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Penalty miss proves costly for Blackburn Rovers

Tue, 21 May 2013 13:04:00 +0100

Last week, the High Court published its full judgment in the latest of a series of recent cases on how the penalty doctrine operates in the employment law sphere - Henning Berg v Blackburn Rovers FC.

Under the doctrine, a contractual term will be a penalty if it requires the payment of a sum upon a party’s breach of the contract and:

the sum is not a genuine pre-estimate of the other party’s loss arising from the breach, or
the predominant function of the term is to act as a deterrent to breaching the contract (rather than to compensate for the breach)

If the term is a penalty, it will be unenforceable beyond the sum that represents the actual loss of the “innocent” party. In other words, the innocent party will only be entitled to damages for breach of contract under normal contractual principles (and will be required to mitigate its loss).

The penalty doctrine has been cropping up increasingly in the employment context around issues such as adjustment and claw-back provisions in deferred compensation schemes, leave provisions and restrictive covenants in share schemes. In addition, it was recently considered in connection with conditional good leaver provisions in compromise agreements in the BlueBay case (see our previous Journal article).

In the Blackburn Rovers case, the penalty issue arose in relation to a liquidated damages clause when the football club sought to withdraw its earlier admission of a claim for £2.25 million brought by its former manager, Henning Berg.

Under Mr Berg’s service agreement, he was employed for a fixed three-year period, but the club terminated the contract after just six months without paying him anything in compensation. There was a contractual provision in the service agreement giving Blackburn Rovers the express right to terminate early, provided that it paid Mr Berg a sum equal to his gross basic salary for the unexpired balance of the fixed period. Blackburn Rovers later sought to argue (among other things) that this contractual provision was an unenforceable penalty.

The High Court disagreed. It referred to the established principle that a sum of money will not be a penalty if it is payable under a contract on the occurrence of an event other than a breach of a contractual duty owed by the paying to the receiving party. The Court held that termination of Mr Berg’s employment prior to the expiry of the fixed term was not a breach of contract: it was permitted as of right and triggered the payment of a sum of money to Mr Berg. The clause in question was not a penalty, or a disguised penalty.

When drafting an early termination provision, employers should ask themselves at the outset what they are trying to achieve. A clearly drafted clause providing for payment on early termination will be enforceable, since the penalty doctrine does not apply in circumstances where the trigger for payment was not a breach of contract.

Of course, the penalty doctrine applies equally in the converse situation of an employer seeking to recoup sums from an employee after the employment relationship ends. Accordingly, employers should be mindful of the risk of inadvertently falling foul of the penalty doctrine when drafting clauses that deal with the event of an employee’s breach of contract. In particular, they should be careful when:

specifying the payment of a sum of money
providing for the repayment of a sum previously paid
providing for the surrender of an accrued or vested interest (but not one that is contingent), and/or
allowing the withholding of a sum which, but for the breach, would have been payable

Caste discrimination is cast into the limelight

Fri, 03 May 2013 11:32:00 +0100

The debate about the existence of caste discrimination in the UK and the extent to which individuals should be protected from it has been ongoing for many years. Back in 2008, when Parliament was in the process of consolidating existing discrimination laws into the Equality Act 2010, it had the opportunity to introduce specific protection against caste discrimination. In the end, it stopped short of doing so.

At the time there were too many questions and not enough time to resolve them whilst the legislation was being rushed through Parliament. Should caste be a protected characteristic in its own right, or should it be a specific sub-set of religion or race? Or was caste discrimination already protected as a form of race discrimination? That was certainly the Equality and Human Rights Commission’s view at the time, although the position was unclear.

This debate was brought back into the limelight again recently in the latest tussle between the House of Lords and the House of Commons on the passage of the Enterprise and Regulatory Reform Bill through Parliament. When the House of Lords put forward legislation against caste discrimination it was quickly rejected by the Government. However, after the House of Lords continued to frustrate the Government by rejecting its employee shareholder plans, the Government finally committed to making regulations outlawing caste discrimination as an aspect of race discrimination to try and sweeten the deal.

Consultation on the issue (and extent) of caste discrimination is expected. However, the Government has indicated that legislation will come into force within 1 to 2 years. As a result, by April 2015 any discrimination because of caste will be a form of race discrimination, and therefore unlawful. There will be a review of the legislation in 5 years’ time so the protection can be repealed if it is shown not to remain necessary. One of the reasons for the inclusion of this “sunset clause” is that the diverse nature of the concept of caste is not currently well understood in the UK.

Class v caste

Often, caste is thought of as being synonymous with class (see our recent Journal post for more on class or “socio-economic” discrimination). Indeed, in colonial times, it was said that “class and caste stand to each other in the relation of family to species; the general classification is by class, the detailed one by castes”.

Yet this statement also reveals a crucial difference. The caste system is a precise, rigid one. It is not possible to move from a lower caste to a higher one. It is a well-defined, identifiable characteristic and the caste an individual is born into stays the same for life. In this respect caste, when considered as a protected characteristic, has much in common with characteristics which are already protected in terms of permanence and ease of identification.

Many commentators criticise the lack of social mobility in this country. But whilst it may be difficult to move from a poor working class background to one of the über wealthy cultural elite, it is not impossible. The class system we are all familiar with in the UK is nowhere near as rigid or well developed as the caste system. These differences mean that it will (finally) be possible to legislate against caste discrimination, whilst socio-economic or class discrimination remains out in the cold.

Bankers’ bonuses: is the cap contrary to EU law?

Tue, 30 Apr 2013 15:36:00 +0100

The EU Parliament recently adopted the legislative package known as CRD4 which, as previously reported, includes a basic cap on bankers’ bonuses of 1 x salary. The cap can be increased to a maximum of 2 x salary with appropriate shareholder approval, although a minimum of 25% of any bonus exceeding 1 x salary must be deferred for at least five years.

The text of CRD4 remains subject to a detailed review of legal drafting, translation into other official EU languages and formal adoption by ministers. Assuming the legal translation can be completed in time for the legislation to be published in the EU Official Journal before 1 July 2013, the cap will apply to remuneration awarded for services and performance on or after 1 January 2014. If the legislation is published on or after 1 July 2013, the cap is only likely to apply to remuneration awarded for services and performance on or after 1 July 2014.

Or will it?

A group of banks is considering challenging the legality of the cap. One of its primary arguments is that pay (other than equal pay) is specifically excluded from matters on which the EU may legislate in the field of social policy under Article 153 of the Lisbon Treaty.

A decision of the Central Arbitration Committee (CAC) last week – the first UK case to consider this issue of which we are aware – has confirmed that, at least in the opinion of one domestic body, the EU has no competence to legislate on pay.

The matter before the CAC was a complaint by a European Works Council (EWC) that the British Council had failed in its obligations under the Transnational Information and Consultation of Employees Regulations 1999. The EWC claimed that the Council had failed to inform and consult with the EWC on its policy and pilot for an employee performance related pay (PRP) scheme that it was proposing to introduce.

The EWC acknowledged that pay and pay-related issues were not expressly referred to in the 1999 Regulations or in the EU Directive that established the remit of the EWC. However, it argued that the sole issue was whether the PRP scheme was a “transnational” matter as defined in the Regulations. If it was, the British Council was obliged to provide information to, and consult with, the EWC on the scheme.

In rejecting the complaint and finding that the PRP scheme was not a transnational matter, the CAC decided that the EU and bodies such as EWCs that are established as a result of EU legislation have no competence to deal with pay or with matters that directly fall into the category of pay-related issues. This was because of the exclusion under Article 153 of the Lisbon Treaty and explained why the Regulations did not expressly refer to pay or pay-related issues.

Although not binding on any higher courts, let alone the European Court of Justice, this ruling will give at least some comfort to the banks challenging the cap - although they will still need to show that the cap itself amounts to pay regulation. The European Commission and European Parliament have dismissed claims of illegality on the basis that the cap does not constitute social policy: it does not limit the amount an individual can be paid, but merely sets a ratio of salary to bonus in an attempt to reduce risk taking.

The question of whether the EU does have the power to impose the cap is an interesting one, with implications not only in relation to banking bonuses, but potentially in other areas such as whether the EU could intervene in setting rules around minimum wages. We will be following developments closely.

Bankers' multimillion bonus claim upheld

Mon, 29 Apr 2013 16:17:00 +0100

The Court of Appeal has upheld a High Court award of more than EUR 50 million in bonuses to a group of 104 bankers. In so doing, it gave some important guidance on the circumstances in which promises made during the course of employment will acquire contractual effect.

The facts of the case are set in our report of the High Court’s judgment. In short, Dresdner Kleinwort announced to investment banking employees the creation of a guaranteed minimum EUR 400 million bonus pool, in order to stem departures during the 2008 banking crisis and against a backdrop of rumours of collapse and takeovers. This was communicated at “town hall meetings” and confirmed in subsequent intranet postings.

Following Dresdner’s takeover by Commerzbank, in the context of public anger at prospective payments of bonuses to employees of an institution bailed out by the German taxpayer, Commerzbank sought to reduce the bonus pool by 90%, arguing that the communications over pool size had not had contractual effect.

The Court of Appeal’s decision is largely a ringing endorsement of the conclusions the High Court reached. Of perhaps greater significance are the Court’s findings on some very basic points of contract law which can nonetheless give rise to disputes in practice.

Was the promise too uncertain?

The bank argued that the announcement of the bonus pool left too much uncertainty for it to amount to a contractual promise. There was, for example, uncertainty over: whether the individual guaranteed fixed bonuses should come out of the fund; whether the bonus should be paid by way of shares or cash; and what proportion of the fund could be held back for contingencies, it being accepted that an element of the fund could be dealt with in that way.

The Court of Appeal held that these problems were largely dealt with by the High Court’s finding that the fund would be dealt with “in the usual way”, meaning that confirmed individual fixed bonuses would be paid from the fund as well as the discretionary bonuses. While there would be some imprecision, for example on the question of how much could be withheld for contingencies, the Court felt there was no doubt that the parties would recognise that it would be a reasonable figure of the kind typically withheld for this purpose in the past. The fundamental principles of the scheme were clear, and the fact that there were some loose ends did not come close to creating the degree of uncertainty necessary to defeat the parties’ intention that the agreement should be capable of enforcement.

Was there offer and acceptance?

The bank argued that, if its announcement of the creation of a bonus pool of a particular size was an offer, no binding contract in relation to it had come into effect because there was no acceptance by the employees.

The Court disagreed, finding that it was plain that the bank had dispensed with the need for any response to the offer at all. It was a promise without any disadvantage, actual or potential, to the employees and nobody hearing the promise made in the announcement would expect an employee to be able to benefit from it only if he or she positively accepted it. The Court described this as a “wholly formal and unnecessary exercise”, holding that “the only sensible implication is that all employees who might potentially benefit from the promise would be deemed to have accepted it”.

The Court went on to say that the nature of the promise was inconsistent with the notion of individual acceptance. It would mean that if, say, a minority of the relevant staff accepted the offer, the employer would be bound to pay the whole of the bonus pool, if only to the minority. It was unrealistic to think that the bank would be willing to pay its bonuses from the fund by reference to whether the particular employee had formally accepted the offer or not. If acceptance was needed, the minority who accepted the offer would at least arguably have a contractual claim against the bank if it sought to diminish the fund by applying it for the benefit of those staff who had not accepted the offer and therefore had no claim on the fund. This was described as a “bizarre result”.

Was there consideration?

In response to the bank’s contentions that the employees benefiting from the promise had not given anything in exchange (consideration), the Court found this was wrong as a matter of fact. Each claimant had given good consideration in that the bonus pool was at least a factor, to a greater or lesser extent, in their decision to remain with the bank.

Was there an intention to create legal relations?

Finally, the bank argued that it had not intended to create legal relations when it announced the setting aside of a minimum bonus pool of EUR 400 million. It appealed on the basis that the High Court had been wrong to conclude that the burden of proof was on the bank to show that there was no intention to create legal relations, arguing that this should not be the case where – as here – the contractual promise was unilateral in nature.

The Court of Appeal disagreed and indeed went further. It stated that where a term was being introduced into a pre-existing contractual relationship – i.e., the employment relationship – there would be a very strong presumption that it was intended to be legally binding. There would be an onus on the party asserting that there was no intention to create legal relations to establish that fact.

Implications

Employers in all industries should take particular note of these findings by Court of Appeal:

there will, in cases of this type, be no need for an employee to accept positively an offer made to them for a contractual promise to come into effect;
an employee’s decision to remain with their employer in response to a promise made will amount to good consideration; and
where terms are introduced into an existing employment relationship there will be a strong presumption that they are intended to be binding.

More broadly, the judgment reinforces the need for management to proceed with utmost care when communicating promises related to pay and benefits to employees if they do not intend the promises to have contractual force. This applies even if the communication is made to a group and is not specific at the individual level.

Employee shareholders - back in play!

Fri, 26 Apr 2013 14:18:00 +0100

After an intense game of parliamentary ping-pong, the House of Lords has finally agreed to spare George Osborne’s blushes and accept the Government’s proposed revisions to clause 27 of the Growth and Infrastructure Bill, meaning that the “employee shareholder” legislation will become law at some point this Autumn.

We reported back in December that most respondents to the Government’s consultation indicated that they did not think that the take up would be high amongst employers. The responses also highlighted a number of technical problems with the legislation which needed to be ironed out, before the legislation could be enacted. At least some of these technical questions appear to have been answered (see the “concessions” below), but it is still widely felt that take up by employers will be very low. As such, although George Osborne may have saved face politically the reform may have very little impact in the real world.

By way of a reminder, “employee shareholders” is the Government’s proposal to introduce a new type of employment contract. Under these contracts, employees will give up employment rights such as unfair dismissal and statutory redundancy pay and, in return, receive between £2,000 and £50,000 of shares in their employer. These shares will be exempt from capital gains tax.

Since the original draft legislation was circulated at the end of last year, the main headline concessions which the Government has made to the proposed legislation are:

Individuals being offered employee shareholder status must be given a written statement containing full details about the shares and the rights they carry as well as the employment rights being given up
Individuals will need to have received advice from a relevant independent adviser (as with compromise agreements) before they can become employee shareholders. There will be a 7 day ‘cooling off’ period for them to consider this advice during which they can change their mind even if they have already signed an agreement
Unlike compromise agreements, employers will be legally required to pay the “reasonable costs” for this advice and will have to pay regardless of whether the individual accepts the employee shareholder agreement
The first £2,000 of shares will not attract income tax, and
Employees will be considered to be automatically unfairly dismissed if the reason for the dismissal relates to the fact that the employer is trying to force them to convert to employee shareholder status. Employees will also be protected from other detriments (falling short of dismissal) if they refuse to switch

It is interesting that employers will be required to make a financial contribution towards an employee getting advice on the employment rights being given up. Whilst we do not expect that something comparable will be brought into the compromise agreement legislation, it may be something which is monitored by the Government. It will also be interesting to see whether the market rate as to what constitutes a “reasonable” sum in respect of this advice will be around the same level as for a basic compromise agreement. We expect that it will be higher, because of the need to give advice on the employment law rights being given up as well as taxation issues and share rights. Also, because of the way that the legislation is worded, it is likely that non-lawyer “relevant independent advisers” – such as unions - may start to charge a fee for the advice that they give.

IR35 extended from 6 April 2013

Wed, 24 Apr 2013 14:00:00 +0100

Workers often decide to supply services to clients through an intermediary (such as a personal service company) rather than contracting directly with the client. They may do this for a number of reasons. One is that a worker can make real tax savings by taking some profits in company dividends rather than salary. This is because, unlike salary, dividends are not subject to NIC. They are also subject to a lower effective income tax rate.

IR35 was introduced in April 2000 to counter false self-employment and particularly the practice of paying dividends through personal service companies (see our inbrief IR35: Here to Stay for more information). If IR35 applies, the fees that the intermediary receives from the client (subject to certain deductions) are treated as the worker’s employment income and the intermediary must deduct PAYE and NIC.

Prior to 6 April 2013, IR35 applied for income tax purposes where a worker personally performed services for a client via an intermediary and the worker would have been an employee of the client if those services had been provided directly to the client. Accordingly, for income tax purposes, IR35 did not apply to an office-holder unless he or she would have been the client’s employee if the intermediary did not exist. (However IR35 has always applied to both employees and office-holders for NIC purposes.)

With effect from 6 April 2013 the IR35 rules on income tax have been extended to apply where:

A worker personally performs services for a client via an intermediary and if those services were provided direct to the client the worker would be an office-holder of the client, and
A worker who is an office-holder of a client, personally performs services for that client which “relate to” his office.

An office is a position that exists independently of the person holding it and which may be filled by successive holders. HMRC guidance states that, for example, a factory manager or a division head are not office-holders, as these positions may be varied or terminated by the business; they do not have sufficient independent existence or permanence to be an office.

This extension will be of particular concern to workers who are supplying their services to the public sector through an intermediary, since many senior public sector positions are in fact offices. In the private sector, the extension will primarily affect those workers who are supplying their services as a non-executive director or as an acting director through an intermediary.

The meaning of the phrase “relates to” in the second test above is unclear and creates unwelcome uncertainty. Early indications from HMRC are that the test is aimed at the situation where the duties performed by the office-holder have been artificially divided – the test is intended to catch those services which should have been provided in the worker’s capacity as an office-holder rather than consulting services which could have been provided by a third party.

