Category Archives: – Employment Law Update

Law Update: Is a repayment provision in a contract of employment an unenforceable penalty?

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Employment contracts may sometimes require an employee to pay back the costs of, for example, training – if he or she leaves the company. In the second of her legal updates, our guest blogger Andrea London of Rosenblatt Solicitors takes a look at how enforceable such provisions actually are…

Background

In response to ever-increasing recruitment costs as well as to remain competitive, many employers are investing in developing their employees’ skills. This has led to a marked increase in the use of ‘repayment’ clauses in contracts of employment. While employers want to have the best and well-trained staff, they don’t want to be left “high and dry” if an employee leaves to join a competitor shortly after a long recruitment process or just after any employer-funded training is completed. However, some repayment clauses are drafted with a heavy hand, and are overly onerous on the employee. Not surprisingly, employees often seek to circumvent any burdensome repayment clauses by alleging that they are a ‘penalty’ clause and so, unenforceable. This, in turn, can lead to a prior repayment becoming a claim by the employee for an unlawful deduction from wages.

The enforceability of such repayment provisions in contracts of employment was recently considered by the Employment Appeal Tribunal (EAT) in the case of Cleeve Link Ltd v Bryla UKEAT/0440/12. Cleeve dealt specifically with the issue of whether a repayment clause of the kind often used in contracts of employment was enforceable against the employee.

The Facts

Cleeve’s contract of employment had stated that that if Ms Bryla terminated her contract or was dismissed for misconduct within the first six months’ of her employment, Cleeve could recoup the total cost incurred in recruiting her from any money due to be paid to her under her contract. After six months’ of employment, the amount reduced per month.

Ms Bryla was dismissed after only three months’ for gross misconduct. Cleeve relied on the repayment provision and recouped the full amount of recruitment costs against her unpaid wages. Ms Bryla brought a claim in the Employment Tribunal for unlawful deduction from wages. The Employment Tribunal held that the repayment provision was a penalty clause and was unenforceable; therefore deductions made by Cleve from her wages were unlawful. On appeal to the EAT, it was held that the Employment Tribunal had erred in its finding; that the clause in question was not a penalty clause but a liquidated damages clause – and was therefore enforceable.

Penalty or liquidated damages?

A ‘liquidated damages clause’ is a clause in a contract which specifies a fixed or determined sum to be payable on a breach by one party to the other (innocent) party. Case law has clarified that in order to determine whether a clause is liquidated damages or a penalty, it must be a genuine reflection of an employer’s pre-estimate of loss that it is likely to suffer if the employee breaches that provision. The key to a repayment sum being regarded as a genuine pre-estimate of loss appears to be that the sum specified must be compensatory.

Practical tips for employers

When including any kind of repayment provision in an employment contract, it is advisable for employers to consider the following points:

1. Ensure that the amount quoted to be payable on breach and/or accordingly deducted from an employee’s wages is a genuine pre-estimate of the loss that would be suffered by the employer if the employee breaches the clause. Ensure the sum is not just a deterrent amount.

2. Bear in mind that the clause will be construed on the basis of how it was drafted at the time the contract was entered into and not at the time of any trigger event or breach.

3. A clause is presumed to be a penalty if it seeks to recover the same amount of money whether the trigger for repayment is, for example, a significant event or just a minor breach.

4. An employer should keep any proof they have (ie calculations) about how they arrived at the amount of repayment sum included in a contract. This may be needed as evidence that the employer properly considered the potential loss it may suffer on a trigger event occurring and that the repayment sum is not just a random figure.

Legal Disclaimer: This article should not be taken as definitive legal advice on the subject covered. If you require legal advice on any of these matters please contact Andrea London of Rosenblatt Solicitors on 020 7955 1433 or email andreal@rosenblatt-law.co.uk

 

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Law Update: LinkedIn Contacts – Who Owns Them, You or Your Employee?

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Like millions of employees, your sales and marketing staff may be using social media for business as well as personal contacts. Perhaps you have actively encouraged them to do this as part of their job. But at the end of the day, who owns the database or the information on it? This question recently became the subject of legal debate when the High Court addressed the status of LinkedIn contacts.

Our guest blogger, Andrea London of Rosenblatt Solicitors explains…

Almost all businesses now use some form of social media for their sales and marketing: they can be extremely effective and better still, are free. However, those same social media platforms – such as LinkedIn, Twitter and Facebook – are often also concurrently used on a personal basis by employees. As a result, the line between a ‘professional’ account and a ‘personal’ one easily becomes blurred. The question of ownership of the account, or more importantly the contacts contained in an account when an employee parts ways with his or her employer, has become a hotly contested legal one.

