and then.  This must be established objectively; it cannot be established simply because an employee says he felt justified in resigning because of what had happened.

The breach of contract which an employee usually says has occurred, is a breach of the term of trust and confidence which is implied into every employment contract; the question for the Tribunal is whether the employer has conducted itself “without reasonable and proper cause in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust” (Malik v. BCCI) which the employer and employee should have in each other.  If a Tribunal is satisfied that there was a breach of the implied term of trust and confidence, this will inevitably be repudiatory.

However, an employee should take on board the reference to “without reasonable and proper cause”.  If the employer has reasonable and proper cause for his conduct which destroys or seriously damages the employee’s trust and confidence, then there is no breach of the implied term and thus no repudiation of the employment contract by the employer.

If the employee has successfully answered the first two questions, he faces the third question which is whether the breach played a part in the employee’s decision to resign.  The employee must, at least in part, resign because of the employer’s repudiatory breach of contract.  The employer’s breach must have played a part in the decision to resign but does not have to have been the main reason.

An employee cannot delay for too long before he resigns because if he does delay too long, he may be taken to have affirmed the contract and thereby lost his right to bring an unfair dismissal claim.  The question of affirmation is essentially whether the employee can be said to have chosen to accept the situation in which he finds himself.  He will do so not only by continuing to work in the job but also by what he says and does – his words and actions might show that he intends the employment to continue.  It is not just a question of measuring the lapse of time between the employer’s behaviour which is complained about and the resignation (although the longer this period is, the more likely the employee will be taken to have affirmed the contract) but of looking at the employee’s reaction in context, including how he behaved in the period leading up to his resignation and his financial and personal circumstances.  If an employee is off work sick it is more difficult for an employer to argue that an employee has affirmed the contract than if he was in work.

For an employee to win a constructive unfair dismissal claim he has the burden of persuading the Employment Tribunal to answer the three questions in his favour.  Even when he can do that, he may well have to overcome the argument that he has affirmed the contract.  An employee should think long and hard before putting himself out of a job and a salary with a view to bringing a claim in the Employment Tribunal for constructive unfair dismissal.

Different tests for wrongful dismissal and unfair dismissal (for misconduct)

A wrongful dismissal is where an employer dismisses an employee in breach of his employment contact, usually by not giving the employee the notice of termination which the employment contract provides for.  The employment contract does not necessarily have to be in writing – an employment contract can be oral.  The right to claim unfair dismissal is a right given by legislation.

The test for succeeding in a wrongful dismissal claim is different from the test in an unfair dismissal claim.

When approaching a wrongful dismissal claim, a Tribunal (which has jurisdiction to hear such claims up to £25,000 – if claiming more than £25,000 the employee can always bring his claim in the courts) must decide for itself whether the employee has in fact done the acts which the employer says entitle it to dismiss the employee without notice or pay in lieu of notice.  The onus is on the employer to show, on the balance of probabilities, that the employee was guilty of the alleged misconduct, so as to enable the employer to dismiss the employee without notice or pay in lieu.  In other words, in cases of wrongful dismissal it is necessary for the employer to prove that the employee had in fact committed the misconduct which he is accused of and the employer’s reasonable belief in the employee’s guilt, is irrelevant.  The standard of proof to be applied is the balance of probabilities so that the employer has to show that it was more probable than not that the employee was guilty of the misconduct.

It is important to realise that the test for unfair dismissal is not that the Employment Tribunal has to decide whether the employee was actually guilty of the misconduct he was accused of.  The test for unfair dismissal is whether the employer’s decision to dismiss was within a range of reasonable responses open to a hypothetical reasonable employer as a response to the employee’s misconduct.  The test is an objective one which focuses on the employer’s decision.  In applying the test the Tribunal must not substitute its own view for that of the employer.  What the Tribunal has to decide is (a) whether the employer genuinely believed that the employee was guilty of the misconduct (b) whether it had reasonable grounds on which to form that belief and (c) whether in arriving at (a) and (b), the employer had carried out as much investigation as was reasonable.  If it decides these matters in favour of the employer, then the Tribunal cannot substitute its own view for that of the employer.  This means that whilst the Tribunal might feel that the decision to dismiss was harsh and that the Tribunal itself would not have decided upon dismissal, nevertheless the employer’s decision to dismiss will be held to be fair as being within the band of reasonable options open to the employer.

