Employment Contract

The moment of conception for British labour law might be traced to an act of great courage in Germany in 1933. Otto Kahn-Freund, a judge in the German Labour Court, upheld the dismissal claims of three employees of the Empire Radio Company. The dismissals had occurred in the febrile atmosphere of the Fuhrer’s first address to the entire nation. The dismissed employees were alleged to be communists bent on sabotaging the broadcast. Kahn-Freund awarded maximum damages to the claimants, in a case that few of his judicial brethren would have touched with the proverbial bargepole. Kahn-Freund’s reasoning was based in part upon the employees’ freedom of expression under the constitution. Shortly afterwards, Kahn-Freund’s home was ransacked and he left the country in fear of his life.  The rest, as they say, is history. In due course, British labour law would be born at the London School of Economics. There, Professor Kahn-Freund forged his destiny as the one of the leading legal scholars of his generation.The moment of conception for British labour law might be traced to an act of great courage in Germany in 1933. Otto Kahn-Freund, a judge in the German Labour Court, upheld the dismissal claims of three employees of the Empire Radio Company. The dismissals had occurred in the febrile atmosphere of the Fuhrer’s first address to the entire nation. The dismissed employees were alleged to be communists bent on sabotaging the broadcast. Kahn-Freund awarded maximum damages to the claimants, in a case that few of his judicial brethren would have touched with the proverbial bargepole. Kahn-Freund’s reasoning was based in part upon the employees’ freedom of expression under the constitution. Shortly afterwards, Kahn-Freund’s home was ransacked and he left the country in fear of his life.  The rest, as they say, is history. In due course, British labour law would be born at the London School of Economics. There, Professor Kahn-Freund forged his destiny as the one of the leading legal scholars of his generation.

These experiences left a deep imprint on Kahn-Freund. Some years later, Kahn-Freund was rather less caustic about judicial power than many of his social democratic contemporaries in the British legal academy. For example, Kahn-Freund was evidently moved by the deep aversion of the English common law to any form of legal compulsion in the individual contract of employment, and “the refusal to have even a vestige of compulsory labour in peacetime”.  In this respect, Kahn-Freund lauded the speech of Lord Atkin in Nokes v Doncaster Amalgamated Collieries where Lord Atkin had stood against the transfer of contracts of employment in an amalgamation of companies: “I had fancied that ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he would serve, and this right of choice constituted the main difference between a servant and a serf”.

Debates about the proper limits of judicial power have been central to the development of post-war social democratic thought, and nowhere has this been more acute than in the deeply politicised context of work and its legal regulation. There is an enduring tradition of social democratic thought that is animated by a democratic concern to limit the power of the judiciary and the English common law in favour of legislation. I will turn to the characteristic elements of this tradition shortly. Before doing so, however, Kahn-Freund’s story exposes two elements of judicial responsibility that have sometimes been obscured from view in the social democratic tradition. The first is a judicial responsibility to uphold the fundamental rights of the citizen, where powerful public or private actors threaten to violate those rights. Whether it be freedom of expression (as in the radio dismissal case) or freedom from forced labour (as in Nokes), the English common law serves to protect the citizen’s fundamental rights. The second is the judicial responsibility to protect the vulnerable from abuse of power. Given the persecution of communists in Nazi Germany, these thoughts may have been acute in Kahn-Freund’s mind when he handed down his judgment. It must have been especially poignant for Kahn-Freund as a German Jew.

