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July 2022 Fladgate LLP Work Matters

Analysis

Knightley v Chelsea and Westminster Hospital NHS Trust

Legal Background

Unfair dismissal

For a dismissal to be fair under s.98 of the Employment Rights Act 1996, the employer must show that it:

  • had a potentially fair reason to dismiss (such as capability); and
  • acted reasonably in all the circumstances (taking into account its size and resources).

For an employer to act reasonably in respect of a capability dismissal, it will need to follow a fair procedure (including a fair review of the employee’s attendance record and reasons for the absence); warn that ongoing absence could lead to dismissal; and give the employee an opportunity to improve attendance.

The Employment Tribunal (ET) will decide whether, on the particular facts of the case, the dismissal fell within the range of reasonable responses open to the employer (even if it would have come to a different conclusion).

If the employer does not follow a fair procedure, the dismissal will be unfair. This is the case even if the employee would have been dismissed in any event (Polkey v AE Dayton Services Ltd). However, the lack of an opportunity to appeal does not necessarily or automatically render a procedure (or subsequent dismissal) unfair. Whether it does so will depend on the circumstances of the particular case.

Discrimination - the duty to make reasonable adjustments

An employer has a duty to make adjustments in the workplace where to do so would be a reasonable step to take in helping a disabled employee overcome a substantial disadvantage which that employee experiences compared to a non-disabled employee, which is caused by a ‘provision, criterion or practice’ (PCP) implemented by the employer.

If an employee brings a claim for failure to make reasonable adjustments, the ET decides what should reasonably have been done – the test is not whether the employer’s actions fell within the range of reasonable responses as in unfair dismissal claims.

Discrimination arising from disability

S.15 of the Equality Act 2010 prevents ‘discrimination arising from disability’, which occurs when a disabled person is treated less favourably because of consequences arising as a result of their disability, which an employer cannot justify (i.e. the employer cannot show that the treatment is a proportionate means of achieving a legitimate aim).

Facts

Ms Knightley was employed as Lead Midwife for Mental Health by Chelsea and Westminster Hospital NHS Trust (the Trust). She suffered from stress, anxiety and reactive depression. By the time of her dismissal (following a capability procedure), she had been continually absent for eight months due to her illness and signed off for a further six months. She also had a long history of previous absences, including one absence of a continuous period of a year.

Over the years the Trust had made various adjustments to Ms Knightley’s working arrangements, including redeploying her to another department. Nevertheless, Ms Knightley refused to return to work, saying there were no further adjustments that could help and that she wanted ill health retirement. The Trust’s position was that her absence impacted the Trust’s service and raised serious concerns about patient safety.

Ms Knightley was ultimately dismissed and the Trust gave Ms Knightley the right to appeal its decision within ten working days. The Trust refused Ms Knightley’s request for an extension of time to appeal and confirmed that it would not deal with an appeal if it was lodged out of time.

Ms Knightley brought claims in the ET for unfair dismissal and disability discrimination, including a failure to make reasonable adjustments and a claim that her dismissal had been discrimination arising from her disability.

Tribunal decision

The ET upheld Ms Knightley’s claim for the failure to make a reasonable adjustment to the appeal deadline and awarded her £3,000 for injury to feelings.

However, the ET dismissed her unfair dismissal claim on the basis that her dismissal was fair overall and the lack of an appeal did not undermine that fairness. The ET also dismissed her claim for discrimination arising from disability as it found that the dismissal was justified in the circumstances.

Ms Knightley appealed. She said that the ET should have found the dismissal to be unfair, given that the dismissal procedure was discriminatory (due to the failure to make a reasonable adjustment to the appeal process) and that her discrimination arising from disability claim could not be justified for the same reasons.

EAT decision

The EAT dismissed the appeal and upheld the ET’s finding that the dismissal was fair and that there was no discrimination arising from disability. It said that although the same facts are relevant to the claims, the legal tests are different and should be applied separately.

