This e-bulletin includes short summaries of the following recent developments. Please contact us if you would like more information.  

1. Gender pay gap reporting: draft regulations published,  GEO clarify intent behind some ambiguous provisions

The Government has published draft regulations providing for mandatory gender pay reporting; consultation ended on 11 March 2016 and a revised final version is expected in the summer. The key points are as follows:

  • The obligation will apply to employers with at least 250 "relevant employees" (ie, employees who ordinarily work in Great Britain and whose contract is governed by UK legislation). Although not clear from the draft regulations, the government has since confirmed that it intends them to cover the wider Equality Act definition of employee, to include those with a contract personally to do work or a contract of apprenticeship, in addition to those with a contract of employment. This could therefore bring within scope some self-employed contractors and LLP members.
  • Employers will be required to take a data snapshot on 30 April each year and will then have 12 months within which to publish their data on a date that suits them. The plan is to bring in the regulations in October 2016, with the first snapshot to be taken on 30 April 2017 and data published by April 2018.
  • The data will need to be signed off as accurate by a director or equivalent and will have to be published on the employer's UK website and retained there for at least 3 years. Employers will also have to send evidence of compliance to a government-sponsored website, and the government has stated that it intends to use this to produce publically displayed tables by sector of employers' reported pay gaps. It may also publicise the identity of employers known not to have complied. No additional civil penalties for non-compliance are proposed at the moment, although this will be kept under review.
  • There is no requirement to provide separate data for full and part-time employees or by grade or job type. The data required is:
    • the difference in mean and median pay between males and females. Overtime pay, value of salary sacrifice schemes and benefits in kind are not included within the definition of 'pay'. Employers are to calculate an hourly pay rate using gross pay in the relevant pay period (the month to 30 April if employees are monthly paid). Maternity pay (and other leave pay) is to be included, as are bonuses "received and earned" in that pay period, which may skew the data consdierably;
    • the number of men and women in each salary quartile. The government has stated that the relevant quartiles are to be created by dividing the pay range into four equal segments (although this is not clear from the draft regulations);
    • the difference in mean bonus pay during the previous 12 months (so bonuses paid from May 2016 to April 2017 will need to be included in the first tranche of data to be published by April 2018). Bonus is defined broadly to include incentive pay, piecework, commission, LTIPs and cash equivalent of shares;
    • the proportion of males and females who received bonus pay.
  • Supporting guidance (to be published this year) will "strongly encourage"– but not require – employers to contextualise their data with a narrative. There will be no constraints on the form this narrative should take. It is suggested that it might include detail of the initiatives employers have implemented to recruit more women or strengthen their female talent pipeline, to mitigate the risk of reputational damage from publication of a significant pay gap.
  • The supporting guidance will also set out how to account for different governance structures such as subsidiaries and parent companies.

Employers will need to take action now to prepare for this change, to ensure they will have processes in place in time to capture the required data efficiently and to consider what steps they should be taking to address any pay disparity (and how these should be presented in any narrative).

Employers should also be aware that pay information may be used as ammunition for equal pay claims. Until now, these claims have been restricted largely to the public sector where pay information is often more readily available. This may have led private sector employers to believe they have no real exposure. However, everything could be about to change and private sector employers may find they have very significant liabilities for which they have not made adequate provision.

2. Holiday pay: EAT confirms commission must be included in calculation, but further appeal expected

The EAT has given its judgment in the appeal in Lock v British Gas Trading. It upheld the tribunal's ruling that words can be written into the Working Time Regulations to comply with EU law and provide that commission is reflected in the calculation of pay for the 4 weeks' statutory holiday pay entitlement. There was no reason to depart from the EAT ruling in Bear Scotland on the inclusion of pay for non-guaranteed overtime in holiday pay calculations.

British Gas is reported to have been granted permission to appeal to the Court of Appeal. The appeal is unlikely to be heard until 2017 so employers may therefore decide to hold off on changing their holiday pay practice. Respondents will presumably seek to have the stay on current tribunal cases extended and the current state of uncertainty will continue until the Court of Appeal judgment (not least as we still do not have a decision on the correct reference period and how the claim should be quantified).

Employers should note that the claimants in Bear Scotland have also sought permission to appeal to the EAT on the issue of the time limits on their deductions claims for holiday pay. In August 2015 the tribunal rejected their arguments that: (i) the original EAT ruling (that underpayments prior to a gap of more than three months with no underpayment cannot be claimed as part of a series of deductions) was not a binding ratio of the decision; (ii) that they should benefit from the extension of time for claims which it was not reasonably practicable to have brought in time; and (iii) that the employer was required to make good all underpayments of holiday pay outstanding on the termination of employment in any event.

