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UK: Restrictive Covenants: Non-compete clause invalid because it extended to minor shareholdings in a competing business

A restrictive covenant will be void for being in restraint of trade unless the employer has a legitimate business interest to protect and the protection sought is no more than is reasonably necessary having regard to the interests of the parties and the public interest. In assessing whether a non-compete restriction is reasonable, courts will consider whether some lesser form of restriction would give adequate protection.

It is usual for non-compete restrictions expressly to exclude any minor shareholdings held by the employee as an investment. This is so that employees are not prevented from having a minor shareholding in a competitor’s business, which may be seen as going beyond what is necessary in order to protect the employer’s business and mean that the non-compete restriction is not enforceable.

The Claimant worked in an executive search firm and resigned from her employment. The Claimant then informed her employer that she wished to start working for another employer based in New York carrying out similar business. However, her employer alleged that this would amount to a breach of a six month non-compete covenant that she was subject to, and sought an injunction to prevent her from doing so. The Claimant argued that the non-compete covenant was void. As part of this, she alleged that the clause went wider than necessary in that it restricted her from having a minor shareholding in a competing business for investment purposes.

The High Court decided that the non-compete covenant did not restrict the Claimant from having a minor shareholding in a competing business and granted the employer an injunction restraining her from breaching it.

However, the Claimant appealed to the Court of Appeal, which decided that the non-compete covenant did prevent the Claimant from having a minor shareholding in a competing business. The Court concluded that the non-compete covenant was therefore too wide and, as a result, it was void. The Court of Appeal concluded that it was not the business of the courts to create a valid covenant in order to replace one that was too wide to be enforceable.

There was no suggestion in this case that the Claimant wanted to hold any shareholding in a competing business.

She had made clear that what she wanted to do was work for a competitor. However, she was able to point to the fact that the wording did not include the usual exclusion for minor shareholdings in order to avoid being bound by it.

For more information on these articles or any other issues involving labour and employment matters in United Kingdom, please contact Robert Hill, Partner at Clyde & Co (www.clydeco.com) at robert.hill@clydeco.com

UK: Compensation and Remedies: Calculation of a week’s pay must include employer pension contributions

The Claimant was dismissed by his employer following an irretrievable breakdown in working relationships for which she was found to be the primary cause. The Employment Tribunal found that she had been unfairly dismissed and ordered that the Claimant should be reinstated by her employer. Reinstatement is a remedy that can be awarded by an Employment Tribunal where a claimant has been unfairly dismissed. The effect of it is that the Claimant is re-employed on the same terms of employment as they were previously employed on and treated as if they were never dismissed. However, the employer did not comply with the order to reinstate the Claimant and instead the Employment Tribunal awarded her compensation for unfair dismissal.

In deciding the level of compensation to award, the Employment Tribunal reviewed previous case law in which employer pension contributions were not included in the calculation of a week’s pay, on the basis that they are not received directly by the employee but paid into the pension fund. However, the Employment Tribunal did not follow the approach taken in previous cases for two reasons. Firstly, the Employment Tribunal noted that the relevant legislative provisions do not state that the amount payable by the employer under the employment contract has to be payable to the employee. Secondly, it considered that the term ‘remuneration’ in the relevant legislative provisions means a reward in return for services, and pension contributions are no less a reward for services than basic pay.

The employer appealed against this finding to the Employment Appeals Tribunal (EAT). However, the EAT agreed with the Employment Tribunal that employer pension contributions should be included in the calculation of a week’s pay for the reasons set out above.

This approach departs from the long established practice of excluding employer pension contributions in calculating a week’s pay. The Court’s decision increases the maximum compensation that a claimant can be awarded in an unfair dismissal claim (subject to the current overall cap of £80,541). However, the decision has far reaching effects as it also extends to other UK remedies such as compensation for failure to inform and consult on the transfer of a business or change in service provider, and the protective award for failure to inform or consult in large scale (collective) redundancy dismissals. In cases where these awards are made, the effect of this case could be to materially increase the amount of compensation that an employer has to pay. For employers who participate in defined benefit pension schemes with a higher employer contribution rate, the effect of this decision could be particularly pronounced.