Workers supplying services to a client through an intermediary as an office-holder or supplying services which potentially relate to their holding of an office with a client should review their position. The review should look at not only the current situation but also any historic one to ensure that the intermediary has previously accounted for NIC on any fees it received.

Should employers follow Lord Sugar's lead on employment tribunals?

Wed, 17 Apr 2013 09:48:00 +0100

Many employers, faced with the prospect of employment tribunal litigation, may be tempted to throw in the towel and settle the minute the claim form hits their desk. But perhaps should they emulate Lord Alan Sugar and stand up and fight, rather than be held to ransom by compensation-hungry employees?

After his tribunal victory last week against former Apprentice winner, Stella English, Lord Sugar stated that he had been “cleared of a derisory attempt to smear [his] name and extract money...” He has reportedly promised to undertake a “personal crusade” to prevent specious claimants and the “ambulance-chasing lawyers” who advise them.

Ms English’s claim was based upon the assertions that her job was “a sham” and that she was twice forced to resign. She first worked for Lord Sugar’s company Viglen but resigned in May 2011 and subsequently started working again for him at YouView. However, she alleged she was forced to quit in October 2011 because of a breakdown in trust and confidence caused by YouView’s conduct, entitling her to resign and claim constructive dismissal.

In dismissing the complaint, the tribunal went as far as saying that this was "a claim which should never have been brought" and that Ms English (who sought legal advice before submitting her claim) was “ill advised to bring a claim and/or continue it”.

Employees who are genuinely mistreated at work should, of course, be entitled to seek redress against their employer. But in a system where unmeritorious cases are often pursued, it is difficult not to have a degree of sympathy with Lord Sugar’s views.

Moreover, employers sometimes feel that representatives cynically advise their clients to cause as much trouble as possible, merely to put pressure on the employer to offer a settlement sum to make the matter to go away. Unfortunately, on a straightforward cost/benefit analysis, it often makes commercial sense for employers to settle quickly rather than fork out legal fees to defend themselves.

Yet before Lord Sugar rushes off to moan about the “claim culture” to his colleagues in the House of Lords, he should perhaps consider the potential impact of some of the employment law reforms currently being pursued by the Government.

For example, the maximum compensatory award a tribunal can make in an unfair dismissal claim will shortly be limited to the lower of £74,200 or one year’s salary. This should to some extent manage the expectations of prospective claimants (although compensation in discrimination cases, for example, will remain unlimited). Even more significantly, from the summer, employees will have to pay an up-front fee in order to bring a tribunal claim – a change which it is hoped will deter a significant proportion of misconceived claims.

In the meantime, at least a few more employers may be encouraged by Lord Sugar’s positive outcome at the tribunal to fight their corner in appropriate cases. Ironically, given his apparently dim view of certain elements of the legal profession, this could mean lawyers more frequently being told “You’re hired!”

Is a general strike on the cards?

Thu, 04 Apr 2013 17:31:00 +0100

Unite and Unison, two of the country’s biggest unions, have backed plans for a general strike.

If the general strike, which would involve employees from both the public and private sector, materialised it would be the first since 1926.

With much more stringent trade union laws being introduced under the Thatcher Government, many employers will be questioning whether this could really happen in this day and age.

In short, the answer is yes (to an extent!). We witnessed mass strikes for ourselves in the summer of 2012 when our GPs and hospital doctors went on strike over pension reforms. That said, organising a general strike would be far from easy. To organise mass-scale action, British trade unions have to comply with the strict procedures contained in the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”). All too often unions deviate from this complex procedure – which includes holding a compliant ballot and providing sufficient notice to the employer - giving employers the opportunity to successfully oppose and prevent the planned action.

However, recent decisions indicate that the tide seems to be turning. We have seen the courts take a more relaxed approached to TULRCA and not insist that unions follow the procedures in their totality. The Court of Appeal’s decision in RMT v Serco 2011 is a good example of this; the Court of Appeal limited the number of grounds upon which employers can challenge strike action and suggested that they were not concerned with minor breaches of the procedures. Trade unions are more than aware of this and many have been adapting their approach accordingly, providing less and less information to employers. However, one requirement that unions cannot escape from is the fact that to call workers out on strike, there must be a trade dispute between the workers and their employer. Sympathy strikes are not legal in the UK.

Trade unions, though, have started to rely more on human rights arguments to achieve its aims. Recently the RMT commenced a challenge to TULRCA’s strict procedures on collective action before the European Court of Human Rights. In its submission to the Court, the RMT claimed that ‘the right to strike is excessively circumscribed’ in Britain in breach of article 11 of the European Convention on Human Rights, which protects the right to freedom of association, including the right to form and be members of trade unions. If this claim were upheld, and UK strike laws were changed as a result, then sympathy strikes may not be unlawful and general and sympathy strikes would not be so alien. That said, if employees are going to lose their pay when on strike, there would have to be a fairly strong drive to make them strike in support of someone else’s fight.

We eagerly await the developments in this area – especially the European Court of Human Rights’ decision – to see if general and sympathy strikes will remain a thing of the past or become a part of our future. Until then, employers faced with industrial action as a result of a general strike should carefully consider if they really do have a trade dispute with their workers. That, and keep their fingers crossed that the more moderate unions remain sceptical about the whole thing. Whatever happens, a lawful general strike can’t be organised overnight and so employers will have quite some time to plan for it!

Simplifying pensions auto-enrolment - a chance to have your say!

Tue, 02 Apr 2013 15:46:00 +0100

The field of pensions auto-enrolment, which first started to apply to the largest employers in October 2012, is strewn with battle-stories of ways in which employers have managed to cope with the obligations imposed on them by the legislation.

Now it is time for smaller employers to get to grips with what they will need to do, and hopefully there will be some benefit from the lessons learned by those who have already “staged”.

Some good news - the Government also hopes to put in practice some of these lessons, and is now consulting on some proposed changes designed to fix teething problems with the regime so far.

No doubt your Staging Date for pensions auto-enrolment is already firmly in your diary. But here’s another date to circle in the calendar - April 2014, which is when the Government hopes to bring into force the changes it is now proposing. Depending on the result of the consultation, the changes may come in earlier. However, until then it will be business as usual for employers complying with auto-enrolment obligations.

The proposed changes are not set in stone, and employers will have the opportunity to comment on them until 7 May 2013. We would encourage you to make the most of this opportunity, since the consultation is directed primarily at employers.

In brief, the proposals would allow employers to:

Choose to align the “pay reference period”, for the purposes of assessing jobholder status and whether contributions on earnings meet the minimum requirements, with the pay and tax periods which payroll already use. This is a significant improvement as it matches with when employees are actually paid, but there are still differences in the definition of earnings for auto-enrolment purposes on the one hand and for tax purposes on the other.
Benefit from a respite period if a jobholder who had previously been contractually enrolled has opted out before becoming eligible for auto-enrolment. Under the current rules, employees are subject to the “yo-yo” effect of leaving a contractual scheme, but then being automatically enrolled into the same or another scheme, and having to opt out again almost straightaway. Under the proposals, auto-enrolment duties would not need to be considered again until the normal three yearly re-enrolment process.
Be more flexible about the form of an opt out notice, provided that its content and form are “substantially” the same as the notice set out in the legislation.
Enjoy an extended “joining window” (the period employers have to ensure that the jobholder becomes an active member of a qualifying scheme and to provide enrolment information to the jobholder) from one month to six weeks.
Exclude certain categories of worker from auto-enrolment such as employees with enhanced/fixed protection from the lifetime allowance tax charge, individuals who resign during a postponement period, and active members of money purchase schemes who have given notice of retirement.

There are also some additional proposed changes to the “test scheme standard” for defined benefit schemes, which govern whether a scheme is appropriate for the auto-enrolment legislation.

After the DWP’s commitment to simplify auto-enrolment, it is promising to see the consultation has finally come out - although our view is that it isn’t extensive enough to resolve all the problems employers have encountered so far...

What the consultation paper does confirm is that auto-enrolment is here to stay. This is merely a period to consult about “technical” aspects of how auto-enrolment should happen in practice, and there is certainly no suggestion that the Government will backtrack from the general principle. So if your Staging Date isn’t in your diary, it might be time to put it there!

For more information, please contact Katherine Shaw.

Bankers' bonus cap: latest developments

Fri, 22 Mar 2013 16:04:00 Z

Following further talks on 20 March between representatives of the European Parliament and the Council of the European Union, political agreement has been reached regarding the cap on bankers’ bonuses which will apply under an amendment to the Capital Requirements Directive (“the Directive”), known as CRD4.

As previously reported, the cap will be set at 1 x salary unless at least 66% of the firm’s shareholders approve an increase to 2 x salary (or at least 75% of shareholders if there is no quorum).

However, as a result of the latest negotiations, it seems that the cap will only apply to remuneration awarded for services and performance from 2014 onwards. In other words, the cap will not cover those bonuses which are paid in 2014 but which are in respect of 2013 performance.

The final version of the text is not yet available but our current understanding of how the cap will work is:

The cap will apply to banks and building societies within the scope of the Directive. Many investment firms within the scope of the Directive are also likely to be caught by the cap although this will be subject to the principle of proportionality. EU based firms will be required to apply the cap globally and non-EU based firms will be required to apply the cap to their EU sub-group. The European Commission will monitor the impact of these rules.
The cap will only apply to Code Staff. Note, however, that the European Banking Authority (“EBA”) is due to review the criteria used to identify Code Staff and this may result in an increase in the number of staff designated.
The cap will apply to the ratio of “variable pay” to “fixed pay”. The meaning of these terms is therefore crucial. “Variable pay” is currently defined as remuneration which reflects “a sustainable and risk adjusted performance as well as performance in excess of that required to fulfil the employee's job description as part of the terms of employment” whilst “fixed pay” is currently defined as remuneration which “primarily reflect[s] relevant professional experience and organisational responsibility as set out in an employee's job description as part of the terms of employment”. These terms are ambiguous but we are not aware of any proposal to amend the definitions. Hopefully guidance will be issued clarifying their meaning.
25% of variable pay which is delivered in the form of non-cash instruments, deferred for more than 5 years and subject to claw-back will be valued at a discount to take account of inflation and other market risks. This will effectively increase the cap, although it is not clear that the increase will be significant. The EBA is expected to publish guidance by the end of March on valuing long term variable pay. It will also provide guidance on the type of non-cash instruments that may be used.

The European Parliament is due to vote on the cap in the plenary session on 15-18 April. If approved, member states will be required to implement the legislation by 1 January 2014 but, as stated above, the cap will only apply to variable pay in respect of performance in 2014 and subsequent years.

Although the current focus is on bankers’ bonus it is likely that a cap will be introduced to other financial services sectors in due course. A proposal was made this week to cap the bonuses of managers of UCITS funds and we expect something similar for the managers of alternative investment funds. It seems that there will be no respite for the financial services sector.

Mirror, mirror on the wall....

Fri, 08 Mar 2013 08:07:00 Z

Many believe that when and where we work will matter less in years to come. Over the last decade, there has been an increasing shift away from office-based working to a more flexible working environment in those industries which can support such a move. This has allowed employees more control over where, how and when they work, and how they choose to balance work, family and outside interests. Those who support this progression say that in turn, and contrary to the belief of some sceptics, employees will be more engaged and productive.

But does Yahoo! CEO Marissa Mayer’s decision to get Yahoo! telecommuters back from home into the office signal the beginnings of a backlash against this trend? Or just teething problems as the world of work grapples with the inherent difficulties in managing and motivating a remote workforce, particularly in difficult economic times?

The move towards a more flexible way of working has been influenced by a number of different factors. Technological advances have been a major contributor. Widespread availability of broadband has given more employees the ability to access employer IT systems remotely and effectively. Working outside of the office has become a practical reality. The introduction of the right for parents and carers to request flexible working has increased awareness, and forced employers who had not previously considered it to give it careful thought.

Many commentators on the future of work agree that this trend is set to continue into 2020 and beyond. Technology will advance further and make working remotely possible for an increasing number of job roles. Developments in the employment law arena also support moves towards a more flexible workforce. The statutory “right to request” to work flexibly will be extended to everyone in 2014 and whilst there is nothing stopping anyone from making a request at present, a wider statutory right may prompt more employees (and employers) to look at the options. The move to a shared parental leave system rather than separate maternity and paternity leave systems may mean more men consider flexible working options. Furthermore, 2020 will see the first of the post-millenials, who have grown up with their virtual and physical worlds fully integrated, entering the workforce. They are predicted to have quite different expectations as to how their work-life should look.

But does the Yahoo! decision – and the support this has generated from other businesses and commentators (notably, Alexandra Shulman of British Vogue) – sound a warning bell? There are additional challenges which come with managing a remote workforce. Being present in an office can facilitate interaction with colleagues, casual conversations and impromptu meetings. Decisions are made more quickly and creativity can flourish. Technology has not quite found a way to replicate face-to-face contact and the immediacy which accompanies it. Working in isolation can lead to being left out of those encounters and out of the loop – both on day-to-day matters and when it comes to bigger issues such as career progression and promotion. In some cases, those working remotely might become disengaged and demotivated, and productivity and commitment may suffer as a result.

Some might say that this is something which has been obvious all along. However, there is no doubt that technological advances will facilitate opportunities for ever greater working flexibility in the future. As the employment relationship evolves and the shape of the employment “deal” continues to be subject to increasing pressures, employers need to be ready to adapt and consider how best to make a more remote and flexible workforce “workable” for the future.

Collective agreements and TUPE - more dynamic than you might think?

Thu, 07 Mar 2013 09:51:00 Z

When employees transfer to another employer under TUPE, their terms and conditions usually transfer along with them and any collective agreement that applied to their previous employment continues to apply. But what happens if their employment contracts say that terms and conditions will be determined by collective agreements negotiated “from time to time” by the former employer and union? Are the new employers bound by later changes to a collective agreement to which they are not even a party?

The Advocate General of the European Court of Justice (ECJ) thinks they can be bound in this way, and has issued an opinion to this effect in Parkwood Leisure Ltd v Alemo-Herron and others. This case concerned employees who were originally employed by the London Borough of Lewisham. Their pay was determined by a collective agreement between the employer and the National Joint Council for Local Government (the “NJC”). Following two TUPE transfers, Parkwood Leisure Ltd (“Parkwood”) became the new employer. Subsequently, a new collective NJC agreement was negotiated, without any participation by Parkwood. The new agreement increased pay scales.

Parkwood’s employees argued that their pay should also increase, on the basis that TUPE allows a “dynamic” approach to the transfer of collective agreements - meaning that any changes to the collective agreement post-transfer would still apply to transferred employees. Parkwood argued for a “static” interpretation, which would mean that the collective agreement only applies as at the date of the transfer and any subsequent changes to the agreement would not apply to them as the new employer. The case went right up to the Supreme Court whose judgment suggested that the UK should adopt a dynamic approach, unless the ECJ rules that this is precluded by relevant the EU Business Transfers Directive. The Supreme Court made a reference to the ECJ on this point.

The ECJ has yet to make a decision but, as is customary, the Advocate General has issued an opinion on the case. In most cases the ECJ follows the opinion in its judgment, so it is significant that the Advocate General has stated that there is no bar to UK legislation allowing a dynamic approach to collective agreements. In fact, he notes that the UK has not even chosen to limit the ongoing application of future collective agreements to one year (which is expressly permitted by the Directive).

We still need to see whether the ECJ agrees with the Advocate General. However, pending a final answer, due diligence on any TUPE transfer should include a careful review of any clauses incorporating collective agreements into employment contracts. It appears that new employers may find themselves bound by negotiations to which they were not even a party. They should consider seeking protection from future changes to collective agreements, for example by requiring an indemnity. Employers drafting employment contracts should also be aware of the potential consequences of a dynamic approach to the incorporation of collective agreements. Although it is the new employer who will face the ultimate consequences, the presence of a dynamic clause in the contracts may affect the commercial terms of any deal which involves a TUPE transfer.

The Government has recently announced proposed changes to TUPE to take place over the next three to five years (see our previous Journal articles here and here). The dynamic/static debate is something to add to the ever-growing list of potential reforms!

Don't ignore the writing on the wall...

Tue, 05 Mar 2013 11:42:00 Z

Employers are well aware of the need to have a written disciplinary procedure in place. However, the importance of the specific wording of such a policy can sometimes be underestimated by employers. The recent decision of the Court of Appeal in Tayeh v Barchester Healthcare Ltd is a useful reminder of the value of a well-drafted disciplinary policy when an employer is looking to dismiss an employee for misconduct.

In misconduct dismissal cases, an employer must show it had a genuine belief in the employee’s guilt, being a belief based on reasonable grounds after the carrying out of a reasonable investigation. A tribunal must decide whether the employer’s response to the misconduct falls within the “range of reasonable responses” that might be adopted by a reasonable employer, but it must not substitute its own view.

Ms Tayeh, a care home nurse, falsified a patient’s medical record and failed to carry out observations on a patient who had suffered a fall. She was summarily dismissed for gross misconduct. Ms Tayeh’s contract of employment incorporated the company’s employee handbook. This included a disciplinary procedure which set out a non-exhaustive list of 28 types of conduct the employer considered to be ‘gross misconduct’, such as breaching health and safety rules, failing to administer or mismanaging drugs and falsifying written records.

The tribunal decided that Ms Tayeh had been unfairly dismissed. In the tribunal’s view, falsifying records was insufficiently serious in comparison to the other types of gross misconduct listed in the policy, and as such, fell outside the “range of reasonable responses” and was not a reasonable ground for dismissal.