  • Unfair dismissal: the ET was entitled to find that Ms Knightley’s dismissal was within the range of reasonable responses open to the employer. The fact that the Trust failed to make the reasonable adjustment of extending the appeal deadline did not change this. An appeal in this case would not have served any useful purpose. Generally a dismissal will be rendered unfair only if an employer fails to make an adjustment that would have avoided dismissal.
  • Discrimination arising from disability: the ET was entitled to find that the dismissal was a proportionate means of achieving the Trust’s legitimate aim. The lack of appeal did not cause the dismissal to be disproportionate, particularly given the strength of the reasons for dismissal, the lack of any realistic alternatives to dismissal and the fact that that the appeal would not have made any difference to the outcome.

Fladgate comment

This is a useful reminder that ET claims have different legal tests which should be applied separately. Helpfully for employers, this means success in one claim does not guarantee the employee success in another. In particular, a failure to make reasonable adjustments does not automatically mean success in other claims, even where they arise from the same facts and are connected to a dismissal.

It is also helpful to have further confirmation from the ET that the lack of an opportunity to appeal does not necessarily or automatically render a procedure (or subsequent dismissal) unfair. However, it is also important for employers to remember that this is unlikely to be the case if the initial dismissal process is inadequate, meaning an appeal may well have changed the outcome in practice. The case is still an important reminder to employers of the need to carry out a full and thorough process and always to consider alternatives to dismissal.

This case is also a warning to be wary of rigidly enforcing deadlines in dismissal and appeal procedures, particularly where the employee suffers from a disability. It would not have been difficult, or taken much time, for the Trust to have allowed Ms Knightley a longer period within which to appeal. Not only would this have avoided a £3,000 injury to feelings award, it may also have prevented the cost and time of defending the EAT appeal altogether. 

HMRC v Atholl House Productions Ltd

    Background

    The employment status of staff (i.e. employed or self-employed) determines how the employer should account for their tax. If an individual is an employee for tax purposes, the employer is responsible for deducting income tax and national insurance contributions (NICs) from the employee's earnings at source, through PAYE. By contrast, an individual who is a self-employed contractor for tax purposes is responsible for paying their own tax and self-employed NICs – it is not the employer’s responsibility to make deductions, nor do employers have to pay employer NICs.

    Assessing employment status becomes more complex when dealing with contractors who engage with the employer (who we will refer to here as the client) via an intermediary (such as a Personal Service Company (PSC)). Although the use of such intermediaries can be an entirely valid method of operating, in some cases they are used to disguise the fact that the so-called self-employed contractor is actually an employee.

    The IR35 rules were introduced to address this issue. The rules assess whether an individual who uses an intermediary such as a PSC is a genuine contractor or in fact a ‘disguised’ employee. If an employee, the client may be liable to pay their income tax and NICs through PAYE as if it was their direct employer.

    The IR35 rules require a three-stage application:

    • establish what terms applied to the contractual arrangements and relevant circumstances within which the individual worked;
    • understand the terms of the “hypothetical contract”, i.e. the contract which would have existed if the individual had worked on the same basis directly for the client, rather than through the PSC; and
    • assess whether the hypothetical contract would be a contract of employment.

      In applying stage three, courts and tribunals (and HMRC) rely on the employment status test set out in Ready Mixed Concrete Ltd v Minister of Pensions. This case highlights key areas to be considered, including:

      • whether the individual is required by the client to provide it with personal service (which may be countered by a right of substitution);
      • the existence of a mutuality of obligation between client and individual;
      • the extent of any control exercised by the client over the individual; and
      • whether any 'other factors' are consistent (or not) with a contract of employment. This requires an overall assessment of all of these other factors (a ‘multi-factorial assessment’).

      The CA in Hall v Lorimer emphasised that applying the different parts of this test should not be a mechanical exercise, but rather their weight and relevance will vary depending on the facts of the particular case.