Employers should take this decision into account when calculating the potential value of any claims brought against them for unfair dismissal, failure to inform and consult on the transfer of a business or change in service provider, and failure to inform or consult in large scale (collective) redundancy dismissals.

For more information on these articles or any other issues involving labour and employment matters in United Kingdom, please contact Robert Hill, Partner at Clyde & Co (www.clydeco.com) at robert.hill@clydeco.com

France: Surveillance of an employee’s professional inbox may constitute a breach of privacy

The European Court of Human Rights has held that the dismissal of an employee following surveillance on his professional emails by his employer is contrary to the European Convention on Human Rights, if the employee has not been informed of the possibility that his emails will be monitored, as well as of the nature and scope of this surveillance,   nor of the degree of intrusion in his personal life and correspondence. Furthermore, it would have been necessary to prove that the employer couldn’t rely on less intrusive measures. The Court specified that access to the content of the communications may not be done without the employee’s knowledge.

For more information on these articles or any other issues involving labour and employment matters in France, please contact Joël Grangé, Partner at Flichy Grangé Avocats (www.flichygrange.com) at grange@flichy.com

China: An employer’s deprivation of employee’s right to exercise restrictive stock units upon termination was held wrongful by the court

The Employer signed an open term employment contract with the Employee. The Employer provides the Employee with restrictive stock units as incentives and prescribes different proportion of such restrictive stock units will be available for the Employee to exercise based on his years of service. In 2016, the Employer terminated the Employee for his violation of company policies and disciplines and cancelled the Employee’s restrictive stock units that are already exercisable by the time of termination. The Employee filed a case against his Employer and claimed for determining such termination wrongful and compensation for loss related to restrictive stock unit cancellation. Through the labor arbitration and litigation proceedings, the court ruled that it was wrongful for the Employer to terminate and cancel employees’ exercisable restrictive stock units. It is noteworthy that the court identifies disputes on restrictive stock units as labor dispute based on the grounds that employees’ entitlement to restrictive stock units is decided by their performance and such restrictive stock units are part of benefit offered by employer for qualified employees.

For more information on these articles or any other issues involving labour and employment matters in China, please contact Carol Zhu, Partner at Zhong Lun Law Firm (www.zhonglun.com) at carol.zhu@zhonglun.com

Canada: BC Court of Appeal confirms that a union does not have a right to participate in all requests for accommodation

On February 28, 2017, the British Columbia Court of Appeal issued its decision in Telus Communications Inc v Telecommunications Workers’ Union, 2017 BCCA 100. The union’s request for leave to appeal was denied by the Supreme Court of Canada on September 7, 2017.

The issue before the B.C. Court of Appeal, and ultimately the Supreme Court of Canada, was whether the union’s position as bargaining agent for employees gave it the right to participate in all requests for accommodation of a disability in the workplace. The particular case being considered involved requests for ergonomic chairs or other modifications to the work environment.

At arbitration, the union had successfully argued that it had a right to “notice, information and consultation” in respect of all accommodation requests made by bargaining unit employees. The employer’s position had been that union involvement in the accommodation process was not always required, and that the union’s role was limited to situations in which an adjustment to a negotiated term of the collective agreement was required in order to accommodate an employee, or where an employee requested the involvement of the union.

The employer applied for judicial review of the arbitrator’s decision, and the Supreme Court of B.C. found that the arbitrator’s decision had been unreasonable. The union appealed this decision to the Court of Appeal, and argued that a “no discrimination” provision in the collective agreement compelled its involvement in every accommodation. The Court of Appeal disagreed, and found that a union does not have a right to be notified of or to participate in the accommodation process unless: i) the union has participated in creating a discriminatory policy or rule; 2) the union’s agreement is necessary to facilitate the accommodation; or 3) an employee requests the union’s involvement. The Supreme Court of Canada denied leave to appeal.

Accordingly, where a unionized employer receives a request for accommodation, it should consider whether the union has a right to participate. If so, the union should be notified of the request for accommodation and invited to participate in any meetings held to discuss the request. In all cases where union involvement is not legally required, an employer should consider whether the union’s participation would be helpful, or if it is more likely to complicate and prolong the accommodation process.

