U.K. Employment Law Update: TUPE-related Dismissal, Equal Pay and Bad Leaver Provisions

Faegre Baker Daniels

TUPE: Pre-Transfer Dismissal Was Automatically Unfair

In Hare Wines Ltd v Kaur [2019] EWCA Civ 216, the U.K.’s Court of Appeal considered whether the dismissal of an employee immediately before a transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) was automatically unfair.

Mrs Kaur was employed by H&W Wholesale (H&W), a wine wholesaler. H&W was to be sold to Hare Wines (Hare) as a going concern which would have triggered a transfer of her employment to Hare under TUPE. Mr Chatha, a colleague with whom Mrs Kaur had a strained working relationship, was to become a director of Hare following the acquisition.

H&W dismissed Mrs Kaur immediately before the transfer. She brought proceedings claiming that her dismissal was automatically unfair under TUPE because the sole or principal reason for her dismissal was the TUPE transfer itself. Hare denied this, claiming that the reason for Mrs Kaur’s dismissal was her strained working relationship with Mr Chatha.

The Court of Appeal held that H&W had failed to provide a fair reason for Mrs Kaur’s dismissal, confirming that “personal reasons” are not recognised as a fair reason under U.K. law. The fact that Mrs Kaur had been dismissed on the day of the TUPE transfer was considered strong (although not conclusive) evidence that the transfer itself was the principal reason for her dismissal. This was not least because the strained employee relationship had existed for some time, yet only resulted in dismissal on the day of transfer. The dismissal was therefore automatically unfair.

This case is an important reminder to employers to tread carefully when looking to dismiss employees close to the date of a TUPE transfer. The legal risks should be assessed against commercial imperatives and a strategy implemented to seek to minimise exposure.

Equal Pay: Who Is the Correct Comparator?

In Asda Stores v Brierley & Ors [2019] EWCA Civ 44, the U.K.’s Court of Appeal considered whether for the purposes of an equal pay claim, a group of mostly female retail employees could compare itself to a group of mostly male distribution depot employees.

The case concerns equal pay claims brought by a group of several thousand predominantly female retail employees against their employer, the supermarket giant Asda. The issue at stake was whether this group could use as its comparator a group of more highly paid, predominantly male distribution depot employees. Asda argued that this was not an appropriate comparator group due to the fact that both groups of employees worked at different sites.

The Court of Appeal disagreed with Asda: it did not matter that both groups of employees were based at different sites. The key was that Asda applied common terms and conditions of employment to all of its retail employees and all of its distribution depot employees respectively, regardless of the place of work of the employees. It was also relevant that the same executive board had ultimate oversight for pay across both two groups. In the circumstances, the Court of Appeal held that the comparison sought by the group of retail employees should be allowed.

The case gives valuable clarity on what is required to establish comparability under equal pay legislation and should act as a reminder to employers to review their pay structures to ensure that the requirements of equal pay for equal work are met within their organisations.

Bad Leaver Provisions? There’s Nothing Wrong with Them!

In Nosworthy v Instinctif UKEAT/0100/18, the Employment Appeal Tribunal (EAT) considered whether ‘bad leaver’ provisions that provided for the forfeiture of deferred earn-out shares on voluntary resignation were unenforceable on the basis of being unconscionable or amounting to a penalty.

Ms Nosworthy was an employee and shareholder of Communication Operations Ltd (COL), prior to its acquisition by Instinctif Partners Ltd (Instinctif) by way of shares. As part of the acquisition, Ms Nosworthy sold her shares in COL to Instinctif in return for which, among other things, she received deferred earn-out shares in Instictif. The earn-out shares were subject to ‘bad leaver’ provisions under which she would forfeit the shares if she resigned voluntarily. When Ms Nosworthy voluntarily resigned, she claimed that the bad leaver provisions were unenforceable on the basis of being unconscionable or amounting to a penalty.

The EAT held that the bad leaver provisions were not unconscionable as this would have required Ms Nosworthy to have been at a serious disadvantage as against Instinctif, for example through lack of legal advice, and Instinctif to have exploited this disadvantage in a morally culpable manner. The first limb of this test was not met as Ms Nosworthy had warranted in the share sale agreement that she had taken professional advice and that she considered the relevant provisions to be reasonable.

The EAT also held that the rules on penalty clauses did not apply here as these were only relevant in the context of a breach of contract, e.g. if the earn-out shares were forfeited in the event of a breach of contract by Ms Nosworthy. This was not the case here.

This case highlights the importance of carefully reviewing and seeking legal advice on good leaver/bad leaver clauses in agreements entered into as part of a corporate transaction.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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