Nosworthy v Instinctif Partners Ltd UKEAT/0100/18 – ‘Bad leaver’ provision requiring forfeiture of shares and loan notes was not unlawful
In this case, the Employment Appeal Tribunal (EAT) held that a bad leaver provision forcing an employee to give up her shareholding if she resigned was not an ‘unconscionable bargain’. Nor was it void as a penalty clause or an unlawful deduction from wages.
Miss Nosworthy (N) was given a 2% shareholding in her employer when it was sold to Instinctif Partners Ltd. Subsequently, N sold her shares to Instinctif under the terms of a Share Purchase Agreement (SPA) which provided for initial consideration and deferred consideration which included staged cash payments and an entitlement to earn-out shares and loan notes subject to ‘good/bad leaver’ provisions. A ‘Bad Leaver’ included an employee who voluntarily resigned and the Articles of Association required that the shares of a ‘Bad Leaver’ were re-acquired at the lower of acquisition cost or fair value.
N resigned, was treated as a Bad Leaver, and had to transfer her shares which were valued at acquisition cost, a total of £143. N sought to challenge the Bad Leaver provisions by way of a breach of contract and unauthorised deductions from wages claim in an Employment Tribunal. She argued that the provisions were unenforceable as they were ‘unconscionable’ and in breach of the rule against penalty clauses.
The Employment Tribunal considered it was able to hear N’s complaint about the forced share transfer on the basis the SPA was a “contract connected with employment” for the purposes of its breach of contract jurisdiction. However, it decided the Bad leaver provisions were neither, as contended, unconscionable, nor a penalty. It also held that the forced share transfer was not an unlawful deduction from wages because Section 27(2)(e) of the Employment Rights Act 1996 (being the relevant section on this point) excludes claims for ‘any payment to the worker otherwise than in his capacity as a worker’. The earn-out shares and loan notes were deferred consideration for the share sale and so were provided to the claimant in her capacity as a seller of shares, not as a worker.
The EAT agreed. The criteria for setting aside an agreement as unconscionable in Alec Lobb (Garages) Ltd v Total Oil (GB) Ltd were not satisfied. This was not a case where the claimant had been at a serious disadvantage when making the agreement, whether through poverty, ignorance, lack of advice or otherwise, leaving her vulnerable to unfair disadvantage. Nor were the Bad Leaver provisions a penalty. A penalty is a sum or remedy stipulated as a consequence of a breach of contract. But here the re-transfer obligation arose because of the terms of the Article of Association, not because of a breach of contract.
Bad Leaver provisions in Share Purchase Agreements are often drafted widely enough to include employees who resign (as opposed to those who have been dismissed for good reason). This case underlines the importance of prospective employee shareholders obtaining legal advice on the potential consequences of good/bad leaver provisions.
Grange v Abellio London Ltd EAT/0304/17 – Personal injury damages are available for a failure to provide rest breaks under the Working Time Regulations 1998
The Employment Appeal Tribunal (EAT) has held that compensation for personal injury is available for a failure to provide rest breaks under the Working Time Regulations 1998.
Under the Working Time Regulations 1998 (WTR), workers are entitled to an unpaid rest break of 20 minutes when working for more than 6 hours per day. Regulation 30(4) WTR provides that an Employment Tribunal may make an award of compensation for breach of this right that the Tribunal considers ‘just and equitable in all the circumstances’ having regard to both the employer’s default in refusing to permit the worker to exercise the right and any loss sustained by the worker which is attributable to the default.
Mr Grange (G) was employed as a ‘Relief Roadside Controller’ by Abellio London Ltd and his job required him to regulate and monitor bus services. He initially worked eight and a half hours per day, with a half hour unpaid rest break, which he found difficult to take. In 2012, G’s hours were changed so he was required to work eight hours per day but finish half an hour earlier. Mr Grange brought a claim in the Tribunal, claiming that he had been denied his entitlement to a rest break under the WTR. The Tribunal dismissed his claim, finding that he had not been denied his right since no actual request had been made and refused. Mr Grange appealed to the EAT which found that an employer has a duty to provide a worker with a rest break, regardless of whether it has been requested. It said that whilst workers could not be forced to take rest breaks, employers must proactively ensure that working arrangements allowed for workers to take those breaks. The EAT remitted the case back to a Tribunal to determine whether, as a matter of fact, rest breaks had been denied to G.
On remittal, the Employment Tribunal heard evidence from G that, due to a medical condition involving his bowels, the lack of rest breaks had caused discomfort that was more than a minor inconvenience. On this basis, the Tribunal considered that a just and equitable award of compensation (under Regulation 30(4) WTR) was £750.
Abellio appealed, arguing that Regulation 30(4) did not permit an award of damages for personal injury and, in the alternative, that £750 was excessive.
