COVID-19 and the Frustration of Leases: Lessons from Hong Kong

The original version of this article was first published in University of Oxford Undergraduate Law Journal by Alexander Yean

[1]With many parts of England subject to severe COVID-19 restrictions that have mandated the closure of non-essential shops, it is likely that many tenants are being forced into financially untenable positions. Subletting and assignment are commercially impossible in the current climate, and the difficulty of finding new tenants means that it would be illogical for landlords to agree to early termination. It is therefore pertinent to consider the potential application of the doctrine of frustration to leases, which would have the effect of automatically discharging the parties’ obligations thenceforth.[2]

At the time of publication, I am not aware of any reported cases in England and Wales of frustration being pleaded in respect of a tenancy dispute relating to COVID-19 or the attendant restrictions. Among common law jurisdictions, the Hong Kong Court of First Instance has led the charge, and its November 2020 decision in The Center (76) Ltd v Victory Serviced Office (HK) Ltd[3] may well set the tone for any upcoming tenancy disputes relating to COVID-19.

This note will begin by summarising the current position in English law as regards the applicability of frustration to leases, before analysing how the law has been applied to the COVID-19 situation in the Center 76 case. I will then argue that while the outcome reached in the Center 76 case was just, English courts should not adopt its ratio when approaching similar cases that may arise in the near future, and should instead seize the opportunity to re-examine the law on frustration as applied to leases.

Frustration and Leases: Where the Law Stands

The starting point of any analysis must be the National Carriers case[4], in which a majority of the House of Lords[5] first accepted, in principle, the proposition that a lease was capable of being frustrated. However, because frustration was not actually made out on the facts, and because there has been no subsequent case where frustration has been successfully pleaded,[6] that proposition remains obiter even today.

At time of publication, the position currently stands as follows: while the proposition that leases are capable of being frustrated seems to now be universally recognised,[7] this is strictly speaking not binding as a matter of law, so it is still technically possible (albeit practically inconceivable) that a claim might fail on this preliminary basis. More significantly, when frustration is pleaded in respect of leases, the standard required for a successful claim is exceedingly high. An illustrative recent case is Canary Wharf (BP4) T1 Ltd v European Medicines Agency,[8] in which the European Medicines Agency failed in its claim that a 25-year lease for its EU headquarters which commenced in 2014 had been frustrated due to Brexit, because the lease was assignable and the property could be sublet.

The Center 76 Case

It is against this backdrop that we turn to the Center 76 case. The tenant, a flexible workspace provider, had a five-year lease of a 76th-floor office in The Center, a skyscraper in the heart of Hong Kong’s Central district, which commenced in September 2019. Since February 2020, the tenant had failed to pay the rent and other charges, and in June 2020 the landlord commenced proceedings for possession and to recover the arrears. The action succeeded, and summary judgment was given in November 2020. Of present interest is the fact that the tenant’s submission that the lease had been frustrated by disruptions caused by social unrest and COVID-19 restrictions was rejected as ‘unmeritorious… moonshine’.[9]

DHCJ Ho’s reasoning for rejecting this submission[10] is twofold:

‘The Defendant has not adduced any evidence to show how long the disruptive events and/or COVID-19 pandemic were expected to last during the unexpired term of the tenancy or at least for a long period of that unexpired term.’

‘Furthermore, the Defendant’s conduct in holding onto the Premises instead of surrendering them is inconsistent with its claim of frustration. Its refusal to deliver up possession of the Premises is evidence of its lack of good faith in this defence.’

While the decision is unsurprising on the facts, both grounds of DHCJ Ho’s judgment raise interesting points of general applicability.

The First Ground: the Duration of Interruption

It is good law that the duration of the interruption of use (specifically, whether the duration is a significant proportion of the original lease) is a critical factor in determining whether a lease has been frustrated. On the facts of the National Carriers case,[11] access to a warehouse being blocked for 20 months in a 10-year lease that had 5 years left to run was held to be insufficient to make out frustration. This is sound, because it would have been disproportionate and unjustified to automatically terminate the entire contract on account of one-third of the remaining lease being disrupted.

