Categories
The Employment Contract

Force Majeure Clauses in the Employment Contract and the Coronavirus (Covid-19)

Does force majeure leave offer any relief to employees in the current Covid-19 crisis? 

Or does it create even more problems for employers who are already concerned about the many implications arising from the spread of the virus in Ireland?

Force majeure is defined as a “superior force” and is afforded statutory recognition in Irish law in the Parental Leave act 1998 as

13.—(1) An employee shall be entitled to leave with pay from his or her employment, to be known and referred to in this Act as “force majeure leave”, where, for urgent family reasons, owing to an injury to or the illness of a person specified in subsection (2), the immediate presence of the employee at the place where the person is, whether at his or her home or elsewhere, is indispensable.

(2) The persons referred to in subsection (1) are—

(a) a person of whom the employee is the parent or adoptive parent,

(b) the spouse of the employee or a person with whom the employee is living as husband or wife,

(c) a person to whom the employee is in loco parentis,

(d) a brother or sister of the employee,

(e) a parent or grandparent of the employee, and

(f) persons of such other (if any) class or classes as may be prescribed.

(3) When an employee takes force majeure leave, he or she shall, as soon as reasonably practicable thereafter, by notice in the prescribed form given to his or her employer, confirm that he or she has taken such leave and the notice shall specify the dates on which it was taken and contain a statement of the facts entitling the employee to force majeure leave.

(4) Force majeure leave shall consist of one or more days on which, but for the leave, the employee would be working in the employment concerned but shall not exceed 3 days in any period of 12 consecutive months or 5 days in any period of 36 consecutive months.

(5) A day on which an employee is absent from work on force majeure leave in an employment for part only of the period during which he or she is required to work in the employment on that day shall be deemed, for the purposes of subsection (4), to be one day of force majeure leave.

Force majeure clauses in employment contracts

Some executive type contracts of employment may contain a force majeure clause, and most employment contracts will refer to the statutory relief provided for force majeure in the Parental Leave Act 1998.

A force majeure clause will usually have the effect of suspending the obligations of one or both parties in certain exceptional circumstances. That is to say, events like storms or earthquakes or other acts described as “acts of God” may qualify as force majeure events as envisaged by the contract.

However, there is no presumption in Irish law of a force majeure event, thus the parties need to specify what events are intended to be covered by the force majeure clause. Without this clarity the clause may be unenforceable on the grounds that it is void due to the uncertainty and lack of clarity around it.

The precise scope of the force majeure provision will depend on the context in which it is used: ‘A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.’ (Lebeaupin v Crispin [1920] 2 KB 714)

Is Covid-19 a force majeure event?

It is worth noting that the phrase force majeure has no recognised or widely accepted meaning in English law.

The question, therefore, of whether Covid-19 is a force majeure event is a question that will almost certainly be determined by the particular circumstances of the contract and what was envisaged, what type of work was involved, whether performance of the contract was genuinely prevented by the coronavirus, and so forth.

The “force majeure event” should be defined in the force majeure clause in the contract. For example:

“Force Majeure Event” means an event, or a series of related events, that is outside the reasonable control of the party affected (including power failures, industrial disputes affecting any third party, changes to the law, disasters, explosions, fires, floods, riots, terrorist attacks and wars).

If a dispute arises, however, it is likely that a Court will interpret the clause strictly and narrowly.

Force majeure clause examples

Example 1

Force Majeure. 

Each Party shall be excused from liability for the failure or delay in performance of any obligation under this Agreement by reason of any event beyond such Party’s reasonable control including but not limited to Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest, accident, any strike or labor disturbance, or any other event similar to those enumerated above. Such excuse from liability shall be effective only to the extent and duration of the event(s) causing the failure or delay in performance and provided that the Party has not caused such event(s) to occur and continues to use diligent, good faith efforts to avoid the effects of such event and to perform the obligation. Notice of a Party’s failure or delay in performance due to force majeure must be given to the unaffected Party promptly thereafter but no later than five (5) days after its occurrence which notice shall describe the force majeure event and the actions taken to minimize the impact thereof. All delivery dates under this Agreement that have been affected by force majeure shall be tolled for the duration of such force majeure. In no event shall any Party be required to prevent or settle any labor disturbance or dispute. Notwithstanding the foregoing, should the event(s) of force majeure suffered by a Party extend beyond a four-month period, the other Party may then terminate this Agreement by written notice to the non-performing Party, with the consequences of such termination as if this Agreement had expired (and was not terminated) in accordance with Section xxx.

