Welcome to September’s newsletter.

1. Teacher sacked for trade union role wins over £370,000 compensation

Overview: Compensatory award claims in cases of ordinary unfair dismissal are currently capped at one year’s salary or £118,223 (whichever is the lower). The amount awarded must be referable to past or anticipated future losses. This means that, once an unfairly dismissed employee has obtained new employment, the losses usually substantially reduce or stop entirely – providing a welcome ‘lid’ on liability for at-risk employers. However, there are cases where an employee’s dismissal can expose the employer to potentially unlimited claims for financial loss. Typically, this is where:

• The dismissal is for certain automatically unfair reasons, such as whistleblowing, pregnancy or trade union activities. There is no cap on compensation in such cases; and/or
• The act of dismissal (or the treatment leading to it) is discriminatory in some way – linking the losses flowing to an act of discrimination. Claims for loss of earnings in discrimination claims are uncapped.

Case: In the recent case of Wood-Hope v Salford City Council and Others, the employer’s dismissal of a teacher was found to be automatically unfair. The surrounding treatment was also found to be discriminatory. The upshot: the employee received three and a half years loss of earnings.

Facts: Ms Wood-Hope was a primary school teacher. She was also a trade union representative. She objected to proposed ‘on the spot’ observations which the head teacher was planning to introduce, stating that they were in breach of an agreement with the trade union. In response, the head teacher gave her an immediate informal warning. He later told her she was being investigated for misconduct. This then morphed into a performance improvement process. Ms Wood-Hope, who suffered from depression, went off sick. She raised a grievance contending that her poor treatment was because of her role as a trade union representative. She was dismissed for poor attendance – the decision maker confirming at tribunal that he had based his decision on a biased report written by the headteacher which focused on her supposed performance issues rather than her absence. 

Decision: The tribunal found that the main reason for Ms Wood-Hope’s dismissal was her trade union role – making the dismissal automatically unfair and removing the cap on compensation. The tribunal also found that she had been discriminated against on grounds of her disability. 

Analysis: The employer couldn’t really have got it more wrong. In addition to the hefty loss of earnings award, they also had to pay £25,000 injury to feelings, £10,000 for personal injury, a 25% uplift for failure to follow the Acas Code of Practice on Disciplinary and Grievance Procedures and £10,000 in aggravated damages.

Takeaway: This case is an extreme example of the consequences which can flow when an employer embarks on a course of action motivated by an automatically unfair reason. The risks in this case could have been reduced if the head teacher had not been allowed to take such a central role in every stage of the process. His motivation: Ms Wood-Hope’s trade union activities infected all other decision-makers. Our sister company, WorkNest recently hosted a webinar ‘The Employment Rights Bill | Trade Union reforms explained.’

2. Constructive criticism is not harassment

Overview: It is the nature of the employment relationship that employers are sometimes called upon to have difficult conversations with their employees. These conversations might be about career progression, conduct or business plans. Where an employee is struggling in their role, then their employer may need to make critical comments about their performance. It’s important, for the employer’s integrity, that these conversations are able to take place.

However, employers need to tread carefully and act respectfully, as there can be a fine line between criticism and harassment. The case of Mr T Shevlin v John Wiley and Sons Limited provides a welcome reminder that providing critical feedback about an employee’s work is not, in itself, harassment. Do ADHD and autism qualify as disabilities under the Equality Act?

Facts: In this case, Mr Shevlin, who had ADHD, claimed disability discrimination and harassment. In particular, he alleged that comments made by his employer about the quality of his work – described as “messy” and including “a lot of typos” – were discriminatory and amounted to harassment related to his disability (ADHD). However, the tribunal found that the employer’s actions were reasonable and that the feedback given was part of normal performance management. Read our latest guide to supporting Neurodiversity in the Workplace.

Key Takeaway: Employers are entitled to address performance issues. Where an employee may be suffering from a disability then this must be handled sensitively, and the employer will need to consider reasonable adjustments to working practices to alleviate any disadvantage faced by the disabled employee at work. They must also ensure that the language used is sensitive and appropriate – to avoid any claim that the feedback forms ‘unwanted conduct’ and is harassing in some way. However, as this case shows, the existence of a disability does not mean that poor performance cannot be tackled at all.