Indeed, this proposition dates back at least as far as the Cricklewood case (heard in 1944),[12] wherein Viscount Simon LC held that retail disruption caused by WWII restrictions was not capable of making out frustration, because

‘the lease at the time had more than ninety years to run, and though we do not know how long the present war… [is] going to last, the length of the interruption so caused is presumably a small fraction of the whole term.’[13]

That the duration of the claimed interruption should be for a substantial period of the remaining lease in order to make out frustration seems to be wholly consistent with the doctrine of frustration itself. The general test for frustration as set out by Lord Radcliffe in Davis Contractors v Fareham Urban District Council[14] is whether a thing undertaken under the frustrating circumstances would be ‘a thing radically different from that which was undertaken by the contract.’ For a lease to be rendered ‘radically different’ by disruptions, it is common sense that the disruption suffered should last for a substantial period of the remaining lease.

As such, DHCJ Ho was surely correct for finding against the tenant due to its inability to demonstrate that the disruptions caused by social unrest and COVID-19 disruptions would remain extant for a ‘long period’ of the remaining tenancy.[15] It is of course trite law that the burden of proof is on the claimant, who was in this instance the tenant asserting that frustration had occurred.

Yet one cannot help but feel sympathy for the tenant (at least as far as this point is concerned), due to the practical impossibility of demonstrating the length of the disruptions caused by COVID-19 and social unrest. At the time of trial (before the results of several COVID-19 vaccine trials were announced), nobody, least of all an indebted tenant and its legal counsel, was in a position to even speculate how long the pandemic might last, or whether Hong Kong might again see mass political protests. The tenant can hardly be faulted for failing to adduce evidence that simply does not exist—the government monitors the pandemic and updates its policy on a day-to-day basis, so it is simply not possible to adduce evidence as to the duration (or even likely duration) of pandemic-related restrictions.

These observations raise an interesting general problem, which is perhaps the most germane aspect of the Center 76 judgment: any tenant trying to plead frustration under COVID-19 restrictions (or indeed, any restrictions of indeterminate duration) would face insuperable difficulty in fulfilling the burden of proof vis-à-vis the extent/duration of those restrictions. If the Center 76 case remains good law, it would be virtually impossible for any such claim to succeed.

The Second Ground: the Tenant’s Conduct

On the facts of the Center 76 case, the tenant failed to pay rent for several months, yet nonetheless refused to deliver possession of the premises when so demanded. In the subsequent action by the landlord, it then pleaded frustration, while still continuing to use and occupy the premises even as the case was being heard.[16] DHCJ Ho was understandably unimpressed by this conduct, and held that the tenant, to summarise with a colloquialism, could not have its cake and eat it too. There is nothing controversial about DHCJ Ho’s finding: surely, if the tenant believed that the lease had been frustrated, it would deliver possession and terminate the lease at the earliest opportunity; its failure to do this was evidence that the lease had not been frustrated, as the tenant still saw (and presumably in fact derived) value in retaining possession in an attempt to ‘generate income without paying rent to the prejudice of the [landlord]’.[17]

While the tenant’s conduct on the facts was certainly egregious, it is submitted that this finding should be confined to the facts of the present case. It may not be the case that every instance of a tenant refusing to deliver possession is evidence that the lease has not been frustrated, because there may be compelling reasons for not doing so. Take, for example, the lease of a showroom for the display of large chattels (e.g. furniture, or grand pianos, or luxury cars) that cannot practicably be moved in order to deliver up vacant possession, especially during a pandemic. The tenant in such a case may well still derive some value from the storage of the showpieces, but surely this value would be de minimis if the main purpose of the lease (to use the property as a showroom) is frustrated by the mandatory closure of non-essential shops. Therefore, the conduct of the tenant in failing to transfer possession when demanded should not be determinative in every case, although it is certainly conceded that a tenant that takes active steps to leave the premises would likely have the stronger factual claim for frustration compared to a tenant that does not do so.

The Way Forward

Despite the fact that the Center 76 case was heard in Hong Kong, both grounds of the judgment on frustration can easily apply to cases heard in English courts. If the judgment is indeed adopted, the implications for tenants seeking to frustrate their leases would be dire.