Example 2

Force Majeure. Notwithstanding anything to the contrary contained herein, neither party shall be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, acts of war or terrorism, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties or civil unrest. Notwithstanding the foregoing, in the event of such an occurrence, each party agrees to make a good faith effort to perform its obligations hereunder.

Example 3

Force Majeure. A party shall not be liable for any failure of or delay in the performance of this agreement for the period that such failure or delay is

  1. beyond the reasonable control of a party,
  2. materially affects the performance of any of its obligations under this agreement, and
  3. could not reasonably have been foreseen or provided against, but

will not be excused for failure or delay resulting from only general economic conditions or other general market effects.

Notices

Each party would normally be obliged to serve some notice on the other party and inform the other party as soon as possible of the difficulty or impossibility of performing the contract and suspending it for a time.

Conclusion

A contract of employment may benefit both employer and employee by the inclusion of a “force majeure” clause. However, it is not a silver bullet solution to the Covid-19 problem facing both employers and employees in Ireland.
Here is a link to the Coronavirus guidance for employers and employees on the WRC website.

Categories
The Employment Contract

The Domino’s Pizza Delivery Drivers High Court Case-Employees or Self-Employed?

Are pizza delivery workers employees or self-employed?

This is a question that the Irish High Court has addressed with a judgment in December 2019 in a case involving Domino’s Pizza delivery drivers.

It is an issue that has previously been addressed in the UK courts in cases involving Uber and Deliveroo delivery drivers. But this High Court case involving Karshan (Midlands) Limited (t/a Domino’s Pizza) v Revenue Commissioners [2019] IEHC 894 was the first time an Irish court had to decide the issue.

Background

The Revenue Commissioners had decided that the delivery drivers delivering pizza for the company trading as Domino’s Pizza were employees for tax purposes. The company insisted they were self-employed and therefore responsible for their own tax affairs and returns. The company trading as Domino’s Pizza appealed the decision of the Tax Appeal Commissioners to the High Court on a number of grounds, the most important of which was that the Revenue Commissioners had erred in law in applying some well-established principles to the case.

These principles are:

  1. Mutuality of obligation-that is, does the company have to provide work and does the delivery driver have to accept it? The company argued that the delivery drivers were not obliged to work, they could pick an choose their jobs, and therefore the necessary mutuality of obligation between the parties was absent.
  • Substitution-normally, if you are allowed to substitute someone else to do your job or carry out duties you are not an employee, you are self employed
  • Integration-were the delivery drivers integrated into the business? If they were then they were likely to be employees but the company argued that they were an “accessory” to the business, not integral
  • Contractual terms-the company argued that the Revenue Commissioners did not place enough weight on the actual terms and conditions between the parties and placed too much emphasis on how the contract was actually operated

The High Court Findings

The High Court found that once the drivers filled out an availability sheet they then had an obligation to be available. Because of this the High Court held there was mutuality of obligation.

The High Court also  found that the purported substitution clause only allowed the driver to nominate a replacement who would then be approved and paid by Dominos. This was not true substitution.

The Court, in looking at the question of integration into the business, found that the drivers were integral to and played a vital role in the business. It also noted the drivers were obliged to wear uniforms and take orders from Dominos, not the general public or end user.

When it looked at the contractual terms the High Court found that the Revenue Commissioners not made a mistake in looking at how the contract was actually performed, as opposed to the terms and conditions set out in the written contract.

For all of these reasons the High Court held that the delivery drivers were employees for tax purposes.

Takeaway (no pun intended)

One of the most important points to take from this case is the High Court’s observation that there is “no comprehensive statutory or common law definition”  of who is self-employed and who is an employee. For this reason each case will be decided on its particular facts and circumstances.

It also noted there was no box ticking exercise that you could complete to answer the question; each case must be looked at and a close scrutiny of the relationships between the parties must be carried out to be sure of the position.

This has important implications for employers who need to be aware of the emphasis that will be placed on the actual relationship between the parties, and not just on what is contained in the written contract.

Read the full decision in Karshan (Midlands) Limited (t/a Dominos Pizza) v Revenue Commissioners [2019] IEHC 894 

Categories
Employment Injunctions The Employment Contract

3 Takeaways from the Ryanair V Peter Bellew High Court Case

The High Court case between Ryanair DAC and Peter Bellew is an important one because it gives us further guidance in the area of restrictive covenants in the contract of employment. A restrictive covenant is basically a covenant in a contract of employment preventing a departing employee from working for a competitor for a certain period of time after departing from his employment.

