Overseas employees – a passport to uncertainty?

I am the HR manager for a small software house.   We recently dismissed one of our Software Engineers, Ed, for poor performance.  No process was followed as he’d been based in the US for six months when he was sacked and we thought that in the US “employment at will” applied.  As background, the way our Software Engineers work is that are wholly client based and work closely with the client to scope the project, modify the basic software and to install it on site.  This means that they move around a bit, but are usually in one place for at least three to six months to implement a project, sometimes longer.  Before being based in the US, Ed spent four months in Canada and before that he was in Germany for almost a year. He’s never worked in Britain.  Our London head office has received a letter from his lawyer saying that he is going to sue us in the Employment Tribunal in Great Britain.  Can he do this? 

Yours sincerely
Julie Stiction

Dear Julie

I’m not surprised that you are unsure of the position.  While workforce globalisation has been a reality for many years now, the law is only just starting to catch up.  The entitlement of overseas employees to claim unfair dismissal is a particularly vexed legal question and the law in this area has been subject to a lot of change recently.  Since 1999, the Employment Rights Act 1996 (the “Act”) which confers unfair dismissal rights on employees, has not contained any geographical limitation.  Read literally it applies to any employee anywhere in the world.  Because of this, it’s been left to the courts some territorial limitations into unfair dismissal rights, to avoid absurd consequences.  As you might imagine, there has been a lot of uncertainty and disagreement in the meantime about which employees are entitled to sue, but this has now been clarified in a recent House of Lords decision, Lawson v Serco Limited.

The starting point for deciding whether an employee has the right to protection from unfair dismissal under English Law is whether they are “employed” in Great Britain at the time of their dismissal.  This looks, at first glance, like a simple test and in many cases the answer will be straightforward.  But in cases where there is some international element to the employment but also some link to Great Britain, how do you decide what “employment in Great Britain” is?  Does it depend on where the employee lives?  Or where they accepted employment in the first place?  Or where they are paid and taxed?  Ordinarily the question should simply be whether the employee is actually working in Great Britain at the time he is dismissed.  That is the starting point.

On that test, obviously, Ed will not be able to bring the claim he has threatened.  However, the House of Lords did go on to say that special rules might apply in the case of peripatetic workers and for ex-patriate employees.  It seems to me that Ed is somewhere between these two categories,  in that he moves around, but not very frequently.

Peripatetic workers will only be entitled to claim unfair dismissal if they are “based” in Great Britain.  The House of Lords does not give much guidance as to how to decide this, but confirms that it is less important what the contract says than what happens in practice.  Again, the most important factor will be where the person ordinarily works, but a common-sense approach will be taken in deciding where the base is.  So, for example, if an employee travelled round Europe as a salesman, but his office (however seldom occupied) was based in London, he was paid in the UK, and started and ended his trips in the UK, was taxed in the UK, was integrated into the UK office’s employment structure etc, then in that scenario he would be regarded as based in Great Britain and would be entitled to claim unfair dismissal.

On balance, I feel that Ed is really more of an ex-patriate employee than a peripatetic one, since he doesn’t really move around from day to day, but he changes his place of work at regularly.  Concerning ex-patriate employees, the House of Lords said that they normally will not have rights to claim unfair dismissal.  However, a couple of exceptions were mentioned, including, importantly, whether the employee was providing services for the purposes of a business which itself was carried on in Great Britain, such as a foreign correspondent on the staff of a British newspaper.  From what you’ve said it sounds as though at least some of the software development work will be done at the client’s overseas location.  Even if, in practice, the mainstream software development (or indeed most of the client base) is in Great Britain, I don’t think this would affect the position unless Ed was involved in the part of the business running from here, which he doesn’t appear to be.

In summary, it seems to me that Ed is starting from the back-foot in trying to get an unfair dismissal claim off the ground (though he obviously may have employment rights in the US or even one of the other counties in which he’s worked).  Whether you consider him a peripatetic employee based outside Great Britain or whether he is an ex-pat providing services abroad, he falls outside the House of Lords’ guidance on who should be able to claim unfair dismissal.  The only scenario in which he could feasibly bring a claim is if in practice the work that you do for your clients is carried on in Great Britain and not overseas.  Accordingly, it’s critical that if Ed does bring the claim which he has threatened, you must challenge the Tribunal’s jurisdiction to hear his claim.  To cover all bases, it would be wise to do this whilst also (or, rather, alternatively) defending the claim on the ordinary grounds of fair reason etc.

A final caveat: The law in this area is very much in its infancy.  We will no doubt see numerous cases in this area as the perimeters of the right to claim unfair dismissal settle down once more.  Some of those cases may put a gloss on the House of Lords decision and Lawson v Serco Limited certainly will not be the last word on this area.