On appeal, both the Employment Appeal Tribunal and the Court of Appeal decided that the tribunal had failed to apply the proper test of whether the employer’s actions fell within the “range of reasonable responses” and had substituted its own view for that of the employer. The tribunal’s view that the falsification of company records was less serious than the other types of gross misconduct referred to in the policy was not justified.

Importantly, both the EAT and the Court of Appeal placed weight on the fact that the falsification of records was explicitly listed in the employer’s policy as a ground for gross misconduct - a clear indication to employees of the seriousness with which such behaviour was viewed.

We have previously commented in our Journal on the need to draft contracts of employment carefully and review them regularly to ensure that they are up to scratch. The importance of doing the same with workplace policies, whether contractually binding or not, should not be overlooked. A well-drafted disciplinary policy will ensure that an employer’s views on what it considers gross misconduct are accurately captured and will place the employer in a strong position in defending a claim.

Migration Statistics Quarterly Report: Fall in Net Migration into the UK

Mon, 04 Mar 2013 10:46:00 Z

The latest Migration Statistics Quarterly Report that has just been published by the Office for National Statistics reveals that there has been a drop in the net flow of migrants to the UK. Net migration to Britain fell to 163,000 in the 12 months leading to June 2012 from 247,000 in the year ending June 2011.

While this 34% decline is significant, the Government has yet to reach its pledged aim to reduce annual net migration to below 100,000 by the time of the next general election in 2015. According to the report, the fall in net migration numbers is mainly attributable to a decrease in immigration. 515,000 migrants entered the UK in the year ending 2012, representing a fall of 74,000 from the preceding year. Furthermore, the number of citizens migrating to Britain from EU accession countries (namely the Czech Republic, Estonia, Hungary, Latvia, Poland, Slovakia and Slovenia) has reduced by over a quarter since the previous year to its lowest level since 2004. The report suggests that this may be an effect of the expiry in 2011 of transitional controls applying to citizens from these accession countries, which were never adopted in the UK but were in place in most other EU member states. The lifting of such controls may have diverted migration from accession countries into other member states such as Germany.

There is no significant change in the numbers entering or leaving the country for work-related reasons. Study remains the most common reason for coming to the UK. However, the number of visas issued for study purposes has fallen by 20% from the previous year. The Institute for Public Policy Research has identified this fall as the principal factor in the overall decrease in net migration, noting its effect is only short-term, since most students do not stay in the UK for a long period of time. As such, the think tank warns that reduced immigration now may lead to reduced emigration in the future. This has the potential to reverse the reported fall at least partially by 2015.

The inclusion of overseas students in the figures for net migration has proved to be controversial. Several advisory bodies have called for foreign students to be recorded under a separate classification. This, they argue, would recognise the distinction between permanent immigration and study and demonstrate that the UK values the contributions of foreign students to innovation and to the domestic economy. Only this month, the Director of the group Universities Scotland highlighted that the number of Indian students embarking on Scottish university courses had fallen by over 25%. This is at odds with the Prime Minister’s very recent pledge to boost British-Indian relations by facilitating the immigration process for Indian nationals.

If you have any questions about these issues or would like further information please contact Andrew Osborne, Raj Shah, or your usual Lewis Silkin contact.

Putting the 'Pa' into Parental Leave?

Mon, 04 Mar 2013 10:36:00 Z

The Government has just released a consultation document seeking views on the administration and practical implications of its proposed new right to shared parental leave. The intention is that from 2015 mothers will be able to commit to ending their maternity leave and share the remainder of the leave (known as ‘shared parental leave’) with their partners. This will be different from the current arrangement of ‘additional paternity leave’, which fathers can only take if the mother has returned to work and which cannot start until twenty weeks after the child’s birth (additional paternity leave and pay will be abolished when the new regime comes into force).

Under the new arrangements, parents can trigger the scheme and divide up the shared parental leave and pay entitlements between them, subject to the two weeks of post-birth compulsory maternity leave. They can choose to take the leave concurrently, to alternate throughout the year or for just one of them to take it all (even, gasp, just the father). No more than one year’s leave can be taken in total and only 39 weeks will be paid (at the same rate as statutory maternity pay). Two weeks’ paternity leave will be retained on a ‘use it or lose it basis’ in a single block of one or two weeks, to be taken within 56 days of the birth. The proposals will also apply to surrogacy and adoption arrangements.

The proposals are intended to produce a cultural shift within the workplace, giving parents much greater flexibility than ever before and encouraging fathers to take a more active role in childcare. But employers may be concerned about how the practicalities will affect their business.

Both parents must be economically active and have sufficient length of service to qualify for the scheme. They must give eight weeks’ notice to end the maternity leave and enter into the shared parental leave scheme, and employers and employees then have a two-week discussion period to agree the leave. The notice requirement provides some certainty for employers, although two weeks is not a particularly long time to agree the pattern of leave, especially if the pattern is not straight forward. Employees will not be required to set out their plans for the whole period of leave upfront and there is no limit to the number of times parents can transfer leave and pay entitlement between them (subject to eight weeks’ notice), allowing them to ‘drip feed’ plans to employers. Employers may find they have to organise short-term replacements or run the risk of overburdening other members of staff, if parents choose to take the leave in smaller, more intermittent blocks. Alternatively, an employer can refuse the requested pattern of leave (see below).

It is also not clear what rights the employee has if the employer does not adhere to the discussion timescale. If an agreement cannot be reached, the Government proposes that the total amount of leave requested is taken in a block beginning on a date the employee chooses. However, this may not benefit either employer or employee and if one parent’s employer agrees but the other’s doesn’t, both employees may need to submit new notices.

The consultation paper invites views on how to deal with the right to return to the same job following the leave. This may prove to be an important factor for some households when deciding how they structure shared parental leave. For employers, it will involve careful planning and handling to ensure they keep posts open for employees taking shared parental leave. The proposal to introduce an additional 10 keeping in touch (KIT) days per parent during shared parental leave may assist with this. The proposal suggests these are used to trial new working arrangements or to allow for a phased return to work. This is a significant increase in the number of KIT days, but may require another cultural shift in sectors where KIT days are not regularly taken.

How much difference will the proposals make in practice? Not many fathers have taken advantage of the current additional paternity leave arrangements or the right to make flexible working requests, for a variety of reasons including financial and cultural reasons. It may take more of a carrot than these proposals provide – in particular more pay – in order for the uptake to be significant and to kick start that sea change in workplace and childcare practices. It appears BIS is of the view that employers can pay enhanced pay to women on maternity leave or shared parental leave and not to extend enhanced pay to the mothers’ partner on shared parental leave. Many employers may be unwilling to offer enhanced paternity pay to fathers in addition to mothers due to increased costs. In spite of the Government’s apparent approval of such a difference in treatment it seems inevitable that such treatment will, sooner or later, be challenged on grounds of discrimination.

Bankers' bonus cap a step closer

Thu, 28 Feb 2013 17:16:00 Z

A meeting earlier this week between EU officials, members of the European Parliament and the European Commission brought a cap on bankers’ bonuses a step closer, despite strong opposition from the UK. As a result of the latest negotiations, the cap looks likely to be set at 1 x salary unless at least 65% of the firm’s shareholders approve an increase to 2 x salary (or 75% of shareholders if there is no quorum).

The 2007-08 banking crisis resulted in an unprecedented focus by governments, the media and the public on remuneration within the financial services sector. Provisions to regulate such remuneration came into effect on 1 January 2011 under what is known as “CRD3” - an amendment to the Capital Requirements Directive (“the Directive”).

The purpose of CRD3 was to align remuneration principles within the financial services sector across the EU and, in particular, to impose restrictions on the structure, amount and timing of bonus payments. CRD3 was concerned with ensuring that remuneration reflected performance rather than the quantum of remuneration. That is now set to change with a further amendment to the Directive, referred to as “CRD4”.

In May 2012, the Economic and Monetary Affairs Committee of the European Parliament (“the Committee”) voted on a proposal under CRD4 to set a maximum ratio of fixed remuneration to variable remuneration of 1:1. Variable remuneration for these purposes included all bonuses and long-term incentive plans.

The proposal was highly controversial and in December 2012 the Committee met with a negotiating team from the EU Council to agree a compromise. The compromise position at that stage was that the salary to bonus ratio should not exceed 1:1 unless more than 75% of the firm’s shareholders approved an increase to 1:2.

The UK government has always strongly opposed any cap on bonuses, but its attempts over the past few weeks to block the compromise have failed.

The details of the agreement reached this week are unclear at this stage. The cap will apply to banks, building societies and investment firms within the scope of the Directive – EU based firms will be required to apply the cap globally and non-EU based firms will be required to apply the cap to their EU sub-group. It seems that all variable remuneration will be subject to the cap, but there will be special provisions for valuing long-term incentives in the form of equity or debt instruments which may help to increase the ratio above 1:1 or 1:2. To encourage firms to take a long-term view, if variable remuneration is increased above the 1:1 ratio, 25% of the bonus must be deferred for at least five years.

EU finance ministers will now debate the proposals at a meeting on 5March, with the European Parliament due to vote on the legislation in the plenary session on 15-18 April. If approved, member states will be required to implement the legislation by 1 January 2014. Accordingly, the cap will potentially apply to any bonuses which are paid in 2014, even if in respect of 2013 performance.

In practice, if implemented, the bonus cap will be a backwards step in regulating pay in the financial services sector since it will reduce the amount of pay which is subject to performance and is likely to increase the complexity of incentive plans. We are already seeing, as one reaction to CRD4, a significant increase in base salaries which are paid irrespective of performance. If the legislation is approved, firms will need to act quickly to make decisions on pay policy and revise bonus plans and guidelines.

Changes to TUPE – what’s on the cards?

Wed, 20 Feb 2013 17:29:00 Z

The Government has announced plans to reform “TUPE” – the Transfer of Undertakings (Protection of Employment) Regulations 2006. This article considers the implications of the proposed changes for anyone involved in negotiating business transfers and in particular the terms in relation to employees in asset purchase and business transfer agreements.

What’s TUPE?
TUPE is the regime under which, on a relevant transfer of an undertaking, all the transferor's employees assigned to the undertaking automatically transfer to the transferee, who inherits all rights, liabilities and obligations in relation to them.

Timings
First up – there’s no need for any immediate change to practice. The consultation on the proposals remains open until 11 April 2013, and amending legislation will only follow after that in a timetable as yet unspecified.

Benefits to purchasers in particular
When in force, however, a number of changes are likely to affect the course of transactions. They will be particularly welcomed by purchasers who envisage restructuring the acquired business:

The Government plans to allow a seller to rely on the purchaser’s economic, technical or organisational (ETO) reason to make dismissals before the transfer.

At present, parties often feel constrained in making pre-transfer dismissals due to the fact that they will almost certainly be automatically unfair. This change should allow the parties to agree that the seller will effect redundancies with confidence that the risks are much more limited.

More generally, it will be made easier to dismiss transferring employees and change their terms and conditions. Specifically, dismissals will only be automatically unfair, and changes to terms and conditions void, if the employee can show that they were “by reason” of the TUPE transfer as opposed to the present (broader) “connected with” the transfer test.

Purchasers often wish to harmonise employment contract terms with those of their existing workforce. The changes should give them greater freedom to do so, although caution will still be needed, as the consultation document acknowledges that giving carte blanche to all harmonisation would probably breach European law.

Smaller employers - the detail of who is a “smaller” employer is yet to be determined - will be able to inform and consult about the TUPE transfer directly with affected employees, as opposed to having to go through a process of arranging representative elections.

This should help to speed up the acquisition process for these employers.

The Government intends to allow any collective redundancy consultation conducted by the purchaser before acquisition to count towards the minimum 30 / 90 (soon to be 30 / 45) day collective consultation periods.

This should allow purchasers to move forward with restructuring at a faster pace. Allowing the purchaser access to the seller’s employees to start this process is likely to become a more important point for negotiation.

The Government plans to limit the period during which terms and conditions derived from collective agreements must be observed to one year following transfer; although it is also consulting over whether there should be a condition that any change after that time, which is by reason of the transfer, should make the terms no less favourable overall.

Nevertheless, where particularly onerous collective agreement terms are identified through due diligence, it should be possible to take a more robust approach to the longer term commercial implications of this.

What’s not changing?
The proposals are also marked by what the Government is not planning to change.

The Government has decided against changing the current default position whereby pre-transfer liabilities pass to the purchaser; it had mooted liability being shared by seller and purchaser on a “joint and several” basis.

The Government has concluded that the status quo – under which it is left to the parties to negotiate indemnities in respect of pre-transfer liabilities, or (in their absence) factor this into the price agreed – should remain intact.

The Government has also decided against any changes to the provisions in TUPE which apply where the seller is insolvent.

Other reforms
There are other “headline” changes that are of interest, but not so key to M&A deals:

The proposed repeal of the “service provision change” provisions is primarily of interest to those involved in change-of-service provider or outsourcing and insourcing situations.

In business / asset purchase situations, the traditional “transfer of undertaking” test isn’t changing and will remain of primary relevance.

The proposed repeal of the requirement for the transferor to provide “employee liability information” about the transferring employees 14 days before the transfer.

In most acquisitions, a prospective purchaser would undertake due diligence on the transferring employees long before 14 days before the date of any transfer, and negotiate appropriate warranty and indemnity protection in the agreement. This will remain the case.

For more information on these issues please contact Colin Leckey or your usual Lewis Silkin contact.

Agency workers - don't ignore them!

Wed, 20 Feb 2013 16:53:00 Z

Ignoring agency workers recently proved expensive for Barnet Council in a cautionary tale for other employers. A change in the law about informing and consulting on collective redundancies and TUPE now requires information to be supplied to staff representatives on the employer’s use of agency workers. This information includes the number of agency workers, the parts of the business which use them and the type of work they are carrying out.

In Unison v London Borough of Barnet (case no.3302128/2012, unreported), a case concerning two TUPE transfers and a collective redundancy consultation, Barnet didn’t provide any information on agency workers - though it did provide information and consult for other purposes. It was ordered to pay compensation of between 40 and 60 days' pay to staff affected.

Given that Barnet did not comply, it is unsurprising that it lost. What is surprising is the level of the award. In all three cases, there had been considerable consultation and information provided on other matters. In looking at the agency worker failure, the employment tribunal decided to start with the maximum award (13 weeks' pay) and work downwards looking at the extent to which there was a failure. In doing so, it does not seem to have taken account of the full picture - in particular, assessing the significance of the failure to provide agency worker information against the other information supplied and consultation that took place.

Providing information on agency workers could be useful in a collective redundancy because there may be opportunities to save permanent jobs by reducing the use of temps. But information must be provided even if it has no relevance in the particular circumstances. The obligation is to provide information across the employer's operation even if there are no agency workers in the part affected by the redundancy.

On a TUPE transfer, it would be unusual for information on agency workers to be relevant – the existence of agency workers would not normally have any implication for who transfers. In the Barnet case, the tribunal recognised this contrast and treated the TUPE failure as less serious than the collective redundancy failure.

Employers not wishing to end up in the same boat as Barnet could consider these practical points:

Do you know how many agency workers you use across your business? One of the aspects on which Barnet came unstuck was that it did not have reliable statistics. It had some information on how many agency worker days it was paying for. However, if it paid for 40 days, it did not know if these were accounted for by eight agency workers each doing a five-day week or 20 doing a two-day week.
On a TUPE transfer, the standard position is that the transferor will be the employer of the transferring employees and so it will be responsible for providing the information and consulting with representatives of the affected employees. In that case the information on agency workers that needs to be provided relates to the agency workers at the transferor’s workplace. However in a minority of circumstances the transferee’s own permanent staff may be affected (for example if the transferee is going to pool staff from both its existing and the transferring operation and make redundancies) such that information and consultation obligations are triggered for the transferee as well. In that situation the transferee would also need to provide agency worker information about the agency workers at its workplace to its own affected employees.
Ensure your systems can tell you not only the number of agency workers that you use, but the parts of the business in which they work and the type of work they are doing.
Provide the information even if it is completely irrelevant!

Political dismissals - unfair from day one?

Tue, 19 Feb 2013 17:30:00 Z

The Government has just announced plans to make some significant amendments to the Enterprise and Regulatory Reform Bill (ERRB), which is currently making its way through Parliament.

Protection from political dismissals

The most significant change is the proposal to remove the two year unfair dismissal qualifying period where the reason (or principal reason) for dismissal ‘is, or relates to, the employee's political opinions or affiliation’.

This measure follows the decision of the European Court of Human Rights in Redfearn v United Kingdom, which we have commented on previously. Mr Redfearn was dismissed due to his membership of the BNP, and the Court had ruled that the UK needed to take measures to protect all employees from dismissal on grounds of political opinion or affiliation. After speculation about what the Government would do with this ruling, it has confirmed that it will not appeal and is now taking steps to bring the law into line.

This change will allow employees to bring a claim if their dismissal is related to political opinion or affiliation, irrespective of length of service. This does not mean that such a dismissal will be regarded as automatically unfair. However, employers will need to show that any dismissal based on political opinion is for a fair reason, and falls within the range of reasonable responses. This is most likely to arise where political opinions or activities interfere with an employee’s ability to do their job.

As commented in our Knowledge update, this potentially creates a confusing exception to the current law on unfair dismissal. This protection would only be for dismissals, and would not apply to other treatment. This could leave the law in a muddle with no protection for an employee who is harassed and/or victimised on the basis of their political views. Alternatively, it could be argued that political opinions should be protected by the Equality Act as a “philosophical belief”, giving scope for a discrimination claim as well.