In Ryanair DAC the airline sought to prevent Mr Bellew from working for a competitor in any capacity for a period of 12 months after leaving Ryanair. This was what Mr Bellew had signed up for when he signed his contract of employment.

Ryanair sought to prevent him from taking up employment with Easyjet and sought an injunction in the High Court to enforce the covenants in his contract of employment with Ryanair. One of those covenants was as follows:

For a period of 12 months after the termination of your employment you shall not, without the prior written consent of the Company, directly or indirectly in any capacity either on your own behalf or in conjunction with or on behalf of any other Person;

a. be employed, engaged, concerned or interested in any capacity in any business wholly or partly in competition with the Company for air passenger services in any market;

b. solicit or entice or endeavour to solicit or entice away from the Company any person who was employed within in (sic.) a senior executive, managerial, or technical capacity by the Company.

1.2 If you receive an offer of employment or engagement during your employment with the Company, or before the expiry of the restriction period set out in this clause, you shall give the person or entity making the offer a copy of this clause.

The defendant in this matter fully admits that he freely signed the covenant and at the time of signing he fully understood its meaning and purpose but makes the case that he is not bound by said covenant.

The case law in this regard provides to be useful and instructive as to the approach adopted by the Irish Courts in relation to restrictive covenants.

Macken v. O’Reilly 1979 I.L.R.M 79

“All interference with an individual’s freedom of action in trading is per se contrary to public policy and, therefore, void. The general prohibition is subject to the exception that certain restraints may be justified. Restraints, restrictions or interferences are permitted if they are, in the circumstances obtaining, fair and reasonable. Whether what is complained of can be justified on this basis involves a careful examination of all the circumstances – the need for restraint, the object sought to be attained, the interests sought to be protected and the general interest of the public. What is done or sought to be done must be established as being reasonable and necessary and on balance to serve the public interest”

Murgitroy & Company Ltd v. Purdy 2005 IEHC 159

This a much more recent decision where the Chief Justice Clarke J. outlined that a restrictive term will not be implemented unless it satisfies the limbs of the following test

  1. The restriction is reasonable between the parties
  2. The restriction is consistent with the interests of public policy

The facts of Murgitroy are as follows. A restrictive covenant in a contract of employment restricted a Patent Lawyer from working in same sector for a period of twelve months in the Republic of Ireland. Clarke CJ.  Found the restriction in relation to the geographical nature (not working in Ireland) and the length of the restriction was reasonable and justified based on the nature of the employers business. However Clarke J. found that the result of allowing the aforementioned restrictions would create another, being the restriction to approach clients who are not pre-existing clients of the employer from being engaged by the ex-employee was too restrictive. The position of this case was affirmed in the more recent example of Net Affinity v Conaghan 2012 3 I.R 67.

Stenhouse ltd v. Philips 1974 A.C 391

The covenant entered into needs to be reasonable between the parties. The holding of this case outlines that the restriction sought must be a reasonable one and cannot restrict an employee from using his skill and knowledge in future endeavors. However, the employer can restrict the employee from using assets or ‘insider knowledge’ that must be regarded as company property.

The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man’s improving ability and talents which lies at the root of the policy of the law regarding this type of restraint. Leaving aside the case of misuse of trade secrets or confidential information … the employer’s claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.’

This becomes especially necessary when discussing trade secrets/ confidential information or market sensitive information. Any property or assets of the company that the employee is leaving must be protected by restrictive covenant because it is essentially, company property. Even if the employee may have contributed to the ‘company property’ the employer will still be granted protection for what is ultimately their property.

However, with regard to skill, knowledge and essentially the employee’s property, no restrictive covenant can restrict this movement. It must also be noted that if an employer is seeking to enforce a restrictive covenant simply to protect himself from mere competition, this will not be allowed.

In the Ryan Air case, Allen J. opined that that covenants are generally never reasonable unless if the competition was allowed it would take advantage of the employers trade position.

The High Court also looked at Hernandez v. Vodafone Ireland LTD 2013 IEHC 70 andTillman v Egon Zehnder Ltd from the United Kingdom Supreme Court.

High Court decision

The High Court recognized the difficulty in practice of enforcing a confidentiality clause and referred to Lord Denning in Littlewoods Organisation Limited v Harris [1978]

It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.”

The High Court had a difficulty with whether the restraint that Ryanair sought went further than was necessary for the legitimate protection of its interests. It had no difficulty, interestingly, with the time period of 12 months.

It noted that it could, if the circumstances permitted, use the “blue pencil rule” to remove an unenforceable provision if the character of the contract was not changed as a consequence. However, the covenant in this case applies to “any business wholly or partly in competition with Ryanair for air services”.