But let us return to the dominant social democratic theory of judicial power. On this view, the common law represented a highly regressive and anti-democratic impediment to progressive social and economic change. Political change was to be achieved through the deployment of governmental power, in the form of primary legislation and the growth of the administrative state.  Many of these concerns were crystallised in J.A.G. Griffith’s famous lecture, The Political Constitution, where Griffith articulated the view that law is simply another site in which political conflicts are carried on or resolved.  In later work, Griffith’s encapsulated this insight in the arresting statement that “law is politics carried on by other means”.  This characterisation of law as a form of politics had a particular significance in labour law, for in the hands of Lord Wedderburn (Kahn-Freund’s intellectual heir), it provided a fresh perspective on the common law as a deeply politicised form of regulation. The image of the common law as accreted wisdom based on public reason was thoroughly debunked. The common law was an instrument of the ruling class, crafted by judges trained in particular habits of mind and with conservative dispositions, to use the coercive techniques of the law to support existing distributions of power, wealth, and social authority. The common law was often used by reactionary judges to frustrate the democratic will of the people, as expressed through social legislation and other forms of public power wielded by elected officials.

Of course, constitutional theories take shape in specific contexts of political power and conflict. They are never (or at least never should be) exercises in abstract philosophising. As a constitutional theory of judicial power in post-war Britain, there was a great deal of sense in the dominant social democratic theory of the judicial role and its limits. It rested upon the following conjunction of institutional factors that together supported an abstentionist framing of judicial responsibilities:

  • The common law was based upon the protection of property rights and upholding the sanctity of freedom of contract, which in turn provided a juridical anchoring for the established social order. This obscured the subordination that lay at the heart of the employment relationship.
  • The majority of workers were protected through autonomous collective bargaining, based upon collective agreements between employers and employers’ associations and independent trade unions, supported by the social democratic state. The maintenance of this equilibrium rested upon a broad consensus of mainstream political parties.
  • Public political power was harnessed by elected representatives, based upon free and fair periodic elections between competing political parties, to secure the progressive realisation of social and economic equality of citizens. This democratic model was based upon a viable Labour party supported by trade unions. Sometimes, public power would lead to the enactment of protective legislation to guarantee the social rights of worker-citizens through a universal ‘floor of rights’ for employees.

The context has now shifted radically. Legislation such as the Trade Union Act 2016 has been used as an instrument to attack the funding of the Labour Party and undermine the competitive democratic process. Legislation is also routinely used to deregulate employment protection legislation. At worst, legislation may threaten the worker-citizen’s fundamental rights, especially in the sphere of freedom of association. Historically, of course, employment legislation was traditionally the bulwark against an oppressive common law, and it provided a source of emancipation for workers. Collective bargaining is no longer an effective source of norms for the majority of private sector workers, and trade union strength has declined precipitously as a result of anti-union legislation and a hostile public policy environment.

Should the common law simply stand aside if legislation is put to oppressive ends? In public law, for example, judges have developed the common law as a source of protection where legislation cuts against the citizen’s fundamental rights.  The historical picture of the legislator as hero and judge as villain is now far too simplistic. Common law and statute interact in a multiplicity of ways, the constitutional considerations are increasingly complex in character, and the strategic calculations of workers and trade unions in using the law more finely balanced.

In short, the world has changed. We are now living in an era where the judicial responsibilities to protect the vulnerable and to protect fundamental rights from oppressive encroachment need to be reasserted by the progressive left. Judicial abstention is a luxury that the poor and dispossessed in our political community can no longer afford.

This may strike a disturbing note. After all, the social and economic impact of a maverick judiciary may be indiscriminate in its impact. Judges may take an eccentric view of who the ‘vulnerable’ are. It could be the small employer faced by a legitimate claim for collective bargaining rights by a representative trade union. Or it could be the dissenting individual trade unionist, standing against the democratic wishes of his fellow workers while taking the economic benefits of the collective agreement. Furthermore, without the constraints of an authoritative constitutional text, judges might be as likely to protect the employer’s right to private property as the employee’s freedom of expression.