Another feature of wrongful dismissal is this.  An employer who has unjustifiably dismissed an employee with immediate effect and without making a payment in lieu of notice, but who subsequently finds out something which would have entitled him to terminate the employment without notice, can rely on that after acquired knowledge to avoid paying the employee the salary which would otherwise have become payable during the notice period.  This is illustrated by the facts of Williams v. Leeds United Football Club [2015 EWHC 376 (QB). Briefly, Mr Williams was entitled to 12 months notice of termination under his employment contract with Leeds Football Club. The club ended his employment immediately and without notice and without paying him in lieu of notice.  The club did not want to pay Mr Williams for his notice period and he brought a claim for wrongful dismissal.  The court held that the club was entitled to rely on Mr Williams’s gross misconduct which the club had discovered after dismissal in order to justify the dismissal.  It was entitled to do so even though the club had deliberately set out to find a reason to avoid paying Mr Williams anything for the notice period.  The gross misconduct which the club had subsequently found out about, consisted of his having used the club’s email system to send pornographic images to a junior female employee of the club and 2 footballer friends at other clubs and had taken place in 2008 – 5 years before Mr Williams was dismissed in 2013.

In all unfair dismissal cases it is necessary to establish the reason for the dismissal. Pre-dismissal misconduct which the employer only finds out about after the dismissal has taken place, cannot by definition have been in the mind of the employer when he dismissed.  This means that it is not a factor in deciding the fairness of the dismissal.  It can however be taken into account by the Employment Tribunal when determining the amount of compensation and might even reduce the compensation to nil.

Whistleblowing and Constructive Unfair Dismissal

The right to claim unfair dismissal is a statutory right given by legislation (the Employment Rights Act 1996).  Claims for unfair dismissal usually arise where the employer has actually dismissed the employee.  “Constructive unfair dismissal” is where the employee says that his treatment by his employer is such that the employee has lost all trust and confidence in the employer so that the employee is justified in resigning.  The legislation which gives employees the statutory right to claim unfair dismissal treats the employee’s resignation as being equivalent to an actual dismissal by the employer.

“Whistleblowing” is the common name for where an employee (or worker) tells his employer (or in certain circumstances a relevant outsider) about wrongdoing which wrongdoing has to be related to specific categories set out in the legislation.  In doing this, the employee is said to be making a protected disclosure.  Whistleblowing claims were introduced by the Public Interest Disclosure Act 1998 which inserted new sections into the Employment Rights Act 1996.  The interaction between constructive unfair dismissal and whistleblowing claims is not straightforward.  Indeed, even where the employee is dismissed by the employer, a whistleblowing claim is a complex one for an employee to bring.

In order to establish that he was unfairly dismissed because he made a protected disclosure, an employee needs to establish three things: firstly, that he was dismissed, secondly that he made a protected disclosure, and thirdly that the reason or principal reason for the dismissal was the protected disclosure.  It is the “making” of the protected disclosure which is the focus of attention and which must be the principal reason for the dismissal.

In all unfair dismissal cases it is necessary to establish the reason for the dismissal.  In a constructive unfair dismissal case it is the employee and not the employer who decides to terminate the employment contract. The employer is not in fact intending to dismiss at all so that it is a little artificial to attribute a reason for the dismissal.  In such cases the “reason for dismissal” has been taken to amount to “the reasons for [the employer’s] conduct which entitled the employee to terminate the contract thereby giving rise to a deemed dismissal by the employer” (Berriman v. Delabole Slate Ltd).  In a protected disclosure case, it is therefore necessary to establish that the reason for the employer’s conduct which caused the employee to resign was the protected disclosure.  This would be the case for example where the employee made a protected disclosure and because of his having made the protected disclosure, the employee was subject to intolerable bullying and the employee resigned in response to the bullying.