3. Taxation of termination payments

Overview: Employers who reach settlement terms with a departing employee generally do so on the mutual understanding that the first £30,000 of any termination payment can be made tax free. This exemption is clearly set out in Income Tax (Earnings and Pensions) Act 2003 which states that payments up to this ceiling can be made tax free if they are compensation for termination of employment and are not otherwise subject to tax. However, this does not tell the whole story. Employers negotiating settlement terms with departing employees need to be aware of potential pitfalls. Some key pointers:

Employee NICs are not generally payable on any settlement sum reached, either under or over the £30,000 threshold. However, awards over £30,000 are usually subject to employer NICs.
If the employee suffers from a recognised medical disability or injury which, at the date the employee’s employment terminates, prevents the employee from carrying out their job, a payment made solely on account of that disability or injury is exempt from income tax.
Payments specifically made in settlement of discrimination allegations can be made tax free. The amount allocated to such a settlement needs to be clearly evidenced.

If a deal is reached to write off a loan as part of any settlement, then the amount of write-off will be subject to tax and national insurance deductions. Depending on the level of compensation payment being made to the employee (i.e. if it is under £30,000), it might make more sense to just increase the compensation payment paid to the employee to allow them to pay off the loan themselves. This will be more tax efficient for the employee than the employer writing it off.

a. Notice pay is taxable

It is not possible to terminate employment with immediate effect and then redirect a sum of equivalent value to notice pay so that it is payable as tax free compensation. Since 2018, employers are required to apply a statutory formula to any termination payment offered, to work out whether any of it is ‘post-employment notice pay’. If any of it is, then that portion will be taxable.

b. Payments in consideration for on-going contractual obligations are taxable

Settlement agreements often include clauses re-stating restrictive covenants or confidentiality obligations. Any payment offered in consideration for agreement to these provisions must be subject to tax and national insurance deductions – as it is linked to a contractual obligation.

c. No employee national insurance contributions (NICs) are payable on settlement sums

Employee NICs are not generally payable on any settlement sum reached, either under or over the £30,000 threshold. However, awards over £30,000 are usually subject to employer NICs.

d. Payments on account of disability can be made tax free

If the employee suffers from a recognised medical disability or injury which, at the date the employee’s employment terminates, prevents the employee from carrying out their job, a payment made solely on account of that disability or injury is exempt from income tax.

e. Compensation for injury to feelings can be made tax free

Payments specifically made in settlement of discrimination allegations can be made tax free. The amount allocated to such a settlement needs to be clearly evidenced.

f. Written off loans will be treated as earnings

If a deal is reached to write off a loan as part of any settlement, then the amount of write-off will be subject to tax and national insurance deductions. Depending on the level of compensation payment being made to the employee (i.e. if it is under £30,000), it might make more sense to just increase the compensation payment paid to the employee to allow them to pay off the loan themselves. This will be more tax efficient for the employee than the employer writing it off.

4. Employee awarded £1.2 million compensation in constructive dismissal and disability discrimination claim

Overview: A recent high-value claim, where the employee was awarded over £1.2 million in compensation, shines a spotlight on the importance of treading carefully where employees are off sick due to a disability. Read more on the practical considerations for facing disability discrimination claims.

Facts: In Wainwright v Cennox, Ms Wainwright resigned from her job after a period off work with cancer after learning that someone had been appointed to work in the same role as her whilst she was off. She was told this new role was only temporary, but this wasn’t true.
After resigning, she brought claims of discrimination arising from a disability and constructive dismissal. The claims were as follows:

• That her employer had treated her unfavourably (by appointing someone permanently to her role and then misleading her about this) because of something arising from her cancer: her absence from work. This treatment could not be justified by her employer as a proportionate means of achieving any legitimate aim.
• That those same actions amounted to a fundamental breach of contract. Ms Wainwright resigned partly because of those actions so had been constructively dismissed.
  ET Decision:
  The tribunal found that appointing someone else to the same role as her and misleading her by telling her that the appointment was temporary in nature, amounted to discrimination arising from a disability and were not justified. However, the tribunal still found that there was no constructive dismissal and that the dismissal itself was not discriminatory. The employee appealed.
  EAT Decision:
  The Employment Appeal Tribunal held that the tribunal should have looked more carefully at whether the facts which had been found to show discrimination also satisfied the test for constructive dismissal:
• The tribunal should have asked whether the discriminatory actions breached the duty of trust and confidence between employer and employee.
• If they did, it should then have looked at whether Ms Wainwright resigned, at least in part, because of those breaches.
• If so, then her constructive dismissal claim should have succeeded.
• The tribunal should then have considered whether, as a result, her constructive dismissal also amounted to an act of discrimination.

HR takeaways:

• A cancer diagnosis gives the employee automatic life-long protection as a disabled person under Equality Act 2010. Employers need to be aware of this whenever taking any action in relation to impacted employees.
• Employers must tread very carefully when taking personnel decisions which impact the role of an employee who is off sick owing to a disability. In this case, the employer should not have permanently appointed anyone to Ms Wainwright’s role without effective prior consultation and consideration of her date of likely return. The fact that her temporary replacement had been offered a job elsewhere did not justify a decision to make her appointment permanent, given its impact on the absent Ms Wainwright.

5. ‘Last straw’ in constructive dismissal does not need to be a serious breach on its own

Overview: The building blocks of a claim of constructive dismissal are:

• A fundamental breach of the employment by the employer;
• A resignation by the employee; and
• That the employee resigned in response to the breach.

Analysis: In cases where there is one clear breach of contract by the employer and an equally clear ‘resignation in response’ by the employee, the building blocks are relatively easy to make out. However, there is not always one clear breach. In constructive dismissal cases, resignation often comes about following a series of issues which build to a crescendo, leading an employee to resign. But what is the situation where the ‘last straw’ which prompts an employee to resign is not, on its own, a fundamental breach of contract?

Decision: This point was considered in the recent case of Marshall v McPherson. Mr Marshall was a night-shift HGV driver who faced increasing pressure at work due to operational changes. He raised concerns about being unable to take breaks. Initially, his employer told him to manage the issue. They later sent someone to accompany him on a shift without warning, which he found upsetting.

Mr Marshall also raised other complaints, some relating to incidents dating back to 2017, but these were not dealt with quickly. He resigned and claimed constructive dismissal.

EAT Decision: The Employment Appeal Tribunal confirmed that the ‘final straw’ prompting his resignation (either the delay in handling his grievance or the unannounced shift check) did not, by itself, need to be a serious breach of contract. What mattered was the overall pattern of behaviour and whether it cumulatively amounted to a breach of trust and confidence.

HR Takeaway: The correct test was the 5-stage test from Kaur v Leeds Teaching Hospitals NHS Trust:

1. What was the most recent act (or omission) on the part of the employer which the employee says caused, or triggered, his or her resignation?
2. Has he or she affirmed the contract since that act?
3. If not, was that act (or omission) by itself a repudiatory breach of contract?
4. If not, was it nevertheless a part of a course of conduct comprising several acts and omissions which, viewed cumulatively, amounted to a (repudiatory) breach of the duty of trust and confidence?
5. Did the employee resign in response (or partly in response) to that breach?

6. Care worker whose colleagues spoke Polish during meeting wins claims for race discrimination and harassment

Overview: In Kellington-Crawford v Newlands Care Angus Limited, the Claimant, who was English, worked for an employer who employed a predominantly Polish workforce. The Claimant did not speak Polish. She was called to a meeting with three Polish bosses at which she was accused of having posted something inappropriate in a group chat. Her bosses continually spoke amongst themselves in Polish during the meeting. The Claimant could not understand what was being said and felt intimidated. She claimed race-related harassment and direct discrimination.