      The Supreme Court in Autoclenz v Belcher confirmed that when determining an individual's employment status, terms that are included in the written agreement may be disregarded if they do not accurately reflect the genuine arrangements between the parties in practice.

      Facts

      Atholl House Productions Ltd (AHP) is the PSC of the broadcaster Kaye Adams. Following an inquiry into AHP's affairs (in particular contracts AHP had with the BBC for Ms Adams to present The Kaye Adams Programme), HMRC concluded that she was an employee for the purposes of IR35.

      AHP appealed HMRC’s decision.

      Earlier decisions

      Both the First-tier (tax) Tribunal (FTT) and the Upper (tax) Tribunal (UT) found that Ms Adams was not an employee for tax purposes and that her arrangements fell outside the IR35 rules. In particular, the UT relied on its finding that Ms Adams was carrying on business on her own account (by looking at the activities she performed) when she entered into the contract with the BBC.

      HMRC appealed. It argued that courts and (tax) tribunals are restricted to analysis of the terms of the hypothetical contract as required by stage 3 of the IR35 rules application.

      Court of Appeal decision

      The CA allowed HMRC's appeal. However, it did not make a finding that Ms Adams was employed, but remitted the case back to the UT.

      The CA found that although the UT had made a correct finding in relation to mutuality of obligation and control, it had not properly applied the final stage of the Ready Mixed Concrete test. The CA found that the UT’s multi-factorial assessment was flawed, as it had not analysed all the relevant factors of the arrangements (as it was required to do in accordance with both Ready Mixed Concrete and Lorimer). The UT needed to carry out the final stage correctly, because considering mutuality of obligation and control are not sufficient to determine employment status by themselves.

      However, the CA rejected HMRC’s argument that the multi-factorial analysis should be restricted to the express and implied terms of the hypothetical contract under which the individual was engaged. Rather, the CA found that an analysis of all of the facts and circumstances which existed at the time that the contract was made (and which were known or reasonably available to the parties) should be carried out, to decide whether or not the parties intended to create a relationship of employment.

      When carrying out the multi-factorial analysis, the UT had over-focused on the nature of the specific activities Ms Adams performed as an independent contractor. It had not properly assessed the capacity in which Ms Adams/AHP performed these activities. The fact that Ms Adams was known to carry on a business on her own account (as a self-employed person) outside of the BBC contracts, should have been taken into account.

      The CA also clarified that the decision in Autoclenz v Belcher (terms may be disregarded if they do not accurately reflect the genuine agreement) is not relevant to deciding employment status for tax purposes. This principle only relates to determining an individual’s status for employment rights purposes.

      Fladgate comment

      This is generally good news for contractors (and their clients) who contend that IR35 does not apply to their arrangements, as it allows a blended approach and a wider scope to establish that employment status for tax purposes is not made out. Even if HMRC can establish mutuality of obligation and control, it is still necessary to go on to consider all of the factors in the round as part of the multi-factorial assessment. For example, the individual’s historic pattern of work can be considered as part of the overall multi-factorial test, as well as when assessing the degree of control the client has over the contractor. It is also helpful confirmation that all contractual terms are open for consideration and that the parties’ intentions when forming the contract matter – terms should not automatically be disregarded even if they do not accurately reflect the genuine arrangements in place.

      However, this approach does also mean that the decisions in these cases are ever more case specific and uncertain. It is likely that a more in-depth review of the circumstances which existed at the time that the contract(s) were made is now required, as is how the contractor runs and carries on their business both in relation to the client in question and other third parties. Both getting hold of that information and reviewing it is unlikely to be straightforward.

      Hopefully this decision may encourage the Government to review the employment tax status test and replace it with a simpler a more certain test. Indeed, the CA commented in this case that it would be ‘desirable if, there were one clear test or approach to determining whether a person was an employee’. We’ll have to wait and see what the developments are – for now, there is no indication that it’s on the political agenda.

      If you would like our help with any of the issues in this bulletin, please do contact us.


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