In practice, it seems unlikely that this provision will result in an influx of claims since political opinion dismissals will probably be quite rare and limited to certain areas such as the public sector. However, this is another route that can be tried by employees who do not have the required two years’ service to bring a standard unfair dismissal claim.

Whistleblowing and financial penalties

The other two key changes to the ERRB relate to whistleblowing and financial penalties.

Firstly, the requirement of “good faith” for a protected disclosure in whistleblowing cases will be partly removed. This change seems to be related to the existing provision in the ERRB that disclosures must be made in the “public interest”, which will limit the ability of employees to make claims about their own treatment. This does not involve a complete removal of the requirement of good faith, although a disclosure made in bad faith (such as purely for personal gain) will no longer be a bar to a whistleblowing claim. Instead, the amendment gives Employment Tribunals a new power to reduce compensation by up to 25% if a disclosure was not made in good faith.

The second amendment relates to the proposal that Tribunals should have power to levy a financial penalty on an employer who loses a claim. The new provision requires Tribunals to have regard to the employer’s ability to pay when ordering a financial penalty – much as they do at the moment with costs awards. The amendments have also clarified that the penalty is up to 50% of the award, but with a minimum of £100 and a maximum of £5,000.

Apparently more amendments have been tabled by the opposition and further changes are expected, so watch this space for even more new employment law...

“Back-to-work” schemes back on

Mon, 18 Feb 2013 16:43:00 Z

Issues around the Government’s unpaid work experience schemes regularly make headline news. Last week was no exception, with the result of the judicial review appeal brought by graduate Cait Reilly to challenge the legality of the schemes. The Court of Appeal’s decision that the schemes were unlawful has prompted a flurry of activity within Government to bring the existing legislation in line, and has turned the spotlight firmly back to the social and political issues surrounding unpaid work experience and internships.

We have commented before on the legal underpinnings of the schemes, and Ms Reilly’s failure at first instance to convince the High Court that the schemes were illegal. Ms Reilly and another Claimant, Jamieson Wilson, appealed that decision on a number of grounds.

The Court of Appeal focused on the Jobseeker’s Allowance (Employment, Skills and Enterprise Scheme) Regulations 2011 (the “Regulations”), under which the unpaid work schemes were established. The Court had to determine whether or not the Regulations complied with the enabling provision of the Jobseeker’s Act 1995 (the “Act”).

Last Tuesday, the Court unanimously found that they did not, and quashed the Regulations (the full judgment can be found here). The Court held that the Regulations failed to meet the legal requirements because they did not describe the schemes to which they applied. The detail of the schemes should have been laid before Parliament before being brought into force. However, the Court also made it clear that this case was “not about the social, economic, political or other merits” of the schemes.

Both sides were quick to claim the moral high ground. “Team Reilly” said the ruling highlighted the unfairness and lack of transparency in the implementation of the schemes, and pointed out that the Government would have to draw up fresh regulations before anyone else could be required to participate. The Government focused on the Court of Appeal’s backing, in principle, for jobseeker schemes. It also pointed to the finding that requiring jobseekers to participate in such schemes did not breach their human rights, which had been a key part of Ms Reilly’s and Mr Wilson’s arguments.

The decision left the door open for the Government to simply rectify the flaws in the Regulations by ensuring (subject to Parliamentary approval) that they describe the schemes to which they apply, as required by the Act. Iain Duncan-Smith has done exactly that, and immediately issued new Regulations (the Jobseeker’s Allowance (Schemes for Assisting Persons to Obtain Employment) Regulations 2013) which correct the technical errors in the original Regulations, and mean that the back-to-work schemes can continue.

What this means for the thousands of people whose JSA payments had been stopped under the previous Regulations is unclear – although the DWP is now looking at finding ways to avoid paying backdated jobseeker’s allowance to those who had refused to take part in the schemes in the past.

As far as employers are concerned, the Government’s unpaid work schemes can now continue. Meanwhile, employers not involved in the scheme are required to pay all workers at least the national minimum wage. Arguably then, little has changed in practice.

However, the ruling is undoubtedly embarrassing for the Government and has provided yet another opportunity for critics of unpaid work schemes to air their views on the importance of paying workers fairly. A serious concern to employers involved in the schemes is the negative publicity which has come about as a result of these legal challenges. While organisations that have signed up have done so for legitimate reasons, and often with the intention of helping unemployed people, they have been portrayed as Dickensian industrialists hunting down cheap sources of labour. The future of such schemes may depend more on the willingness of employers to participate than it will on the outcome of any further legal challenges. The media storm also serves as an important reminder to all employers, whether involved in the Government’s work schemes or not, of the potential public relations and commercial costs of taking on unpaid interns.

The line between unpaid work experience and paid work is becoming increasingly blurred. Driven at least in part due to the high level of youth unemployment, in order to gain experience, people often have to work for free or very little. The real challenge is to find ways of encouraging and enabling people to find employment without being seen to take advantage of their situation.

Ending the employment relationship: does ACAS have it all settled?

Mon, 18 Feb 2013 15:01:00 Z

As we previously reported, the Government’s response to its consultation on “Ending the Employment Relationship” set out its proposals to make pre-termination settlement discussions inadmissible in subsequent unfair dismissal claims, provided there is no “improper behaviour”. The new regime will protect these conversations from being referred to in a tribunal even where there is no current employment dispute and the employee is unaware of any problem (you can read our commentary on the response here).

ACAS has now launched its consultation on a new statutory Code of Practice which will underpin the Government’s plans. The main thrust of the Code as currently drafted is to try and flesh out what “improper behaviour” means. It also contains recommendations around the mechanics of making an offer.

The examples currently given in the Code of what might amount to improper behaviour draw on existing concepts of prohibited behaviour such as harassment, victimisation and discrimination, as well as physical assault or other criminal or “wrongful” behaviour. Reference to “wrongful” behaviour is no doubt intended as a sweep-up, but in practice is likely to be problematic as its meaning is unclear. The Code also proposes that “undue pressure” may fall within the concept of “improper behaviour” and while the Code suggests some examples, this is likely to be a difficult line to draw. Employers will, however, be reassured that the Code recognises that undue pressure may come from either party, so an employee who threatens to undermine an organisation’s reputation if it does not agree to the employee’s settlement proposals would not be covered.

Whilst many employers will welcome attempts to make settlement discussions easier, some aspects of the current proposals will prove challenging in practice. The existing law on “without prejudice” conversations will continue to apply. This protects discussions that take place in a genuine attempt to resolve an existing dispute between the employer and employee from being referred to in a tribunal, unless there is “unambiguous impropriety”. Having the two regimes running alongside each other will create an overlap in some cases. In particular, the difference in scope between the (wider) “improper behaviour” and the (narrower) “unambiguous impropriety” concepts, and which one applies in any given situation, is likely to be fertile ground for argument where settlement is not reached - and a distraction from the real issues.

The draft Code also deals with the mechanics of making an offer. It suggests that although a settlement offer can be made at any time during the employment relationship, without any process being followed, the reason for the offer should be given (e.g. performance or conduct). The Code proposes setting out settlement offers in writing and three template letters are included in the Code which could be used for unsatisfactory performance, conduct or attendance issues. Although these will no doubt be a welcome starting point for small and medium-sized employers, they are rather blunt instruments and are not suitable for more complex situations. For the sake of good employee relations, as well as ensuring adequate protection for themselves, we suspect many employers will still wish to take their own legal advice and draft tailored letters and agreements. The Code recommends giving employees “a reasonable period of time” to consider an offer (seven working days as a minimum) and allowing employees to be accompanied to any meeting at which settlement is discussed by a colleague or trade union representative.

Ultimately, the idea of an explanatory Code is sensible and the anticipated supplementary non-statutory guidance may resolve much of the detail. However, the Code injects rigidity into what is meant to be a fluid process (where fluidity has advantages for both sides). Layering the new law on the old is bound to make matters more, not less, complex (and therefore expensive and time-consuming), which unfortunately militates against the main objectives of the reform: a way to end employment amicably with certainty and simplicity.

The consultation closes on 9 April 2013.

ESMA Remuneration Guidelines for Alternative Investment Fund Managers

Mon, 18 Feb 2013 09:58:00 Z

The European Securities and Markets Authority (ESMA) has published its final guidelines on the implementation of the remuneration provisions under the Alternative Investment Fund Managers Directive (“Directive”).

The purpose of the remuneration requirements under the Directive is to curb excessive risk taking by Alternative Investment Fund Managers (“AIFMs”), the idea being that stronger governance of how fund managers are paid will ultimately lead to improved investor protection.

Who is affected?

The rules will apply to managers of alternative investment funds (AIFs) including hedge funds, private equity funds and real estate funds.

Subject to transitional provisions the rules will apply from 22 July 2013 to EU AIFMs and from 2015 to non-EU AIFMs who manage one or more EU AIFs and ultimately to non-EU AIFMS which market non-EU AIFs to EU investors.

ESMA have confirmed that the principle of proportionality could lead to certain firms being able to disapply certain requirements entirely.

What is required?

The governing body of each AIFM will be obliged to ensure that sound and prudent remuneration policies and structures exist and are not circumvented.

The guidelines apply to “Identified Staff” whose professional activities might have a material impact on the AIF’s risk profile. Identified Staff includes senior managers, risk takers, staff with control functions and any other staff receiving total remuneration that takes them into the same remuneration bracket as the aforementioned categories of staff.

Identified Staff will now also include staff of the entities to which portfolio management or risk management activities have been delegated by the AIFM if their professional activities have a material impact on the risk profiles of the AIF that the AIFM manages.

What is meant by “remuneration”?

The guidelines apply to all forms of payments or benefits paid by the AIFM, including any amount paid by the AIF itself and any transfer of units or shares of the AIF in exchange for professional services rendered by the Identified Staff. Remuneration also still includes carried interest.

Remuneration is either fixed (payments or benefits without consideration of any performance criteria) or variable (additional payments or benefits depending on performance or, in certain cases, other contractual criteria).

At least 50% of the variable remuneration must consist of equity or equity linked instruments in the relevant AIF(s) and must be subject to mandatory deferral requirements.

What happens next?

EU member states are required to implement the Directive in accordance with the guidelines.

The FSA has already issued its draft Remuneration Code for AIFMs and will now need to revise this in line with ESMA’s final guidelines in particular further clarity on the proportionality principle is expected.

What do you need to do?

AIFMs should review their remuneration structures including carried interest for Identified Staff to determine whether they are compliant with the ESMA guidelines or whether changes need to be made. If changes are necessary, AIFMs may need to consult with the Identified Staff to change their contractual terms and conditions accordingly, consider implementing an appropriate remuneration policy reflecting the requirements of the guidelines, and ensure that any current remuneration documentation is also updated appropriately.

A degree of discrimination

Fri, 15 Feb 2013 13:55:00 Z

It can often be difficult to assess whether introducing new practices or criteria in the workplace might amount to indirect discrimination. The recent decision in the long-running case of Homer v Chief Constable of West Yorkshire Police (which made its way up to the Supreme Court and back down to the employment tribunal), is an important reminder of the issues to bear in mind when considering whether any such changes can be justified.

After 30 years as a Police Constable with the West Yorkshire Police, Mr Homer switched to a legal adviser role in the Police National Legal Database (PNLD). Legal advisers needed a law degree or equivalent (which Mr Homer didn’t have), or “exceptional experience or skills in criminal law, combined with a lesser qualification in law” (which he did have).

PNLD experienced problems with recruitment and retention and, in 2005, it brought in better salaries that would increase at each level of a new formal career structure which it thought would help. To reach the third and final level, legal advisers would need a degree in law or a similar subject – exceptional experience was not enough.

Mr Homer was approaching 65 – then the default retirement age - and would not be able to get the law degree before retiring – which meant he could not reach the pay increase linked to level three. He argued that this was indirect discrimination, as the legal qualification requirement put people of his age at a disadvantage compared to younger legal advisers.

His case made its way up to the Supreme Court, which agreed there was, in principle, an arguable case for indirect discrimination (you can read more about the Supreme Court decision here). The case was sent back to the tribunal to decide whether the requirement was a proportionate means of reaching a legitimate aim – the so called ‘objective justification’ test.

The tribunal thought the PNLD’s aim of recruiting and retaining staff of an appropriate calibre was legitimate. Having a new grading structure was an appropriate and reasonably necessary way of achieving this aim. But insisting that existing legal advisers hold a law degree to get to the third level of pay was a step too far and was not justified. Mr Homer therefore won his claim for indirect discrimination.

Law degree not necessary...

The tribunal saw no problem with applying the new grading structure fully to new recruits but allowing existing staff to reach level three without a law degree. The PNLD had claimed making this distinction was too difficult and fraught with employee relations problems – but the tribunal thought the problems had been overstated. It made a comparison with providing a different pension scheme for new joiners when final salary pension schemes are closed down. There was also no evidence that PNLD’s client base insisted their legal advisers have a law degree, or that PNLD would lose people to competitors if an exception were made for existing staff.

The tribunal made clear it was not suggesting a special exception should be made just for Mr Homer (the only adviser without a law degree). Rather, it was saying that different requirements could have been applied to all existing staff compared to new recruits. Employers who grant privileges to employees in a protected group (e.g. older workers) risk directly discriminating against those outside the group.

The message

If you are introducing new requirements, don’t automatically rule out taking a different approach with your existing staff compared to new recruits, but always be mindful of discrimination. Consider your requirements carefully. What do you want to achieve? Will your approach achieve this? Could it have a discriminatory effect? Is there a less discriminatory way of reaching your goal? ‘Nice-to-have’s won’t cut it with the tribunal, so be sure your requirements are necessary and be ready to explain why.

Trade unions - do I recognise you?

Thu, 14 Feb 2013 10:56:00 Z

In a recent decision, the Central Arbitration Committee (CAC) considered the scope of the law in the UK on trade union recognition and found that aspects of the recognition machinery did not properly give effect to the right to freedom of assembly in Article 11 of the European Convention on Human Rights (ECHR).

The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) sets out the statutory provisions for trade union recognition. If a successful application for recognition is made, the employer must recognise that union for the purposes of collective bargaining on pay, bonus and holiday (“the core topics”). However, it was assumed that a trade union cannot make a request for statutory recognition if the employer already has a collective agreement in place for the relevant bargaining unit, entitling the union to conduct collective bargaining on that unit’s behalf.

In this case, Boots Management Services (Boots) had a long standing relationship with a listed trade union, Boots Pharmaceuticals Association (BPA). Although there was evidence of consultation between the parties over the years (primarily concerning limited matters such as the machinery for consultation and facilities of officials), BPA was not an independent trade union and had never been recognised by Boots for the purposes of collective bargaining on terms and conditions of employment.

The Pharmacists Defence Association (the Union) became frustrated by BPA’s ineffectual approach and applied to Boots for formal recognition. In what seems to have been a conscious act to block the Union’s attempts at recognition, Boots stalled the talks with the Union whilst swiftly moving to formally recognise BPA and conclude a collective agreement. This agreement preserved the nature of their current relationship and the limited rights to collective bargaining (and specifically excluded any bargaining or negotiation rights on the core topics).

The Union subsequently proceeded with its application for recognition to the CAC. It argued it was not prevented from making a request for statutory recognition because of the limited nature of the collective bargaining rights in the existing collective agreement, which failed to give effect to the essential requirements of Article 11 ECHR for workers to join trade unions to protect their interests through collective bargaining.

The CAC agreed. Although the limited collective bargaining rights satisfied the requirements of TULRCA on a literal reading, the effect was to deny employees the opportunity of having an independent trade union bargaining collectively on their behalf in relation to their terms of employment.

By reading in wording to TULRCA, the CAC has made it clear that any collective agreement which an employer enters into with a trade union must include the right to collective bargaining on the core topics, or else the door is left wide open for an additional (and perhaps less friendly union) to apply for statutory recognition. Any employers who have already entered into a collective agreement should also carefully check its wording to ensure it affords the right to collective bargaining on the core topics.

Daylight snobbery - what to do about socio-economic discrimination?

Thu, 14 Feb 2013 09:55:00 Z

“Ski holidays for Shazza and Kev, not just Hugo, Spencer, Mille and Binky”, promises a recent advert by Direct Ski. The message is clear – their trips are affordable whatever your position in society. (Hugo, Spencer, Millie and Binky are, apparently, the über-posh participants of TV dramality show Made in Chelsea, in case you didn’t know...)

Contrast the approach of another travel firm, Activities Abroad. A few years ago, it promoted “chav-free holidays”, listing names likely to be encountered on their trips (e.g. Charlotte, Alice, James, Charles) and others rather less likely (e.g. Britney, Chardonnay, Wayne, Dazza).

Both ads, in their different ways, highlight a continuing British obsession with the class system (as satirised in this classic sketch). Despite Direct Ski’s more enlightened marketing policy, it would probably be a mistake to assume it represents a general shift in attitudes towards a utopian, “classless society”. Studies, polls and reports have repeatedly shown that people’s social standing determines the way others judge them.

Arbitrary bias and stereotyping based on social status is often entrenched in minds and manifested in workplaces. The way employees and job applicants speak, their family background, the school or university they attended and even their food preferences, can play a role in how they are perceived and treated by bosses and colleagues.

