Employment Law Watch : Employment & Labor Lawyer & Attorney : Reed Smith Law Firm

This post was written by David Krulewicz and Stephanie Wilson.

As stated in our previous blog posting, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”) into law on July 21, 2010, with the objective of ushering in a new era of financial regulation and transparency. The Act’s range encompasses not only the usual group of financial services employers, but it extends to mortgage brokers and insurance adjusters as well. Portions of the Act, including those discussed below, went into effect immediately. However, portions of the Act have left more questions than answers as to what long-term impacts the legislation will have on the financial industry. 

A few of the Act’s highlights include bounty provisions, additional changes to the Securities Exchange Act of 1934 and changes to amend SOX’s anti-retaliation provisions in a number of ways. A brief list of actions that employers can take is also noted.

To read the full alert, please click here. 

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This post was written by Daniel J. Moore and Stephanie Wilson.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, created some of the most sweeping changes to the financial industry since the Great Depression. Section 342 of the Dodd-Frank Act requires federal financial agencies to create an Office of Minority and Women Inclusion (“OMWI”), which is responsible for “all matters of the agency relating to diversity in management, employment, and business activities.” This provision could significantly impact the diversity practices of federal financial agencies, agency contractors, and other entities that do business with these agencies.

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The UK's Supreme Court in Gisda Cyf v Barratt has ruled that where an employer communicates dismissal without notice by way of a letter, the effective date of termination (‘EDT’) is when the employee reads the letter or has had a reasonable opportunity of reading it, as opposed to when it is posted. This will be the case unless the employee has deliberately failed to open the letter or gone away in order to avoid reading it. This is in contrast with the ‘normal’ contractual position and reaffirms the view that employment law is a special case, recognising the more vulnerable position of employees.

What happened is this case?

Mrs Barratt, the respondent, was suspended from her employment because of allegations that she had behaved inappropriately at a private party. In her disciplinary hearing shortly thereafter she was told to expect to receive a letter on 30 November informing her of the outcome. Mrs Barratt then went away on 30 November as her sister had just given birth. Later that day her boyfriend’s son signed for the letter from Mrs Barratt’s employers. Mrs Barratt had left no instructions for it to be opened or read. Mrs Barratt arrived home late on 3 December and didn’t actually open the letter until 4 December, at which point she discovered she had been summarily dismissed.

The EDT is the date on which an employee’s continuous employment has ended. Establishing the EDT is important because a claim for unfair dismissal must be presented to the Tribunal before the end of three months beginning with the EDT. Mrs Barratt presented a claim for unfair dismissal and sex discrimination on 2 March 2007. If the EDT was when Mrs Barratt’s employers posted the letter, this would mean her claim was out of time because she would only have until the end of February to bring her claim; if it was when she actually read the letter, then her complaint was lodged within time because the time limit was 3 months from when she read the letter i.e. 3 March 2007.

The Employment Tribunal held that both claims were brought within time’ the EDT was when Mrs Barratt opened the letter. This was appealed all the way to the Supreme Court. The employer argued that the Tribunal should have adopted more traditional contractual principles i.e. that termination occurs when communication could be expected ‘in the normal course of things’ to come to the party’s attention. However, the Supreme Court said that employment law is a special case in which employees are in a ‘more vulnerable position than employers’. The rules on time limits should be interpreted in a way favourable to the employee. 

The question to be considered was whether the EDT was determined by the existence of the opportunity to open the letter, or was it the date on which the employee had a “reasonable opportunity” to find out what the letter contained? The Court decided that it was the latter: the proper consideration should be whether the employee had a reasonable opportunity to find out what the letter contained. 

In assessing whether Mrs Barratt had a reasonable opportunity to discover the contents of the letter, the Court placed great emphasis on her behaviour. The Court reasoned that even though the letter had been signed for and Mrs Barratt’s boyfriend’s son could have opened the letter and told Mrs Barratt of its contents, it was not unreasonable for her to fail to leave instructions to do so. It was also considered perfectly reasonable that Mrs Barratt should want to visit her sister, who had just given birth. In addition the Court considered it reasonable that Mrs Barratt would want to absorb the contents of the letter alone, given its contents, rather than give instructions for someone else to read the letter and tell her of the contents. 