As regards the first ground, English tenants seeking to plead frustration would, logically, also find it impossible to fulfil the burden of proof as regards the expected duration of disruption while the pandemic is still ongoing. This would have the unjust effect of causing claims to fail that would have otherwise succeeded if the actual duration of disruption is known beforehand: suppose that the current COVID restrictions last until the end of 2021, but no longer. If the government announced this in January 2021, a retail tenant that entered into a one-year lease at the end of 2020 would certainly have a strong case for frustration; but if the government refuses to commit to a long-term strategy and instead intermittently reviews the restrictions (as it is now doing), the tenant would not be able to succeed in its claim until most of the lease is already elapsed—a financially ruinous outcome.

The second ground of DHCJ Ho’s judgment, while more confined to the facts of the Center 76 case, nonetheless suggest that tenants must be mindful of their conduct, as it could well form the evidential basis of the court’s finding on frustration. In particular, a retail tenant facing a demand to deliver up vacant possession may be in a difficult dilemma, since doing so might be financially ruinous (due to the added expense of transporting and storing stock), but not doing so may impede a subsequent claim of frustration.

If English courts decide to adopt the ratio of the Center 76 case, tenants intending to plead frustration in respect of COVID-19 restrictions would certainly face an uphill battle, with the broader implication that the doctrine of frustration as applied to leases would be robbed of a great part of its practical significance. Beyond implausible scenarios such as where ‘some vast convulsion of nature swallow[s] up the property altogether’,[18] the status quo under stringent COVID restrictions seems to be the quintessential situation where frustration should rescue a tenant from a lease that has been rendered commercially ruinous; however, most claimants would have little prospect of success if faced with an impossible burden of proof as regards the duration of disruption.

It is therefore submitted that English courts should decline to follow DHCJ Ho’s judgment in the Hong Kong Court of First Instance, and should instead take this opportunity to re-examine the law on frustration as applied to leases. It is accepted that frustration is an exceptional and residual doctrine designed to cure injustice where no other remedy can operate, and as such should not be applied liberally.[19] Notwithstanding, its extension to leases would be largely devoid of purpose if the bar remains insuperably high. Adopting a lower standard of proof as regards the duration of disruption than that applied in the Center 76 case would not only result in greater legal coherence insofar as it allows the doctrine to be successfully applied in practice, but may also provide a lifeline to countless tenants in dire financial straits. A careful balance must be struck, and time is of the essence.


[1] I am a final year law student at the University of Oxford (Exeter College). All errors remain my own. I welcome any comments or criticisms, and can be reached at alexander.yean@exeter.ox.ac.uk.

[2] Law Reform (Frustrated Contracts) Act 1943, s 1.

[3] [2020] HKCFI 2881

[4] National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675

[5] Accepted 4-1, with Lord Russell dissenting in part.

[6] Perhaps the closest that the proposition has come to being directly applied as law was in Hussein v Mehlman [1992] 2 EGLR 87, 89, wherein Sedley QC (then sitting as an Assistant Recorder in the County Court) accepted the proposition as a matter of law, but only applied it as part of his reasoning that leases were susceptible to repudiation (a concept that he reasoned to be similar to frustration, insofar as both are contractual doctrines that operated to determine a lease and its demise in land).

[7] See e.g. the Blundell Lecture of 2020 (wherein Anthony Tanney from Falcon Chambers assumed the proposition when giving a lecture entitled “From Panalpina to the Pandemic: Leases and the Doctrine of Frustration”); the Blundell Lecture of 2000 (wherein both Lord Millett and Neuberger J (as he then was) accepted the proposition in the context of an extrajudicial debate on the applicability of the doctrine of contractual repudiation to leases); Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), [23] (where the proposition is accepted in the context of a failed claim for the frustration of a 25-year lease); and Center 76, [38] (wherein DHCJ Ho and both sides’ counsel accept the proposition).

[8] [2019] EWHC 335 (Ch)

[9] Center 76 [50].

[10] Center 76 [39].

[11] Considered at Center 76 [39].

[12] Cricklewood Property and Investment Trust Ltd v Leighton’s Investment Trust Ltd [1945] AC 221

[13] Cricklewood 231-32.

[14] [1956] AC 696, 729

[15] Center 76 [39].

[16] Center 76 [49].

[17] Center 76 [39].

[18] Cricklewood 229.

[19] National Carriers 701.