This issue of whether LinkedIn contacts created during a period of employment amounts to confidential information which belongs to the employer came before the High Court in the summer 2013. In very summarised terms, the case of Whitmar Publications v Gamage, Whitmar sought an injunction against several former employees, one of whom had maintained Whitmar’s LinkedIn company contacts during his employment and who then subsequently sought to use the information he had collated on Whitmar’s clients to help launch a rival business. The injunction sought was granted as an interim measure pending trial on the basis that it appeared to be a misuse of Whitmar’s confidential information and a breach of the implied duty of good faith. This decision (and a later one in a case involving Hays Specialist Recruitment) appears to indicate that English courts are very willing to consider the use made of a LinkedIn account by an employee during and after their employment as evidence of their breach of confidentiality and/or their reasonable restrictive covenants.

Whilst that may be the case, the question of ‘ownership’ of a LinkedIn account in such circumstances remains unhelpfully vague. It is LinkedIn’s view, as clarified in its user agreement, that ownership of a LinkedIn account is personal to the individual in whose name it is registered. This is regardless of which email address is used to register the account. Accordingly, businesses should do all they can at the outset to protect and clarify their position with their employees to avoid the risk of (expensive) disputes arising later on.

Some practical suggestions might include that you:

1. Ensure your company has a clear and effective Social Media Policy so that employees are clear on their own and the company’s position, and most importantly, what the company will do (both during and after termination of employment) if confidential company or client information gained during their employment is added to their personal accounts;

2. Ensure that your company’s LinkedIn account is not opened and then maintained (particularly if this is over a long period of time) by a sole individual;

3. Make it a requirement for employees to open a ‘company’ account for business clients using their work email address. From the outset, make it clear that it is the business which owns that particular account and all contacts and information in it. Ensure this account is regularly monitored and any costs/charges pertaining to the account are met by the company.

Legal Disclaimer: This article should not be taken as definitive legal advice on the subject covered. If you require legal advice on any of these matters please contact Andrea London of Rosenblatt Solicitors on 020 7955 1433 or email andreal@rosenblatt-law.co.uk

 

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Employment Law Update: Employment Tribunal Fees to be Charged to Claimants

Until now it’s been relatively easy – and free – for an employee to initiate a claim against their employer. There’s been little demand for them – or their lawyers – to consider whether their claim has any strength or prospect of success.

It’s estimated that employment tribunals cost the taxpayer over £80m per annum. Later this year, a fee system will be introduced to deter ‘vexatious claims’ by employees, or, as the Government puts it, to deal “robustly with cases with little or no prospects of success”.

The new fee system will have two tiers (depending on the complexity of the claim) and work as follows: any claimant (i.e. the employee) will have to pay an initial issue fee of between £160 and £250 to submit their claim, and then a further fee of either £230 or £950 should the case go to a hearing. (Dismissal, discrimination, and equal pay claims will be liable to the higher tier fees of £250 and £950 making the maximum total fee up to £1,200.)

Undoubtedly this is good news for businesses as employees will have to think twice before bringing about any claim. Not surprisingly this change in the law has its critics particularly as the tribunal system (or, to give its proper name, the Employment Appeal Tribunal – aka EAT) was created in 1975 to provide every worker with free access to justice.

The Coalition Government’s justification for the introduction of fees is to reduce the burden on the taxpayer. The Justice Minister Jonathan Djanogly said: “It’s not fair on the taxpayer to foot the entire £84m bill for people to escalate workplace disputes to a tribunal. We want people, where they can, to pay a fair contribution for the system they are using, which will encourage them to look for alternatives.

“It is in everyone’s interest to avoid drawn-out disputes which emotionally damage workers and financially damage businesses. That’s why we are encouraging quicker, simpler and cheaper alternatives like mediation.”

Nevertheless, we may see the cost of settling claims actually rise in practice as employees are likely to demand that the cost of the Tribunal fee they have paid for is added to any settlement payment. Furthermore, the introduction of fees may have the effect of hardening some employees’ views on litigation, causing them to feel that, having paid for their ‘day in court’ they would rather take their chances with the legal process than turn down reasonable settlement offers.

For further information see:

 https://www.gov.uk/government/news/employment-tribunal-fees-set-to-encourage-mediation-and-arbitration

 https://consult.justice.gov.uk/digital-communications/et-fee-charging-regime-cp22-2011

 http://www.acas.org.uk/index.aspx?articleid=4487

Update-29/5/2013: HM Courts & Tribunal Service announced that the date for the implementation of fees into Employment Tribunals (ET) and Employment Appeal Tribunal (EAT) will be Monday 29th July 2013.

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