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Jesper Christensen (Partner)E jesperchristensen@bdb-law.co.ukT +44 (0)20 7783 3545

HIGH COURT RULES THAT EMPLOYER CAN BE VICARIOUSLY LIABLE FOR MASS DATA BREACH CAUSED BY EMPLOYEE’S CRIMINAL ACTIONSIn Various claimants v Wm Morrisons Supermarket PLC, the first group litigation involving a mass data breach, the High Court has ruled that an employer was vicariously liable for an employee’s deliberate disclosure of the personal data of around 100,000 employees.

Mr Skelton was employed by Morrisons as a senior IT internal auditor, which meant that he had access to sensitive and confidential personal data about employees, including payroll information. He became disillusioned with Morrisons following disciplinary action brought against him in July 2013 which he believed was excessive. On 1 November 2013 Mr Skelton was asked to send payroll data to KPMG for external audit purposes. This data was provided to him on an encrypted USB stick which he downloaded onto his computer. He then loaded the information onto another USB stick and forwarded it to KPMG. On 18 November, Mr Skelton copied the data he had downloaded onto his computer onto a personal USB stick. On 12 January 2014, he posted online

a file containing the personal details of around 100,000 employees, including salaries, bank details, national insurance numbers and dates of birth. Morrisons took immediate steps to remove the data, which remained online for less than 24 hours. Mr Skelton was subsequently convicted of fraud and other offences, and received a sentence of eight years’ imprisonment.

A group civil action was brought against Morrisons by 5,518 affected employees for compensation in respect of breach of the Data Protection Act 1998 (DPA), misuse of private information and breach of confidence. The High Court held that Morrisons was not directly liable, but was vicariously liable for Mr Skelton’s actions.

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Morrisons argued that the DPA does not recognise any vicarious liability for unauthorised acts of employees, and that vicarious liability could not arise at common law for misuse of private information or breach of confidence. However, the High Court disagreed, ruling that Morrisons could in principle be vicariously liable for Mr Skelton’s actions under all three heads of claim.

The High Court went on to consider whether there was a sufficient connection between Mr Skelton’s acts and his employment to make it just and reasonable to impose liability on Morrisons. It concluded that there was a seamless and continuous sequence of events linking his employment and the disclosure of the data. For example, he was entrusted with the employee data as part of his job and was tasked with receiving and storing it, and sending it to a third party. Although his actions were unauthorised, they were still sufficiently connected to his role to render Morrisons liable. Since Mr Skelton had misused his position to harm other employees, it was only fair that

Morrisons, which had given him that position, should be held responsible.

This is a difficult case for employers. Subject to appeal to the Court of Appeal, it establishes the principle that a company can be vicariously liable for a data breach even where, as here, it has appropriate measures in place to ensure the security of employees’ personal data. The High Court acknowledged that there is no absolutely safe system for entrusting staff with sensitive data, and that there will always be rogue employees. However, as this case illustrates, a finding of vicarious liability is often based more on public policy than an employer’s culpability. Given the number of employees involved, the potential compensation payable by Morrisons is significant. A remedies hearing will be held at a later stage depending on the outcome of any appeal. Employer should note that the financial consequences of data breaches will be even more significant after the introduction of the EU General Data Protection Regulation in May 2018.

...A COMPANY CAN BE VICARIOUSLY LIABLE FOR A DATA BREACH EVEN WHERE IT HAS APPROPRIATE MEASURES IN PLACE TO ENSURE THE SECURITY OF EMPLOYEES’ PERSONAL DATA...

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Brian Gegg (Partner)E briangegg@bdb-law.co.uk T +44 (0)20 7783 3570

EMPLOYMENT APPEAL TRIBUNAL CONFIRMS THAT DISCLOSURES MADE PURELY OUT OF SELF-INTEREST ARE NOT PROTECTED UNDER WHISTLEBLOWING LEGISLATIONIn Parsons v Airplus International Ltd, the Employment Appeal Tribunal (EAT) held that a disclosure made by an employee purely out of concern for her own liability was not a qualifying disclosure.

