This month’s summary includes a look at the pools used for comparison in discrimination cases, considering all the options before dismissing for redundancy, taking a look at the special circumstances where someone might be employed by two organisations and what caused a director to be disqualified for 9 years.
- Indirect Discrimination: What constitutes too narrow a pool for comparison?
- Unfair Dismissal: It was unfair to dismiss for redundancy instead of considering furlough during the coronavirus pandemic
- Unfair Dismissal: A union official was not also an employee of the union for unfair dismissal purposes
- Directors: Disqualification order for director who failed to protect funds and keep proper accounting records
Indirect Discrimination: What constitutes too narrow a pool for comparison?
In Boohene and others v Royal Parks Ltd  EAT 69, the claimants were contract workers employed by a third party to work on its toilet and cleaning services contract with the respondent in London. Their minimum rates of pay were set below London Living Wage (“LLW”); this contrasted with the respondent’s direct employees, who were office-based and had a level of pay higher than LLW. The employment tribunal found that the respondent had committed to ensuring that the minimum pay of its direct employees would not fall below LLW but had decided not to accept the option of LLW as the minimum pay rate on the toilet and cleaning contract.
The claimants brought claims of indirect race discrimination in respect of their treatment as contract workers as compared to the respondent’s direct employees. The tribunal upheld these complaints as falling within the definition of indirect discrimination under section 19 Equality Act 2010, (“the EqA”), rendered unlawful by reason of section 41. The respondent appealed.
The EAT upheld the appeal, finding for the respondent. On its findings of fact in this case, the tribunal had been entitled to conclude that these claims fell within section 41(1) EqA, the respondent having exercised sufficient control as to minimum level of pay that was to be paid to workers on the toilet and cleaning contract. Although ostensibly set by the contractual term agreed between the claimants and the contractor, the tribunal permissibly found that the decision not to pay LLW was made by the respondent, the contractor had merely executed that decision; in this respect, it was the respondent that had determined the relevant term on which the claimants were to be allowed to do their work. For the purposes of section 19 EqA, the tribunal was similarly entitled to find that it was the respondent that had applied the relevant provision criterion or practice (“PCP”). The tribunal had, however, fallen into error in defining the PCP in this case and this had led it to adopt an indefensible pool for comparison. Although the claimants’ pleaded case had identified a PCP that distinguished between the respondent’s direct employees and its outsourced workers, the case at trial was put on the more limited comparison between the respondent’s direct employees and the workers on the toilets and cleaning contract. In accepting the latter case, the tribunal had improperly excluded from the pool for comparison all other outsourced workers undertaking work for the respondent. That was an error that undermined the tribunal’s approach to the comparative exercise it was required to undertake in this case. The appeal was allowed because the tribunal should have compared directly employed staff with all outsourced workers (and not just those on the cleaning contract). When analysing the impact of a PCP, the pool being considered should consist of the entire group it affects.
The respondent would not, however, have succeeded in its further challenge to the tribunal’s approach to comparability. In considering whether there were any material differences between the advantaged and disadvantaged groups, on the facts of this case, the tribunal had been entitled to find that the nature of the work and the identity of the employer were not relevant to the question whether the respondent had drawn a distinction between its directly employed staff and outsourced workers when committing to LLW as a minimum rate of pay. A further valid point of challenge had been raised in relation to the tribunal’s failure to address the case of the claimant, Mr Marro, who did not share the relevant protected characteristic. Had this point not been rendered academic by the EAT’s earlier conclusion, this final ground of appeal would also have been allowed and this question remitted to the tribunal for determination.
Unfair Dismissal: It was unfair to dismiss for redundancy instead of considering furlough during the coronavirus pandemic
In Lovingangels Care Ltd v Mhindurwa  EAT 65, the claimant was a live-in carer. The person for whom she cared went into hospital. In the normal course of events the claimant would have moved to care for another of the respondent’s clients. In the early stages of the Coronavirus pandemic there was limited scope for such movement. The respondent did not have another client for the claimant to move to because of the Coronavirus pandemic. The respondent dismissed the claimant by reason of redundancy. The employment tribunal held that her dismissal was unfair because the respondent did not consider the possibility of putting the claimant on furlough for a period while it ascertained whether the situation would improve and it would be able to place the claimant with another client; and also, because the appeal hearing was no more than a rubber-stamping exercise.
The respondent appealed against the finding of unfair dismissal. There was no error of law in the decision of the employment tribunal. Determining a claim of unfair dismissal in respect of a dismissal that occurred in circumstances related to the Coronavirus pandemic does not require any variation to the law of unfair dismissal, which is robust enough to deal with such exceptional circumstances.
Unfair Dismissal: A union official was not also an employee of the union for unfair dismissal purposes
In Fire Brigades Union v Embery  EAT 51, the EAT found that there is a broad principle that a person cannot simultaneously have two employers, subject to an exception for the case of a person having two ‘compatible’ employments. On the facts of this particular claim for unfair dismissal by a fire-fighter, the claimant was not employed by the union as well as by the fire brigade.