Given that the Government says there are economic benefits that could come from increasing socio economic diversity, why, then, has there been no serious attempt to legislate against class discrimination in the workplace? Unequal treatment on other grounds such as race, gender, disability, age, sexual orientation and so on has been outlawed – why not class?

There was a significant nod in that direction by the previous Labour government when it enacted section 1 of the Equality Act 2010, a new duty on public sector bodies to address socio-economic disadvantage when making strategic decisions. The current Government, by contrast, seems intent on repealing it altogether.

In truth, there would be serious difficulties in seeking to enact a legal right to challenge class discrimination. The whole notion of “class” is a slippery concept to define. While it is relatively straightforward to draw distinctions between people for the purposes of the current protected characteristics – black/white, male/female, old/young etc – this cannot easily be done with class. As mentioned above, it encompasses myriad constituent factors such as personal wealth, name, education and speech. Trying to frame social class as an overarching protected characteristic would prove unworkable.

Evidence from abroad suggests this might be the case. The European Convention on Human Rights covers discrimination on grounds of “social origin” and “property, birth or other status”. Several countries have signed and ratified this section of the Convention (the UK has done neither) and enacted legislation prohibiting discrimination on grounds of social standing. Yet claims of this nature appear to be extremely rare. This could be explained by those countries having less divided and class-obsessed cultures than our own, but more likely it’s because the laws don’t work.

That’s not to say there isn’t a strong case for finding ways to address the scourge of socio-economic inequality in the UK. The issue is clearly on the backburner under the present Government. But, if we’re really serious about boosting social mobility and fostering a fair, inclusive and meritocratic society, socio-economic discrimination is an issue that people should be bovvered about, innit?

Part time judges are servants of the law... and the Ministry of Justice

Tue, 12 Feb 2013 09:48:00 Z

Mr O’Brien was a part-time fee paid judge. When he retired the Ministry of Justice told him that he was not entitled to receive a pension. Mr O’Brien disputed this and said that, as full-time salaried judges were entitled to pensions, he should be entitled to a pension pro-rated to the time he had worked.

Mr O’Brien brought a claim under the Part-Time Worker Regulations 2000 (the “Regulations”) which say that a part-time worker must not be treated less favourably than a full-time worker because he is a part-time worker – unless the less favourable treatment can be objectively justified. The Supreme Court has now ruled that his claim succeeds (full judgment available here).

In order get his claim off the ground, Mr O’Brien had to show that he was a “worker” for the purposes of the Regulations. At first glance, the odds appeared to be stacked against him as the Regulations expressly exclude part-time fee paid judges from their protection. However, the Supreme Court said that this exclusion was arbitrary and not permitted.

And things continued to go Mr O’Brien’s way. The MoJ argued that Mr O’Brien was self-employed. They said that judicial office holders must exercise their functions wholly independently of the influence or direction of the MoJ, which meant that he was not subject to a sufficient degree of control to be a worker. The Court disagreed with this, and held that Mr O’Brien was a worker.

The Court said that the fact that Mr O’Brien exercised his judging functions independently of the MoJ was not fatal, because he was not autonomous in other respects. For example, he was required to sit for a minimum number of days and explain and apologise to the MoJ if he did not meet this target, he was expected to work during defined times and periods and he was subject to detailed rules on appointment and removal of judges.

In the recent case of Bates Van Winkelhof v Clyde & Co the Court of Appeal held that an equity partner in a law firm was not a worker and so not entitled to whistle-blower protection (for more detail see our previous Journal article). One of the key reasons for that decision was that Ms Bates van Winkelhof was not in a subordinate relationship with the law firm and had autonomy to carry out her work as she pleased. However, some of the material characteristics of Ms Bates van Winkelhof’s relationship with her law firm were similar to those of Mr O’Brien’s relationship with the MoJ (albeit that Ms Bates van Winkelhof was paid a lot more!). Mr O’Brien’s case is a helpful reminder that the law on worker status continues to develop and it will not always be clear on which side of the line a person will fall.

The next hurdle for Mr O’Brien was to show that the less favourable treatment of him was not objectively justified under the Regulations. The MoJ argued that one of the aims of the treatment was the sound management of public expenditure. The court was quick to reject this argument, saying that although we live in difficult times the fundamental principles of equal treatment “cannot depend on how much money happens to be in the public coffers…” If justification arguments based on “cost plus other factors” are treated dubiously even for public employers in times of austerity, private employers will do well to tread carefully in this area.

The Court also held that Mr O’Brien’s treatment was not objectively justified because they had not shown the existence of precise, concrete factors relevant to the specific context. The case reminds us that employers seeking to objectively justify discriminatory treatment should seek to do so by identifying specific aims which apply to their specific businesses, backed up by actual evidence as far as possible.

Free schools planning process to be streamlined

Fri, 08 Feb 2013 11:31:00 Z

The government has announced some wide ranging planning initiatives to boost its free schools programme in an effort to keep the programme on track. Key proposals are:

• Free schools to be able to open and operate from almost any building for the first 12 months without having to first apply for and secure planning permission;
• Time extensions given to free schools to obtain permanent planning permission to remain in buildings after the first year; and
• New free schools may be operated permanently in a wider range of buildings such as old offices and hotels.

Campaigners have been working round the clock to convince the government that streamlining the planning permission process would help reduce the unnecessary red tape currently hindering the establishment and development of free schools.

Under the new regime, which should come into effect in June, free schools would be able to set up in a broad range of premises, including warehouses, offices, hotels and shops, subject to local councils having made a ‘limited assessment’ on noise and traffic issues.

Naturally, every plan has its detractors, but the news has brought a huge amount of optimism to the free school sector and the academies and free schools movement more generally, who have often seen planning and other ‘suitable premises’ constraints as significant barriers to the opening of new schools. It is hoped that, by limiting the options for those opposed to academies and free schools of exploiting old planning regulations to impede their establishment, the changes should provide a common sense approach to providing more access to free schools.

Planning constraints have presented a significant headache to the government and the free school movement alike and hopefully for education providers this is a step in the right direction, enabling more free schools will open and more encouraged to open pending full planning permission.

There are reported to be around 80 free schools open in England now, with another 100 planned to open in September.

For further information on these issues, or any questions relating to free schools and academies, please contact Jonathan Ely, or your usual Lewis Silkin contact.

Cameron's big EU speech - what could it mean for employers with unions or works councils?

Wed, 30 Jan 2013 16:55:00 Z

Cameron’s announcement last week on the UK’s future in Europe may have far-reaching consequences on many areas of employment law (see our journal article here), but those employers with unions will feel less impact than they might otherwise have thought. The key reason for this is that the majority of the legislation in this area was not borne out of EU regulation but domestic legislation. In fact, the key piece of legislation in this area (Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”)) came about mainly as a result of changes that occurred throughout the various Thatcher governments and endorsed by Tony Blair’s New Labour government.

It’s this piece of legislation that governs how unions should be set up, recognised and run as well as giving time off for trade union duties, providing protection to members and officers against detrimental treatment on union grounds and contains the detailed provisions on industrial action, so often criticised by the unions as too onerous. These are just a handful of the legal provisions contained in it!

It’s as a result of TULRCA being ‘home grown’ that the effect of any changes in the relationship between the UK and the rest of the EU will have limited impact on trade union laws.

A key question for many, though, will be what about the so-called “right to strike”? Will Cameron’s approach impact on the unions’ case, presently before the European Court of Human Rights, that there is such a right and that the UK’s strike laws cut across this? Unfortunately for many employers, this challenge would not be directly affected by Cameron’s proposals as the European Convention on Human Rights is separate to the European Union.

Clearly, then, even a wholesale withdrawal from the EU will not greatly change the legal landscape in respect of trade unions. Employer organisations will still have the same rights and obligations as before; as will employees and their unions.

However, those employers with European or National Works Councils or regularly involved in business sales or outsourcing projects (where they amount to TUPE transfers) may find the opposite is true. In particular, the legislation in relation to such matters has derived from the EU and a break with the EU as a result of the proposed in/out referendum could potentially give free reign to the government to repeal the laws giving effect to those directives. Exactly what the government could do would depend upon what life after a break with the EU would look like. In particular, if we opted to follow the Norwegian model (as some Eurosceptics praise), the UK could well still be bound by EU directives but have no say over what the directives say.

For the world of collective employment law, then, a change in the EU status quo could yield a mixed bag of results. Whilst pulling out of the EU could give more room for the government to repeal laws that are considered a hindrance to economic success, it’s unlikely to want to be seen to ride rough shod over employee rights.

If you have any questions about these issues or would like further information please contact Lisa Patmore, Vince Toman, or your usual Lewis Silkin contact.

Turning of the TUPE tide

Wed, 30 Jan 2013 12:35:00 Z

The dust has now settled following publication by the Department for Business, Innovation & Skills (BIS) of its consultation on changes to TUPE (available here). While this sets out various significant ideas for reform, the Government’s main proposal is the scorched-earth option of completely scrapping the ‘service provision change’ (SPC) regime that was introduced in 2006.

For some, the abolition of SPCs would be a welcome deregulatory reform and helpful simplification of the current position. The SPC regime was, after all, a major extension of TUPE’s application and constitutes perhaps the most glaring instance of UK “gold-plating” of the requirements of the EU Business Transfers Directive.

But it is at least questionable whether repealing the SPC provisions represents the best way forward. They were introduced by the previous Labour administration as a means of providing greater certainty over whether TUPE applied to contracting-out and re-tendering situations, particularly given the high volume of outsourcing activity in the UK.

Under the original 1981 TUPE regulations, only some changes in service provider were caught, depending on the specific circumstances of each case. This spawned a great deal of conflicting UK and European case law and huge uncertainty over the circumstances in which TUPE applied. The idea behind the SPC regime was to bring the vast majority of outsourcing and retendering deals within TUPE’s ambit, so creating a level playing field for contractors.

As it turns out, the SPC regime has given rise to uncertainties all of its own. Questions such as whether fragmenting the service in question can defeat the SPC provisions and what constitutes an “organised grouping” for these purposes have increasingly been litigated, with unpredictable results. Arguably, recent court rulings have undermined aspects of the SPC regime and the intentions behind it.

It must also be said that anti-competitive behaviour emerged to a degree, with some outgoing service providers “dumping” poor performers on to the service before the transfer date, or giving transferring employees over-generous contractual terms which are then inherited by the unsuspecting new contractor.

Nonetheless, there is a case for saying that a more pragmatic option for the Government might be to seek to improve the SPC regime to make it work more effectively, rather than winding back the clock to the bad old days of uncertainty and confusion.

Whatever the Government ultimately decides to do following the consultation, it contemplates that any amendments relating to SPCs would not be implemented for some time. This would at least allow many contracts that have been negotiated on the basis of the current rules to run their course.

Aside from SPCs, the consultation sets out a number of other potentially helpful reform proposals, including: changes to the dismissal rules applicable on a TUPE transfer; scope for micro-businesses to consult directly with employees rather than through representatives; and allowing TUPE consultation also to satisfy the requirements for consultation on collective redundancies. You can find out more about these proposals in our Knowledge article.

The deadline for responding to the consultation is 11April 2013.

Cameron’s big EU speech – what could it mean for employment law?

Thu, 24 Jan 2013 09:38:00 Z

David Cameron has finally delivered his long-awaited speech about the UK’s relationship with the European Union, billed as the biggest statement of policy on Europe since Margaret Thatcher’s speech in Bruges back in 1988.

In essence, the speech (available here) left the debate wide open as to the many different paths the UK’s future relationship with Europe might take. The Prime Minister also made clear that the ultimate direction will largely depend on whether the Conservatives win the next election. Pivotal to the speech was his stated desire to renegotiate the terms of the UK’s membership of the EU. Equally important was his pledge, once that renegotiation has taken place, to let the electorate have their say with an in/out referendum.

Interestingly, employment law has become a major factor in the debate over Europe in recent weeks. The influential First Start group of Tory backbenchers has, for example, been urging ‘repatriation’ of all social and employment legislation. While it seems clear from Cameron’s speech that we shouldn’t hold our breath for any dramatic changes very soon, the long-term consequences for employees’ rights at work are potentially far-reaching.

We know from the Government’s extensive, ongoing programme of reform that it regards deregulation of employment law as a key priority. But until now, EU law has operated as a significant constraint in this regard. For example, it has meant that equality rights – which are underpinned by EU directives – have been largely ring-fenced from a swathe of recent changes.

Either an ‘out’ vote in a referendum or a radical renegotiation of the terms of the UK’s EU membership could result in ministers having a much freer hand to attack what they regard as excessive regulation of business. They may be able to look with fresh eyes at pieces of EU legislation that have shaped UK employment law over the past 30 years - for example, relating to discrimination, equal pay, family leave, working time, TUPE and worker consultation.

There could also be a very significant reduction in employment legislation emanating from Europe which has, according to some data, accounted for 6.8% of primary and 14.1% of secondary legislation since 1997.

One difficult issue in this scenario would be whether and how to seek to extricate the relevant areas of employment law from their EU origins, perhaps removing the current protocol whereby courts can refer interpretative questions to the European Court of Justice. The courts themselves would need to consider the validity of previous case law in which judges have bent over backwards to interpret UK legislation in harmony with the underlying EU directive.

Yet all this is some distance in the future and may, of course, never happen. Cameron’s speech implied that he doesn’t necessarily regard the mammoth task of overhauling legislation deriving from the EU as being a bridge too far. But it may be a bridge he privately hopes he will not have to cross. Only time will tell whether his strategic deferral of a referendum will give the UK a strong enough negotiating position to make EU membership palatable even to the Eurosceptics.

Swift exits and less compensation?

Wed, 23 Jan 2013 09:12:00 Z

The Government has recently published its response to its consultation on ‘Ending the Employment Relationship’. We had previously commented on this consultation in an earlier Journal article which you can read here.

The final proposals should help employers and employees to reach a settlement deal more quickly where the employment relationship is not working out – or at least, to discuss this more openly without fear of repercussion. Changes to the compensation available for unfair dismissal are also being made, which may make dismissals cheaper and help to manage expectations of employees when negotiating a settlement figure.

Broaching a tricky subject

At the moment, employers have to rely on having ‘without prejudice’ discussions with employees if they want to broach the topic of an exit from the business without going through a formal process. When used properly, this means that these conversations can’t be referred to in any later legal proceedings. However, technically there needs to be a ‘genuine dispute’ in existence between the employer and employee before these discussions can even start. Often though, an employer’s desire for an employee to leave does not arise out of a formal dispute, so any attempt by the employer to raise the topic of an exit outside of formal processes might not actually be protected.

The Government’s announcements mean that, with effect from spring 2013, any settlement offer made by an employer will not be allowed to be referred to in a subsequent claim for unfair dismissal (except where there has been ‘improper behaviour’). This will effectively allow employers and employees to begin exit discussions at any time, without having to worry about whether a ‘genuine dispute’ exists. The Government recognises that these discussions may come out of the blue for employees, but anticipates (rightly or wrongly) that employers will exercise good management to reduce this impression.

Employers are likely to welcome the increased flexibility this new regime offers them, but practical difficulties may still arise if an employee refuses an offer. For example, if formal processes are then needed to get the employee out of the business, the employee may well feel that the outcome is pre-determined and use tactics such as raising a grievance to complicate things.

Some helpful guidance

The introduction of the new settlement discussions will be underpinned by a new Code of Practice. We’re told that the Code will include template settlement agreements (essentially, rebranded compromise agreements), which will probably be most useful for smaller companies without in-house HR or legal teams, as larger businesses tend to use their own bespoke agreements.

The Code will also contain guidance on what might amount to ‘improper behaviour’. We expect that this will be limited to quite extreme behaviour involving dishonesty. For example, if an employer were to tell an employee in settlement discussions that, if he doesn’t accept a particular offer, he will be dismissed based on lies and other fabricated evidence.

Advice will also be included in the Code about what employers might want to consider when negotiating settlement agreement sums, but the suggestion of setting out guideline settlement amounts (or ‘tariffs’) has been scrapped. We think this is a helpful move as these might have given employees unrealistic expectations as to what they might receive.

Less compensation at tribunal?

The Government has also announced that the maximum compensation available for an unfair dismissal will be changed. At the moment, a financial cap of £72,300 (rising to £74,200 from 1 February 2013) applies to compensation for unfair dismissal. From spring 2013, the cap will change to the lower of: the sums referred to above, or 12 months’ pay.

Any employee earning less than £74,200 per year will be affected by this change. So, for an employee earning £20,000 a year, the maximum they could recover in compensation for an unfair dismissal would be £20,000. Unfortunately, the consultation response does not make it clear whether the 12 month earnings cap relates to net or gross pay. Tribunals award compensation based on net pay, representing what the employee has actually lost. This potentially makes quite a big difference. For many earners, 12 months’ gross pay could be as much as 14 to 18 months’ net take-home pay, depending on their tax situation – which is still quite a sizeable tribunal award. We think it is most likely that the cap will be based on gross pay, particularly as the original consultation said that the existing concept of a “week’s pay” (which is based on gross pay) would be used to calculate the cap.

In any event, this should make a difference towards managing employees’ expectations as to what compensation they might receive. In turn, we hope that this should enable settlements to be reached more quickly - whether as part of a new-style settlement discussion during employment or during negotiations after a claim is brought.

There’s always a downside though, isn’t there? Our main concern is that this limit on what’s available for an unfair dismissal claim will result in more employees making allegations of discrimination or whistle blowing, as these will still offer uncapped compensation. Employers should also remember that even in an unfair dismissal claim, an employee might also have a claim for notice pay and a basic award (roughly speaking, £450 per year of service).

