Contracts

Commission schemes: Contractual or discretionary?

Commission schemes are frameworks used by employers to incentivise employees (typically sales staff). There are many different types of commission scheme; by reference to volume of sales, value of sales, leads generated, renewals and retentions. There may be a minimum threshold and different commission multipliers may apply above and below certain figures.

Sometimes, especially when commissioned employees depart from a company, there can be a dispute as to whether or not they are entitled to commission payments. In this article, we shall look at the state of the law in this area.

The key legal question is whether a commission scheme is contractual or discretionary. If the commission scheme is contractual, then it is binding on the employer. If it is discretionary then it isn’t binding and therefore the employee isn’t entitled to commission payments.

Before we get into the legal ins and outs, it is important to say that a contract can be written, oral or implied by conduct (eg by a history of commission payments).

Is there a written scheme

The easiest way of identifying whether or not a commission scheme is contractual is by looking at the contract of employment. Generally commission clauses will come in two types:

1. Commission clause giving the employer partial discretion – A clause giving the contractual right to participate in a commission scheme, but the terms of the scheme are at the employer’s discretion; or
2. Commission clause giving no discretion – A clause giving the contractual right to participate in a scheme, but also making the terms of the scheme contractual.

Both the above commission scheme clauses are binding, but the difference is  that the first doesn’t allow an employee to query the terms of the scheme (the applicable terms will be the terms of the scheme as of the employee’s termination/notice of termination); the second does.

Implied by conduct

In the rare event that a commission scheme is ‘purely’ discretionary; or if the employment contract is unclear as to whether a commission scheme is contractual, the tribunal would look into all the relevant facts. This includes looking at the conduct of the employer, in particular the custom and practice (e.g. whether or not commission payments have been paid regularly or not). If a tribunal was to find such a scheme was contractual, they would look into all the relevant facts to calculate how much the employee is entitled to in commission.

Employers usually create written schemes to look as though they give definite benefits but use discretionary language to give themselves wiggle room not to pay if they choose. The Courts have said that this wiggle-room mustn’t be abused in an egregious way; any decisions to exercise a discretion don’t have to be reasonable but they must be exercised rationally. That means a decision to pay nothing would be unlikely to fly, as would a decision made without any thought-process or a decision based on personal grudge or favouritism. But a decision to pay something, even a trivial amount, is not easy to challenge.

To avoid disputes, we advise employers to make clear in the contract of employment whether a commission scheme is contractual or not. If it isn’t contractual, then employers should be careful not to operate the scheme in a way where it can be ‘implied by conduct’ that the scheme is contractual (e.g. by making regular commission payments).

By Zahid Reza

Image used under CC courtesy of ILO in Asia and the Pacific

Are agency workers employees?

The topic of employment status has been very newsworthy lately, in particular with individuals working in the ‘gig’ economy, where courts were required to rule on whether individuals were self-employed or had worker status (like the cases of Uber and Deliveroo). However what about the status of agency workers?  Employees are directly employed by an end user, whilst agency workers are typically individuals who have an agreement with an agency, and then work for different clients of the agency’. Generally the end user will have entered into a separate agreement for services with the agency.

There are three types of status; ‘employee’ (who have extensive employment rights and protections), ‘worker’ (who have some employment rights and protections) and ‘self- employed’ (who have very little employment rights).

This article looks at what the law says about agency workers being classed as employees.

The criteria for being an employee

Caselaw sets out the legal test for how to recognise an employment service. There are three ingredients:

• Personal service – an assessment of whether the agency worker is required to provide a personal service (of whether they can send someone else in their place).
• Control – does the end user have control over the agency worker (e.g. the power of deciding what is to be done, the way in which it is done, the time and place of where it should be done and day-to-day control).
• Mutuality of obligations – does the individual contractually have to work and does the would-be employer have to provide work?

Are agency workers employees of the agency?