Principle of Finality in Litigation

The original version of this article was first published in The Law Society Gazette by Masood Ahmed

Principle of Finality in Litigation – A judgment made in open court takes effect when it is made and not when it is subsequently sealed. The lapse of time between the making of an order in open court and sealing it may be taken by the unsuccessful party as an opportunity to rehearse legal arguments or to produce new evidence to persuade the court to revisit and amend its order before it is sealed.
Principle of Finality in Litigation Blake-Turner
In AIC Ltd v The Federal Airports Authority of Nigeria [2020] EWCA Civ 1585 the Court of Appeal provided guidance on the correct approach the courts should take when determining an application to reconsider an order before it is sealed.

Facts and first instance decision

On 6 December 2018, AIC Ltd (AIC), a Nigerian construction and property development company, made an application to the High Court to enforce a Nigerian arbitration award of over $48m against the Federal Airports Authority of Nigeria (FAAN), an airport-operating agency. However, before the order was sealed, the judge rescinded AIC’s right to enforce the award on the grounds that there had been a significant change in circumstances in that FAAN had obtained a guarantee for security for costs. The judge also granted FAAN relief from sanctions for failing to comply with various deadlines. AIC appealed the reconsidered order, asserting that the judge had no discretion to reconsider her order because, although it had not been sealed at that stage, it had been pronounced in open court and therefore took effect immediately.

Facts and first instance decision

Allowing the appeal, Coulson LJ held that there were two distinct questions which the court must ask itself. The first was whether the application to reconsider should be entertained in principle; if the court answered the question in the negative, that was the end of the matter. If the court concluded that reconsideration was appropriate in principle, then it became an open-ended matter of discretion, to be exercised in accordance with the overriding objective, as to whether the order should be changed. Coulson LJ provided further guidance on first question when he said: ‘In my view, the court should be looking for a sufficiently compelling reason that may justify reconsideration; something which might outweigh the importance of finality and justify the opening up of a question or questions which, following the pronouncement of the order in open court, appeared to have been finally answered. Of course, it is quite right to say, as the authorities stress, that those categories of case are not closed. But, assuming that the request to reconsider comes from the parties and not the court, the court should instinctively be looking for something which has been missed or otherwise gone awry: a mistake or a fundamental misapprehension; a fundamental piece of evidence or a point of law that was overlooked. The court’s undoubted jurisdiction to reconsider its earlier order cannot be permitted to become a gateway for a second round of wide-ranging debate.’

Coulson LJ held that the judge had failed to consider whether the application identified a sufficiently compelling reason for the court to entertain an application to reconsider the 6 December order which had been an error of law. To the extent that it might be said that the judge had identified the significant change in circumstances as the compelling reason for entertaining the application, she had been wrong as a matter of fact. The arrival of the guarantee was not a significant change in circumstances but simply the culmination of what FAAN had been saying in its evidence for some time, which had been taken into account when the 6 December order was made.

Leaving aside the error of principle, Coulson LJ also found that the judge had failed to take into account matters which she ought to have taken into account, and gave weight to other matters which were irrelevant. Therefore, this was a case in which interference with the exercise of the judge’s discretion was justified.

Although AIC Ltd concerned an application for enforcement of an arbitral award, its application is of broader significance because it is applicable to any applications for reconsideration of court orders made in civil proceedings. When considering an application to reconsider, the courts need to ensure that their jurisdiction must, as Coulson LJ put it, be ‘carefully patrolled’ so that the principle of finality in litigation is not undermined.

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The Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020

The Government implemented both temporary and permanent reforms to the UK insolvency regime in light of the COVID-19 (COVID) pandemic and resulting economic crisis. Significant changes were made by the Corporate Insolvency and Governance Act 2020 (CIGA) which aimed to ease the pressure on businesses under financial pressure and avoid mass insolvencies.
CIGA came into force on 25 June, following an accelerated parliamentary process.
The moratorium procedure
CIGA introduced a new standalone moratorium procedure with the intention of giving companies space from creditors to turn around their business and avoid insolvency. The moratorium covers an initial period of 20 days. This initial period can be extended without permission for another 20 days and can be further extended with the permission of pre-moratorium creditors or the court. The moratorium involves an insolvency practitioner monitoring the company’s directors, who remain in control.
Companies eligible to use the moratorium should have been:

  • Incorporated under the Companies Act 2006 or, if unregistered, would be wound up under the Insolvency Act 1986.
  • Unable to or likely to be unable to pay its debts in the opinion of the directors.
  • Rescuable as a going concern in the opinion of the insolvency practitioner.