Contrast this with a situation where an employee (or worker) discovers that his employer has been “hacking” into a third party’s computer system to obtain information which information the employee is expected to sell to customers.  Upon discovering this, the employee decides to resign because he does not want to become involved in dishonest conduct.  He tells the employer about the illegal hacking and says that he is resigning because of it and does in fact resign either with immediate effect or on notice.  In this case he will fail in a “whistleblowing” claim because on his own admission he resigned in response to the hacking.  The employer’s conduct which caused him to resign was the unlawful hacking.  This unlawful hacking was not caused by the disclosure (the hacking obviously took place before the disclosure about it was made to the employer).

All may not be lost. If the employee had been employed for more than 2 years he would be eligible to bring an ordinary unfair dismissal claim and on these facts he would expect to win such a claim.  Alto if he resigned with immediate effect (regardless of how long he has been employed) he would have a claim for wrongful dismissal – in other words to be paid for his contractual notice period.

Constructive unfair dismissal cases are always complicated and difficult. This is doubly so when the employee claims he was a whistleblower and that his resignation was because he had “blown the whistle”.

Pipeline Commission or Pipe Dream?

Most commercial agents who sell goods know that if their agency is terminated, then under the Commercial Agents (Council Directive) Regulations 1993 they can claim compensation/an indemnity unless the agent’s behaviour has been so serious that the principal is justified in terminating the agency.  What is less well known, is that even if the principal is justified in terminating the agency so that the agent has no claim to compensation/an indemnity, the agent can still make a claim under Regulation 8 of the 1993 Regulations.  This right under Regulation 8 is commonly referred to as the right to “pipeline commission”.

So far as relevant, Regulation 8 provides as follows:

“Subject to regulation 9 below, a commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if –

(a) the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contact terminated;”

There is no express provision in the 1993 Regulations prohibiting a principal from excluding the rights of the agent under Regulation 8.  This is in contrast to the position under Regulation 17 which is the regulation which provides for payment of compensation/an indemnity.  There, the Regulations expressly state that the parties may not derogate from the agent’s right to compensation/an indemnity.  This has led most commentators to conclude that because there is no prohibition which expressly refers to Regulation 8, therefore the parties are free to exclude the rights of the agent to pipeline commission.  However, it is not clear if Regulation 8 can be excluded in the agency agreement and whilst the consensus is that it can be, the question awaits a definitive court decision.

If there is no exclusion in the agency agreement of the agent’s right to pipeline commission (or if the exclusion is held to be of no effect) the agent has to show that the transaction was “mainly attributable” to his efforts during the agency and that it was entered into within a “reasonable period” after the agency ended.  The agent would have to satisfy both of these requirements and not just one of them.  There is nothing in the Regulations which gives any guide as to what is “mainly attributable” or what is a “reasonable period”.  This is not surprising given the wide range of industries which use agents and the products sold within those industries.  Thus everything is fact specific and what may be a “reasonable period” in one set of circumstances will not be so in another.  The transaction must be “concluded” within the reasonable period.  The view has been taken in at least one court case, that a transaction is concluded when the relevant order is placed, as distinct from when the goods are delivered to the customer.

The transaction also has to be “mainly attributable” to the agent’s efforts during the existence of the agency.  The dictionary definition of “attributable” is “to regard as arising from a particular cause or source”.  The phrase is “mainly attributable” and not just “attributable” and much would depend on the technical complexity/reputation/comparative pricing of the product and on the standing of the agent within that particular industry.  It is commonsense that there has to be some form of causative link between the efforts of the commercial agent and the conclusion of the transaction, but it is not clear how direct that link has to be.  An agent could be expected to argue that Regulation 8(a) should be applied to all orders placed by customers who were initially introduced by the agent to the principal.  A principal could be expected to argue that what occurred after the original introduction e.g. the principal’s attendance at trade shows, product improvements, credit arrangements, should be looked at so as to decide whether the sale was mainly attributable to the original introduction of the customer.  Also the concept of “mainly attributable” and “reasonable period” are related in the sense that after a passage of time the agent’s influence on the customer would be likely to have waned.  Moreover a sale might still be held to be mainly attributable to the efforts of the agent yet not attract pipeline commission because it was not entered into within a reasonable period of the termination.