With considerable reluctance, but without misgivings as to the applicable law, or my application of the law, I am driven to the conclusion that the clause is void and unenforceable as an unjustified restraint of trade.

195. The other provision of the restraint in this case which troubled me was the prohibition on employment in any business in competition with Ryanair “in any capacity”. It appeared to me that literally construed it would restrain Mr. Bellew from taking up employment with another airline as a pilot or air steward.

208. I find that the plaintiff has discharged the onus of proving that it had a legitimate interest in exacting a covenant from the defendant to protect the valuable sensitive and confidential commercial, operational and financial information that would come to the defendant’s knowledge in the course of his employment. For the reasons given, I find that that interest has not been shown to extend beyond those airlines in competition with the plaintiff in the low cost or low fare sector, to those airlines operating in the legacy or flag or high cost sector.

209. I find that the covenant in this case, properly construed, would prevent the defendant from taking up employment with any European airline, including the legacy carriers, and so goes beyond what the plaintiff has shown to be justified.

210. The legitimate interest of the plaintiff in restraining the defendant from taking up alternative employment is limited to roles which would risk the disclosure or use of its protectable information. I find that the restraint on employment in any capacity goes beyond that interest and has not been shown to be justifiable.

211. For the reasons given, I find that the covenant to which the defendant, for valuable consideration, freely agreed is, as a matter of law, void and unenforceable as an unjustified restraint of trade.

Conclusion

Ryanair DAC were refused their injunction because the High Court found

  1. The restraint preventing the departing employee from working “with any European airline” went beyond what was justified
  2. The restraint preventing Bellew from taking up employment “in any capacity” goes beyond the legitimate interest of Ryanair and was not justifiable.

For these reasons the High Court decided the covenant was void and unenforceable and an unjustified restraint of trade.

Takeaway for employers

  1. Employers need to understand that any restrictive covenant is drafted to reflect the specific relationship between employer and employee in any particular circumstance and a “one size fits all approach” runs the risk of being found unenforceable. If it goes too far and is too wide it is unlikely be justified as being necessary to pursue a legitimate interest.
  2. Twelve months, as a temporal restraint, is acceptable and unproblematic.
  3. Confidentiality clauses, whilst necessary and acceptable, are difficult to enforce in practice as confidential information can be used and abused without any evidence of the breach-for example in negotiating terms with competitors.

Read the full decision here: Ryan Air DAC v. Peter Bellew 2019 6239 P , Decided 23rd December 2019.

Categories
Employment Claims The Employment Contract

Was Doctor an Employee or Self Employed Contractor?

Employee or self employed?

This was the case of a medical doctor with his own practice who claimed he was an employee in respect of his work for a training provider.

This is a common issue: whether an individual was an employee or was self-employed, notwithstanding the statement in a contract that the individual was not an employee.

All employment claims will depend on the claimant being an employee. If the claimant falls at this hurdle any other claims-for example terms of employment or unfair dismissal-will not be heard.

This case involved a medical practitioner who provide training services for the respondent and brought a claim under the Terms of Employment (Information) Act, 1994 seeking a written contract of employment. He had received a contract dated April 1st 2006 which described his position as being ‘an independent contractor’ and stated that he ‘shall not be an employee’ of the respondent.

The first question that arose, therefore, was whether the complainant was an employee or an independent contractor.

The WRC Adjudication Officer noted that there is no one test to determine whether a person is engaged on a contract of employment (contract of service) or on a contractor contract (contract for services).

The AO referred to a UK case in which a number of tests were set out as follows:

1)      Does the person performing the services supply his own equipment?

2)      Can he hire his own helpers?

3)      Does he carry any financial risks and to what extent?

4)      What opportunity does he have to make a profit?

5)      To what extent does he carry the responsibility for investment/management.

He referred also to the Revenue Commissioners approach and their tests to determine employment or self-employment as follows:

1)      Is under the control of another person who directs as to how, when and here the work is to be carried out,

2)      Supplies labour only,

3)      Received a fixed wage

4)      Cannot subcontract the work

5)      Does not supply materials for the job

6)      Does not provide equipment other than small tools of the trade

7)      Is not exposed to personal financial risk in carrying out the work

8)      Works set hours or a given number of hours

The AO was satisfied that the complainant in this case, a medical doctor, satisfied the tests of the Revenue Commissioners. In short it was recognised that the complainant received a fixed and regular income, was fully integrated into the respondent’s activity, and satisfied the other tests of the Revenue Commissioners.