The EAT held that Employment Tribunals are permitted to award damages for personal injury under Regulation 30(4) WTR. It made the point that as the key objective of the WTR is to protect the health and safety of the worker. It considered the recent Court of Appeal case of Gomes v Higher Level Care Limited  EWCA Civ 418 in which the Court confirmed that injury to feelings awards were not available to employees who have been denied rights under the WTR but the EAT held that the decision in Gomes was concerned with injury to feelings awards and did not rule out personal injury awards.
It rejected Abellio’s argument that the award was excessive or made without any rigorous assessment. It held that Tribunals should be empowered to deal with low value cases on a common-sense basis without the need for medical evidence. In this case, G had given evidence about the effect of the absence of rest breaks on his health and had been cross-examined about it. That was sufficient and there was no basis to interfere with the award of £750.
This case highlights that employers should ensure that working arrangements and shift patterns enable workers to take rest breaks, regardless of whether a worker requests to take a break. Employers can not argue that a worker chose not to take their breaks if a heavy workload or high-pressure environment meant that the worker was realistically unable to do so.
This decision may lead to more claims for personal injury damages where workers have been denied rest breaks and can prove they have suffered more than a minor inconvenience as a result, for example, musculoskeletal problems. The case provides authority for Tribunals to make a common-sense assessment of loss in low value personal injury claims without the need for formal medical reports and investigation.
Breach of the WTR can also lead the Health and Safety Executive to issue notices of improvement or prohibition. Employers who do not comply with these notices within the time limit commit a criminal offence and, in cases of high risk and serious non-compliance, could face prosecution, with the imposition of unlimited fines and up to two years’ imprisonment for directors.
Finally, bear in mind that the WTR gives rights to ‘workers’ which involves a much wider category than traditional employees. Recent “gig economy” cases on the issue of worker status show that self-employed or freelance contractors could classify as workers if they are not in business on their own account and are required to provide the service personally.
Network Rail Infrastructure Ltd v Crawford  EWCA Civ 269 – Compensatory rest break need not be single and continuous period of 20 minutes
In a decision that will be of interest to employers in many sectors including transport, health and social care, the Court of Appeal (CA) has held that a worker’s right to compensatory rest under the Working Time Regulations (WTR) does not need to be an uninterrupted rest break of 20 minutes. A rest break for ‘special case’ workers has to be ‘equivalent to’ not ‘identical to’ the normal 20 minutes rest break entitlement.
Regulation 12 of the WTR provides that a worker is entitled to a 20-minute break, away from their workstation, where their daily working time exceeds six hours. There are ‘special cases’ set out at Regulation 21, where this rest break requirement does not apply and, instead, the worker should be allowed to take an equivalent period of compensatory rest wherever possible.
Mr Crawford (C) was a railway signalman for Network Rail. He fell within the ‘special case worker’ exception set out above. He worked 8-hour shifts providing relief cover at various signal boxes. Although there were often only six trains per hour, he had to continuously monitor his post and could be called upon at any time to carry out his duties. This meant he was unable to take a continuous rest period of 20 minutes but he was permitted to take short breaks (“between periods of operational demand when there are opportunities for naturally occurring breaks”) which amounted to well in excess of 20 minutes over the course of a shift. The Tribunal heard that some signalmen undertook hobbies whilst being on call as one of the challenges of the job was not having enough to do.
C brought a claim to the Employment Tribunal arguing that he was entitled to a 20-minute rest break and that if the compensatory rest provisions applied to him, any compensatory rest should be for an uninterrupted period of 20 minutes.
Network Rail argued that it had complied with its compensatory rest obligations by allowing discontinuous shorter periods which amounted to at least 20 minutes in total.
The Employment Tribunal rejected C’s claim on the basis that he was a special case worker and had been permitted, an indeed encouraged, to take compensatory rest breaks. C appealed to the EAT which overturned the Tribunal’s decision and found that discontinuous rest breaks could not amount to compensatory rest, one continuous period was required.
Network Rail appealed to the Court of Appeal on the basis that the EAT had been wrong to hold that compensatory rest could not be provided by discontinuous breaks.
Court of Appeal decision
The Court of Appeal restored the original decision of the Employment Tribunal. It held that there was no basis for finding that a period of compensatory rest had to be an uninterrupted period of 20 minutes. The obligation under the WTR is to provide rest which is ‘equivalent to’ not ‘identical to’ Regulation 12 rest. It said that the rest should have the same value in terms of contributing to wellbeing and this involves an evaluative comparison. There was no reason why two 15-minute breaks should not be as good as one 20-minute break and different kinds of rest may be appropriate in different cases.
This is a reassuring case for employers who employ ‘special case’ workers and indicates that a common-sense approach can be taken as long as the worker’s overall well-being is considered in assessing whether the compensatory rest period (or periods) are ‘equivalent to’ the Regulation 12 entitlement of a continuous 20-minute break.