Wrongful trading (temporary)
CIGA also temporarily lifted wrongful trading restrictions which would prevent a company from operating during an impending insolvency. Normally directors could be subjected to personal liability for continuing to trade in the face of an impending insolvency under Section 214 and Section 246ZB of the Insolvency Act 1986.
Restructuring Plan
CIGA inserted Part 26A into the Companies Act 2006 (Arrangements and Reconstructions for Companies in Financial Difficulties) which applies to companies liable to be wound up under the Insolvency Act 1986. This permits creditors with genuine economic interests from participating in the formulation of a restructuring plan and for the court to be able to sanction plans it considers to be just and equitable.
The “Ipso Facto” regime
CIGA made changes to the effect of Ipso Facto termination clauses; these automatically entitle a party to terminate a contract or automatically terminate a contract without any election being made in the event that a certain event occurs, for example, insolvency. Suppliers cannot end contracts for non-payment of pre-insolvency debts.
The effect of this regime is widespread and some provisions have been included to prevent unfairness to suppliers. For example, they are able to apply to the court to be exempt from the regime if it would cause undue hardship to continue to supply a business. If a company enters into a standalone moratorium, debt owed to the supplier during this period will be prioritised over other creditors. There are exceptions for ‘essential suppliers’ and ‘small suppliers’, which are dealt with under separate legislation.
Further developments
There were concerns that the Act was rushed without consideration to certain stakeholders. The Pensions Regulator, the Pension Protection Fund, and other retirement scheme representatives felt the changes may negatively impact pensioners, as the moratorium would prioritise debts falling during this period over beneficiaries of underfunded undefined pension schemes. However, some of these concerns were addressed while the Corporate Insolvency and Governance Bill was being debated and also by the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020 (SI 2020/ 693) which came into force on 7 July 2020. There have also been concerns that that some creditors may be disadvantaged by the suspension of wrongful trading offences.
The temporary provisions will be phased out by the end of September and though the other changes are not subjected to time limits, however this may change in light of future developments.
For further information please contact Paul Cooper: paul.cooper@blaketurner.com or 020 7480 6655

Employment law updates – Coronavirus

Employment law updates: Coronavirus

Coronavirus Job Retention Scheme (CJRS) updates

Employment law updates – Coronavirus Redundancy payments:

  • The government announced on 30 July that workers who were furloughed will be entitled to a statutory redundancy payment based on their pre-furlough salary and not the reduced furlough salary. This was implemented by the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 which came into force on the 31st July.
  • Employees with more than 2 years of continuous service who have been made redundant are entitled to a redundancy payment up to a statutory maximum (which remains the same). This is based on age, length of service and salary.
  • The changes will also apply to Statutory Notice Pay and awards for unfair dismissal.

Furloughed workers:

  • Employers have been able to bring furloughed workers back to the office for any amount of time and for any kind of shift pattern since 1 July while still being able to claim the CJRS grant.
  • From 1 August the Government has advised that employers and employees should be able to exercise discretion as to whether they can work safely from the office.
  • The furlough scheme will end on 31 October 2020.

https://www.gov.uk/government/news/new-law-to-ensure-furloughed-employees-receive-full-redundancy-payments

https://www.gov.uk/government/publications/changes-to-the-coronavirus-job-retention-scheme/changes-to-the-coronavirus-job-retention-scheme

https://www.gov.uk/government/speeches/pm-statement-on-coronavirus-17-july-2020

For employment law advice please contact Rupert Farr: Rupert.Farr@blaketurner.com or 020 7480 6655.

FAREWELL TO THE “SMASH AND GRAB”

FAREWELL TO THE “SMASH AND GRAB”

For those participants in the Construction Industry who have been living in a cave for the last 20 years, it may come as a surprise that legislation which took effect in 1998 and 2011 introduced a new payment regime with concepts such as “withholding notices” and “payless notices”.

The regime imposed stringent obligations on paying parties to issue within short periods of time after receipt of invoices a notification setting out any sum which was not to be paid and specifying the reasons why.

Many employers and main contractors have continued to be caught out by this payment regime with main contractors and subcontractors taking advantage of any default by the paying party to issue adjudication notices requiring payment due to the absence of the requisite notifications. The Technology and Construction Court have reviewed this previously and come to the conclusion that failure to issue the correct notice is in effect strict liability to make payment.

