Gordons Employment Update - 31 May 2019
Friday 31st May 2019
Enforceability of Bad Leaver Provisions
In the case of Nosworthy v Instinctif Partners Ltd, the EAT considered if ‘bad leaver’ provisions that required an employee to forfeit shares and loan notes if she resigned could be set aside for being unconscionable.
Bad Leaver provisions are common in shareholder agreements, employee share schemes and a company’s articles of association. They are a tool used to deter important shareholders from leaving the business and will typically provide for less favourable terms being received on exit should the shareholder depart before a specified time or under circumstances such as dismissal for gross misconduct. Bad leaver provisions need to be considered when employees subject to such terms leave the business.
Contractual terms found to have been made as a result of an ‘unconscionable bargain’ can be rendered unenforceable. The test to establish if an an unconscionable bargain has occurred has three requirements:
- one party must have been at a serious disadvantage, (such as through lack of advice);
- the other party must have exploited that disadvantage in some morally culpable manner; and
- the resulting transaction must be overreaching and oppressive.
The Claimant had agreed to the relevant bad leaver provisions as part of share sale agreement. At the time she resigned she held earn-out shares and loan notes which were subject to the provisions. The definition of bad leaver in this case included employees who voluntarily resigned. On resignation her earn-out payments and loan notes were forfeited as provided for in the share sale agreement in the case of a bad leaver.
After her resignation the Claimant averred that the provisions were as a result of a ‘unconscionable bargain’ and were thus unenforceable. She also suggested that they breached common law rules against penalty clauses.
The first instance Tribunal rejected the Claimant’s claim, holding that she had taken up employment voluntarily, and had resigned when she no longer wished to be employed by the Respondent, triggering the enforceable bad leaver provisions.
Decision and Comment
The EAT held that the Respondent could rely on the bad leaver provisions contained in the share sale agreement. The EAT found that the Claimant failed on the first limb of the test for an unconscionable bargain as she was able to take legal advice and had warranted in the agreement that she had sought professional advice confirming the bad leaver provisions were reasonable.
This case reinforces that bad leaver provisions are enforceable, but that is prudent for Employers to ensure that prospective employee shareholders seek legal advice before agreeing to bad leaver provisions.
Discrimination – Overseas Assignments for Disabled Workers
In Owen v AMEC Foster Wheeler Energy Ltd the Court of Appeal heard an appeal from the EAT regarding claims of discrimination against the Respondent after it withdrew an offer for Mr Owen to take up an assignment overseas.
The Equality Act 2010 provides that it is unlawful to, directly or indirectly, unjustifiably treat a disabled person unfavorably because of something arising from, or in consequence of, that disabled person’s disability.
The Claimant has type two diabetes, has double below the knee amputations and was identified as having other conditions such as heart disease. Mr Owen was offered a placement to work in the UAE, this was withdrawn however when a medical report commissioned by the Respondent and carried out but a third party occupational health provider raised concerns about his health and said he was high risk of needing treatment whilst overseas.
The Employment Tribunal and the EAT held that there was no direct or indirect discrimination against Mr Owen, as a person who was not disabled but was deemed to be at high risk would have been treated in the same manner by the Respondent.
Decision and Comment
The Court of Appeal upheld the decision of both the Employment Tribunal and the EAT, holding that that there was no error of law in the decision reached by the lower courts. It also held that, implementing a requirement to pass a medical assessment before being posted overseas was objectively justified. Employers should still carefully consider any medical advice received when making such a decision.
Injury to Feelings in Race Discrimination Claims
In Base Childrenswear Ltd v Otshudi the EAT held that when a Tribunal makes an award for injury to feelings as a result of a one off act of discrimination, such awards are not limited to the lowest ‘Vento band’.
When making a claim for unlawful discrimination , Claimants are able to make claims for injury to feelings. This head of claim compensates for the hurt and upset of the Claimant has suffered as a result of the discriminatory act or acts. This award is considered separately from any other claim for financial losses, such as loss of earnings.
In deciding the value of such an award, the Tribunal will consider which of the three Vento bands (named after the Court of Appeal case of Vento v The Chief Constable of West Yorkshire Police in which they were first identified) the discrimination falls into;
- Lower Band for the least serious cases in which awards between £900 to £8,800 can be made.
- Middle Band used for serious causes which do not merit an award under the top band, for which awards of £8,800 to £26,300 can be made.
- Top Band for the most serious cases in exceptional circumstances, awards under this band range between £26,300 and £44,000.
The Claimant was dismissed by the Respondent after three months of employment. The first instance Tribunal heard that the Claimant had complained of six acts of racial harassment whilst employed and a further act relating to her dismissal. They held that whilst the previous six were out of time and thus dismissed, the final instance of racial harassment was well founded and in time. An award in middle bracket of Vento, at £16,000, was made in respect of injury to feelings.
The Respondent appealed to the EAT on a number of grounds, one of which was that a one off act of discrimination could not attract an award outside of the lower Vento band.
Decision and Comment
The EAT rejected the appeal and held that an award above that of the lower band could be made even for one-off acts of racial harassment.
This case reinforces that whether or not discriminatory conduct is a one off act or a number of acts over a period of time the award made by the Tribunal will depend on the particular effect of the act or acts on the individual complainant. Vento bands are not prescriptive and any award for injury to feelings made by the Tribunal will depend on the facts of the matter at hand.
If you require any further information on the above developments please do not hesitate to get in contact with a member of the Employment Team.