Law: Harassment is a specific form of discrimination under Equality Act 2010. It occurs where a person is subject to unwanted conduct related to a protected characteristic which has the purpose or effect of violating that person’s dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for them.

Direct discrimination occurs where a person is treated less favourably because of a protected characteristic.

Decision: Her claims for race-related harassment and direct discrimination were successful and she was awarded £2,500 in injury to feelings.

Although the tribunal acknowledged that the bosses did not intend to harass the Claimant, it was reasonable that the Claimant had felt intimidated by their behaviour – the conduct had had a harassing effect.

The tribunal concluded that this same conduct also amounted to direct discrimination. The correct comparator would be an employee attending a meeting for the same reasons as the Claimant, but who could understand Polish. Treating a person in a certain way because of their ability to speak a language (or lack of it) can be ‘because of’ the protected characteristic of race. The Claimant was the only non-Polish person and non-Polish speaker in the meeting. The comparator would have been able to understand the comments and to respond. Had any of the comments made in the Claimant’s meeting been inappropriate in any way, they likely would not have been made at all if the Claimant would have understood them.

HR Takeaway
Employers don’t need to react to this case by banning the use of foreign languages in the workplace altogether – indeed, to do so is likely to risk discrimination claims. But employers should set clear expectations about when and where English – or the common workplace language – must be used. This includes all formal work conversations, especially those involving employees who do not share the same native language. Training for managers and policies on inclusive communication can help prevent similar issues arising.

7. Court of Appeal upholds race discrimination finding against Council

Overview: Direct discrimination is a form of discrimination under Equality Act 2010. It occurs where an employer treats an employee less favourably because of a protected characteristic. An element of direct intent is required. When tribunals are considering whether an act is because of a protected characteristic, the following process is followed:

• The employee must bring forward facts from which an inference of discrimination could be raised.
• If the employee succeeds in bringing forward such facts, the burden of proof shifts to the employer to demonstrate that race was not the reason for the treatment.
• The employee must demonstrate different treatment compared to comparators (actual or real). Section 23 of the Equality Act 2010 deals with comparators and states that when comparing cases, there must be no material difference between the circumstances relating to each case.

Case:
These elements of the test for direct discrimination were considered recently by the Court of Appeal in Leicester City Council v Parmar.

Facts:
Mrs Parmar was a Britismish national of Indian origin. She worked for the Council as a senior social worker. She claimed direct discrimination on grounds of race when she was subject to a disciplinary investigation and transferred temporarily from her role as Head of Service. She claimed that her treatment differed from that of white colleagues in similar situations. The only other person at her level to be subject to a disciplinary investigation was of Asian origin. The only other person of a comparable grade to her who had been subject to a disciplinary investigation commissioned by the same manager was also of Asian origin. This manager had not commissioned any disciplinary investigations against any white employees of a comparable status.

ET and EAT Decision:
The employment tribunal and Employment Appeal Tribunal both agreed that the facts raised an inference of discrimination, shifting the burden of proof to the Council to show race was not the reason for the treatment. The Council failed to do so. The Council appealed.

CA Decision:
The Court of Appeal dismissed the appeal. In particular:

• The circumstances of the evidential comparators were sufficiently similar to those of Mrs Parmar to mean that their different treatment by the Council supported an inference of discrimination. It did not matter that there were some differences in their circumstances.
• The tribunal was entitled to draw adverse inferences from the Council’s failures of disclosure in the tribunal proceedings. They did not treat them as ‘automatically’ shifting the burden of proof.
• The tribunal had clearly considered whether the Council had discharged the shifted burden of proof and had found that it had not. The tribunal did not think that the explanations given by the Council (including the fact that HR had advised the manager on the appropriate course of action and that the manager wanted to interview witnesses) were credible. If the explanations were not credible, they could not displace an inference of discrimination.

