Contracts

Who gets the money from tips?

As a restaurant customer you may wonder who gets the money from tips. Many employees who work in the hospitality industry rely on tips from customers. Still more only receive the minimum wage.

Customers worry that their act of generosity might not reach the intended person, especially where card payments are concerned. And they wonder whether the kitchen staff see any of it.

Many restaurants use a system known as the ‘tronc’, in which a ‘tronc master’, who is sometimes a member of the management, shares them out. The benefit of a tronc system is that no national insurance is payable on tips that don’t pass through an employer’s hands.

Employers in hospitality often ask us if they can pay under the minimum wage and make up the difference with tips. The answer used to be yes but is now no.

What if an employer does not pay over tips to the staff? Can they sue under the Deductions from Wages provisions? The answer to this depends on the way the employer pays them, specifically the level of discretion in their distribution. If it  is entirely within the discretion of the employer then the worker cannot show a contractual right to a x% of tips, and such a claim will fail.

Workplace policy

It helps workplace relations and reduces the risk of employment claims if an employer has a policy on tips including information such as:

• How tips are distributed
• Whether a tronc system is in place and who is the tronc master
• Are cash and card tips are treated differently
• What the employer deducts from tips
• What happens to tips during holiday and sickness absence

The Government has a code of practice, approved by the unions.

Finally, there are hopes for clarity and fairness going forward as the Johnson government has announced plans to ensure that tips left for workers go to them in full, in the Employment (Allocation of Tips) Bill. However parliamentary uncertainty caused by the Brexit issue means that this is unlikely to make its way into law any time soon.

Image used under cc courtesy of Adrian Clark

By Johnmark Aboderin

Paternity rights and premature babies

This unique birth has highlighted the inadequate paternity rights fathers of premature babies have. They have to return to work after just 2 weeks’ leave.  Their babies may be in hospital for long periods of time with many complications.  The current paternity leave laws make no provision for this scenario.

How do new dads cope?

Firstly, the employee should have discussions with their employer. The employee can check whether they have enhanced contractual paternity rights. The employer may also sign the employee off sick so they can support their partner and baby.  The employee could use parental leave but this is usually unpaid and unsuitable.

Current paternity rights 

Statutory paternity leave is limited to one or two weeks’ paid leave. It is taken after the birth and completed within 8 weeks from birth.  The medical definition of a premature baby is at 37 weeks or earlier.  Most are born between eight and three weeks early. Eight weeks is clearly insufficient time. Babies born prematurely are also more likely to have a disability.

Over 60,000 babies are premature in the UK, which is 7% of all births. A number that will affect many new fathers.  Lobby groups are urging the government to do more to support these families by improving paternity rights.

What can employers do?

Employers might consider offering better contractual paternity rights by way of:

• Additional paid leave
• Allow employees to take leave beyond the 56 days deadline
• Allowing temporary flexible working arrangements
• Varied start/finish time
• Home working

Alternatively, employers could introduce a compassionate leave provision. Or even paid parental leave for such circumstances.  Ensuring line managers understand the difficulties of this scenario will also help. This would result in better support for employees while balancing the needs of their business.

Employees who keep their employers informed of their situation will find most are supportive. Many problems arise through lack of communication.  At such a difficult time, they might even consider asking a relative to speak for them.

Employees are encouraged to talk openly about the difficulties they face. Both parties can then agree practical ways to cope with paternity issues.

Image courtesy of César Rincon

Can notice of dismissal be given by post?

Introduction

If an employer doesn’t follow the correct procedure with notice of dismissal then it gives rise to legal claims.  Except in cases of gross misconduct, a dismissed employee has the right to their statutory or contractual notice period (whichever is greater).

An employer can give notice of dismissal by email, letter, or in person. In writing is best, to avoid dispute about when it happened. The notice period starts when the employee becomes aware of it. Not for example, when the employer posts the letter.

Recent case law

A recent case took the view that notice of dismissal sent by post is only effective once the employee has had a reasonable time to read it.

A letter giving notice of dismissal to a Mrs Haywood dropped through her letterbox while she was away on holiday. Mrs Haywood read it on her return and the issue was when the notice period began. This was important, as she would get enhanced pension if dismissed after her 50^th birthday, which she celebrated whilst on holiday. The employer argued that the notice period ran from the delivery date (which was before Mrs Haywood turned 50) and that they didn’t need to pay the enhanced pension.

The Supreme Court upheld Mrs Haywood’s claim. The court stated the notice period began when she had the opportunity to read the letter, not upon delivery. Creating uncertainty for employers as they cannot be sure as to when a letter will be read. As a result, the date of dismissal may not be that which was intended. However, the court ruled that only a reasonable amount of time would be afforded to an employee and wilful delay will not be considered.

Tips

How notice of dismissal is to be served should be set out in the contract, then this ruling will not apply. The employer should check the employee will not be away on leave or off ill, which can delay the process. The employer should serve the notice by post and follow it up by email or telephone to make sure it has been received. Also, the employer can ask the employee to confirm receipt of the letter.

Finally, it is best practice for the employer to give notice at a face-to-face meeting as it guarantees clarity for both the employee and the employer.

Case report: Newcastle Upon Tyne Hospital NHS Foundation Trust v Haywood

Reporting by our intern Maliha

Image used under CC courtesy of Garry Knight.

Resigning to claim constructive dismissal

An employee who wants to claim constructive dismissal must show (1) that their employer has committed a serious breach of contract; (2) that they have not’accepted’ the breach (acted as if it didn’t matter to them) but resigned in response to it; and (3) do it promptly.

A recent High Court case looked at whether an employee who resigns on notice is seen to have accepted the breach or not.

Facts:

Three employees accused their employer Neon of breaching their contracts of employment. Particular breaches alleged included:

• Failing to pay salary increases and discretionary bonuses awarded to them;
• Making the salary increases and bonuses conditional on signing new terms and conditions; and
• Removing commission agreed at the time of recruitment.

They alleged these breaches amounted to a serious breach of contract entitling them to resign. They resigned  on notice. They claimed that Neon:

• Made unjustified findings of misconduct in a disciplinary process; and
• Unjustifiably reported that misconduct to the regulator.

Two out of the three claimants responded by resigning (during their notice period) with immediate effect. They brought claims of wrongful dismissal and breach of contract; the third stayed an employee and brought a claim of breach of contract for salary.

The High Court held that Neon committed a serious breach of all three of their employment contracts; that the first two accepted that serious breach, that they were constructively dismissed (in effect, sacked), and that they wrongfully dismissed (which means entitled to their notice pay).

The High Court interestingly commented that some breaches had been ‘accepted’ by the first two (who resigned giving their notice periods of 6 months and 12 months). The judge thought that it was unfair to allow them to reserve their right to accept the breach of contract, while continuing to work for Neon for such a length of time.

This case shows that to claim constructive dismissal, if an employee resigns with notice in relation to a big breach of contract, and has a notice period that is 6 months or more, this may very well amount to an acceptance of that breach. So, it appears employees with longer notice periods are better off resigning with immediate effect (or giving three to five months’ notice) if they intend to bring a claim that relies on a finding of constructive dismissal.

Case report: Brown & Anor v Neon Management Ltd & Anor

By Zahid Reza

Image used under CC courtesy of Sherwood

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