No. The caselaw says that only under ‘exceptional’ circumstances would an agency worker be an employee of an agency. They came to this conclusion because typically:

• The agency doesn’t have day-to-day control of the agency worker;
• The work carried out by the agency worker is not done for the direct benefit of the agency; and
• There is no obligation on the agency to find work for the agency worker, and no obligation on the agency worker to accept it.

Are agency workers employees of the agency or the end user? 

There are generally two agreements in an agency worker situation (one between the agency worker and the agency; and another agreement between the end user and the agency). Assuming the typical agency worker model is used, the end user will have day-to-day control but not mutuality of obligations. The agency will have mutual obligations with the individual but not day-to-day control over the them.

Conclusion

The law as it stands makes it unlikely the vast majority of agency workers are ‘employees’ of the agency, nor the end user. However most agency workers will still have the status of ‘worker’, meaning that they will have some employment rights, such as the right to whistle-blow and the right not to be discriminated against. They will not have some key rights and protections reserved for employees, such as the right not to be unfairly dismissed, maternity leave (and potentially statutory maternity pay), and parental leave.

The judges left some wiggle room but in fact, we’re not aware of any situation where agency workers are employees.

Therefore the end user in particular, can be safe in the knowledge that liability for a potential unfair dismissal claims is slim to none in relation to agency workers. However both the agency and the end user must be aware that agency workers do have the right under the Agency Worker Regulations 2010 to be entitled to parity of basic pay and working conditions compared to their employee counterparts, after 12 weeks of service in a particular job.

By Zahid Reza

Caselaw: James v Greenwich Council, Ready-Mixed Concrete (South East) Limited v the Minister of Pensions and National Insurance

Image used under CC courtesy of Fraser Valley University

Does ‘on call’ time count as working time?

Is ‘on call’ time working time? The Working Time Directive (incorporated in the UK as the Working Time Regulations 1998) has been under the microscope recently, particularly in relation to travel time (because neither the Working Time Directive nor the Working Time Regulations comment on travel time to and from work). This article looks at a recent European case that considered whether time spent on call constitutes working time.

Facts

Rudy Matzak was a retained (volunteer) firefighter in the town of Nivelles, Belgium. He was required to:

• Be on call for work once every four weeks (during evenings and weekend); and
• When on call (that is, during periods when on call but not called upon to carry out any duties), remain contactable, report to the fire station when necessary and to be no more than eight minutes travelling distance from the fire station.

Mr Matzak was only paid for the time he was active carrying out duties, and not for the time he spent on call where he was available but not required to do any work. Mr Matzak didn’t like the fact he wasn’t being paid for when he was on call (among other issues) and brought court proceedings in the Belgium courts.

The Belgian Court requested assistance from the European Court as to whether Mr Matzak’s time spent on call constituted working time.

Decision

The Court of Justice of the European Union (CJEU) said that Mr Matzak’s on call time must be regarded as working time. The big factors for the CJEU were:

• Mr Matzak’s obligation to remain physically present at the place determined by the employer; and
• The requirement for Mr Matzak to be no more than eight minutes away from the fire station, thereby severely restricting his ability to carry out other personal and social interests.

Analysis

This case illustrates that the time spent on call for workers can count as working time. The implications are that (1) workers who are on call could be entitled to the Minimum Wage (for the hours that they are on call for); and (2) it could affect the workers entitlement to breaks under the Working Time Regulations.

Whilst this decision doesn’t provide many absolute answers, it does indicate that (1) an employer’s control over where a worker will be when on call; and (2) restrictions on a worker’s ability to carry out personal and social activities when on call, are factors that European Courts will take into account when assessing whether on call time counts as working time.

This decision has provided more substance as to when on call time constitutes working time for the purposes of the Working Time Directive (and Working Time Regulations 1998). Employers should therefore take into account the above two factors when making arrangements for their workers to go on call.