Key takeaways:
This long-running litigation provides useful learning points for HR when faced with allegations of misconduct:

• Have a clear process and follow it in every case. If the employer has a clear process and guidance for the course of action to be taken when investigating misconduct, then it is much harder for inconsistency to be introduced to the process. If an employer is acting consistently then it will not be treating people differently and an inference of discrimination is unlikely to arise.
• It’s important to acknowledge that there will be cases where employers will need to ‘flex’ their standard processes to deal with anomalous situations which require a different approach. HR should clearly document at the outset why a different process is being followed in any specific case – this paper trail will be key to showing that any different treatment was not because of the employee’s protected characteristic but for other, credible, reasons.

8. Ryanair pilot engaged via intermediary entitled to holiday pay from intermediary and to parity of terms with directly employed Ryanair pilots

Overview: The Court of Appeal recently looked at the status of a supposedly ‘self-employed’ Ryanair pilot in a case which serves as a reminder of the importance of looking behind labels given to a relationship when establishing employment status.

Facts: In Lutz v Ryanair and Anor, Mr Lutz worked as a pilot for Ryanair through an intermediary company (MCG). Ryanair and MCG claimed he was self-employed. Mr Lutz argued:

• He was ‘employed’ by MCG under the Civil Aviation (Working Time) Regulations 2004 (CAWR) and entitled to holiday pay.
• He was an ‘agency worker’ under the Agency Workers Regulations 2010 (AWR), so should receive the same terms as Ryanair-employed pilots.

MCG had tried to complicate the setup by contracting with Mr Lutz through a service company. Ryanair, for their part, argued he couldn’t be an agency worker because his five-year engagement wasn’t ‘temporary’.

CA Decision: The Court of Appeal rejected both arguments and found in Mr Lutz’s favour. In particular:

• Mr Lutz was not self-employed. He was not in business on his own account. An employment relationship existed somewhere.
• That relationship could be found within Mr Lutz’s contract with MCG, which created an employment relationship with MCG for CAWR purposes.
• There was no need to imply a contract with Ryanair – an express one already existed with MCG. The fact that Ryanair controlled his work didn’t change this.A five-year supply agreement was still a ‘temporary’ supply under the AWR such that he had protection as an ‘agency worker’ under AWR. The length of the fixed period was not relevant.

The ruling clears the way for similar claims. The Court noted that 27 related cases had been paused pending the outcome of this one.

9. Employment Law Roadmap for implementing the Employment Rights Bill: 2025-2027

The Government has published its employment law roadmap, setting out how and when the wide-ranging reforms in the Employment Rights Bill will be introduced. Download our Employment Rights Bill Tracker here.

While the original timeline was ambitious, the new roadmap signals a slower, more phased rollout—particularly when it comes to major reforms like zero-hour contracts and day-one unfair dismissal rights, which now aren’t expected until 2027.

Consultations Timeline

Some proposed changes will be preceded by a period of statutory consultation. We now have a clearer timeline for this. 

What HR should do now

With this clearer and more realistic timescale, HR teams can start preparing to:

• Update handbooks and policies – especially for family leave, harassment, and dismissal rights
• Consider responding to upcoming consultations –to help shape final regulations
• Train managers – ensure line managers understand the upcoming duties and rights
• Audit payroll and benefits – to reflect upcoming SSP and leave changes

Now’s the time to strategically plan, using these timelines to make sure your internal systems are ready. With over two years of phased implementation, being proactive will pay off.

10. And finally…

A case in which the dismissed employees should be applauded for a great effort in the face of a seemingly clear-cut fair dismissal was recently considered by the Employment tribunal. In Hedger & Dimitrova v John Lewis Plc two former Waitrose employees were dismissed for taking an unauthorised holiday to Bulgaria. When the couple returned to work after a two-month unauthorised absence, managers reportedly found their extended absence suspicious because of their “tanned appearance”. The Claimants were dismissed for gross misconduct for the unauthorised absence. They sought to claim that their dismissals were discriminatory on grounds of Ms Dimitrova’s Bulgarian nationality and that they were racially harassed because of having tanned skin following their holiday.

Decision: The tribunal found that the dismissal was not because of Ms Dimitrova’s nationality but because of their lengthy unauthorised absence. The harassment claim related to tanned skin also had no connection to Ms Dimitrova’s Bulgarian nationality/national origins and was misconceived.