Finally, we will continue to ‘watch this space’ for news about the outcome of another new consultation launched by the Government. This consultation is about how to get ACAS (the arbitration and conciliation service) involved in trying to resolve Tribunal claims at an early stage. Whatever is proposed, we can only hope that more resources will be made available to ACAS to enable them to act on any changes.

Free occupational health advice!

Tue, 22 Jan 2013 11:28:00 Z

With employers spending £9 billion a year on sick pay and related costs, and the state picking up the tab for a further £13 billion of health-related benefits, it’s time for some drastic action from the Coalition Government.

The Department of Work and Pensions has just made an announcement which is likely to have a major impact on those who have to manage employee sickness absence (full report available here). The biggest development is a new “Health and Work Assessment and Advisory Service”, which potentially provides employers with free occupational health advice. This is due to kick into action in 2014.

How will it work?

The new service will work like this:

After four weeks of sickness absence, GPs will have to refer most of their patients to the service for occupational health assessment.
If the employee refuses to co-operate, no further fit notes can be issued for them by the GP.
Once referred, the employee will have a telephone assessment, followed up by a face to face assessment if needed.
The service will identify the employee’s issues, make recommendations and make sure that a report setting out the resulting information and advice can be shared with the relevant parties, including the employer.
Employers will be able to expect to receive a report which provides “definitive advice” on next steps, adjustments and timescales for a return to work.
The service will be able to “signpost” to other services for further advice or treatment.

Once a report has been provided, the new service will be able to liaise with an employer’s own occupational health advisors, or employers can speak directly to the service if they don’t have their own occupational health support available. In the latter case, on-going case management will be provided.

The Government tells us that responsibility for acting on the end report will be shared by the employer, employee and GP. No more information is given about this responsibility, but we expect this will mainly be based around the existing duty to make reasonable adjustments in cases of disability.

Additional support and advice

As well as the formal referrals into the new service for employees who have been off work for four weeks, employers will have access to online and telephone advice. It is expected that employers might use this to help them support employees who have not yet been referred to the service, or to help reduce sickness levels in general.

Until the new service is up and running in 2014, the pilot website, www.health4work.nhs.uk, will continue to be available.

A change for the better?

Long-term sickness absence is a major dilemma for many employers. The problems caused by managing workloads during absence, understanding the likelihood of a return to work and an employee’s continued accrual of holiday during their absence all cause significant headaches on a daily basis ... it’s almost enough to make you want to get signed off work! The Government predicts that over half a million people will be referred into the service every year, with employers likely to save £80-£165 million per year in sick pay. If these results are achieved, the scheme will be welcomed with open arms by employers big and small.

On paper, the new Health and Work Assessment and Advisory Service sounds like a fantastic advance for employers. At the moment, it is really only the biggest employers who have access to this specialist help. Even if they do, there is no guarantee that the employee and GP will co-operate – so, the fact that an employee who refuses to engage with the new process will no longer get GP fit notes should provide a real incentive.

The scheme’s aspiration to provide employers with definitive advice about what is needed to get an employee back to work is certainly welcome, although the cynics amongst us will wait to see whether this is what we actually get. It is unclear whether the service will be sufficiently well-resourced to provide detailed advice in all cases, and whether telephone rather than face-to-face assessments will provide sufficient information. That said, in theory, from 2014 all employers will benefit from specialist, tailored advice and this can surely only be a good thing. Especially if it is free!

Abolition of TUPE service provision changes proposed

Mon, 21 Jan 2013 12:55:00 Z

The Government has published its eagerly awaited consultation on changes to TUPE. It reveals a range of reforms, but the one that will grab the most headlines is the proposal to abolish the ‘service provision change‘(SPC) regime. When SPCs were introduced in 2006, they were welcomed by some as a useful means of removing uncertainty over whether TUPE applied to outsourcing and retendering situations.

But others were less keen, regarding the changes as a major extension of TUPE’s application. They meant, for example, that a client account moving from one agency to another was much more likely to be brought within the scope of the legislation.

Many will therefore at first glance regard the planned demise of the SPC regime as a cause for celebration. However, it should not be assumed that the end of SPCs signals the end of TUPE for businesses in the advertising and marketing services sector. Such companies tended to ignore TUPE on a change of accounts before the SPC regime, but that doesn’t mean it never applied. Even back then it was possible for a change of accounts to be a TUPE transfer, depending on the circumstances of the case.

Times and economic conditions have changed since 2006 and it will be interesting to see whether agencies are willing to simply wind the clock back. For example, an agency losing a very large account may still be tempted to raise TUPE in an attempt to avoid paying the cost of redundancies, thereby offsetting the loss of revenue – especially in the current economic climate. Even if agencies decide not to take such points - perhaps thinking “what goes around comes around” – affected employees may nonetheless decide it is in their interests to argue that TUPE applies.

So, although a repeal of SPCs may well turn out to be represent good news for agencies, only time will tell whether TUPE can effectively be consigned to the history books when accounts change hands. On another view, we could end up with greater uncertainty about whether TUPE applies. Arguably, the Government could be accused of throwing the baby out with the bathwater and, instead of completely scrapping SPCs, it should have sought to improve the regime to make it work more effectively.

But let’s not get ahead of ourselves. The proposal is merely at the consultation stage and SPCs will remain a feature of agency life for some time to come. And in the event the abolition does go ahead, it will almost certainly be delayed to allow contracts that have been negotiated on the basis of the current rules to run their course. At this stage, it is not known how that will affect contracts that were drafted to envisage TUPE not applying when they terminate.

Aside from SPCs, the consultation sets out a number of other potentially helpful reform proposals, including changes to the dismissal rules applicable on a TUPE transfer, scope for micro-businesses to consult directly with employees rather than through representatives and provisions allowing TUPE consultation also to satisfy the requirements for consultation on collective redundancies.

The consultation document is available here.

For further information, please contact Lucy Lewis, James Storke or Alison Clements.

Religion at work: will Eweida ruling be a hard cross to bear?

Tue, 15 Jan 2013 12:01:00 Z

Judgment was today given by the European Court of Human Rights (“ECHR”) in the combined cases of Eweida and Chaplin, and Ladele and McFarlane. These cases all dealt with the scope of employees’ rights to manifest their religion and belief in the workplace. They have received significant media attention over the years.

The decisions

In a complicated and lengthy judgment, the ECHR found in favour of Mrs Eweida and awarded her €32,000 in compensation (although just €2,000 of that was for injury to feelings, the rest was costs). It found against all the other claimants.

In Mrs Eweida’s case, the ECHR ruled that any individual manifestation of a religious belief should be protected - even if it is not shared by others. The employer’s aim of maintaining a professional corporate image was a legitimate one, but this had been given too much weight by the UK courts when balanced against her right to wear a visible cross showing her beliefs. The ECHR found against Mrs Chaplin because she was banned from wearing a cross for a different reason, health and safety, holding that this reason was of “inherently greater magnitude” than in Mrs Eweida’s case.

Ms Ladele and Mr McFarlane lost their claims for similar reasons. Their rights to manifest their beliefs by not condoning homosexuality were outweighed by their employers’ aims of providing a service without discrimination.

For more detail on the ECHR’s decision, read our knowledge article.

Comment

It’s a weird day when the right wing of the Conservative party are given something to celebrate by the European Court of Human Rights, but today is one of those days...

This case was about defining the scope of a human right. The ECHR has confirmed a broad definition of article 9 of the European Convention on Human Rights, which guarantees freedom of thought, conscience and religion. Their judgment suggests that the manifestation of any genuine individual belief is capable of protection. It is not necessary for that belief to be shared by a group - it simply needs to be “intimately linked” to the religion or belief.

The immediate impact of this case will be felt in the public sector. Judgments of the ECHR are directly enforceable against public sector employers, meaning that public sector employees now have a right under the Human Rights Act 1998 to manifest an individual religious belief in the workplace and to do so in a way that might not be shared by other followers of that religion.

The position with the private sector is more complex, as claims under the Human Rights Act cannot be made directly against a private sector employer. However, this does not mean that such employers are immune. Tribunals are obliged to interpret UK law in line with human rights, meaning a private sector employee can bring a claim for discrimination and argue that the law now needs to be interpreted in line with the ECHR decision. Indirect discrimination specifically requires that a group suffers a disadvantage, yet the human rights caselaw now does not. Trying to fit this square peg into a round hole might prove impossible, and any litigation on the subject would almost certainly be complex and lengthy for employers.

This all adds to the existing uncertainty over the sorts of belief that are covered by discrimination law and human rights. Is the ECHR decision confined only to religious belief, or are broader philosophical beliefs included too? Recent years have seen an increasing diversity of beliefs that are protected under UK discrimination law (look here for more of our thoughts on this issue); beliefs in spiritualism, anthropogenic climate change and public service broadcasting have all been covered. The already broad interpretation of what a belief is, combined with a new broader freedom to manifest any genuinely held individual belief, is sure to create difficulty for employers.

The subjectivity over religious items presents further problems. What if an employee wants to wear a more extreme religious symbol? As shown by the decision in Mrs Chaplin’s case, employers will still be able to justify preventing employees from wearing inappropriate items where really necessary, but it is uncertain precisely where that boundary lies. In its decision, the ECHR referenced how Mrs Eweida’s cross was “discreet” – would its decision have been different had her crucifix been eight inches big and gothic–styled?

The better news is that the decisions in Ladele and McFarlane will provide some comfort to employers who are grappling with the issue of a clash of rights in the workplace, such as religious views versus sexual orientation. The aim of protecting the rights of others not to be discriminated against has been upheld as a valid justification for not accommodating an employee’s religious views, even where the effect on the employee is that of losing their job.

Employers really need legislation that will deal with the ECHR ruling and clarify the scope of religion and belief discrimination. We have suggested an alternative “duty to accommodate” religious beliefs in a previous journal article. Such a duty would be practical and easy for employers to understand, and provide protection for genuine religious beliefs while allowing employers to justify not making accommodations where this is necessary. It is a relatively simple idea that might just work.

How does Santa know when he’s been fired...?

Thu, 20 Dec 2012 12:01:00 Z

...when he gets the sack, of course!

According to the Supreme Court (which doesn’t tend to use bad Christmas cracker jokes), under contract law the correct answer to this question is actually (a) when he accepts his employer’s breach of contract, or (b) when his employer actually tells him that it is terminating his employment in accordance with the contract.

In Societe Generale, London Branch v Geys the Supreme Court had to consider two important issues about wrongful dismissal, which have significant implications for employers who want to dismiss an employee without notice.

The first issue was whether an employee has to accept an employer’s wrongful termination of employment before it takes effect. Societe Generale had told Mr Geys that he was dismissed immediately without notice on 29 November 2007. However, Mr Geys did not accept the dismissal and wanted to keep the contract alive. The termination date made a big difference to the amount of the payment that Mr Geys was entitled to under his contract.

The second issue was when a termination by way of a payment in lieu of notice took effect. Societe Generale made a payment in lieu of notice into Mr Geys’ bank account in accordance with the contract on 18 December 2007. However, Mr Geys did not find out about this until he received notification from his employer in January 2008. The Court of Appeal had held that termination took effect on the date when the payment was made into Mr Geys’ bank account – even though he was not aware of this at the time.

The Supreme Court decided:

An employee does need to accept a breach of contract before that contract will come to an end. In Mr Geys’ case, this meant that the attempt to terminate his contract wrongfully on 29 November was not effective, because he did not accept the termination. In essence, the Supreme Court was saying that employment contracts are the same as any other contract – after a breach, the wronged party can choose to keep the contract alive or bring it to an end. This principle applies to both wrongful dismissals and resignations.
To terminate employment under a contract, the employee must be given notice of this in clear and unambiguous terms. Just paying money into the employee’s bank account was not enough. This meant that Mr Geys’ dismissal was not effective until he had been notified by his employer in clear terms that (1) the payment in lieu of notice had been made, and (2) this was done under the employer’s contractual right to terminate his employment by making such a payment. Lady Hale commented that an employee “should not be required to check his bank account regularly in order to discover whether he is still employed”.

There are various practical implications of this decision for employers:

It seems that an attempt by an employer to implement an “immediate” termination in breach of contract will not work if the employee does not accept it. This makes it particularly important for employers to have a payment in lieu of notice clause, allowing for immediate termination in return for a notice payment.
The advantage for employers is that they can also refuse to accept an employee’s resignation in breach of contract. This means that employers can attempt to hold employees to their notice periods, and seek injunctions to enforce this if necessary.
Employers who wish to terminate immediately under the contract by way of a payment in lieu of notice must ensure that the employee is actually told about this, rather than just making the payment.

Unfortunately, although this decision has clarified the position in relation to contractual notice, there remains a confusing difference between the law on wrongful dismissal and unfair dismissal:

Under unfair dismissal law, there is no need for the employee to “accept” the dismissal – just telling the employee they are dismissed is enough. This seems to mean that an employee can have been unfairly dismissed, but their contract of employment can still exists for the purposes of contract law if a dismissal in breach of contract has not been accepted.
What happens if an employee simply avoids the employer’s letters and calls in order to avoid being notified that they have been dismissed? This has been dealt with in unfair dismissal law by using the alternative test of when the employee had a reasonable opportunity to find out about the dismissal. However, the Supreme Court simply says that under contract law the employee must actually be notified. This raises the possibility of different termination dates for wrongful and unfair dismissal claims where an employee has deliberately avoided the employer’s communications.

Leaving poor Santa a bit confused about when to submit his claims....

Collective redundancies consultation

Thu, 20 Dec 2012 11:57:00 Z

Collective redundancies to be made easier?

Perhaps a rather depressing topic for this time of the year, but the Department for Business, Innovation and skills (BIS) has just announced plans to make collective redundancies a bit easier for employers to implement.

Earlier this year, we wrote about the Government’s consultation on changing the rules on collective redundancies. BIS has now published its response and has announced plans to make the following changes:

Reduce the current 90 day minimum consultation period for large scale redundancies down to 45 days;
Legislate to make it clear that fixed term contracts which have expired will not trigger collective consultation obligations; and
Introduce a new non-statutory ACAS Code of Practice to give guidance on certain key issues affecting collective redundancy consultation.

This was widely reported in the press as cutting the “notice period” for redundancies. This is somewhat misleading, as employers will still need to consult each individual employee selected for redundancy and give them proper notice of termination - but the plans will certainly assist employers and, to some extent, employees as well.

Consultation period

Currently, employers proposing to make 100 or more redundancies within a 90 day period need to consult collectively for a minimum of 90 days before the first redundancy takes place. The Government has confirmed this will be cut down to 45 days, although employers can of course consult for longer where appropriate.

The consultation response acknowledges ‘clear support’ from employers for a 30 day minimum period, which would match the current consultation period for 20-99 redundancies. Employees have also indicated that meaningful consultation usually lasts for 30 days and viable alternatives to redundancy are rarely received after this point. However, to avoid less responsible employers treating the period as a maximum rather than a minimum, the Government has opted for a 45 day period.

The response notes that this should benefit employers, enabling them to restructure more quickly, save on administrative and wage costs, and to retain key workers who otherwise may be tempted to find work elsewhere during a lengthy period of uncertainty and low morale. Employees facing redundancy will also be free sooner to pursue alternative jobs. While trade unions considered that employees benefit from longer pay and more time to find new work, the Government reiterated that this is not the primary purpose of the minimum consultation period.

Fixed term contracts

In addition, the response recognised the uncertainty surrounding whether fixed-term employees, whose contracts are due to expire, should be included in collective redundancy consultation. The Government has confirmed that it will legislate to exclude these employees, but a fixed-term contract would require a transparent end date to benefit from this exemption. This move will be useful for employers who regularly rely on fixed-term employees, such as for maternity cover or project work.

ACAS Code of Practice

The Government has confirmed it will create a new Code of Practice to address a number of concerns around the collective redundancy process. These include: when consultation should start; who it should cover; who should be consulted; what should be discussed; how the consultation should be conducted; and when consultation can be considered to be complete. This code will also offer guidance on the meaning of “establishment”, considering such factors as geographical location, management structure and cohesion of the workforce.

The changes are expected to be made by 6 April 2013.

Poaching, payments and penalties - recent lessons about bankers' bonuses

Tue, 18 Dec 2012 09:56:00 Z

Legal issues surrounding “Bankers’ Bonuses” are well-rehearsed – when they fall due, to what extent they are discretionary, and how any discretion should be exercised. However, the number of such claims has declined in recent years – a notable exception being the recent class action of Attrill v Dresdner Kleinwort Ltd and Commerzbank in which 104 bankers were awarded a total of £42million (see our previous Journal article on this case). A possible reason for the decline is the fact that, five years ago Mummery LJ set the bar high in Commerzbank v Keen for claiming that the level of a discretionary award was irrational or perverse, saying “the court is not a bank”. That decision, combined with the current economic climate, means that claims for so-called “fat cat” bonuses are no longer popular, nor bound to succeed.

The recent High Court decision in Imam-Sadeque -v- BlueBay Asset Management (Services) Ltd represents an interesting departure from the classic discretionary bonus claim. Mr Imam-Sadeque had been BlueBay’s Head of Sales for UK, the Middle East and Australia. After being invited to a disciplinary meeting, he decided the writing was on the wall and decided to leave. Under the terms of a compromise agreement, Bluebay agreed to treat him as a “good leaver”, subject to him complying with certain duties and obligations under the terms of his contract of employment and the compromise agreement itself. This good leaver status was worth approximately £1.7 million in unvested fund units.