The respondent in this case sought to connect the fact that the complainant was also involved in other self-employed work-as a GP in his own general practice-and was paid a locum allowance to undermine the argument that he was an employee. However, the Adjudication Officer did not accept this argument and said it had ‘no merit’.

“I do not accept therefore that the payment of a locum allowance, whatever the recipient chooses to do with it, affects or alters the substance of the employment relationship between an employee and an employer which must be considered by reference to the tests set out above.”

He also found

In Hall (Inspector of Taxes v Lorimer [1994] IRLR 171 the court endorsed an explanation approved by the lower court (whose judgement was on appeal to it);

‘In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a checklist to see whether they are present in, or absent from a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details.’

The Adjudication Officer had no hesitation in finding that the complainant was an employee and was entitled to be given a written statement of his terms of employment, in accordance with the Terms of Employment (Information) Act 1994.

However, the Adjudication Officer did not consider it ‘just and reasonable’ to make any order for compensation retrospectively as the ‘current respondent whose breach of the Act arises for the first time as a consequence of the finding in this case’. He did order that a statement of terms of employment be given to the complainant.

This decision was issued on 18th December 2019 and you can read the whole decision here. It is a useful reminder of the tests which will be applied to determine the issue of employee versus independent contractor.

Categories
The Employment Contract

Important Lessons from High Court Fixed Term Contract Case

A recent High Court case involving a teacher and a school board of management in an employment dispute is worth looking at. The case is The Board of Management of Malahide Community School v Conaty [2019] IEHC 486 and you can read the full decision of the High Court here.

The High Court decided that the fixed term contract that the school gave to Ms Conaty was void because it had the effect of depriving her or protections she had already acquired under statute, particularly the Unfair Dismissals Act 1977.

The focus of this piece, however, is not Ms Conaty’s case per se but what wider lessons we can learn from the decision.

Protection for employee waiving her employment rights

Section 2(2) (b) of the Unfair Dismissals Act 1977 is described in the act as an exclusion. The High Court has decided that it is, in fact, a waiver.
Section 2(2) (b) states,

(b) dismissal where the employment was under a contract of employment for a fixed term or for a specified purpose (being a purpose of such a kind that the duration of the contract was limited but was, at the time of its making, incapable of precise ascertainment) and the dismissal consisted only of the expiry of the term without its being renewed under the said contract or the cesser of the purpose and the contract is in writing, was signed by or on behalf of the employer and by the employee and provides that this Act shall not apply to a dismissal consisting only of the expiry or cesser aforesaid.

The Judge in this case held that if the employee is to sign a contract containing this waiver their consent needs to be given at the commencement of the employment and the consent must be informed.

The Court referred to section 13 of the Unfair Dismissals Act 1977 which states

 13.—A provision in an agreement (whether a contract of employment or not and whether made before or after the commencement of this Act) shall be void in so far as it purports to exclude or limit the application of, or is inconsistent with, any provision of this Act.

The High Court recognised that Freedom of contract is severely restricted by section 13 of the Act. Any provision in an agreement which purports to exclude or limit the application of, or is inconsistent with, any provision of the Act is void.

But how is this restriction on an employee ever contracting out of their rights allowed in, for example, settlement agreements?

The High Court recognised that However, there is case law which suggests that—at least in the context of settlement agreements—an employee may be entitled to waive their rights on the basis of informed consent.

Therefore, if an employee is to enter into an agreement, whether a contract of employment or settlement agreement, his/her informed consent must be obtained in advance, not retrospectively. This is an important lesson for employers to take from this case and it has wider application to employment settlement agreements.

Fixed term contract

For a contract to be classified as a ‘fixed term contract’ as envisaged by section 2(2)(b) the term of the contract must be fixed-that is, the termination date must be ascertainable at the outset.

And not reliant on variables or contingencies such as teaching hours continuing to be available and/or demand for the subjects continuing.

In this case the contract contained this clause,

“The temporary contract will commence on 30 August 2015* 8th October 2015 and will terminate of 31 August 2016 subject to satisfactory service during the probationary period. The temporary contract may be renewed for a continued period in the event that the allocated hours as specified above continue to be available and the demand for these subjects continues.”

The Judge decided that the contingencies set out in this clause meant that it was not a fixed term contract as the termination date was not ascertainable.

Conclusion

The lessons to be extracted from this case are important and of potentially wider application, especially regarding an signing a waiver of their rights and the possibility of employees claiming that they are not, in fact, on fixed term contracts by reason of the contingencies in their contract of employment.

Read the full decision in

The Board of Management of Malahide Community School v Conaty
[2019] IEHC 486