For more information on these articles or any other issues involving labour and employment matters in Canada, please contact Robert Bayne, Partner at Filion Wakely Thorup Angeletti (www.filion.on.ca) at rbayne@filion.on.ca

Belgium: Reintroduction of the “trial period”

Until 31 December 2013 employers had the possibility to include a trial period in the employment contract. During this trial period, both the employer and the employee had the possibility to terminate the employment contract with shorter notice periods than normal (i.e. when there is no trial period).

The trial period was abolished as of 1 January 2014.

Now, as a way to reintroduce the trial period, the Federal Government plans to further shorten the normal notice periods in the first months of employment:

Seniority (months) < 1 M < 2 M < 3 M < 4 M < 5 M < 6 M
Current notice period 2 (weeks) 2 2 4 4 4
Future 1 1 1 3 4 5

Please note that this measure must still be converted into legislation.

For more information on these articles or any other issues involving labour and employment matters in Belgium, please contact Chris Van Olmen, Partner at Van Olmen & Wynant (www.vow.be) at chris.van.olmen@vow.be

United Kingdom: Holiday pay – Regular voluntary overtime payments must be included in holiday pay

In the latest in a series of UK holiday pay judgments, the employment appeal tribunal (EAT) considered whether payments for voluntary overtime had to be taken into account in calculating holiday pay.

A group of 56 employees, working in a number of different roles carrying out housing repairs for a council, claimed that they had not received the correct rate of statutory holiday pay. In addition to their normal working hours, they volunteered to perform additional duties which their contracts did not require them to carry out, which were entirely voluntary overtime. The employees claimed their holiday pay should reflect voluntary overtime, out-of-hours standby payments and call-out and mileage allowances.

The EAT concluded that where there is an intrinsic link between the payment and the performance of tasks required under the employment contract, the payment must be taken into account in calculating holiday pay – but even if there is not a link, the payment may still need to be taken into account. It said that the voluntary overtime, and other related payments, can form part of the employees’ “normal remuneration” and be included in the calculation of holiday pay because otherwise the employees may be put off taking their holiday.

Whether on the facts of any particular case voluntary overtime should be taken into account in the holiday pay calculation is a question of fact for the tribunal in each case, depending on whether the voluntary overtime has extended for a sufficient period of time on a regular and/or reoccurring basis to justify the description “normal”.

Employees can enforce this right to increased holiday pay by bringing a claim for unlawful deduction from wages – so most employers which have held off from changing their holiday pay calculations because of the lack of a definitive decision on the treatment of voluntary overtime will now need to change their approach.

Employers should review their overtime and similar payments and consider whether they are paid with sufficient regularity so as to mean that they amount to normal remuneration and must be factored into holiday pay. In deciding whether a payment should be included, it may be helpful to ask yourself what the worker would have earned if they had not taken holiday. Employers will need to determine criteria for when voluntary overtime is sufficiently regular to be factored in to calculations, and how to deal with practical payroll issues. Where they are unionised, employers may want to discuss this approach with their recognised unions. If employers change their practices they will also be keen to take steps to protect themselves against backward-looking claims, and the timing of introducing any such changes may (especially in the light of the removal of tribunal fees) be an important consideration.

For more information on these articles or any other issues involving labour and employment matters in United Kingdom, please contact Robert Hill, Partner at Clyde & Co (www.clydeco.com) at robert.hill@clydeco.com

United Kingdom: Tribunal fees – Supreme Court finds employment tribunal fees unlawful

Tribunal fees were introduced by the government in 2013. Fees started at £160 to issue claims such as wage or breach of contract claims etc and increased to £250 for unfair dismissal and discrimination claims etc, and if a case proceeded to a full hearing a hearing fee of £230 or £950, depending on the type of claim, would be payable.

In 2013 and 2014, the union UNISON brought legal challenges against the Lord Chancellor, requesting a ruling that the imposition of fees was unlawful, principally on the basis that the prescribed fees interfered unjustifiably with the right of access to justice.