BlueBay alleged that Mr Imam-Sadeque was in repudiatory breach of the terms of compromise agreement and his employment contract whilst on garden leave, and therefore was not entitled to be treated as a good leaver. In summary, BlueBay alleged breaches of: (1) his express contractual duty of fidelity by preparing to join a competitor (Goldbridge); and (2) the non-poaching covenant in his compromise agreement by inviting a BlueBay employee to lunch in a successful attempt to recruit him on behalf of Goldbridge. Mr Imam-Sadeque denied the alleged breaches and brought a claim for the fund units.

The Court disagreed with Mr Imam-Sadeque’s claim. It held that he had breached the various agreements in a number of respects, and therefore the vesting of the 2012 fund units never came into effect because it was conditional upon his compliance with his obligations. Mr Imam-Sadeque argued in the alternative that the forfeiture clause in the compromise agreement was unenforceable as a penalty. Happily for employers, the Court held that the penalty doctrine did not apply. In addition, even if the doctrine had applied, the possibility of the units not vesting was just one element of a bundle of rights and obligations. These had to be viewed as a whole, and viewed in this way were commercially justifiable (and not penal) in any event.

We have previously commented in our Journal on the importance of reviewing contracts regularly to ensure that they are up to scratch and provide the business with protection when senior employees depart. So, what are the key lessons for employers arising out of this most recent case?

Include express duties of fidelity that are appropriate to the individual’s role in their employment contract – and be clear that the duty will continue to apply during garden leave.
Review employment contracts for senior employees to check they include requirements to report their own wrongdoing or a competitive threat of which they become aware.
Ensure that any enhanced or accelerating vesting (or other payment) is conditional on complying with the terms of the employment contract and any compromise agreement.

This case shows again how properly drafted contracts can protect employers from having to pay bonuses to employees who are in breach of their own obligations.

Volunteers not protected by discrimination law

Thu, 13 Dec 2012 13:09:00 Z

The Supreme Court has ruled that an unpaid volunteer did not fall within the definition of “employment” for equality law purposes, so she was not entitled to pursue a disability discrimination claim (X v Mid Sussex CAB [2012] UKSC 59). The case concerned a voluntary adviser (X) at a Citizens Advice Bureau (CAB), who had signed an agreement stating that it was “binding in honour only and not a contract of employment or legally binding”. She was unpaid, had no legal obligation to work and sometimes failed to come in on days on which she was scheduled to work.

The CAB eventually asked X to stop volunteering, whereupon she asserted that this decision had been taken by reason of her disability. She brought a claim under the DDA. The ET decided that it had no jurisdiction to hear the case, on the ground that, as a volunteer, X did not come within the scope either of “employment” under the DDA or the EC Equality Directive (2000/78/EC), which applies to “employment and occupation”. This approach was upheld by the EAT and then the Court of Appeal, so X made a final appeal to the Supreme Court.

Supreme Court’s decision

The Supreme Court referred to the definition of “employment” in the DDA, which refers to “employment under a contract of service or of apprenticeship or a contract personally to do any work...” X did not come within this as she did not have a contract, the Court said. Accordingly, the Supreme Court turned to the Equality Directive and the question of whether a volunteer fell within the scope of an “occupation”. If so, it might be possible to interpret the DDA definition in line with the Directive so as to cover X.

The Court observed that the concept of “occupation” in the Directive had so far received little attention, but concluded that it is used as an umbrella term to cover both employment and self-employment. It followed that it did not extend to voluntary activity. In support of this interpretation, the Court pointed to the fact that the EU Council of Ministers had expressly rejected a proposal to include “unpaid and voluntary work” within the Equality Directive during its legislative passage. In addition, the European Commission had never suggested that the UK was in breach of the Directive by failing to extend protection to volunteers.

Amongst a range of other reasons for rejecting X’s appeal, the Court stated that workers in remunerated work and volunteers are not in comparable positions, and it would contradict the EU legislature’s intention to treat the Directive as covering volunteers. The Court considered that was no scope for reasonable doubt about this conclusion so as to justify making a reference to the ECJ.

Implications

Disability discrimination is, of course, now covered by the Equality Act 2010 rather than the DDA, but essentially the same definition of “employment” applies (as it does for all the purposes of all other protected characteristics under the Act). Accordingly, the Supreme Court’s ruling can be taken as conclusively establishing that volunteers are not covered by the Equality Act.

The desirability of that state of affairs from a policy perspective is a difficult issue. On the one hand, it seems invidious that volunteers have no remedy if they suffer blatant discrimination because of their race or sexual orientation or age etc. But on the other hand, an obligation for charities and other voluntary organisations to comply with the full weight of equality legislation in respect of volunteers as well as their paid employees would perhaps place a disproportionate burden on them.

Although the Supreme Court’s ruling is confined to the definition of “employment” under discrimination law, this is not dissimilar to the definition of “worker” which applies in other employment law contexts. This case may therefore be relevant to the topical and controversial issue of whether unpaid interns qualify for the national minimum wage as workers – in particular, the Court’s emphasis on the requirement for a contract.

Unpaid interns - a legislative solution?

Wed, 12 Dec 2012 09:59:00 Z

On 5 December 2012 Hazel Blears (Labour MP for Salford and Eccles) presented the Internships (Advertising and Regulation) Bill 2012-13 in the House of Commons. Whilst the text of the Bill is yet to be published, it is expected to prohibit the advertising of long-term unpaid internships and regulate the conditions of employment for paid interns.

As we have previously commented, the tide is changing. Employers using unpaid interns have faced negative publicity and, in some cases, action in the employment tribunal for failing to pay interns the national minimum wage where it was due. The hope for this proposed legislation is that it will provide much needed legislative protection. As Ms Blears commented, "unpaid internships are a barrier to fair access and...better social mobility" and it is "completely nonsensical that it remains lawful to advertise positions which are in themselves unlawful".

Whether or not this Bill will provide a solution to the unpaid intern problem, it has reignited the debate. It has been applauded by many, whilst others have levelled criticism at the plans, suggesting that this approach will simply exacerbate the problem by driving unpaid internships underground. However, anticipating this reaction Ms Blears considered that the alternative, which would involve simply accepting that work experience is restricted to those who can afford to work for free, was no more palatable.

Interestingly, Ms Blears also suggested that an approach similar to that adopted in France might provide a workable solution:

"In France, work experience is limited to eight weeks, after which there is a trigger whereby a person automatically becomes an intern and is paid accordingly....we could consider a similar model in this country....perhaps after four or six weeks there should be an automatic trigger so that people start to get paid properly as interns".

The Bill has cross-party support and has its second reading on 1 February 2013, which will be the first opportunity for MPs to debate the general principles of the Bill. It is not clear at this stage how far it will progress through Parliament, or what form the final legislation will take. However, it will certainly give employers, who take on unpaid interns for months on end, food for thought.

This Bill might not be a panacea, but by introducing these proposals Ms Blears has ensured that the topic of unpaid internships stays firmly in the political spotlight.

Employee shareholder (née employee owner) consultation response published

Wed, 05 Dec 2012 10:04:00 Z

The Department for Business, Innovation and Skills (BIS) has now published its response to its consultation on the government’s employee owner proposal (full response available here). This represents a speedy turnaround for a government consultation as it comes just less than a month after the final public submissions were made. We have previously commented in the Journal on the original proposals and the consultation paper.

The consultation acknowledges that a number of respondents indicated that they did not think that the take up would be high amongst employers, and that there was still a great deal of concern as to how the proposal will work in practice (particularly from businesses and their professional advisers). In fact, only three out of the 184 respondents to the consultation said that they would take up the new status! However, it is clear that the government remains committed to making this proposal a reality.

Although the consultation does leave a number of questions unanswered we do now know a little more. The headline developments are:

The ‘employee owner’ title has been dropped in favour of ‘employee shareholders’ which the government feels is a more accurate description
The Secretary of State at BIS will have the power to increase the minimum value of shares that someone must receive to qualify for employee shareholder status from the current level of £2,000
Employers will be able to grant employee shareholders more than the previous upper limit of £50,000 worth of shares if they wish to (although only £50,000 will be exempt from CGT)
The notice period for returning from additional paternity leave for employee shareholders will be raised to 16 weeks to make it consistent with the provisions regarding maternity leave
Non-UK companies will be able to use employee shareholder status
Employee shareholders may receive shares in the parent company of their employer (although not a subsidiary) rather than their actual employer
The government has committed itself to ‘reorganising’ its guidance on employment statuses (including the existing statuses of worker and employee) in light of the introduction of employee shareholder status, so as to provide clear guidance to employers and employees on the implications of the proposal
Employee shareholders who dispute that they have been issued with shares worth the minimum £2,000 will be able to challenge their employment status in an Employment Tribunal
The employer will be able to require employee shareholders to forfeit their shares in contractually agreed circumstances (e.g. gross misconduct) as long as the forfeiture provisions do not reduce the value of the shares granted to below £2,000
The government has pledged to look into ways of reducing the income tax and national insurance contributions arising from the granting of shares to employee shareholders

We expect further changes and clarifications as the proposal makes its way through parliament.

The government appears to be sticking to an implementation date of April 2013, in which case it is likely that the proposals will be published in their final form early next year - so watch this space.

EU Commission backs away from mandatory boardroom quotas

Fri, 23 Nov 2012 11:35:00 Z

Faced with stiff opposition from Member States and a failed attempt last month by the EU Justice Commissioner Viviane Reding to introduce mandatory quotas, the EU Commission has now published a scaled back proposal to increase the number of women on boards.

The watered down proposals set a minimum objective of a 40% presence of female non-executive directors in publicly listed companies by 2020. To achieve this, companies will be required to apply pre-established, neutral criteria in making appointments and companies which have less than 40% of women in non-executive positions will be obliged to use positive action provisions contained in the proposed Directive. This means companies should appoint a female candidate in circumstances where there are two equally qualified candidates of both sexes (unless an objective assessment tips the balance in favour of the other candidate). Companies will also be required to set themselves individual, self-regulatory targets for 2020 regarding the representation of both sexes among executive directors and report annually on progress.

Although the proposed legislation is expected to apply to around 5,000 publicly listed companies in the EU, it will not apply to small and medium sized companies (with fewer than 250 employees and an annual worldwide turnover not exceeding 50 million EUR) or non-listed companies.

The decision on what sanctions will apply for failing to meet the target will rest with individual Members States and this could be where we see a real divide between different countries as to how strongly the proposals are enforced in each jurisdiction. In addition, the proposed Directive enables Member States with effective systems in place already to keep those systems provided they are equally as efficient as the Commission’s proposals in enabling the 40% target to be met.

The Government has introduced a number of self-regulatory initiatives over the last few years focussing on improving boardroom diversity but has maintained strong resistance to the idea of mandatory quotas. The revised proposals will allay some of the Government’s concerns around quotas and gives it an opportunity to make a case that the existing regime in the UK is enough to comply with the objectives set out in the Directive.

The proposed Directive now needs the support of the European Parliament, where MEPs have to adopt it before it can become law. The Commission hopes that the proposals will become law in 2014 (although the Directive will be a temporary measure and will expire in 2028).

Religious comment is (sometimes) free

Wed, 21 Nov 2012 17:35:00 Z

We’ve probably all posted Facebook comments we later regret, but do we assume that what we do on Facebook in our personal time is actually personal?

Mr Smith did. But after sharing his faith-based views on gay marriage with his Facebook “friends” he was demoted by his employer, Trafford Housing Trust.

His case has been widely reported as a conflict between religious views, freedom of expression and protection against homophobia, but it has more to do with the application of workplace policies to employees’ activities outside work.

Mr Smith worked as a manager and was disciplined after posting comments on his personal Facebook page objecting to same-sex marriage. These comments were viewed by colleagues, some of whom were his Facebook “friends”. The Trust decided that this amounted to gross misconduct and demoted him to a more junior position, with a substantial pay cut. Mr Smith brought a breach of contract claim and the court had to decide whether he had committed misconduct (judgment available here).

The Trust’s case was that the comments amounted to misconduct because they risked bringing the Trust into disrepute, he was promoting his religious views in breach of their Code of Conduct, and there was mistreatment of colleagues in breach of the equal opportunities policy.

The court rejected the idea that there was a risk of reputational damage, saying that taken in context, among other comments on Mr Smith’s page relating to his social life, no reasonable reader could conclude that the comments were connected with the Trust – even though his Facebook page did state where he worked.

In relation to the promotion of religious views and mistreatment of colleagues, the court did not believe there was a sufficiently work-related context. The court thought that comments outside work which might have been directed at colleagues were quite different from the comments in this case, which were made in a social context and just happened to be visible to colleagues because they were his “friends”.

The court found that Mr Smith had been wrongfully dismissed, and the demoted post amounted to a new contract. But Mr Smith’s victory was modest. If the Trust had served notice lawfully under the contract, Mr Smith would only have been £98 better off – so that is all he was awarded. If he’d brought an unfair dismissal claim, his damages would have been significantly higher.

It’s perhaps unsurprising that the court thought his behaviour wasn’t sufficiently serious to amount to gross misconduct. Peter Tatchell, the well-known gay rights campaigner, commented that the Trust’s actions had been “excessive”.

It was more unexpected that the court decided there had been no misconduct at all - particularly the finding that it was not “objectively reasonable” to view the comments as offensive, and the observation that the comments reflected views frequently expressed in the media. It was key that the comments were found to have no connection with work. If Mr Smith had made those comments in the workplace, many of us would think a warning might be appropriate, even if dismissal would have been too harsh. It might also be different if the postings were more closely connected with work – such as on an industry networking/forum page regularly used by colleagues or clients, or comments directed at a work issue.

The case doesn’t really tell us where to draw the line, but it does show how important it is for policies to be clearly drafted so employees understand what amounts to misconduct and that policies are “joined up”. It was a problem for the Trust that the social media policy didn’t cover this situation, and there was no link with the equal opportunities policy. This shows how important it is to keep such policies under regular review.

This case does come at a time when the issue of conflict between religious views and other rights has been hitting the headlines. We are currently awaiting decisions from the European Court of Human Rights in the cases of McFarlane and Ladele v United Kingdom, involving Christian employees who were disciplined for refusing to deal with same-sex couples. Yesterday’s Church of England vote against women bishops is another illustration of how religion and equality rights can come into conflict. Although these matters might be discussed widely in the media, employers still need to be careful about allowing unrestrained debate within the workplace where this may cause offence to a particular group.

General strike?

Wed, 14 Nov 2012 16:56:00 Z

Anti-austerity strikes have swept across Southern Europe today with workers in Greece, Spain, Portugal and Italy downing tools. Schools and hospitals have closed. Airports have ground to a halt. Trains have stopped running. Angered by the never-ending public spending cuts and job losses, the European Trade Union Confederation coordinated this day of united action to allow their members to vent their steam. This begs the question: can the same happen here in the UK?

In short, the answer is yes (to an extent!). We witnessed this for ourselves this summer when our GPs and hospital doctors went on strike over pension reforms. That said, organising the kind of ‘general strikes’ we’ve witnessed in Europe today is unlikely. To organise mass-scale action, British trade unions have to comply with the strict procedures contained in the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”). All too often unions deviate from this complex procedure – which includes holding a compliant ballot and providing sufficient notice to the employer - giving employers the opportunity to successfully oppose and prevent the planned action.

In addition, trade unions have started to rely on the human rights argument to achieve its aims. Recently the RMT has commenced a challenge to TULRCA’s strict procedures on collective action before the European Court of Human Rights. In its submission to the Court, the RMT claims that ‘the right to strike is excessively circumscribed’ in Britain in breach of article 11 of the European Convention on Human Rights, which protects the right to freedom of association, including the right to form and be members of trade unions.

Even though it’s unlikely we will witness the same scenes occurring elsewhere in Europe today (well, for now at least...!), their impact in Britain can be felt, most noticeably in the sky. In particular, striking Greek and Spanish baggage handlers and check-in staff have caused huge headaches for air traffic control officers up and down the country: numerous flights from the UK to the affected countries have been delayed or postponed, with easyJet alone reporting cancellations of approximately 30 flights. Moreover, today’s action on the continent inspired a small protest in London over the dismissal of 28 Crossrail workers.

We eagerly await the developments in this area – especially the European Court of Human Rights’ decision – to see if we can expect the streets of London to form the background to the kind of action we have been seeing on the streets of Athens in the near future…

Changing the ‘clapped-out’ rules on flexible working

Tue, 13 Nov 2012 15:58:00 Z

What should we make of the Government’s plans to shake up the law on flexible working and maternity/paternity leave, unveiled today by deputy prime minster Nick Clegg? Criticising the current rules as outdated, Nick explained that the overhaul is designed to get the country working more flexibly and address the fact that modern families do not necessarily consist of “Mum in the kitchen and Dad in the office”.

Currently, only those who have caring responsibility for children or adults have the right to make a flexible working request - for example, to work from home or enter a job-sharing arrangement. Under the new proposals, this right will be extended to all employees from 2014.

The hope is that normalising flexible working in this way will help remove the stigma often attached to it - especially for working fathers - and also help enable “career mums” both to be a mum and have a career. Not only will mothers be able to request to work flexibly, as they can at present, but other relatives such as grandparents will also be allowed to make a request in order to help out with childcare.