These concerns are not fanciful. But there is an answer to them. The judicial responsibility to protect fundamental rights and to protect the vulnerable is shaped by the generally subordinate position of judges in our constitutional order. Judges are obliged to apply statutes as a pre-eminent source of law in the democratic community. The common law must be developed in an incremental fashion. Judicial creativity is constrained by precedent and other canons of legal reasoning. In other words, the overarching duty of the judge is to apply the law. Where a line of common law development is open, the judge must try to ensure consistency and ‘fit’ with existing legal norms. The judiciary must be particularly sensitive to the special position of statutes in the legal order, and the common law must be developed harmoniously with the body of statutory law. In this way, judicial responsibilities to protect the vulnerable and to uphold fundamental common law rights operate within the perimeter set by other constitutional limits on the judicial role.

This vision is best captured in the idea that law-making is a ‘collaborative’ venture between different legal and political institutions, as defended by Professor Aileen Kavanagh: “Law-making is a collaborative enterprise […] In this enterprise, the legislature plays the lead role and the courts have a supporting role, assisting the legislature in the implementation of its laws whilst being prepared to stand up for certain values and principles in the appropriate case”.

Sometimes this collaboration will necessitate judicial deference. Sometimes it will necessitate a closer partnership between courts and legislature. In extreme situations, the collaborative model will require the judges to stand against an oppressive government in support of fundamental rights and the basic elements of the liberal democratic order. Let us call these three modes judicial deference, judicial partnership, and judicial defiance. All three modes are legitimate examples of judicial power being exercised responsibly. The demands of judicial responsibility will always be sensitive to context.

It is, of course, meaningless to be for or against judicial power in the abstract. It depends upon political and constitutional context; the degree of ‘polycentricity’ involved in adjudicating that dispute; the content of any primary legislation; and the extent to which fundamental rights are engaged.

Judicial deference

It is appropriate to begin with Johnson v Unisys as an example of appropriate judicial deference.  Mr Johnson was employed in a senior position in a computer software company. He was summarily dismissed and given a month’s wages in lieu of notice. He lodged an internal appeal that was unsuccessful. He then made a successful claim for unfair dismissal, a statutory claim now contained in Part X of the Employment Rights Act 1996 (ERA 1996), receiving the maximum compensation of £11,691.88 available at that time under the legislation. Following his dismissal, Mr Johnson suffered a major psychiatric illness involving a period of hospitalization. During his period of recovery, Mr Johnson was unable to find alternative employment. It seemed very likely that his difficulties in finding another job were associated with having suffered from the psychiatric illness that had been triggered by the manner of his dismissal.

Mr Johnson then instituted proceedings in the County Court for breach of contract and negligence under the common law in order to circumvent the limits on the compensatory award under the statutory unfair dismissal framework. His principal claim was an alleged breach of the implied term of mutual trust and confidence. He further alleged that the manner of his dismissal caused his mental breakdown and his subsequent inability to work, leading to a loss of earnings in excess of £400,000. The employer’s application to strike out this claim was successful in the County Court and on appeal to the Court of Appeal,  and in a unanimous House of Lords. While the House of Lords decision rested upon a variety of legal bases, Johnson is most widely known for Lord Hoffmann’s ‘parliamentary intention’ argument. According to Lord Hoffmann:

For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be to go contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.

Mr Johnson had already been successful in his unfair dismissal claim, and he had been awarded what was due to him under its scheme of limited remedies.

The deference in Johnson reflects strong general arguments requiring the fidelity of judges to primary legislation enacted by democratic legislatures.  Within the context of unfair dismissal legislation, the statute embodies a comprehensive scheme of regulation of dismissal with carefully crafted limitations on the scope of the right, its available remedies, and the creation of special adjudicative mechanisms for considering complaints of unfair dismissal. Furthermore, this is not a legislative settlement that was finalised and forgotten by the legislature. On the contrary, its limits and restrictions have been revised at regular intervals across its 40-odd-year lifespan. In these circumstances, the judicial obligation of fidelity and obedience to democratically enacted legislation has significant weight. In his important work on the adjudication of social rights, King has rightly observed that the democratic argument supporting what he describes as “finality of legislation” is subject to limits.  Specifically, it might be possible to modify the default of strong judicial deference to primary legislation where there has been an absence of deliberative legislative focus on the relevant rights issues in the enactment of the legislation.  The modification of strong judicial deference might also be warranted where the legislative process has failed to consider the interests of groups that are “particularly vulnerable to majoritarian bias or neglect”.