One key caveat to the ruling is that the EDT being when the employee opens the letter of termination will not apply where the employee deliberately avoids reading the letter or goes away so as to avoid reading it.

What does this case mean for employers?

This case highlights that in assessing when the EDT in the context of employment rights legislation, employers must be ‘mindful of the human dimension’. Employers looking to terminate an employee by way of letter, rather than say a face to face meeting, must ensure that they consider what can be reasonably expected of an employee facing the prospect of dismissal. 

The Tribunals will generally treat the employee favourably due to their more vulnerable position. In which case, unless an employee is shown to have deliberately avoided reading a letter, the EDT will be when the employee reads the letter or has had a reasonable opportunity to discover its contents. It would appear that the employee would have to make a concerted effort not to read such a letter for this rule to be displaced.

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On the day the Equality Act 2010 came into force last Friday, it became apparent that there is a significant drafting error in the Act which could affect the enforceability of compromise agreements intended to settle discrimination and equal pay claims under the Act.

In order to have a qualifying compromise agreement the complainant must receive advice from an “independent adviser” about its terms and effect. The problem has arisen in relation to section 147 which sets out the requirements for an independent adviser. 

The Act, in force as of 1 October, provides in Section 147(5)(d) that:

‘. . . none of the following is an independent adviser in relation to a qualifying compromise contract:

(a) a person who is a party to the contract or the complaint; and

(d) a person who is acting for a person within paragraph (a) in

relation to the contract or the complaint . . ."

The literal effect of this would be that an adviser who has acted for the employee in relation to the contract or complaint to date cannot also advise the employee on a compromise agreement to settle a claim or complaint.   It would appear that this is a flaw in the drafting of this section of the Act.   

How will this be interpreted?

The Courts have built up, over the years, a line of case law which deals with the interpretation of drafting errors in legislation and other ambiguities. Where the wording of the statute is plain and unambiguous, the Courts are bound to construe them in their ordinary sense, even if it leads to an absurd result or manifest injustice. However, as soon as the provision is acknowledged to be ambiguous (i.e. more than one meaning can be derived from the plain reading of the words used) the Courts may take account of any absurdity that would occur from a particular interpretation. 

It appears that the wording of section 147 is plain and unambiguous in the way it is drafted. However, a reading of the explanatory notes shows that its effect is clearly not what the legislature intended. There is case law which indicates that the Courts may, in such cases, be prepared to look at all the evidence (such as Parliamentary debates recorded by Hansard) to determine what the legislation was intended to do.

We would hope that any Employment Tribunal faced with interpreting this section would agree that its meaning does not accord with the corresponding sections of other legislation such as section 203 of the Employment Rights Act 1996 (which relates to the settlement of claims under that Act, such as unfair dismissal), and therefore conclude that this could not have been the Government’s intention.

How could this affect employers?

Taking a literal interpretation of section 147 of the Act could mean that a compromise agreement is not valid because the adviser was not an independent adviser within the Act. Indeed, it could mean that no claim under the Equality Act could ever be settled by way of compromise agreement since an independent advisor is not allowed to be a person (e.g. solicitor) who is “acting” for an employee in relation to the claim or complaint.  

Options for employers and associated risks

As the wording of section 147 of the Act produces what can only be described as a clear error, it is hoped that Parliament will be able to resolve this shortly. Until that time, or until the Courts are required to make a declaration as to the meaning of this provision, employers are left in the uncomfortable position that there is a risk that their compromise agreements can be challenged as unenforceable. 

The only watertight solution is for employers to consider using a COT3, where appropriate. This is an ACAS form for conciliating an agreement between employer and employee. 

In cases where a COT3 is not appropriate, employers will have to assess the risk of continuing to use a compromise agreement. Essentially, the risk is that employers will be open to a challenge being made. However, given that the drafting error appears to be a simple one, which will not require much creativity on the part of the courts, it is hoped the risk will not be great or prolonged.

Click on the following link for the Government Equalities Office website, which contains all the latest news from the government on the Equality Act 2010 and its implementation, as well as links to the text of the Act and the Explanatory Notes.

Click on the following link for the Equality and Human Rights Commission website, which gives more information the Equality Act 2010 and the draft Codes of Practice.

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