Case report: Ville de Nivelles v Rudy Matzak

By Zahid Reza

Image used under CC courtesy of Filip Pticek

Zelda Perkins breaks settlement agreement confidentiality

Zelda Perkins (assistant to Harvey Weinsten) has recently done her first broadcast interview for BBC Newsnight, thereby allegedly breaking her settlement agreement confidentiality clause (in America, where it is called a non-disclosure agreement, NDA) that she signed 19 years ago.

Settlement agreements are useful documents given to departing employees, typically to prevent an employee bringing claims against their employer, not to speak ill of their employer (non-derogation) and not reveal any confidential information in exchange for money.

She received £125,000 for signing the NDA. Zelda says that she was given the NDA to silence her from telling anybody about an incident that left a colleague accusing movie mogul Mr Weinstein of trying to rape her, an allegation that he denies.

Ms Perkins has told the BBC “The last 19 years have been distressing, where I’ve not been allowed to speak, where I’ve not been allowed to be myself…It’s not just distressing for me, but for lots of women who have not been able to own their past, and for many of them, their trauma. Although the process I went through was legal, it was immoral.’

This story has brought to light an intriguing question: Are UK settlement agreement confidentiality clauses enforceable?

There is not a straightforward answer to this, as a settlement agreement confidentiality clause could be invalid on the basis of public policy because it is a ‘contract damaging to morality’ or a ‘contract that interferes with the machinery of justice’. This is because there is a distinct possibility that such a settlement agreement could be used to cover up sexual crime.

Geoffrey Robertson QC has said ‘There is, however, an entirely legitimate case for the UK Parliament to pass an amendment to the Criminal Justice Act, making it a crime to offer money to employees to silence them in relation to criminal offences that they know about’.

It is unlikely that Parliament intended settlement agreements to be used in a way which could cover up criminal acts or prevent whistleblowing.

In summary, the Harvey Weinstein saga appears to have raised an important legal question as to whether there should be an exception to settlement agreements being used to cover up wrongdoing. The question now is whether Parliament will do as Geoffrey Robertson has suggested, in making it illegal to compensate employees so they are silent about criminal offences that they know about.

By Zahid Reza

Image used under CC courtesy of David Shankbone

How to best prevent an employee becoming a competitor?

One of our commercial clients had recently found that a former employee was competing, with restrictive covenants being breached blatantly.

This key employee had the passwords for our client’s website. He altered the website to divert business away from the company to himself, meaning the company was losing significant profits. This is of course a nightmare scenario that businesses of all types dread and hope will never happen to them.

However, there are measures employers can take to reduce the chances of an employee becoming a competitor.

While the employment is ongoing

Firstly, employers can insert a clause within an employee’s contract, instructing them to devote ‘all their time, attention and abilities’  to the business when they are employed. This means that an employee would not be allowed to set up a competing business during working hours.

A further preventative measure includes that of including such competing activity within a list of matters that would constitute gross misconduct in the employer’s staff handbook.

The above two preventative measures can not only act as a deterrent for an employee but would put the employer in a stronger position to immediately dismiss if they find out about the activities whilst the employee is still employed.

After the employment has ended

The most effective preventative measure is restrictive covenants. These contractual clauses are used to prevent a former, often more senior employee (after their employment has ended) from:

1. enticing away existing clients/customers;
2. poaching employees; and
3. representing themselves as associated with the former employer.

Post-termination restrictive covenants need to be well-drafted to enforce because if they go further than reasonably necessary they will be unenforceable. It is particularly difficult to show this ‘reasonableness’ element and judges have to look at a number of factors when assessing ‘reasonableness’. The upshot of this is that employers must take legal advice on whether they are successfully preventing employees competing with restrictive covenants each time they recruit and promote.

This is because in order for restrictive covenants to be enforceable, they need to be tailored specifically bearing in mind the employment relationship. Our article on how to stop employees competing with restrictive covenants gives more details.

By Zahid Reza

Image used under CC courtesy of Fe llya 

Nannies and the National Minimum Wage

When it comes to nannies and the National Minimum Wage, the position is usually clear. But this is not the case with live-in workers. A minimum wage claim brought by an immigrant domestic worker was recently heard by the High Court.