These concerns were rather attenuated in Johnson. The claimant was a high-status employee with considerable earning capacity. We must, therefore, weigh in the problem of “giving the middle classes and the wealthy powers to obtain benefits from the constitutional jurisdiction of courts, over and above the unequal influence they already enjoy in the legislature”.  Otherwise, wealthy high-status employees might deploy their superior resources in litigation to benefit from a common law circumvention of the remedial limits in the statutory jurisdiction. This might be at the expense of lower-skilled employees in the shape of redundancies, or overall reductions of wages and other financial benefits, or fewer employment opportunities for the unemployed. It undermines norms of democratic equality where courts compound the advantages of wealthy middle-class employees who may already be privileged in the wider democratic process. Of course, the rich and the poor are each entitled to their rights. They are also entitled to go to the courts to vindicate those rights. In Johnson, however, the claimant had already secured the remedies available to him under a comprehensive legislative scheme, which reflected a set of democratic compromises. The court was rightly sensitive to its subordinate constitutional position.

In short, there are many good normative criticisms that can be made of the legislated social right not to be unfairly dismissed in the ERA1996. None of this gives any warrant to the judiciary to usurp the constitutional power to develop its own competing conception of that fundamental right through the common law of wrongful dismissal. Where the legislator has made a good faith attempt to legislate for the citizen’s rights, the judges should respect that legislative determination. Where there is scope for reasonable disagreement about the content of rights, there is no reason to think that judges will be better positioned than elected representatives to resolve those normative controversies. It is better to entrust that determination to legislation.

Judicial partnership

Statutory employment rights are allocated to different types of personal work contract. Some rights are confined to the narrow category of ‘employees’ working under a contract of employment, such as the right not to be unfairly dismissed. Other rights are allocated more widely to the category of ‘worker’, as under the national minimum wage and working time protections. The tests for identifying ‘employees’ and ‘workers’ are regarded fundamentally as common law tests, and the courts have developed complex common law criteria for determining the appropriate characterisation of personal work relations. One of the principal regulatory difficulties faced by the courts is the disjunction between the written contractual documentation and the factual reality of the day-to-day working relationship. The written documentation, which is increasingly standard form contractual boilerplate, may be designed to reflect a legal relationship of self-employment through its construction of contractual terms. The factual reality is the parties behave as if the legal relationship was one of employment.

This regulatory problem was central to the decision of the Supreme Court in Autoclenz Ltd v Belcher.  The car valeters signed comprehensive written contracts that contained ‘terms inconsistent’ with employment status. If those written terms were contractually valid, the effect would be to negate a legal characterisation that the car valeters were ‘employees’ or ‘workers’. This would disqualify the individuals from bringing statutory claims under the working time and minimum wage legislation. The written contracts had been signed, which as a matter of ordinary contract law is generally dispositive: a signatory to a written contract is bound to its terms. Taking its inspiration from landlord and tenant law and the problem of ‘sham’ arrangements, contexts that led to “the courts concluding that relevant contractual provisions were not effective to avoid a particular statutory result”,  the Supreme Court determined that the written documentation was not the same as the ‘true agreement’. In an important statement of principle, Lord Clarke SCJ concluded that:

[T]he relevant bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part. This may be described as a purposive approach to the problem.

This doctrine enabled tribunals to disregard ‘terms inconsistent’ with employee or worker status in the written documentation if those terms did not reflect the reality of the working arrangements. Autoclenz represents this partnership conception of the court’s role, developing the common law tests for ‘employee’ and ‘worker’ in support of a general legislative policy of worker protection in protective employment statutes.