In order to be protected against dismissal or detriment under the whistleblowing legislation, a worker must have made a ‘qualifying disclosure’. This is a disclosure of information which, in the reasonable belief of the worker, is made in the public interest and shows that one or more of the six specified types of wrongdoing has occurred.

Ms Parsons was employed by Airplus International Ltd as its Legal and Compliance Officer from 17 August 2015 to 22 September 2015. She raised concerns that Airplus was in breach of its legal obligations by not having a current consumer credit licence or a Money Laundering Reporting Officer (MLRO), and did not accept Airplus’ explanation that neither the licence nor the MLRO was required. It was obvious that Ms Parsons’ concerns were motivated by fear for her own potential personal liability for breaches of company law. Airbus therefore changed her job title to Analyst for Regulatory Affairs and Contract Management. Various complaints were made about Ms Parsons’ rude and

disrespectful manner when raising her concerns, culminating in an incident with the Managing Director when she queried whether key decisions were being minuted. Her employment was subsequently terminated due to her misconduct, including her irrational fixation on her personal liability, her inability to listen to colleagues, and what Airplus described as a ‘cultural mis-fit’.

The Employment Tribunal and the EAT both rejected Ms Parsons’ claim of automatic unfair dismissal mainly because her disclosures were made wholly in her own self-interest, and not in the public interest. The EAT noted that a disclosure does not have to be made entirely in the public interest in order to be protected, but it must be at least partially in the public interest. The EAT also confirmed that the Employment Tribunal was right to find that Ms Parsons’ concern about minute-taking was an enquiry made to ensure that she was protected on a personal basis, rather than a disclosure of information. In any event, Airplus was able to

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show that she had been dismissed for her misconduct, which was genuinely separable from the disclosures. It was significant that Airplus did not immediately decide to dismiss following Ms Parsons’ disclosures, but waited to see if changing her job title led to an improvement in her conduct.

This case is a reminder that self-interested disclosures do not necessarily prevent an employee from claiming

whistleblower protection, but this must not be the sole reason for making the disclosure. The employee must have a reasonable belief that making the disclosure was also in the public interest. The employer in this case was able to demonstrate that the employee was dismissed for a reason which was genuinely separable from the alleged disclosures. However, this will not always be so straightforward, particularly for

employees in compliance roles. Clear policies and procedures must be in place to deal with employees who raise matters which could be considered protected disclosures. Where an employee’s conduct or performance is also an issue, it is essential that all concerns are properly documented in order to be able to demonstrate that the reason for any dismissal or detriment is unconnected to the disclosure.

Nicholas Le Riche (Partner)E nicholasleriche@bdb-law.co.uk T +44 (0)20 7783 3560

EMPLOYER’S ATTEMPT TO BYPASS COLLECTIVE BARGAINING PROCESS BY APPROACHING EMPLOYEES DIRECTLY WAS A BREACH OF TULRCAThe Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) prohibits an employer from making direct offers to members of a recognised trade union in order to circumvent the collective bargaining process (section 145B).

In Kostal UK Ltd v Dunkley and others, the Employment Appeal Tribunal (EAT) ruled that an employer had breached this provision when it bypassed negotiations with Unite by contacting employees directly about changes to terms and conditions.

Kostal UK Ltd recognises Unite for the purposes of collective bargaining. Following negotiations with Unite in 2015, Kostal offered all employees a 2% increase in basic pay from January 2016 and a Christmas bonus; and for employees earning less than £20,000 a further 2% increase in basic pay. In exchange, Kostal proposed a number of changes in terms and conditions including a reduction in sick

pay for new starters, a reduced Sunday overtime rate, and consolidated rest breaks. However, the pay deal and these related changes were resoundingly rejected in a ballot on 3 December 2015.

On 10 December 2015, Kostal wrote to all employees setting out the same package and stating that failure to agree by 18 December 2015 would result in loss of the Christmas bonus and pay increase. Some employees then accepted this offer. On 29 January 2016, Kostal wrote to employees who had not accepted, offering a 4% pay increase and warning that if no agreement could be reached, they might be given notice on their contract of employment. A collective

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agreement on amended terms and conditions was eventually reached on 3 November 2016. However, a group of 57 employees brought Employment Tribunal claims alleging that Kostal’s letters of 10 December 2015 and 29 January 2016 amounted to an attempt to circumvent collective bargaining, and therefore infringed section 145B of TULRCA.