His Honour Judge Peter Coulson in the recent case of Grove Developments has taken a different stance. He is unable to support the opinion of previous colleagues and has given binding authority that the absence of a payment notice is not fatal and a paying party will be entitled to commence a counter-adjudication seeking a “true value” of the invoice or account in question.

This is not a time for complacency and employers and main contractors must continue to comply with the payment regime.

However, in the event of default this case does allow a paying party to at least issue a counter-adjudication to nullify the effect of the inevitable decision of any first adjudicator being asked to order payment for failure to comply.

To discuss this or any other construction law issues please contact Blake Turner at info@blaketurner.com or on 020 7952 6214.

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How to correctly conclude a claim by way of a consent order

How to correctly conclude a claim by way of a consent order

In the matter Spice and Anor –v- Tuli and Anor [2012] which was heard in the Court of Appeal, the Defendant appealed the decision that the Claimant was allowed to bring a claim by way of a consent order based on the same set of facts as a claim which they agreed to dismiss.

The case discusses the use of the words “withdrawn”, “dismissed” and “discontinued” when concluding cases by way of consent. The word “withdrawn” is not appropriate as there is no provision in the CPR for a claim to be withdrawn, only discontinued or dismissed.

Facts

Spicer and Anor originally bought proceedings for possession. The day before the final hearing the Defendant provided disclosure. As the Claimant needed more time to investigate this disclosure they agreed a Consent Order dismissing the proceedings. In agreeing the consent order the Claimant’s Solicitor made it clear they would be investigating the disclosure and its validity.

Two months after the Order was filed the Claimant filed new proceedings, including the original claim for possession. The Defendant sought to strike out the claim on the basis that the claim for possession was barred as a result of cause of action estoppel. In addition, they argued that the fresh action was an abuse of process.

The application was unsuccessful and the Claimant was allowed to bring the second claim. The Defendant appealed the decision.

Decision

At the appeal it was concluded that there was no abuse of process. First, it was in the public interest that the disclosure was investigated for validity and secondly that the Claimant’s Solicitors had made it clear they would not stop the investigation just because the claim had been dismissed by way of consent.

The Court of Appeal considered the principle of cause of action estoppel. Whilst the principle of estoppel relies on the principle that there is finality of litigation it was created as “judge-made law”. As Judges often avoid setting absolute limits to any rule the Court of Appeal could understand why, in previous cases, the principle had been applied with a degree of flexibility rather than using a rigid application.

The case of Ako v Rothschild Asset Management Limited [2002] was considered. This is an Employment Tribunal case in which Dyson LJ concluded that a withdrawal or judgment by consent invariably results in a cause of action or issue estoppel. It was concluded that if it is clear that a party withdrawing their claim is not intending to abandon it or any issue within it then they cannot be barred from raising the point in subsequent proceedings unless it would be an abuse of process.

Although the Ako case was an Employment Tribunal case, and therefore subject to different rules than the Courts, Lewison LJ applied the case outside of Tribunal proceedings.
The appeal was dismissed and the Claimant was allowed to bring their second claim.

Comments

As a Claimant, care needs to be taken when signing consent orders. If there is an intention to bring the claim again in the future then proceedings need to be discontinued and not dismissed. In addition, it should be made clear to the Defendant’s Solicitors that there is an intention to bring future proceedings based on the same claim.

As a Defendant, before signing consent orders the Claimant’s intentions need to be clear. Defendant’s need to be aware of the implications in relation to the possibility of future proceedings against them.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this please contact [ ] on: [ ] or [ ].

The ruling in Tyco and an Employees Travel Time to Work

The ruling in Tyco and an Employees Travel Time to Work

The recent ruling by the ECJ in the case of Federación de Servicios Privados del Sindicato Comisiones Obreras v Tyco Integrated Security SL and Tyco Integrated Fire & Security Corporation Servicios SA (Case C-266/14) [2015] All ER (D) 55 (Sep) determined that the employees travel time to work count as part of their working hours. This decision will likely affect those who provide employees for client visits and is estimated to affect up to 1 million companies in the UK alone.

The ECJ considered where an employee travelled for their employment that this would form part of their ‘working time’. This was on the basis the employees were working by travelling to and from their jobs as part of their employment. Further, during this time the employees were at the employer’s disposal and these journeys were solely for the employee to carry out their duties required by their employment.