It should also be noted that the fundamental common law right of access to a court provides the hidden background to cases like Autoclenz. Disputes about personal work status are usually disputes about the jurisdiction of the tribunal to consider the merits of the substantive statutory claim. If the court concludes that the claimant is not an employee or a worker, the tribunal does not have jurisdiction to consider the legal merits of the claim. For these reasons, any interpretive doubts about status should be resolved in the putative worker’s favour. This is not the same as rewriting the parties’ bargain. The common law test must also be formulated in accordance with the constitutional value of legality, and this requires that the legal characterisation should be congruent with the reasonable expectations of the parties. Ideally, neither party should be caught unawares by the court’s judgment. In most disputed cases of employment status, such as the recent Uber litigation, the employer often knows very well what the reality of things is.

This common law right of access to a court sometimes leads to courts and legislatures acting collaboratively in a partnership, with the courts performing a supportive role as in Autoclenz. Sometimes, however, common law fundamental rights such as access to a court may trigger a stance of judicial defiance. Sometimes, this will be the only conscientious course of action open to the court, based upon the judicial responsibilities to protect the vulnerable and to protect fundamental rights. This leads to the final example.

Judicial defiance

Statutory employment rights were rendered largely inaccessible and unenforceable, especially for the most vulnerable workers, by initiatives taken by the British coalition government in July 2013 through secondary legislation. The most significant of these initiatives was the introduction of employment tribunal fees. Beneath the seemingly dry technicality of tribunal procedure, something momentous was at stake: respect for the Rule of Law. The fee structure imposed two separate fees for the issuing of a claim and for the hearing. The level of fee depended upon the type of claim being brought. ‘Type A’ claims attracted lower total fees (currently £390) because these claims were adjudged to be less complex and time-consuming for employment tribunals to resolve. These ‘Type A’ claims covered 61 distinct employment law claims, and this list included complaints of unauthorised deductions from wages, breach of contract, refusal to allow annual leave or to make a payment in respect of annual leave, and complaints that the employer has failed to permit time for carrying out trade union duties. ‘Type B’ claims attracted higher fees (currently £1200) and this covered discrimination claims, equal pay claims and unfair dismissal. There was a separate fee regime for appeals from the employment tribunal to the Employment Appeal Tribunal.

Predictably, the effect of the fee regime was catastrophic for workers’ access to justice. The figures detailing the collapse in employment tribunal claims were dramatic. The research was reviewed by the House of Commons Justice Committee.  According to that Committee, the number of single cases brought between October 2013 and June 2015 dropped by about 67 per cent. In the restrained words of the Committee, ‘the timing and size of the drop in the number of cases brought places the onus of proof on those who would argue that the drop is not primarily attributable to the introduction of fees.’  Evidence from the Trades Union Congress and Unison provided to the Committee provided a more fine-grained analysis of the drop in respect of different types of claim: “Working Time Directive, down 78 per cent; unauthorised deductions from wages, down 56 per cent; unfair dismissal, down 72 per cent; equal pay, down 58 per cent; breach of contract, down 75 per cent; and sex discrimination, down 68 per cent”.  The impact of the fee regime appears to have been particularly marked on individuals pursuing discrimination claims, especially given the elevated fees for ‘Type B’ claims.

In July 2017, the fees regime was declared unlawful by the UK Supreme Court in a courageous stance against a callous and brutal attack on the most vulnerable in our society.  The main basis for the judgment was the common law’s protection of the fundamental right of access to a court — a right that had been curtailed severely by the tribunal fee regime. According to Lord Reed,

At the heart of the concept of the rule of law is the idea that society is governed by law. Parliament exists primarily in order to make laws for society in this country. Democratic procedures exist primarily in order to ensure that the Parliament which makes those laws includes Members of Parliament who are chosen by the people of this country and are accountable to them. Courts exist in order to ensure that the laws made by Parliament, and the common law created by the courts themselves, are applied and enforced. That role includes ensuring that the executive branch of government carries out its functions in accordance with the law. In order for the courts to perform that role, people must in principle have unimpeded access to them. Without such access, laws are liable to become a dead letter, the work done by Parliament may be rendered nugatory, and the democratic election of Members of Parliament may become a meaningless charade. That is why the courts do not merely provide a public service like any other.