The Employment Tribunal upheld the employees’ claims, rejecting Kostal’s arguments that it had never attempted to cease collective bargaining and that the main purpose behind the offers in the letters to employees was to ensure that they did not lose their Christmas bonus. The Tribunal awarded each claimant the mandatory award (at that time £3,800) in respect of each of the two letters. Kostal appealed to the EAT on liability and remedy.

The EAT dismissed both the liability and remedy appeals. Kostal argued that there would

only be a breach of TULRCA if acceptance of the offer resulted in a permanent surrender of collective bargaining on the relevant terms, which was not the case here. However, the EAT held that there was nothing in TULRCA dealing with the duration of the effect of the direct offer. If acceptance of the direct offer to employees meant that at least one term of employment would be determined even temporarily by direct agreement, rather than collectively, this would breach TULRCA. The EAT also agreed with the Employment Tribunal that Kostal’s offers were intended to undermine Unite’s mandate. On remedy, the EAT confirmed that two distinct and separate offers had been made, and that employees were entitled to compensation in respect of each offer. The total compensation awarded to the claimants amounted to around £425,000.

As the EAT noted here, employers may be able to make offers directly to employees where collective

bargaining has broken down, if they can show that they have acted reasonably and with a genuine business purpose. However, this may be difficult to prove. The Kostal case illustrates the potential financial consequences of undermining collective bargaining. Each breach of section 145B of TULRCA will now result in a mandatory award of £3,907 per claimant and there is no statutory basis on which a Tribunal can reduce this amount.

...THE KOSTAL CASE ILLUSTRATES THE POTENTIAL FINANCIAL CONSEQUENCES OF UNDERMINING COLLECTIVE BARGAINING...

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EVIDENCE OF PRE-TERMINATION NEGOTIATIONS IS ADMISSIBLE WHERE THE TERMINATION DATE IS IN DISPUTEUnder the Employment Rights Act 1996 (ERA 1996), evidence of pre-termination negotiations between an employer and an employee is generally inadmissible in unfair dismissal proceedings (section 111A). In Basra v BJSS Ltd, the Employment Appeal Tribunal (EAT) has confirmed that this provision will not apply where the effective date of termination of employment (EDT) is in dispute.

Mr Basra was employed by BJSS Ltd as a technical architect. Following a meeting to discuss various complaints from clients concerning Mr Basra’s performance, on 1 March 2016 BJSS sent him two letters: an open letter inviting him to a disciplinary hearing; and a letter marked ‘without prejudice subject to contract’, offering him three months’ salary in return for immediate termination under a settlement agreement.

On 3 March, Mr Basra responded by email to the second letter, accepting the company’s offer ‘subject to contract and without prejudice’ and stating ‘today will be the last day at BJSS’. The company was then informed by Mr Basra’s solicitors that he had been signed off with stress and would not attend the disciplinary hearing. On 15 March, BJSS wrote to Mr Basra stating that his employment had terminated by agreement on 3 March. No settlement agreement was signed and Mr Basra subsequently commenced unfair dismissal proceedings in which both the EDT and the manner of termination were disputed.

BJSS contended that Mr Basra’s employment had terminated by mutual agreement on 3 March, relying

on its without prejudice offer and his acceptance by email; whereas Mr Basra argued that he was dismissed by BJSS on 15 March. The Employment Tribunal did not consider the company’s without prejudice offer on the basis that it formed part of the pre-termination negotiations and was therefore excluded from evidence under section 111A ERA 1996. However, Mr Basra’s acceptance email of 3 March was considered in evidence because, in the Tribunal’s view, the scope of section 111A ended once he had agreed to terminate his employment on the terms proposed. The Tribunal concluded that the email amounted to a resignation and that since there was no dismissal, Mr Basra’s unfair dismissal claim failed.

