Territorial scope strikes twice more

Despite being a relatively niche area of employment law, relating to employees who work partly or wholly overseas, the territorial scope of employment legislation continues to generate appellate litigation. I have covered previous decisions in this area over the past two years for the Journal, online in November 2018 and July 2019. 

In this article, two cases will be covered. The first, Hexagon Sociedad Anonima v Hepburn UKEATS/0018/19/SS (13 November 2019), concerned the application, and innovation upon, the classic case law to which I will refer below. The second, Walker v Wallem Shipmanagement Ltd UKEAT/0236/18/LA (16 January 2020), concerned the specific statutory provisions that relate to seafarers under the Equality Act 2010 (“EA 2010”).

Hexagon Sociedad Anonima v Hepburn 

In Hepburn, the claimant, a UK citizen, worked for a company registered in Equatorial Guinea. However, that company formed part of the Wood Group, a multinational group of companies ultimately based in the United Kingdom. The claimant worked on an installation permanently moored within territorial waters of Equatorial Guinea. The claimant was dismissed and, on return from his employment, raised an automatically unfair dismissal claim under the Employment Rights Act 1996 (“ERA 1996”), on the basis that he was dismissed for making a protected disclosure. 

In the claimant’s contract, there was both a choice of Scots law and a clause prorogating the exclusive jurisdiction of the “Scottish courts and tribunals”. The respondent employer challenged the jurisdiction of the ET to hear the claim, and focused particularly on the relevance of the clause prorogating jurisdiction. Reliance on the prorogation clause is relatively novel. Only one ET case (concerning the same employer) had raised this issue. 

In Hepburn, the ET held that it was a relevant and “powerful” factor, relying by analogy on the judgment of Lady Hale in Duncombe v Secretary of State for Schools, Children and Families (No 2) [2011] UKSC 36, which dealt with the choice of law of the employment contract. Taking account of a range of factors, the ET held that it had jurisdiction. The respondent employer appealed to the EAT.

The standard tests (as they are applied by tribunals) are derived from the Supreme Court judgments in Ravat v Halliburton Manufacturing & Services Ltd [2012] UKSC 1, and Duncombe (No 2). The applicable standard in a given case depends on whether or not the claimant works and lives wholly overseas or whether the claimant either lives and/or works partly in Great Britain: see Bates van Winkelhof v Clyde & Co LLP [2012] EWCA Civ 1207, at para 98. In this case, the claimant was a “commuter” (much like Ravat), and therefore lived in Great Britain but flew out for each rotation. The lower sufficiently strong standard, which does not require a comparative assessment of the factors between Great Britain and the place of work (or any other jurisdiction), was therefore the applicable standard.

There are a number of notable points about this EAT judgment.

1. Useful dicta on “double counting” of factors

In some reported cases, I have thought there are factors or connections that are “double counted”. Lord Summers notes in Hepburn that the fact that the claimant was accommodated in Equatorial Guinea (presumably during his days “on” rotation when he was not working, rather than his days off when it appears that he returned to the UK) was a consequence of that fact that he worked in Equatorial Guinea waters. In Lord Summers’ words, “It is also necessary to be alive to the possibility that connections may be interdependent.” In this case, they did not have independent strength as factors: see para 10. That is a welcome point to be explicitly made, and one that can used in future cases where appropriate. It resonates with the broader point made in Fuller v United Healthcare Services Inc UKEAT/0464/13/BA about the “importance of careful fact finding” in this area of law.

2. Questionable dicta on the relevance of factors?

Another issue with some reported cases is the questionable relevance of some factors expressly accounted for. Some have of course been expressly held irrelevant, such as alternative substantive law remedies in another jurisdiction: see Dhunna v CreditSights Ltd [2014] EWCA Civ 1238 at para 40; or that a claimant was in a relationship and had no children: Fuller, above, at para 42. 

In relation to connections that are actually relevant to the assessment, Lord Summers noted at para 11 that “The employment tribunal should therefore winnow the connections so as to separate the wheat from the chaff”.

Whilst that is a useful dictum, Lord Summers noted it whilst stating that a number of the listed factors “may not support the jurisdiction of the Scottish Employment Tribunal [but] equally they do not support the jurisdiction of Equatorial Guinea”.

The more appropriate way to phrase that in the context of this case is that some connections do not support the position that the employment has a sufficiently close connection with Great Britain and British employment law. This is because Hepburn was a commuter case, being one where the claimant resided in Britain and travelled overseas on rotation to work: here, there is no requirement to carry out a comparative assessment. The remark by Lord Summers makes it look as if a comparative assessment had, or should have been, carried out: under a non-comparative assessment only factors in favour of Britain are relevant for the ET’s role. It is those taken together that need to satisfy the “sufficiently strong connection” test.