A principal could be expected to exclude the agent’s right to pipeline commission in the agency agreement and a well advised agent to object to the exclusion.  If this impasse was reached, it would be open to the parties to specify in the agency agreement what is a reasonable period for the purposes of calculating the pipeline commission.



Bullying and Harrassment “Life as an adult really isn’t that different to life in the playground”

“Life as an adult really isn’t that different to life in the playground”, said one of the educational psychologists in a recent Channel 4 documentary, “The Secret Life of 4-Year-Olds” set in a nursery.  In this one-off documentary the viewer is entertained by a group of 4-year-olds and their comments, such as the whisper of one girl “if the bullyboy troubles you, just bite him”.

The 2014 annual bullying survey [1] found that 40% of young people experienced bullying before the age of 18 and 34% reported bullying for prejudice-based reasons such as homophobia, racism, religion, disability or cultural differences.  With bullying seemingly ever present in education it comes as no surprise that is found in the workplace.

Employers are generally alert to the potential problem of bullying and may have anti-bullying, anti-discrimination and equal opportunities policies to convey the message that bullying and harassment will not be tolerated.  That said, what is bullying?

What is bullying?

Bullying is not just experienced by young and inexperienced employees, but by employees of all ages and status. Here at Ashby Cohen we have helped employers and employees such as bankers, teachers and  administrative staff with his or her bullying concern.

At the ‘playground’ level bullying could involve colleagues making an employee the butt of jokes making derogatory comments about their appearance, or excluding them from the social life of the workplace.  Certain business cultures and environments may present additional problems for employers, such as a boisterous and fast paced trading floor, or a busy restaurant kitchen.   Whether the perceived bully intends to bully is irrelevant; rather what is vitally important is whether the bully’s conduct is considered unreasonable in normal circumstances.

Taking the bullying up a notch to big school, the bullying may be from a line manager or supervisor.  A manager may be unreasonably critical of the employee’s work, treat them inconsistently (which could amount to discrimination), shout at them or withhold information which prevents them doing their job.  Complaints of bullying are sometimes linked to a manager addressing concerns about an employee’s performance.  If an employer has performance concerns then they are well within their rights to address this as the employee is employed to do a job.  However, even with legitimate concerns an employer must be careful, and at all times be reasonable and respectful in dealing with the employee’s performance.

The consequences of bullying can be costly for both the employee and employer.  The employer is presented with time spent managing a difficult and sensitive situation, employees off sick with stress, potential settlement agreements to fund and/or potential legal claims to defend. There are often financial implications for the employee too if they are off sick and invariably the bullying impacts on their self confidence, self esteem and mental well being.

What can I do if I am being bullied?

Try and speak to a manager you trust or HR in confidence first.  If that is not helpful, then the first formal step is to raise a grievance addressing your concerns.  The ACAS Code of Practice sets out the minimum grievance procedures that an employer should follow. The grievance should be handled by someone of the appropriate authority, but also by someone who is not party to the bullying complained of.  Grievances were introduced to try and resolve workplace disputes prior to Employment Tribunal proceedings.  Whether they have succeeded is a different topic entirely but it is the starting point in getting your concern heard.  If your grievance is upheld then it may result in the ‘bully’ being disciplined or trained or workplace mediation could be arranged to get the working relationship back on track.

What are my legal rights?