UNISON’s claims were rejected at every previous stage, but the Supreme Court took a different view. It found that such a sharp drop in the number of claims warranted the conclusion that a significant number of people have found the fees to be unaffordable. Further, the fees charged could, in some cases, make it futile or irrational to bring a claim, given that some claimants seek modest or no financial awards.

The Supreme Court concluded that the fee regime effectively prevented access to justice, and although there were legitimate aims that supported the introduction of the regime, it had not been shown that the fees charged were the least intrusive means of achieving those aims. As a result, the Court said the fee regime was unlawful from the outset.

The effect of this decision is that fees are no longer payable in employment tribunals and the EAT, and the government has announced that fees paid since their introduction will be reimbursed. It remains to be seen whether a new fee regime will be introduced in the future, but until then, fees cannot be imposed.

Following this decision, a Case Management Order was made by the Employment Tribunals which stays (i.e. puts on hold) all claims and applications which rely on the fact that the employment tribunal fees regime was unlawful, until a decision has been made about how to handle them. Although it is currently not clear exactly which claims and applications this Order relates to, it appears to be a blanket approach to all claims and applications made by individuals whose claims were struck out for not paying their fees, or who are arguing that they should be able to bring claims now which are out of time because they were previously deterred by the fees regime.

For more information on these articles or any other issues involving labour and employment matters in United Kingdom, please contact Robert Hill, Partner at Clyde & Co (www.clydeco.com) at robert.hill@clydeco.com

USA: U.S. Supreme Court Round Up – 2016-2017

Class-Actions: Plaintiffs cannot use voluntary-dismissal tactic to appeal adverse ruling on class certification

The U.S. Supreme Court has ruled that plaintiffs may not voluntarily dismiss their class action lawsuit “with prejudice” in order to immediately appeal the denial of class certification, while simultaneously reserving the right to re-file their claim if the appellate court ruled in favor of certification. Microsoft Corp. v. Baker, No. 15-457 (June 12, 2017).

The U.S. Court of Appeals for the Ninth Circuit had sided with the plaintiffs and held that, “in the absence of a settlement, a stipulation that leads to a dismissal with prejudice does not destroy the adversity in that judgment necessary to support an appeal” of a class certification denial. The Supreme Court unanimously rejected the Ninth Circuit’s reasoning, and reversed and remanded the case.

Writing for a court majority, Justice Ruth Bader Ginsburg stressed that the final judgment rule (now codified in 28 U.S.C. § 1291) preserves the proper balance between trial and appellate courts, minimizes harassment and delay that would result from repeated interlocutory appeals, and promotes the efficient administration of justice. The majority found that plaintiffs’ voluntary-dismissal tactic did not give rise to a “final decision” under § 1291 because the tactic:

  1. “invites protracted litigation and piecemeal appeals” that undermine the final judgment rule and the process Congress established for refining that rule and for determining when non-final orders may be immediately appealed;
  2. severely subverts Rule 23(f)’s careful calibration regarding class certification and class action litigation;
  3. permits only plaintiffs (and never defendants) to force an immediate appeal of an adverse certification ruling; and
  4. encourages plaintiffs with weak claims to dismiss their cases and immediately appeal, in the hopes of obtaining additional settlement leverage.

Because the appellate court lacked jurisdiction under § 1291, the case was reversed and remanded.

The concurrence, led by Justice Clarence Thomas, agreed with the majority that the Court of Appeals lacked jurisdiction over the plaintiffs’ appeal, but would have grounded that conclusion in Article III of the Constitution and the fact that the plaintiffs’ voluntary dismissal with prejudice ended any case and controversy between the parties.

While this decision is not surprising, a different outcome would have had severe consequences for companies defending against class actions.

Immigration: Gender-based distinctions in immigration law violate equal protection

The Supreme Court also ruled unanimously that a federal citizenship statute setting different residency requirements for U.S. citizen fathers and mothers seeking to transmit birthright citizenship to their non-marital children born outside the U.S. violates the Equal Protection Clause of the Constitution. Sessions v. Morales-Santana, No. 15-1191 (June 12, 2017).