The case required the court to address the “family worker” exemption set out in the National Minimum Wage 2015. The provision in question is the one relating to wage “deductions” for accommodation and meals.

Mrs Ajayi, came to the UK from Nigeria in 2005. She has worked for  Mr and Mrs Abu for a total of nine years and claims she was a victim of human trafficking.

There was no dispute over the fact that Mrs Ajayi was an employee over the alleged period, but there was a disagreement on her hours and pay. In this kind of situation, the employee’s word is generally believed unless the employer has kept records.

The defence initially relied on the “family worker” exemptions for live-in workers who are treated as members of the family. This obviously includes nannies and the national minimum wage would not need to be paid. For this defence to be successful, however, the employer cannot make the employee pay for food and accommodation. This was the issue that the court had to decide.

The court ordered Mr & Mrs Abu to provide a detailed spreadsheet with a breakdown of monthly salary, “expenses” and the net payments made to Mrs Ajayi. The spreadsheet they submitted showed how expenses had been deducted from Mrs Ajayi’s salary for “lodging” and “feeding”.

At this point they realised that this scuppered their defence and claimed that the document was unreliable. Unsurprisingly, they were held to the spreadsheet they had provided and their defence was rejected. The court said that the Claimant’s “very little pay was the produce of effectively making her pay for the ‘free’ accommodation and meals”.

It is now for the courts to decide how much Mrs Ajayi is to be awarded, with an additional claim of harassment to now be considered.

By Matthew Wheatley

Image used under CC courtesy of Chrisissy

Regular overtime and holiday pay

A case on overtime and holiday pay at the EAT (Employment Appeals Tribunal) says that regular overtime forms part of ‘normal work’ and be treated as such when calculating holiday pay for employees. This is because holiday pay is calculated as a proportion of your normal working hours.

The case saw 56 employees bring a number of holiday pay claims against Dudley Borough Council, who carried out the repair and maintenance of council houses. They all received holiday pay for approximately 37 hours a week; however they sought additional holiday pay for being on call and working additional hours on a regular basis of every 4-5 weeks. This was said to have occurred over a “period of years” which the Court deemed a “sufficient period of time”.

The tribunal sided with the Claimants’ argument that carrying out voluntary overtime involves performing tasks that are required by their work contract. As such, regular overtime must be factored into calculations for the first 4 of the 5.6 weeks holiday pay employees in the UK are entitled to. This is because the 4 weeks are from EU law and the other 1.6 weeks are from UK law.

The EAT explained how the decision to uphold the initial ruling of the ET is based on a matter of fairness. Employers must factor in regular overtime to ensure that employees are not financially disadvantaged as a result of taking leave.

The decision is not expected to expose employers to backdated claims for voluntary overtime; however it may leave them vulnerable to claims for underpayment of holiday pay in their current year. That said, the decision lacks clarity as it is not stated how regular the overtime must take place, or how long a period of having carried out the work constitutes a “sufficient period of time”.

Case report: Dudley Metropolitan Borough Council v Willett

By Matthew Wheatley

Image courtesy of Jeff Doe

National minimum wage and self-employment

Since the revelation that “49% of self-employed workers (4.8 million people) earned less than £310 a week”, the Resolution Foundation have published its opinion that the minimum wage should apply to the self-employed.

The Resolution Foundation says:

“The UK’s labour market has been very successful at creating jobs in recent years. However, far too many of those jobs offer very low pay and precious little security….This is especially true of the growing army of the self-employed. While many are higher earners who benefit from significant flexibility, around half fall below the low pay earnings threshold of just £310 a week

“The government can start by extending minimum wage protections to those self-employed people whose prices are set by a firm. This would mean that self-employed people in the gig economy would be given protection against extreme low pay for the first time ever”.

Because this can stop employers from making individuals purposely self-employed just to avoid the need to pay them the minimum wage. Therefore if the minimum wage does apply to self-employed individuals, this will likely reduce exploitation in the UK workforce generally. Additionally, some may say that if the basic premise of the minimum wage is to ensure all individuals earn enough to live, then this protection should apply no matter whether such individuals are employees or is self-employed.