Lord Summers further noted at para 24 that: “I was left to speculate as to what the situation might be if I upheld their challenge to jurisdiction. The appellants did not know anything about the employment law of Equatorial Guinea. They could not tell me whether the court in Equatorial Guinea would if seized of the claim be obliged to recognise the choice of law clause and apply UK employment law legislation to the dispute. I did not consider this to be a satisfactory situation.”

Whilst it would clearly have been unfortunate for the claimant if the ET or EAT had held that his employment was not within the territorial scope of ERA 1996, it is established by a judgment of the Court of Appeal that the substantive remedies available in another jurisdiction are an irrelevant consideration. In Dhunna, above, at para 40, Rimer LJ commented: “The object of the [comparison] exercise is not to decide which system of law is more or less favourable to the employee: it cannot realistically have been Parliament's intention that the 'general rule' in relation to expatriate employees should be regarded as ousted in any case in which the local employment law is less favourable to the employee than British employment law. The object of the exercise is simply to decide whether an employee is able to except himself from the general rule by demonstrating that he has sufficiently strong connections with Great Britain and British employment law.”

Dhunna was a case where the employee was subject to the more stringent, comparative test, but the comments apply equally to commuter employees (even although strictly speaking it should not arise). The issue for the tribunal in a commuter case is simply whether or not there is a sufficiently strong connection with Britain and British employment law. It is nothing to the point what the law is in another jurisdiction.

3. Novel appellate decision on prorogation clauses

Lord Summers held for the first time at appellate level, affirming the ET’s decision, that the prorogation clause was a relevant but not decisive connection factor. In this case, it was a factor in favour of the employment falling within the scope of ERA 1996. 

Referring to Duncombe (No 2) at para 16, where Lady Hale held that the fact that an English choice of law clause was in the contracts of the claimants in that case was “relevant to the expectation of each party as to the protection which the employees would enjoy”, Lord Summers held here (at para 20) that “Lady Hale’s judgment permits regard to be had to the expectation of an employee provided the expectation is consistent with other relevant connections”.  This is a sound broader principle to deduce from the judgment in Duncombe (No 2).

4. A different approach for multinational respondents?

Finally, Lord Summers dealt with another part of Lady Hale’s judgment in Duncombe (No 2) that prima facie was not in the claimant’s favour. One of the factors, regarded as a “sine qua non” by Lady Hale, was that the “employer was based in Britain”. In this case, the employer at the material time was a company incorporated in Equatorial Guinea. Prior to that, the claimant had been employed by another group company incorporated in Cyprus. 

The degree of inconsistency of Lady Hale’s remarks in Duncombe (No 2) with the factual situation in Hepburn clearly depends on what “based” is taken to mean. Lord Summers held, at para 23, that: “I do not consider that [Lady Hale] had in mind a situation where, as here, the employer is part of a multinational group of companies... and where the parent company, John Wood Group plc, is a UK-registered company headquartered in Aberdeen”.

Although not referred to in Lord Summers’ judgment, that conclusion is certainly consistent with Lord Hope’s comment in Ravat v Halliburton Manufacturing and Services Ltd [2012] UKSC 1, at para 30, which is reflective of the courts’ general approach towards employment relationships where there is an inequality in bargaining power: “The vehicles which a multinational corporation uses to conduct its business across international boundaries depend on a variety of factors which may deflect attention from the reality of the situation in which the employee finds himself.”

It therefore follows from Lord Summers’ judgment, and Lord Hope’s comment in Ravat, that it remains possible for ETs to have jurisdiction even in circumstances where the employer is not strictly based in the United Kingdom (in the sense that the employer is a company incorporated in the United Kingdom). It may well be the case that Lady Hale was not intending “based” to be interpreted in that way. It appears from the authorities that “based” is certainly now to be interpreted purposively and broadly in a manner that looks beyond the incorporation of the employer itself and into how the employer’s business was conducted, its role within the broader corporate structure and the involvement of individuals employed by other companies within the corporate structure.

There is plenty for practitioners to take from this case: useful new points for future cases, and warnings about both avoiding conflations about the proper applicable cases and having regard to what the duty of tribunals is. A final point to note is that the judgment refers (at para 6) to the previous provision of ERA 1996 on territorial scope – s 196 – being repealed by the “Employment Rights Act 1998”. There is no such Act. Section 196 of ERA 1996 was repealed by the Employment Relations Act 1999, s 32(3).