UK Employers will need to consider, where they employ employees with no fixed or habitual place of work, what changes need to be made in order to comply with Tyco. Most UK employers do not currently include journeys by mobile workers as part of their working hours. Accordingly, careful consideration will need to be made to ensure EU Working Time Directive on an employee’s maximum work hours of 48 hours per week is not breached.

Employers will need to consider if their employees are affected by Tyco and may have to seek to negotiate opt-outs with those employees who will exceed the 48 hour threshold. Employers should also consider whether appointments can be allocated in a way that allows an employee’s first and last appointments to be located close to their homes. Employers will also need to monitor affected employees to ensure their travel time is being solely used for employment purposes.

Read more blogs from Blake-Turner Solicitors.

Zero Hour Contracts and Unfair Dismissal

Zero Hour Contracts and Unfair Dismissal

On 11 January 2016, the Exclusivity Terms in Zero Hour Contracts (Redress) Regulations 2015 came into force.

In May 2015, exclusivity clauses were rendered unenforceable under the Small Business, Enterprise and Employment Act 2015; however there was little opportunity for an employee to enforce the ban against their employers.

Under the new legislation, a zero hour contract worker can now bring a claim for unfair dismissal where the reason for the dismissal is due to the worker breaching a contractual clause, prohibiting him from working for another employer. Additionally, a worker who has suffered detriment, as a result of their breach of the exclusivity clause, will now have the right to bring an action against their employer.

Employers and zero hour contract workers should be aware that, unlike other unfair dismissal claims; there is no qualifying period for a worker to be able to bring this claim.

For further information on this or any other employment related matter please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

Read further blogs from Blake-Turner Solicitors.

Personal Communications at work. Private or not? Bărbulescu v. Romania.

Personal Communications at work. Private or not? Bărbulescu v. Romania

The recent ruling, by the ECHR, in Bărbulescu v. Romania, confirmed there was no violation of an employee’s Article 8 human right to privacy, where the employee had used his company’s internet for personal communications uses during work hours, and was consequently dismissed.

Mr Bărbulescu was employed by a private company who had directed him to use Yahoo messenger as a means to liaise with clients. Mr Bărbulescu used the account for personal messaging including discussing his health and sex life. This constitutes a breach of his employment contract and as a result he was dismissed. Mr Bărbulescu proceeded to bring a claim against his employer for a breach of his Convention rights to privacy. Mr Bărbulescu considered that the Romanian courts should have excluded all evidence of his personal communications on the basis they were, by their very nature, private.

The ECHR considered that whilst the employee’s Article 8 rights to privacy were engaged the Romanian courts has struck a fair balance between his rights and the interests of the employer. The ECHR considered in accessing the data from Mr Bărbulescu’s work messenger account was not unreasonable, especially given the original access was on the basis it contained professional communications only. Further, the ECHR considered it reasonable for an employer to verify an employee was undertaking the work required within work hours.

Whilst this ruling does not give an employer an automatic right to monitor an employee’s personal communications, employees will no doubt be aware that private communications via work channels cannot be expected to be completely private.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this or any other employment related matter, please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

Read more blogs from Blake-Turner Solicitors.

Holiday Pay and Commission Payments

Holiday Pay and Commission Payments

The awaited decision in British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills UKEAT/0189/15/BA has been handed down.

Facts

Mr Lock was an energy trader and earned commission on sales as part of his remuneration package. Upon taking annual leave Mr Lock received his basic salary and any commission on previous sales however as he was unable to create new sales during his leave he did not receive commission.

Mr Lock brought claim on the basis he had suffered an unlawful deduction from his wages. He argued holiday pay should reflect the income a worker should normally receive had he been working.

The tribunal referred the case to the ECJ, who held commission payments must be taken into account when calculating holiday pay under the EU Working Time Directive.

Decision

The decision, by the EAT, confirms that the Working Time Regulations 1998 can be interpreted to include commission payments in the calculation of holiday pay in accordance with the four weeks annual leave set out in Regulation 13. The EAT considered this interpretation was compatible with the Directive.

Employers will now need to consider, where employees are remunerated based on commission payments, that any holiday pay that excludes commission payments will be considered an unlawful deduction and may give rise to an employment claim.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

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