Supreme Court: no vicarious liability where employee pursues own personal vendetta

In the case of W.M. Morrisons v. Various Claimants, the Supreme Court overturned a previous Court of Appeal judgment and ruled that the supermarket giant, Morrisons, should not be held vicariously liable for the actions of an employee who leaked the personal data of almost 100,000 employees. 

A disgruntled employee had been asked to perform an auditing task on the company database. He then decided to upload the personal data of the employees, including names and bank details, onto a file-sharing website before informing the press of the breach himself. Morrisons immediately took steps to rectify this when they discovered the leak. However, this did not stop a class action from more than 5,000 affected employees. The Court of Appeal initially found that, even though the employee who leaked the data was not acting in the course of his employment, Morrisons could still be held to be vicariously liable for the breach. The Supreme Court overruled this finding on appeal. It concluded that employers should not be liable for an employee's wrongful act where that act was not in pursuit of furthering the employer's business or was an effort deliberately to harm the employer as part of a vendetta.

The Supreme Court provided much needed clarity on the limitations of vicarious liability where the wrongful actions are those of rogue employees.

Good news for employers as the threshold for the "cost-plus" approach lowered

The Court of Appeal case of Heskett v. Secretary of State for Justice (Heskett) dealt with indirect discrimination and considered the extent to which a pay policy introduced by an employer to comply with the government's public sector pay freeze (and so reduce its staff costs) could justify an action which was potentially indirectly discriminatory.

Case law has established that employers cannot justify a discriminatory policy if it is solely to save costs. However, a "cost-plus" argument may be able to succeed, if the employer can satisfy the court that cost is one of a number of factors.

In Heskett, the claimant, a probation officer, brought an action after his employer sought to introduce a new pay progression policy. This had, in turn, been introduced as a result of the Treasury introduction of a policy limiting public sector pay increases. Under the new policy, the claimant would progress one pay point per year, as opposed to three pay points under the old policy. The claimant alleged that this practice indirectly discriminated against those who were under the age of 50, as older employers stood to earn significantly more than those in his position and age. The employer's justification for the new system was that the business needed to "balance its books" and to live within its means, and that the policy was temporary. The employment tribunal had found that the policy was potentially discriminatory but that it was a proportionate (short-term) means of achieving a legitimate aim and so justified. The EAT upheld the decision.

The claimant appealed to the Court of Appeal. He argued that the employer's argument of absence of means was essentially the same as trying to justify discrimination on cost alone.

The Court of Appeal disagreed. It found that an employer's need to reduce costs (in this case, staff costs) in order to live within its means (or "balance the books") could amount to a legitimate aim. There was a distinction between a situation where avoiding a discriminatory impact just cost more and where the steps to avoid that impact were unaffordable. However, even where the aim is legitimate, an employer still has to show that the measures are a proportionate way of achieving that aim. In this case, although the claimant had argued that the employer had not established that the policy was temporary, the Court of Appeal rejected this but made clear that the temporary nature of the policy was a relevant factor in its decision on proportionality.

The case is a helpful reaffirmation of the cost-plus approach. It is useful for employers to know that the need to "balance the books" can be considered a legitimate aim. However, the primary position remains that "cost alone" will not justify a discriminatory measure and, even where an employer can establish a legitimate aim, it needs also to establish that the measure is a proportionate means of achieving it.

Will an employer using an interview process for selection of suitable alternative employment in redundancy situations be considered unfair dismissal?

In the case of Gwynedd Council v. Barratt & Other, Gwynedd Council decided to implement a reorganisation of the schools in the local area and closed a number of primary schools, which included the schools where both of the claimants worked. However, alternative employment opportunities were offered in a new school being created. Instead of creating a scoring matrix to determine those who might be suitable for these positions, the Council decided to use an interview process. Both the claimants were interviewed and both were unsuccessful, despite the fact that the new positions were essentially the same as the positions they had held in the previous schools. The Council did not consult unsuccessful employees and did not allow for any appeal. The Employment Tribunal found that the redundancy process was unfair, both because of the use of this interview process and the unfairness in the process (no consultation and no appeal). The Employment Appeal Tribunal (EAT) upheld this decision. It drew a distinction between where an alternative position is a new (i.e. different) role, for example where it is more senior and/or has different skill requirements, where a forward-looking selection process (like interviewing) would be reasonable and where, as here, the roles were the same as the claimants' previous roles. The EAT considered that the fact that the claimants were, in reality, reapplying for their own jobs, together with the lack of consultation or appeal, made their dismissal unfair.

This case does not mean that an employer should never interview when considering alternative employment in a redundancy situation. It does mean that employers should look carefully at the differences between the requirements of the old role and the new role to consider whether they are so similar that a scoring matrix should be used or whether an interview is appropriate.

Beneficial contract changes made before TUPE transfer not enforceable

It is well established that a transferee cannot make detrimental changes to an employee contract, where the reasons for the change is the transfer itself and that such changes are void. The case of Ferguson v. Astrea Asset Management Ltd dealt with the question of whether the same principle would apply to beneficial changes, made before a TUPE transfer. In this instance, four directors, who were also the owners of the transferor, made advantageous changes to their contracts, before the transfer. Once these changes were discovered by the transferee, two were dismissed post-transfer. (The transferee disputed, for other reasons than the beneficial changes, that the remaining two directors transferred.) In an action subsequently brought by all the individuals, the EAT confirmed that TUPE was designed to protect employee rights, not to enhance them. In this case, the changes were clearly made in anticipation of the transfer. Accordingly, in line with the rationale used to protect employees from diminished contracts in the wake of impending transfers, the EAT concluded that the directors' changes were void. 

For further insight into any of the cases above or to see even more of the standout matters from 2020, feel free to take a look at our Dentons Blog.