There is no stand alone legal claim for bullying in England & Wales.  If you have resigned because of bullying or have been dismissed unfairly (and you have two years service) then you may have a claim for unfair dismissal or constructive unfair dismissal in the Employment Tribunal.  Irrespective of whether you have been dismissed, if you believe that the bullying is because of a ‘protected characteristic’ which you possess (see below) then you may have a claim for discrimination. The protected characteristics are:-

  • your race
  • your religion
  • your sex
  • your sexual orientation
  • your disability
  • your age
  • our pregnancy/maternity.

A civil and criminal claim could also be pursued in more serious cases under the Protection of Harassment Act.  For a potential civil case there must more at least two incidents of harassment and   harassment is defined as being behaviour that causes distress or alarm.

Contact us – your employment solicitors

Dealing with bullying in the workplace whether you are an employer or employee is worrying.  At Ashby Cohen we have given advice and pursued claims for employees and advised employers on how best to handle these situations.  For more information get in touch for a free consultation on  020 7408 1338 or info@ashbycohen.co.uk.

[1] prepared by Ditch the Label worked in partnership with schools and colleges across the UK

Termination payments to employees who have worked abroad

Where an employee who receives a termination payment, has worked abroad for an employer or (provided that the termination payment is in respect of the whole period of his employment with the group) for a company which is part of the group which the employer belongs to, he might be eligible for either:

  • Foreign Service Exemption; or
  • Foreign Service Relief.

The expression “foreign service” has a complex definition in the tax legislation.  The definition varies according to the tax years covered by the employment and was more generous for employees for the tax years up to and including 2012-13. For the tax years up to and including 2012-13 if an employee, although working in the UK, was not at the time “ordinary resident” in the UK for tax purposes (often the case in the early years after posting, if the employee was an “ex pat” posted to the UK) then he was within the definition of being on “foreign service”.  The employee who was ordinary resident in the UK for tax purposes must have been working abroad for the period to count as foreign service.  For the tax year 2013-14 onwards no period of employment in the UK can count as foreign service regardless of the tax status of the employee (the concept of ordinary residence was abolished for the tax years starting after 5th April 2013).

Foreign Service Exemption

If an employee is eligible for Foreign Service Exemption then the whole of his termination payment will be able to be paid to him free of tax.  There are three alternative tests which an employee has to meet so as to be eligible for Foreign Service Exemption.  The employee only has to meet one of the three tests.  These three tests are:

  • the foreign service must cover three quarters or more of the employee’s whole period of employment (which can be of any length) ending on the date of termination of his employment; or
  • if his period of employment ending on the date of termination exceeded 10 years, the whole of the last 10 years must be foreign service (there must be foreign service continuously throughout the final ten years of employment); or
  • if his period of employment ending on the date of termination exceeded 20 years, then one half or more of the period of employment including any 10 (not necessarily continuing) of the last 20 years must be foreign service.

Foreign Service Relief

If the employee cannot meet any one of the three tests so that the whole of the termination payment can be paid to him tax free, then he might be eligible for foreign service relief.  Under foreign service relief the amount of the termination payment above £30,000 (assuming that the £30,000 exemption for payments made in connection with the termination of employment applies) is pro-rated.  The length of time during which the employee worked abroad (so as to be within the definition of foreign service) is compared to the employee’s total period of employment in order to calculate the proportionate part of the termination payment which attracts foreign service relief.

Foreign service relief applies in the manner shown by the following example.  The example assumes that an employee has been in employment for 5 years and worked abroad for 2 out of those 5 years and received a termination payment of £100,000:

Termination Payment 100,000
Less: exemption (30,000)
Less: foreign service relief

70,000 x 2/5

Taxable amount  £42,000

As soon as the amount of the termination payment has been agreed, the employee should raise the question of foreign service with his employer so that the employer can take account of it when operating PAYE on the termination payment.

This is a complicated area and the employee should take specific tax advice from specialist tax advisers if he has worked abroad for his employer.


Amending the Territory – Principals be alert, Agents be aware!