In this case, the plaintiff sought to avoid deportation by arguing that he would be considered a U.S. citizen if the Immigration and Nationality Act (“INA”) treated men and women equally. At the time of the plaintiff’s birth, the INA provided that a child born outside the U.S. to one U.S. citizen parent is a U.S. citizen, provided that the U.S. citizen parent lived in the U.S. for at least 10 years, and five of those years were after the age of 14. However, 8 U.S.C. § 1409(c) made an exception for unwed U.S. citizen mothers, requiring that they only live in the U.S. for one year after the age of 14.

The Court agreed that § 1409(c) made unconstitutional distinctions based on gender. It said that “[p]rescribing one rule for mothers, another for fathers” is unconstitutional unless there is an “exceedingly persuasive justification.” The Court found no such justification, opining that the disparate rules had been based on stereotypical assumptions about women’s roles as caregivers. The Court then struck § 1409(c) as unconstitutional, rejecting the plaintiff’s invitation to force the general rule to conform with the exception, as inconsistent with Congress’ intent when passing the INA. As a result, the plaintiff won the legal argument, but failed to benefit from it.

Thousands of individuals born outside of the U.S. prior to 1986 to unwed U.S.-citizen fathers might have been granted U.S. citizenship if the U.S. Supreme Court had decided differently.

ERISA: Pension Plans of Religiously Affiliated Organizations are Exempt from ERISA

Reversing several appellate court decisions, the Supreme Court again unanimously ruled that “church plan” exemption under the Employee Retirement Income Security Act applies to pension plans maintained by church-affiliated organizations such as healthcare facilities, even if the plans were not established by a church. Advocate Health Care Network v. Stapleton, No. 16-74 (June 5, 2017).

The plaintiffs in these cases argued that, under ERISA, a plan only qualified as a “church plan” if it was created by a church. The defendant healthcare employers, countered that, under a 1980 amendment, their plans are “church plans” and exempt from ERISA’s strict reporting, disclosure, and funding obligations They also argued that the plans had received confirmation from the IRS over the years that their plans qualified for the exemption, even though the plans were created by hospitals and not churches, because of the entities’ religious affiliation.

Siding with defendants, the Court found the 1980 amendment expanded the “church plan” exemption to include pensions maintained by “principal-purpose” organizations.

Whether an organization is a “principal-purpose” organization may be the subject of future litigation. For now, however, religiously affiliated organizations are not subject to the strict requirements under ERISA.

Arbitration Agreements: A contract like any other

In Kindred Nursing Centers Limited Partnership, et al. v. Clark, et al., 137 S. Ct. 1421 (2017), the U.S. Supreme Court held that the Kentucky Supreme Court violated the Federal Arbitration Act when it refused to enforce arbitration agreements that agents with powers of attorney had executed on behalf of their elderly relative.

It held the Kentucky Supreme Court’s insistence that a power of attorney clearly state, and “specifically” include, the power to execute binding arbitration agreements in order for the arbitration agreement to be enforceable, violated the FAA’s equal-treatment provisions by discriminating against arbitration agreements and holding them to a higher standard than other kinds of contracts and agreements. The decision was 7-1.

For additional information, see http://www.jacksonlewis.com/publication/us-supreme-court-round-2016-2017.

For more information on these articles or any other issues involving labour and employment matters in United States, please contact John Sander, Partner at Jackson Lewis P.C. (www.jacksonlewis.com) at John.sander@jacksonLewis.com

Spain: When is a dismissal of an employee during temporary disability declared null and void for discrimination grounds?

An employee diagnosed with essential thrombocytosis, celiac disease and lymphocytic colitis, pathologies that caused successive casualties, was fired. Actually, after her medical discharge, the employee did not go to work for health reasons and subsequently took a vacation, and it was upon her return when the dismissal occurred.

The employee brought an action to the Labour Court applying the nullity of the dismissal for discrimination grounds.

The High Court of Madrid declared the dismissal null and void, since the circumstance of a lasting limitation of the functional capacity of the worker due to common illness (later qualified as disability) is present. This makes it practically impossible to return to the job, as can be seen in the employee’s numerous ups and downs, which prevented her from doing so under normal conditions of efficiency, performance and continuity demanded by the labor market.

For more information on these articles or any other issues involving labour and employment matters in Spain, please contact Bufete Suárez de Vivero, S.L.