Accordingly, the fees regime was struck down as unlawful. Whether the government will be bold enough to undertake a fresh attack on the rule of law through primary legislation is unclear at the present time. It may be that the Conservative Party is so weakened by the recent election and the stuttering progress of the Brexit negotiations, that it will settle for a tactical retreat. In the meantime, our judiciary may need to reflect on how far the judicial responsibilities to protect fundamental rights and to protect the most vulnerable will go in the face of primary legislation that mounts an attack on both.

The common law constitution at work

The UNISON case may herald a paradigm shift in the social democratic theory of judicial power. Defenders of the old constitutional dispensation are likely to mount two objections to such a shift. The first is based in a democratic objection. The judiciary are unelected. The common law is undemocratic. The common law should always be an object of suspicion in a constitution of social democracy. Against this democratic objection, it is the relative insulation of the common law from the sway of populist majoritarianism that gives it a special role as a backstop to protect the most vulnerable groups in society. Those same groups will often be democratically disempowered, and so especially exposed to populist measures. As Lord Reed observed in UNISON, in extreme cases the courts may be called upon to safeguard the basis of the democratic order, for example by safeguarding the rule of law against legislative abrogation. The same judicial defiance may be necessary if the legislature continues to attack the basic elements of freedom of association, and the ability of trade unions to provide financial support to the Labour Party in a way that comports with international human rights standards. In short, we on the left may have mistaken the common law’s lack of democratic pedigree for a vice, when in fact it is a virtue in a balanced constitution.

The second is based in a competence objection. The judiciary are not well qualified to undertake the politically charged assessments necessary in the field of social and economic policy. Nor are they institutionally well placed to assess the polycentric issues that dominate the specification of social rights, such as the right to strike. It is better to entrust the design of social rights to a political process of deliberation, channelling adjustments and trade-offs into legislative channels. Adjudication in bipolar disputes between two parties is not an apt way of resolving sharp material conflicts about the distribution of economic power.

Of course, it is true that the judiciary should always be subordinate constitutional actors in the collaborative realisation of social rights. The right to collective bargaining or the right to strike are simply not amenable to judicial implementation. The rights are too complex and too politically controversial for that. They depend upon implementing legislation in order to be realised in the social democratic constitution. The distinctive political virtue of the common law constitution is in providing a defensive constraint on fundamental abuses by elected representatives and powerful private actors. The judges are there as a backstop, intervening to restrain the abuse of public and private power. That defensive power of the judiciary in the constitutional order is to safeguard the citizen’s fundamental rights.

We will not build the New Jerusalem through judicial action. We must entrust that process to democratic action, through parliament and through the mobilisation of civil society. The encroachment of the judiciary on matters of social policy is a symptom of democratic sickness, not a sign of democratic health. Yet we must start where we are, not where we would like to be. We are living in extraordinary times. Consequently, and just like Professor Kahn-Freund in 1933, our judges may yet be called upon to do extraordinary and courageous things in the face of tyranny.

For now, there is some comfort in the restrained and civilised discourse of the common law as public reason. Kahn-Freund saw it at a time when others did not. Its tenor provides a stark contrast to the coarsening decline of our public political discourse. There are things that can be said now in public by elected politicians that would have been unthinkable 20 years ago. Shame has ceased to operate as any kind of constraint on populists and demagogues. None of this is a mark of democratic progress. In these circumstances, the common law may be the last refuge of the vulnerable in flight from the predations of a government that has lost its moral compass.

Alan Bogg is Professor of Labour Law at the University of Bristol.

 

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