Although the relationship between a commercial agent and his principal should be one of collaboration, after a while a tension often creeps in when the principal feels that the agent has become lazy and is not doing enough to promote his products.  The principal then has a problem.  If he ends the agency, perhaps to appoint his own sales force in place of the agent, he faces a substantial risk of having to pay out compensation or an indemnity under the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”).

One way in which the principal might have tried to protect himself against this is by including in the agency agreement a provision for him to amend the territory if he feels that the agent is not doing enough.

The Regulations provide that the principal cannot exclude the agent’s right to a compensation /indemnity payment on termination.  The exact wording in the Regulations (Regulation 19) is that “the parties may not derogate from [the agent’s right to a compensation/indemnity payment] to the detriment of the commercial agent before the agency contract expires”.

How does a clause which gives the principal the right to reduce the territory, fit in with the prohibition that a principal cannot get out of having to make a payment upon termination by excluding in the agency contract the agent’s right to receive such a payment?  The question came up in 2006  in a case called Vick v. Vogle-Gapes Ltd. Mr Vick was the agent for Vogle-Gapes Ltd.  Vogle-Gapes Ltd was not satisfied with Mr Vick’s performance.  The agency agreement provided that if in their reasonable discretion Vogle-Gapes Ltd believed that Mr Vick was failing to maximise sales opportunities within his territory they could amend the territory. This is what they did.  Mr Vick brought a claim for compensation.

The case did not in fact turn on the reduction in territory point but, rather, whether Mr Vick had by his behaviour treated himself as no longer being bound by the agency so that the company were not required to pay him compensation (this was the finding which the Court made and Mr Vick failed in his compensation claim).  However, one point of discussion in the case was the reduction in territory point.

There was a discussion that by reason of the company varying Mr Vick’s territory, Mr Vick could treat the agency as at an end and claim compensation.  The argument for Mr Vick was that the Regulations (Regulation 19) prevented the parties from derogating from the agent’s right to a compensation/indemnity payment on termination.  His point was that if there had not been an express right in the agency agreement to reduce the territory, the only way in which a reduction in his territory could have been achieved was by a termination of the agency agreement and the substitution of some other agreement.  On the termination of the agency agreement, the compensation/indemnity payment would have become payable under the Regulations.  Mr Vick’s argument was that because the express clause in the agreement enabled something to be done which otherwise could not be done without terminating the agency agreement, the clause served to derogate from his right to compensation.  Regulation 19 prohibited this.  Mr Vick’s argument was not accepted.  It did not seem to the Court that it was a derogation from a right to compensation upon the termination of a contract, for the parties to agree to a provision in their contract which did not involve termination (but which, if they had not agreed it, the situation covered by the express clause could only have come about by the parties making some further agreement).  Thus if the agency agreement when made had not included an express right to vary the territory, that provision could have been added later by agreement between Mr Vick and the company without terminating the agency agreement.   The Court accepted that (if the agency agreement had not included the express clause) what the company could not have done was unilaterally modify the territory.  However it went on to state that this did not mean that by agreeing the express clause in the first place as part of the consideration for the making of the agency agreement, the parties therefore derogated from Regulation 17 (Regulation 17 being the Regulation which gives the agent the right to a compensation/indemnity payment on termination).

A principal must act dutifully and in good faith so that any decision made by a principal to reduce the territory must be both genuine and rational, e.g. allowing the agent more time to devote to customers whom he was left to service.  If the reduction was shown to be made in bad faith as a device to avoid having to make a compensation/indemnity payment, the strategy would fail and if the agent chose to treat the reduction as entitling him to treat the agency as at an end, the principal would likely end up having to make a compensation/indemnity payment.

From the principal’s point of view the inclusion of a clause allowing him to amend the territory would at the very least give him a good negotiating position to deal with an agent whom he feels is not pulling his weight.  From an agent’s point of view he should resist a clause in an agency agreement which gives the principal the right to vary the extent of the territory so that the principal (short of trying to come to an agreement to reduce the territory) faces the choice of either doing nothing or of terminating the agency and possibly facing a compensation/indemnity claim from the agent.