The question of whether a person can have two employers for the same job is an unusual one. It is often seen in the context of vicarious liability for torts but not in the context of employment rights, such as unfair dismissal, as here. This case concerned a fire brigade employee who was subsequently elected as a regional union official and was released from fire-fighting duties to work full-time on union duties. The EAT reviewed the case law on dual employment and identified a broad principle that a person cannot simultaneously have two employers for the same job. The EAT noted the exception to this principle identified by the EAT in Gough for the case of a person having two ‘compatible’ employments. It cast doubt on the reasoning in that judgment which relied on the vicarious liability case of Viasystems. The EAT in this case found that to be of ‘little assistance’ given the different policy context. It held that this was not an unusual or exceptional case in which the claimant could have been employed by the Fire Brigades Union (FBU) as well as by the London Fire Brigade (LFB).
The employment tribunal held that the claimant was an employee of the FBU and had been unfairly dismissed (but not discriminated against). In determining that the claimant was an employee the tribunal held that:
- he received substantial remuneration in the form of the ‘top up’ of around £7,000 ‘as no doubt a sweetener to encourage people into full time Union roles’ plus his LFB salary which was ‘covered by the Union’;
- the FBU had substantial control over his work. He could have been removed from office if his duties were not performed satisfactorily, he had to perform his work personally, he had to work full-time and only for the FBU and he was provided with equipment and expenses, and a car allowance;
- if he failed to abide by the FBU rules there was a process which could effectively lead to his dismissal, as in this case; and
- when working for the union he was not under the control and direction of LFB.
The union appealed on the basis that, in finding that the claimant was an employee of the FBU and not the London Fire Brigade, the employment tribunal had erred in that it:
- ignored and/or did not apply the material law;
- failed to explain its application of the law; and
- reached a decision which was not open to it on the facts, applying the material law (the ‘perversity’ ground).
The EAT dismissed the union’s appeal and substituted a decision dismissing the claim for unfair dismissal.
Directors: Disqualification order for director who failed to protect funds and keep proper accounting records
In Secretary of State for Business, Energy and Industrial Strategy v Joiner  EWHC 1032 (Ch) the Chancery Division ruled on the claimant Secretary of State’s application for a disqualification order under section 6 of the Company Directors Disqualification Act 1986 against the defendant. The claimant alleged that the defendant: (i) had failed to ring-fence and protect certain funds which were held by the company called Team Property Management Limited (Team) for the account of a major customer called the Quadrangle RTM Company Limited; and (ii) had failed to ensure that Team kept proper accounting records, or at least had failed to deliver them up to the official receiver. The court held, among other things, that the defendant had failed to appreciate and observe the duties attendant on the privilege of conducting business with limited liability, and he had demonstrated a serious lack of commercial probity and a lack of insight as to the unacceptability of his business practices. Accordingly, the court had agreed with the claimant’s assessment of the appropriate disqualification period, and it had decided that a nine-year period of disqualification should be made.
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What is wrongful trading?
Where a company goes into insolvent liquidation and, at any time before the start of the winding process, a director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, and after that point the continuation of trading makes the company worse off.
For the purposes of wrongful trading, a liquidation is defined as insolvent if, at the time the company enters liquidation, its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.
Who is liable?
Wrongful trading can be one of the most worrying aspects of company insolvency for the directors, as it may impose personal liability on them. The concept of (and liability for) wrongful trading applies to anyone undertaking the role of a director, whatever their title and whether or not registered as a director at Companies House, so includes shadow directors. There is no need to show dishonesty on the part of the director for there to be a finding of wrongful trading.
The court may declare that the director is liable to make a contribution to the company’s assets. Any contribution is paid into the pool of assets available for distribution to the creditors. The court will not order a contribution by a director if the court is satisfied that, upon knowing there was no reasonable prospect that the company would avoid going into insolvent liquidation, the director took every step that he ought to have taken, with a view to minimising the potential loss to the company’s creditors.
How will the court judge a director?
The facts which the director ought to know or ascertain, the conclusions which the director ought to reach, and the steps which the director ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both:
- the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the director in relation to the company, or those that the director does not carry out but which have been entrusted to the director; and
- the actual general knowledge, skill and experience of the director in question.
What can directors do?
If directors are concerned regarding the financial position of a company there are a number of steps that should be followed:
- make sure all financial information is up to date and kept up to date;
- hold regular board meetings. All decisions should be documented in full, including why decisions have been made;
- be aware of financial covenants in lenders’ documents: legal charges, etc;
- remember that directors must consider the interests of the company’s creditors;
- keep up to date with the day to day business, so the directors become aware as soon as possible, for example, of increased pressure from creditors to pay and disputes with debtors;
- take legal and financial advice;
- as soon as a director becomes aware, or fears, that there is no reasonable prospect of avoiding insolvent liquidation, the matter should be raised with the board;
- further credit should not be incurred;
- if there is no reasonable prospect of avoiding insolvent liquidation the directors cannot simply walk away – one of the insolvency procedures must be put in hand;
- if one of the directors is concerned, but the remaining directors do not share the concern, then the director should take independent advice as soon as possible, as he may be able to resign as a director in protest.
If you have any questions regarding the above or require additional information or assistance, please contact Ben Habershon Ben.Habershon@dixcartlegal.com or call us on +44 (0)333 122 0010.