Legal issues the Company faces

An economic downturn has far reaching consequences for employers and employees alike, in particular the motor trade is feeling the pinch of our current crisis. In this essay we will advise Barry, the newly appointed Managing Director for Zephyr Autos (ZA), of any legal issues the Company faces as he decides to introduce changes affecting the workforce, the forced redundancy of a sales representative (Albert), and the legality of his dismissal of a Senior Sales Director (Denise) for gross misconduct.

The first problem we shall look at is that under pressure from Head Office Barry decides to implement changes to the terms of the contract of employment, including a pay cut without the approval of the UCW, this would mean an abandonment of any collective agreements with the union and a variation to the employment contract of the individual employee's. It is common place in the auto industry where a section of the workforce belong to a union, that the union negotiate provisions such as pay, hours and holiday, intended to be included in the contracts of the employees who are covered1.

The first issue we will examine are the rules of collective agreements, the legality of which is defined by s. 179(1) TULRCA 19922states: A collective Agreement shall be conclusively not to have been intended by the parties to be a legally enforceable contract unless the agreement – (a)is in writing, and (b) contains a provision which (however expressed) states that the parties intend that the agreement be a legally enforceable contract.

In order for such agreements to be legally binding on the individual employee they need to be incorporated in the employment contract of each member of the work force3. However the appropriateness of the term for inclusion can cause some confusion, the general application seems to be that procedural terms, such as a redundancy selection process are not appropriate4, where as substantive terms such as employees hours or rates of pay need specific incorporation into the employee contract.

The terms of a collective bargain may be incorporated in an employment contract either expressly, impliedly, or through agency. Express incorporation is a simple process which requires a statement in the contract or statutory written statement to the effect that the relevant negotiations by the union shall be part of the individual's contract5 as in NCB v Galley6.

Implied incorporation is a more complex method which requires evidence that both parties have accepted the agreement as binding, the leading case in this area is Joel v Cammel Laird7 where it was decided that before an employee can be bound by a collective agreement, "there must be (a) specific knowledge of the agreement, (b) conduct on the part of the employee which shows that he accepts the agreement; and (c) some indication of incorporation into the contract.

"8. Incorporation through agency is where the agreement negotiated by the union is automatically incorporated into the terms of employment for all its members . This may seem from the outset an easy way to incorporate terms, but it is impractical, as is the case with Zephyr Autos, where there are a large number of employees either not unionised or belonging to a different union as voiced by Arnold J in Burton Group Ltd v. Smith9.

The procedure and qualification for an individual contract of employment is laid out in the Employment Rights Act 1996 (Part I Employment Particulars), this requires the employer to provide a statutory written statement of particulars of employment, s. 1(4) specifically requires that the statement includes particulars in regards to substantive terms such as remuneration, hours of work, holiday and sick pay. Section 4 of the act states that any changes to the relevant terms and conditions of the contract must be notified to the employee within one month.

These changes need to be mutually agreed and can not be imposed without acceptance on the part of the employee and any imposition of these changes may find the employee walking out and a constructive dismissal claim brought against the employer as in Greenway Harrison Ltd v Wiles10, the employer could also face a claim for repudiatory breach of contract, particularly in relation to the reduction of wages as was seen in Rigby v Ferodo Ltd11.

However it may be necessary to introduce such unilateral changes in order to maintain the survival of the business, as has been recognized in the context of redundancy law12, and in that case the employer may choose to dismiss the employee who refuses to change by giving him proper notice. This may still lay the employer open to an unfair or wrongful dismissal action from the employee. The possibility of Zephyr Autos facing an action for wrongful dismissal in the circumstances seen above leads us to the issues of dismissal. At common law termination of an employment contract by the employer either with or without notice constitutes dismissal.

The common law does not require a fair reason for the dismissal, only that the statutory requirements for notice are met. Whether a period of notice is required is decided on the reason for the dismissal, if the employee has committed a serious breach of duty as in Ross v Aquascutum Ltd13, gross misconduct as in Sinclair v Neighbour14 or a "refusal to obey a lawful and reasonable order and gross neglect. "15. For dismissal other than instant or summary the minimum notice period required to be given is laid down by s. 86 ERA 199616.

Where an employee has been dismissed without notice and without justification, which qualifies as a repudiatory breach as in Industrial Rubber Products v Gillon17, the employee may bring an action for wrongful dismissal. Unlike ordinary contract law where the remedies for breach of contract include the power of the court to impose specific performance or an injunction, when an action is brought for wrongful dismissal these remedies are in the whole deemed impractical, the explanation of such a view "being that the contract is of a personal nature, not amenable to enforcement.

" As was said by Fry LJ in De Francesco v Barnum 18 "I should be very willing to extend decisions the effect of which is to compel persons who are not desirous of maintaining continuous personal relations with one another. I think the courts are bound to be jealous lest they should turn contracts of service into contracts of slavery; and… I should lean against the extension of the doctrine of specific performance and injunction in such a manner.

" This leaves the only practical remedy open to the court as an award of damages, a wrongfully dismissed employee is entitled to damages equal to his wages or salary during his notice period19, as for damages under other headings such as loss of reputation or stigma, the courts are reluctant to agree to such awards as was seen in Addis V Gramophone Co Ltd20, however an altering of this position came about in Malik v BCCI SA21 where the employee could not obtain alternative employment due to the 'stigma' associated with his employment at BCCI.