Zoe Merrikin (Solicitor)E zoemerrikin@bdb-law.co.ukT +44 (0)20 7783 3611

...THE EMAIL AMOUNTED TO A RESIGNATION AND THAT SINCE THERE WAS NO DISMISSAL, MR BASRA’S UNFAIR DISMISSAL CLAIM FAILED...

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On appeal, the EAT disagreed with the Tribunal’s approach. Given that the protection under section 111A ERA applies to pre-termination negotiations, it follows that the EDT must be determined first. Since the EDT was disputed in this case, the EAT concluded that the Tribunal was wrong to exclude evidence of negotiations before 3 March because they were relevant to determining the EDT. The EAT also held that the Tribunal was wrong to find that the acceptance email, without reference to the without prejudice offer, amounted to an unambiguous resignation. For example, if the correct EDT was 15 March then the acceptance email itself might be inadmissible. The case was remitted to the Employment Tribunal to establish the EDT as a preliminary point before considering the remaining issues.

This case confirms that under section 111A ERA, evidence of negotiations becomes admissible at the date the contract is terminated. It follows that, where there is a dispute as to the EDT, it is not possible to say what evidence should be excluded until that dispute is settled. Any communications with employees about termination of employment must be carefully and unambiguously worded in order to avoid any unnecessary dispute, particularly in relation to the EDT. Employers should also make a clear distinction between open discussions and correspondence which they may wish to rely on in Tribunal proceedings, and without prejudice or protected discussions which will not generally be admissible.

...THIS CASE CONFIRMS THAT UNDER SECTION 111A ERA, EVIDENCE OF NEGOTIATIONS BECOMES ADMISSIBLE AT THE DATE THE CONTRACT IS TERMINATED...

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GOVERNMENT PUBLISHES TEN YEAR STRATEGY FOR REFORM OF HEALTH AT WORK The Department for Work and Pensions and the Department of Health have published ‘Improving lives – The Future of Work, Health and Disability’, a report setting out a ten year programme to reform the employment prospects of those with disabilities and long term health conditions, and to promote well-being in the workplace.

The reforms focus on three main areas: creating a healthy and inclusive workforce; ensuring access to effective health advice; and operating a sustainable welfare and employment support system.

Key proposals of particular relevance to employers include:• improve advice and support

for employers of all sizes, including enhancing the Access to Work and the Disability Confident schemes;

• identify the key skills needed by line managers to create an inclusive and supportive work environment;

• increase transparency by establishing a framework for voluntary reporting on mental health and disability for employers with more than 500 employees;

• reform statutory sick pay to extend eligibility criteria and enable flexible and phased returns to work;

• consider introducing a right to return following a period of sickness absence;

• commence a comprehensive programme of analysis and research to look at the wider framework of incentives and expectations relevant to employers’ decisions on managing staff health and well-being, including considering whether to introduce financial incentives for SMEs which offer occupational health services to employees;

• appoint an Expert Working Group on Occupational Health to consider reform of occupational health services in order to improve the quality of existing provision and ensure that they are readily accessible to all;

• encourage healthcare professionals to provide advice on returning to work, potential adjustments and managing health or disability in the workplace; and

• reform the fit note system, for example, by extending fit note certification powers to other healthcare professionals; developing a set of competencies for those completing fit notes; considering the feasibility of clinical guidelines for workplace adjustments for the top five clinical reasons employees are absent from work; and integrating fit note training into GP education.

Ian Wasserman (Associate)E ianwasserman@bdb-law.co.ukT +44 (0)20 7783 3574

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GENDER PAY SANCTIONSThe Equality and Human Rights Commission (EHRC) is undertaking a consultation on its draft enforcement strategy for private, voluntary and public sector employers who fail to comply with the requirement to publish gender pay gap information under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.

Although the EHRC would engage with employers on an informal basis initially, it would take enforcement action where employers do not subsequently publish the required data. Employers will be offered the opportunity to enter into written agreements specifying the action required. Employers who are still in breach will then be issued with unlawful act notices. Continued failure to

comply may lead to proceedings resulting in unlimited fines and summary convictions. The EHRC will also encourage employers to publish the required data by promoting awareness as well as monitoring and publishing compliance statistics.