Walker v Wallem Shipmanagement Ltd

The second case covered by this article is Walker. Whilst, usually, the vexed issue of the extraterritorial scope of employment legislation is adjudicated on by reference to the Supreme Court judgments in Ravat and Duncombe mentioned above, owing to the silence in various pieces of legislation as to their scope in most circumstances, Walker is an exception but one that shows that the statutory provisions are not satisfactory. 

In Walker, the issue related to the interpretation of s 81, EA 2010 and the Equality Act (Work on Ships and Hovercraft) Regulations 2011 enacted thereunder, which expressly provide for when part 5 of EA 2010 applies to seafarers. The EAT’s judgment is particularly interesting given the Secretary of State for Transport’s obligation to review regs 3-5 of the 2011 Regulations and publish a report by 31 July 2021: see reg 6.

The female claimant was one of a number of graduates of Blackpool & Fylde College interviewed for jobs as crew of cargo ships by the respondent. A representative of the respondent, which was a Hong Kong company providing ship management services to cargo ship operators, emailed the college’s managing director stating that the respondent would “not offer places for the female cadets” because they could not offer an appropriate environment on board the ships. This email was forwarded to the claimant, who invoked the ACAS early conciliation process and thereafter raised proceedings before the ET for direct sex discrimination. The respondent accepted that the email constituted direct sex discrimination but contested the ET’s jurisdiction to adjudicate on the claim.

The issue was the proper interpretation of s 81 and the 2011 Regulations. The ET’s interpretation led it to hold that it did not have jurisdiction. The main submissions of the parties in the appeal are summarised in some detail at paras 22 and 23 of the EAT’s judgment.

Section 81(1) provides that part 5 of EA 2010 applies in relation to seafarers only in such circumstances as are prescribed: the 2011 Regulations are the relevant regulations to consider here. 

For the purposes of s 81, subs (2) provides that it does not matter whether employment arises or work is carried out within or outside the United Kingdom. 

Regulations 3 and 4 of the 2011 Regulations set out circumstances in which part 5 will apply. Regulation 3 concerns seafarers who work wholly or partly in Great Britain or adjacent waters; reg 4 concerns seafarers who work wholly outside those areas. Regulation 5 applies part 5 of EA 2010 differently in relation to pay or offers to pay, but only in circumstances in which part 5 would otherwise apply (under reg 3 or 4).

On appeal the principal submission of the claimant was that the wording of s 81 and reg 4 refers to an existing employment relationship, meaning that s 81 should be taken as being limited to cases where there is an actual employment relationship and not to the pre-employment situation of the claimant: see para 22(1)-(5). There were further submissions based on compatibility with the Equal Treatment Directive (Directive 2006/54/EC), and that a purposive construction should be adopted in compliance with EU law obligations under reference to the Marleasing principle: para 22(6)-(8).

The respondent submitted inter alia that (a) the starting point in s 81 is that part 5 in its entirety is excluded insofar as it relates to seafarers, unless regulations prescribe otherwise: in this case, neither reg 3 nor 4 would have applied to the claimant; (b) the current tense wording relied on by the claimant was not decisive because of what s 81 did in its effect, i.e. exclude the whole of part 5; and (c) the differentiation in reg 5 (where reg 3 or 4 applied) in relation to offers to pay would not make sense if s 81 did not relate to a pre-employment situation like the present case.

No redress

The EAT preferred the respondent’s submissions, principally on the basis of submission (c) in the paragraph above (see paras [25]-[28]) showing the proper intention and scope of the 2011 Regulations. Before reaching its final conclusion, the EAT considered whether there were reasons of policy or justice that should prefer the claimant’s construction. Whilst accepting the force of the claimant’s submissions that the consequences of the operation of the regulations according to the respondent’s submissions was “a matter of serious concern”, and that there was doubt about whether the regulations fully addressed the rights guaranteed by articles 14 and 17 of the Equal Treatment Directive, a Marleasing-driven interpretation could not be adopted as it would strain the language of EA 2010 and the regulations too far: paras 33 and 37.

While reluctant to reach the conclusion that the ET did not have jurisdiction, the EAT was “powerless”. The end result about what the regulations permit is put succinctly by the EAT at para 39: “[The regulations] permit an offshore employment service provider to discriminate, on United Kingdom soil, on the ground of any of the protected characteristics in the 2010 Act, when recruiting in this country”. The EAT further stated that the Secretary of State would be wise to revisit the scope of the 2011 Regulations in the next review, due by 31 July 2021. Watch this space.

For completeness, whilst it was not the case in Walker, it is important to note that the principles in Ravat and Duncombe (No 2) apply to EA 2010 where that Act is silent on its territorial scope. This was confirmed by the Court of Appeal in R (on the application of Hottak) v Secretary of State for Foreign and Commonwealth Affairs [2016] EWCA Civ 438, at para 48.