Nick also announced that, from 2015, mothers and fathers will be able to share 12 months’ “maternity” leave. In effect, mothers will be able to give up a proportion of their maternity leave and choose to share flexible parental leave with their partner instead. Currently, although fathers (or same-sex partners) can take additional paternity leave, they can only do so 20 weeks after the child has been born and the mother must have returned to work.

Under the new scheme, only the mother will be allowed to take maternity leave in the first two weeks' following the birth (with the father or same-sex partner also being able to take paternity leave at this time). But after that, the parents will be free to choose how to “divvy up” the rest.

For example, they may decide that the mother returns to work after two weeks and the partner takes the remainder of the leave. Or they may alternate the leave throughout the year, or even both take six months off together. The only rule is that no more than 12 months can be taken in total, with no more than nine months at guaranteed pay. Statutory pay for this type of leave will be the same as statutory maternity pay.

These proposals potentially herald a sea-change for British workplace culture, which many people would welcome. But how much difference are they really likely to make, at least in the short to medium term? Fathers have had the right to take 26 weeks’ additional paternity leave for some time, yet very few have actually done so. Likewise, they have the right to make flexible working requests, but these are relatively rare. It appears that a “caveman mentality” is still prevalent in our society!

Many employers will be concerned about how the reforms will work in practice. Nick may contend that “a modern workforce is a flexible workforce”, but the changes could cause major headaches for employers – for example, dealing with numerous flexible working requests and managing employees who wish to alternate maternity/parental leave with their partner. Further problem areas may include working out how much statutory parental pay or normal salary is due, calculating holiday entitlement and finding temporary short-term replacements to fill roles during the periods of absence.

In addition, there is some uncertainty over whether employers who grant enhanced maternity pay to their female staff may run the risk of equal pay claims if they fail to offer similar packages to male employees taking flexible parental leave.

Hopefully, these and other potential pitfalls can be ironed out during the lengthy process of developing the necessary legislation and preparing for its implementation.

Will UK law now have to protect employees with extreme political opinions?

Wed, 07 Nov 2012 08:58:00 Z

The European Court of Human Rights (ECHR) has ruled that the UK Government must take measures to protect employees from dismissal on the grounds of their political opinions or affiliations, including extreme opinions that “offend, shock or disturb”.

The case, Redfearn v United Kingdom, involved a bus driver who worked for Serco. In his spare time, he was a local councillor for the far-right British National Party (BNP). Around 75% of Serco’s passengers and 35% of its workforce were of Asian ethnic origin. When the company found out about Mr Redfearn’s political activities, it dismissed him. There was no evidence he had behaved inappropriately at work, but Serco was concerned about the possible reaction of its customers and effect on its reputation.

Mr Redfearn was unable to bring a claim for unfair dismissal as he did not have the one year’s service which was (at that time) required. Instead, he claimed race discrimination, contending that he had been discriminated against “on racial grounds” because, owing to his views on race, he had been dismissed from a job working with people of Asian origin. This argument was upheld by the Employment Appeal Tribunal but subsequently rejected by the Court of Appeal.

Mr Redfearn then turned his attention to human rights law and the ECHR, where he brought a claim against the UK arguing that by being a member of the BNP he was exercising his right to freedom of association. Perhaps somewhat surprisingly, and by a 4:3 majority, the ECHR agreed (judgment available here).

The Court held that association with political parties is essential to democracies and this must include views which others might find offensive or shocking. This right then needed to be balanced against the employer’s interests in each particular case. Mr Redfearn had no protection at all, because he did not have the service needed to claim unfair dismissal. Therefore, the UK needed to take “reasonable and appropriate” measures to protect all employees from dismissal on grounds of political opinion or affiliation.

The Government will now have to consider whether and how to comply with this ruling. One option might be to include political beliefs within the definition of “religion or belief” under the Equality Act 2010. In a recent article in The Journal, we looked at how spiritualism, climate change and probably Olympism could be protected beliefs. However, the Government has previously commented that political views are not akin to religious or philosophical beliefs and it was not the intention of the Equality Act to protect such beliefs. It is also interesting that the ECHR did not see Mr Redfearn’s case as involving the right to freedom of thought, conscience and religion.

Another problem is how to fit appropriate protection within our anti-discrimination law. The ECHR recognised that an employer may be able to dismiss employees for their political views in appropriate cases – it is a matter of balancing the employee’s rights against the employer’s interests. However, our discrimination law is more of a blunt instrument, which generally does not allow an employer to justify direct discrimination at all.

The idea that the Government must change the law to protect employees whose political opinions or affiliations “offend, shock or disturb” has some worrying implications. The current situation in Greece springs to mind: allegations of police membership of the Golden Dawn political party and reports of the police standing by while party members carry out attacks on immigrants. Does the ECHR really intend to protect members of these types of extreme and violent organisations?

Maybe such panic is premature. One part of the UK already gives employees protection against political discrimination. In Northern Ireland, it is unlawful to discriminate against employees on the grounds of their political opinion. However, the case law has established that political opinion does not include an opinion that condones the use of violence for political ends.

It remains to be seen how, if at all, the Government will respond to the ECHR’s ruling, but the Northern Ireland legislation may provide a good starting point.

The changing face of retail

Fri, 02 Nov 2012 15:26:00 Z

Close your eyes and imagine a record shop worker. Let me guess, he’s young, has long hair, wears a black t-shirt with a scary motif and is covered from head to toe in tattoos? Well, that may soon be about to change. It’s recently been reported that music giant HMV has introduced a uniform policy which requires its staff to cover up their tattoos, take out those obscure facial piercings and, for male workers, to cut off those long locks. Ozzy Osbourne will not be impressed!

HMV has suggested that the rationale behind its new policy is to smarten up its workforce to ensure that members of the public feel comfortable approaching its staff (it’s self service checkouts rather than tattoos that make me feel uncomfortable!)

It’s not unusual for employers to introduce uniform policies and, generally speaking, they are lawful providing they don’t discriminate against individuals with protected characteristics (such as sex, race and religion) and they are applied consistently. However, employers should give careful thought when attempting to enforce them and allow for exceptions to the rule. For example what happens if an employee has a temporary henna tattoo on her hand for cultural reasons, or if they employ a male Sikh whose religion requires him to grow his hair? A blanket ban preventing these will likely result in claims for discrimination.

Whilst it’s possible for employers to justify indirect forms of discrimination, i.e. a rule that is applied to all staff but puts individuals possessing a certain protected characteristic at a disadvantage, it needs to have a legitimate business reason for doing so. For example, a rule preventing staff from wearing earrings (which on the face of it (pardon the pun!) may put females at a disadvantage because typically more woman than men wear earrings), may be justified if there are health and safety reasons for why earrings can’t be worn in the workplace.

Any employer looking to introduce a uniform policy should also give careful consideration to how the policy is going to implemented and enforced. Consulting with staff and explaining what you expect from them is key. Equally important is training those individuals who will be responsible for enforcing the policy to ensure the policy is enforced in a consistent and sensible manner to avoid potential discrimination claims.

Further information on appearance and looks policies can be found here.

Would the 'Rooney Rule' be lawful in the UK?

Fri, 26 Oct 2012 11:21:00 +0100

This week, the Professional Footballers' Association (“PFA”) issued a six point action plan to tackle racism in English football, including a version of American football’s so-called "Rooney Rule".

This rule has nothing to do with Wayne and Coleen, but instead relates to a measure established for the NFL in the United States to combat the under-representation of black and ethnic minority candidates employed in coaching roles. The Rooney Rule essentially requires NFL teams to consider at least one black or ethnic minority candidate for certain positions.

The proposed introduction of a similar rule in English football is not surprising given the lack of diversity when it comes to coaches and managers in the English football leagues. However, the PFA’s proposal has raised an inevitable question: is the rule lawful from a UK perspective?

The short answer is “quite possibly not”. It will depend on the specific terms of the rule to be implemented and the manner in which it is enforced. At the very least, it is easy to imagine that the introduction of the Rooney Rule here may give rise to an increase in discrimination claims.

Existing UK law gives employers limited scope to take “positive action” to support disadvantaged or underrepresented candidates. For example, if two equally qualified individuals are going for the same role, a prospective employer can treat a person with a specified protected characteristic (such as race) more favourably than another.

But it is unclear how this could work in the context of English football. How can you effectively determine whether two candidates are equally qualified? Can you determine the question with reference to the number of coaching badges held? Or is it a more subtle question of experience and track-record?

If a well-qualified white candidate is overlooked for a role, but a less experienced black candidate is interviewed or recruited, there is an increased risk that the white coach will argue that they have been unlawfully discriminated against.

Employees can claim equal pay up to six years after leaving work

Wed, 24 Oct 2012 17:25:00 +0100

Can an equal pay claim be brought as a breach of contract claim in the civil courts? In particular, if an employee left employment over six months ago but has subsequently discovered she was underpaid compared to a man doing equal work, can she bring such a claim?

This was the issue before the Supreme Court in Birmingham City Council v Abdulla and others [2012] UKSC 47.

The 174 claimants in this case worked in roles which were typically performed by women, such as cleaner, carer and school meals assistant. They did not get paid the same bonuses that attached to other roles typically performed by men, such as road sweeper, gravedigger or streetlight attendant.

The claimants would have had arguable equal pay claims against the council in the employment tribunal (ET), and would probably have been successful , but their employment had terminated and the rigid six-month time limit for bringing a claim had expired. If they had tried to pursue ET claims, these would have been struck out.

Therefore, instead of pursuing doomed ET proceedings, the claimants argued their case as a breach of contract claim in the High Court. Their novel argument was that the council had failed to pay them in accordance with the equality clause implied into their contracts by the equal pay legislation. For breach of contract claims, a six-year time limit applies, so their claims would be in time.

This argument was successful in the High Court and in the Court of Appeal. The council made a further appeal to the Supreme Court, but it was rejected by a 3-2 majority (judgment available here).

This means that employers could now be faced with equal pay claims from any former employees who have left within the past six years. Moreover, these will be in a civil court with its punitive costs regime. It will, however, probably be the public sector which will bear the brunt of this. Local authorities and the NHS have been battling major equal pay litigation for many years and this ruling could now open the floodgates for hundreds of former employees to bring a claim.

The impact on the private sector, where equal pay claims are relatively rare, is likely to be less severe. Public sector employers tend to have very transparent practices and pay grades that have been negotiated, agreed and implemented on a national level, making it easier for employees to identify apparent pay inequalities. This is less common in the private sector, where pay disparities often go unnoticed.

The Government has proposed wide-ranging reforms to many areas of employment law, but equal pay has been left more or less untouched. Mandatory pay audits for certain employers that lose equal pay claims are proposed, but in practice these will be of negligible impact – last year there were just 32 cases when an employer lost an equal pay claim.

Equal pay remains one of the most complex and costly areas of employment law for employers and employees alike. Despite equal pay laws being in force since 1975, slow progress has been made in eliminating the gender pay gap which, according to the Chartered Management Institute, is currently not expected to close until 2067.

If the Government moves to close the potential floodgates of the Abdulla decision, let’s hope it takes the opportunity to conduct a pragmatic, root-and-branch review of equal pay law with a view making it simpler, clearer and more effective.

Dicing with disability – the European Court is asked to rule on what “disability” means

Wed, 24 Oct 2012 17:10:00 +0100

Does the Court of Justice of the European Union (CJEU) propose to change our understanding of disability discrimination? That is now a possibility, following a Danish court’s referral to the CJEU of two related disability discrimination cases.

In the course of considering these claims, the Danish court has asked the CJEU to make preliminary rulings on the following:

whether a condition which is caused by a medically diagnosed temporary illness can be a disability, and
whether an inability to work full-time, due to a physical or mental impairment but which does not entail a need for special aids, can be regarded as a disability

The CJEU will be considering these questions under the European Equal Treatment Directive, which came into force in 2000 and covers disability discrimination. The Directive is the source of much of the UK’s anti-discrimination legislation. However, it does not actually define what is meant by “disability”, and the Danish court’s questions essentially ask for clarification about fundamental aspects of this concept.

Meanwhile, in the UK, we are fairly comfortably settled in our understanding of the definition of disability under the Equality Act 2010: a person has a disability if they have a physical or mental impairment which has a substantial and long-term adverse effect on the individual’s ability to carry out normal day-to-day activities. In particular, we are familiar with the idea that “long-term” means lasting for, or likely to last for, at least 12 months.

If the CJEU decides that a condition caused by a temporary illness amounts to a disability, we may need to respond by changing our understanding – and potentially our legislation – surrounding disability discrimination in employment. If there is no requirement that a disability needs to be “long term”, are we to look at all impairments which have a significant adverse impact on day to day activities? And irrespective of how long they are likely to last? This may make sense from a purely conceptual point of view, as the 12 current month rule might be regarded as a bit of a random time limit. However, it will mean that disability discrimination claims are potentially open to a much larger section of the working population. Given that employers are under a duty to make reasonable adjustments, this is likely to expand the numbers of workers in relation to whom employers owe these duties. Best practice already requires reasonable adjustments to be considered wherever appropriate, but any change to the definition of disability may still have a significant impact.

The question of whether a worker who is unable, as a result of a medical condition, to work full-time, is potentially more complex. Currently in the UK, this is a factor to be considered in determining whether a worker has a disability, but it is not determinative. Depending on the CJEU’s decision, this may become a key question in future. If so, how many workers who are currently classed as having a disability can say that their condition means they cannot work full-time? And will allowing part-time working become the expected reasonable adjustment in all but exceptional cases? It may be that prevention of discrimination against part-time workers becomes much more prominent, as workers who feel unable to work full-time obtain medical advice to confirm this and rely on disability discrimination law to protect their position.

Of course, the CJEU may look to how various member states have legislated around disability discrimination and make a decision which allows the UK understanding of disability to continue undisturbed. We await the CJEU’s decision with interest...

Equality Act changes confirmed - but will they help employers?

Mon, 22 Oct 2012 15:48:00 +0100

The Government has just published its response to the consultation on its proposals to repeal a number of provisions in the Equality Act. It has confirmed that third party harassment, discrimination questionnaires and the tribunal’s powers to make wider recommendations to employers in discrimination cases will all be repealed. We previously reported on the proposed changes when the consultations were published.

Despite the vast majority of respondents opposing repeal, the Government has decided to press ahead on the basis that the consultation did not provide “quantifiable evidence” to prove that their proposals are wrong. Unfortunately, the Government’s responses fail to address some of the basic concerns raised during the consultation process.

One of the main concerns about the removal of the third party harassment rule is that an employee will no longer be able to rely on a single provision where an employer has failed to prevent harassment by a third party, such as a customer, visitor or consultant. Employers are currently liable for harassment by third parties if they know an employee has already been harassed twice before and don’t take reasonable steps to prevent a third incident.

If this provision is removed, employees will have to rely on alternative avenues of protection. As well as potentially limiting the protection of employees, this means that employers may not be clear on the extent of their obligations. For example, the employer has obligations under health and safety law, but this is likely to apply only to the most serious cases of harassment where the employee has actually suffered an injury. Equally, constructive dismissal could be used by employees in cases of persistent harassment, but only where the situation has become so serious that the employee has been left with no other option but to resign. The Government is also of the view that employees who are harassed by third parties could rely on the Equality Act’s general harassment provisions. However, previous cases suggests otherwise, meaning that both employers and employees will be left uncertain as to their legal rights.

All of this means that the future is far from clear. Although the Government’s view is that the current provisions are “unworkable”, employers would be well advised to continue to include measures to prevent and deal with third party harassment in their employment policies and training. This is not only good practice, but employees are likely to try other routes to achieve the same protection as is afforded by the current provisions.

Also to be repealed is the Tribunal’s power to make recommendations to an employer found to have discriminated against an employee, even if that employee has left employment. The kind of recommendations the tribunals have made since this provision came into force have included HR training to specific managers and improvements in equality policies.

The Government’s view is that the wider recommendations made so far have been “obvious and non-technical” and states that there “are better legislative ways of pursuing these aims” without specifying how this might be achieved. However, they may have missed an opportunity to use the tribunals’ expertise to suggest to employers (in no uncertain terms) how they must improve their equality practices. Such recommendations can not only benefit the entire workforce, but also help employers to avoid similar problems in the future.

Finally, discrimination questionnaires are to be scrapped. This may come as a relief to many employers who have faced lengthy and time-consuming questionnaires from troublesome employees. However, the future without questionnaires may not be as good as it first seems.

Employers should be very cautious when deciding whether or not to respond to questions, even after the abolition of questionnaires. It remains open to Tribunals in discrimination cases to draw adverse inferences against an employer who fails to respond to an employee’s questions. However, without the current standard forms and framework, employees may be less likely to confine their questions to matters relevant to the alleged discrimination complaint.

The current framework also provides time limits. Employees only have an automatic right to submit a questionnaire until up to 28 days after making a claim. Similarly, employers are expected to respond to discrimination questionnaires within 8 weeks, and inferences can be drawn from a failure to do so. Without these deadlines, employees may attempt to ask questions at any time, and expect an earlier response from the employer. There will also be less incentive for employers to respond to questions within a particular timeframe. This may be a lost opportunity, as the early exchange of information can help the parties focus on the issues in dispute and encourage resolution without the need for tribunal proceedings.

Overall, these changes may seem helpful to employers, but discrimination law is a notoriously tricky area and the end result may be more rather than less uncertainty about what is expected in order to comply with the law.