Tim Hayes (Associate)E timhayes@bdb-law.co.ukT +44 (0)20 7783 3790 ...CONTINUED

FAILURE TO COMPLY MAY LEAD TO PROCEEDINGS RESULTING IN UNLIMITED FINES AND SUMMARY CONVICTIONS...

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AND FINALLY...The Department for Business, Energy and Industrial Strategy has published an independent review of electronic balloting (e-balloting) for industrial action, led by Sir Ken Knight. This covers electronic and physical security, safeguarding against intimidation, and protecting anonymity. The review concludes that e-balloting should be tested in a non-statutory context to assess its reliability and to ensure that the technology is capable of withstanding cyber-attack, manipulation and hacking. It also recommends considering whether independent auditors should be used to provide assurance for the entire e-balloting process, particularly in disputes involving important public services. The Government has said that it will consult with experts from relevant organisations prior to responding to Sir Ken Knight’s recommendations.

The latest Ministry of Justice quarterly Employment Tribunal statistics for the period July to September 2017 indicate the effect of the abolition of Tribunal fees on 26 July 2017. The most significant development is that since the same period in 2016, the number of claims lodged by single applicants has increased by 64%. The number of claims lodged by multiple applicants has decreased by 15%. Also during this quarter, Employment Tribunals disposed of 10,165 claims, up 23% compared with the same period in 2016. This was driven by a 42% increase in multiple

claim disposals, which make up two thirds of all disposals.

The Department for Work and Pensions (DWP) has published its 2017 review of automatic enrolment. This includes details of a number of proposed reforms including reducing the lower age threshold from 22 to 18; removing the lower earnings limit for calculating contributions, so that contributions are calculated from the first pound earned; and encouraging atypical workers and workers with multiple part-time jobs to opt in. These reforms are due to be introduced in the mid-2020s to ensure that employers have time to adapt to the increased costs involved, particularly taking into account the increases in statutory minimum contribution rates in April 2018 and April 2019. The DWP has also confirmed that the earnings trigger will be frozen at £10,000 for 2018/19, and the lower and upper ends of the qualifying earnings band will continue to be set in line with the national insurance contributions’ lower and upper earnings limits.

The Government has announced that due to low referral rates, the assessment services provided by the Fit for Work Service will end in England and Wales on 31 March 2018 and in Scotland on 31 May 2018. In practice, no new referrals have been accepted since 15 December 2017 but those cases currently in the system will continue to be dealt with until 31 March

Caroline Yarrow (Partner)E carolineyarrow@bdb-law.co.uk T +44 (0)20 7783 3538

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2018. General health advice and support relating to sickness absence will still be available through the website and telephone helpline.

The Government Equalities Office has published a new toolkit which aims to help employers develop an action plan to close their gender pay gap and to monitor progress. Suggested actions include ensuring a diverse mix of candidates in recruitment, for example, by using gender-neutral language; advertising all jobs as flexible from day one unless there are good business reasons not to do so; designing every job as flexible by default; supporting parents; ensuring that remuneration policies are fair; and introducing annual equal pay audits to check for gender bias. The toolkit also stresses the importance of assigning responsibility for monitoring progress to a member of the senior leadership team.

The Treasury has published its response to the call for

evidence on the taxation of employee expenses. In light of the contributions received, the Government has concluded that there is no need for fundamental reform, or for restrictions to the current tax relief for reimbursed and non-reimbursed expenses. However, several proposals to improve and simplify the expenses system for businesses and employees have been put forward. As announced in the Autumn Budget 2017, there will be further consultation on extending the scope of tax relief for work-related training costs; the requirement for employers to check receipts when reimbursing subsistence expenses will be removed from April 2019; potential improvements to the guidance on employee expenses will be explored; and the existing concessionary accommodation and subsistence overseas scale rates will be placed on a statutory basis from April 2019.

...HE GOVERNMENT HAS CONCLUDED THAT THERE IS NO NEED FOR FUNDAMENTAL REFORM, OR FOR RESTRICTIONS TO THE CURRENT TAX RELIEF...

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