It will be interesting to see whether this recommendation comes to fruition. If it does then it may open the door for other rights, such as the compulsory 20 minute break (for a working day that is six hours or longer) and a 48 hour maximum working week, rights currently enjoyed by employees. Additionally, if these recommendations become implemented, this may be a step towards the UK having a single stand-alone category of worker, rather than the three types (‘employee’, ‘worker’ and ‘self-employed’) that we have today.

By Zahid Reza, Paralegal

Image courtesy of Resolution Foundation

Zero-hours contracts after the general election

Over the past few years, zero-hours contracts have caused a lot of controversy. Some laud the flexibility, whilst others see zero-hours contracts as a mechanism for employers to label their employees as ‘self-employed’, to avoid the employment rights attached to workers and employees.

The subject of zero-hours contracts has been a key political issue. The government have commissioned what is named the ‘Taylor Review’ to look into this as well as all other employment practices. This review is expected to recommend that workers on zero-hours contracts be given a right to request to switch to fixed hours. We think that this right will be similar to that of the legal right to request flexible working, where all employees can apply but employers will have limited grounds to refuse such a request. If this is introduced, we feel that there will be a low bar for employers to refuse them, just as there is with flexible working requests. The Confederation of British Industry agree with this idea. Trade Unions have expressed their displeasure of this proposal; they say the right does not go far enough. The Labour and Liberal Democrat parties have said in their manifestos that they are willing to go further, namely completely eradicate zero-hours contracts completely.

Not all that bad?

Contrastingly, there is evidence to suggest that zero-hours contracts may not be that bad after all. McDonalds have recently offered to let their employees on zero-hours contracts switch to permanent hours in 23 of their restaurants. Only 20% wanted to switch while the others preferred the more flexible way of working, even if it would mean there would be less certainty over their income.

How each political party intends to resolve this hotly-contested issue may well sway votes in the upcoming general election. We shall await and observe the future of these contracts.

MPs want sex discrimination dress code fines

MPs are calling for employers to be fined firms for sex discrimination in dress codes.

The government must ban sexist dress rules at work that discriminate against women, a committee of MPs has recommended.

We have previously reported on some high-profile cases that led to this recommendation. Eg here, here and here.

The Women’s and Equalities committee began an inquiry following the case of Nicola Thorp, who was sent home from a receptionist’s job with PWC for not wearing high heels. She refused to obey the then rules of her employment agency, Portico, that she should wear shoes with heels that were between two and four inches high.

She argued that wearing them all day would be bad for her feet and that her male colleagues were not asked to follow similar rules. “This may have started over a pair of high heels, but what it has revealed about discrimination in the UK workplace is vital, as demonstrated by the hundreds of women who came forward via the committees’ online forum” Mrs Thorp said. She added: “The current system favours the employer, and is failing employees“.

The committee received reports of women being told to dye their hair blonde and wear revealing clothes at work, such as shorter skirts.

Her parliamentary petition on the issue gained more than 150,000 signatures.

The committee  said the Equality Act 2010 should ban discriminatory dress rules at work and that but in practice the law is not applied properly to protect workers of either sex. Chair of the Petitions Committee, Helen Jones MP, said: “It’s clear from the stories we’ve heard from members of the public that Nicola’s story is far from unique.” It said that discriminatory dress codes remain commonplace in some sectors of the economy.

What’s next?

The MPs report recommends a publicity campaign to ensure that employers know their legal obligations that workers know how they can complain effectively. But its key recommendation is that the existing law should be enforced more vigorously, with employment tribunals able to apply bigger financial penalties.

A government spokesperson said: “No employer should discriminate against workers on grounds of gender – it is unacceptable and is against the law. Dress codes must be reasonable and include equivalent requirements for both men and women.

By Naomi Vlad. Image used under CC courtesy of Veenya Venter