3. April 2016 changes: tribunal compensation limits, national minimum wage, and tribunal rules

  • From 6 April 2016, the cap on the unfair dismissal compensatory award will increase from £78,335 to £78,962 and the cap on weekly pay (used to calculate the unfair dismissal basic award and statutory redundancy pay) will increase from £475 to £479. This gives a maximum unfair dismissal award of £93,332. Note that since 29 July 2013 there has been an additional cap on the compensatory award of 12 months’ pay.
  • The weekly rate of statutory sick pay will remain at £88.45 and the weekly flat rate of statutory maternity, paternity, adoption and shared parental pay will remain at £139.58 for 2016-17.
  • From 1 April 2016, workers of 25 years and older will be entitled to be paid a minimum national living wage of £7.20 per hour. The penalty for underpayment of the national minimum wage will double to 200% of arrears. The government has also confirmed the increases to the national minimum wage rates in October 2016: the rate for workers aged 21 to 24 is to increase from £6.70 to £6.95 an hour. The rate for those aged 25 and over (the national living wage) will not increase in October 2016, but all of the rates will then be uprated in parallel from April 2017.
  • From 6 April 2016 two minor changes to tribunal rules will apply: (i) financial penalties for unpaid employment tribunal awards and settlements of 50% of the unpaid amount, subject to a minimum of £100 and a maximum of £5,000, and (ii) provisions limiting the ability to postpone tribunal hearings if the application is made less than seven days before a hearing or when two or more postponements have already been granted, and requiring tribunals to consider imposing costs consequences when a postponement application is made less than seven days before a hearing.

4. Vicarious liability: Supreme Court's broad application of "close connection" test means employers more likely to be liable for employee misbehaviour

Employers could be held vicariously liable for staff misbehaviour in a broader range of situations following the Supreme Court ruling inMohamud v WM Morrison Supermarkets. There is no 'reasonable steps' defence against vicarious liability for torts. Employers should therefore check they have appropriate recruitment and training processes, management and supervision of staff in order to minimise the risks of violence at work, and should also check the terms of their insurance.

The Supreme Court endorsed the current test requiring there to be a sufficiently close connection between what the employee was employed to do (viewed broadly) and the behaviour for it to be fair and just to impose vicarious liability. However, it overturned the Court of Appeal's application of this test to the facts, ruling that the employer was liable when its sales assistant at a petrol station left the sales kiosk and violently attacked a customer on the forecourt. The employee's conduct arose from his position serving customers for his employer and the employer should be liable, notwithstanding that the employee's role did not encompass dealing with customers away from the kiosk or using any level of force.  This can be contrasted with previous cases of vicarious liability being imposed in relation to the acts of night club bouncers, where the fact that their duties might involve some use of force on customers was determinative.

The ruling suggests a more liberal application of the close connection test, and raises questions as to where exactly the boundary will lie. It suggests that employers may well be liable for the actions of employees towards customers where their duties include interacting with customers in some way, even if the employee engages in a wholly different nature of interaction from that envisaged. The same may apply where employees' roles involve interacting with colleagues; in contrast it may be possible to distinguish the case where an employee, whose duties do not include dealing with customers, assaults a customer.

Employers should also bear in mind that in some cases they may also be vicariously liable for the acts of individuals who are not their employees. Vicarious liability may apply where the individual carries on activities as an integral part of the employer's business activities and for its benefit, and where the assignment of activities to the individual created the risk of the behaviour occurring.

In Cox v Ministry of Justice the Supreme Court ruled that the prison service was vicariously liable for the negligence of a prisoner who had accidentally injured an employee while working in the prison kitchens. The prisoner worked as an integral part of the prison service's catering business and the risk of the accident was created by assigning those activities to him.

5. Salary-sacrifice childcare vouchers: EAT rules that employers can suspend provision during family leave

Employers offering childcare vouchers through a salary sacrifice scheme have often questioned HMRC Guidance that they must continue to provide the vouchers during periods of maternity or other family leave, even when the employee is only receiving statutory pay and therefore there is no salary from which the value can be deducted. The Guidance was based on the view that, once an employee opts to sacrifice salary for vouchers, the vouchers are to be treated as benefits in kind (which must be continued by the employer during family leave) rather than "remuneration" (which stops and is replaced by statutory, and potentially contractual, leave pay). The EAT has now ruled that the HMRC Guidance is wrong: where vouchers are provided by salary sacrifice, this should be viewed as a diversion of salary and therefore still within "remuneration" rather than as having been converted to a benefit in kind. In contrast, if childcare vouchers are provided in addition to salary, they will be a benefit which must be continued.

In Peninsula Business Services Ltd v Donaldson, the employer was therefore entitled to provide that entitlement to sacrifice salary for childcare vouchers was conditional on the employee agreeing to suspend the vouchers and return to pre-sacrifice salary during maternity leave.

It is notable that the employee was not represented or present at the hearing, and the EAT did express some hesitancy as to whether it had been referred to all the relevant legislation. Certainly its view of salary sacrifice being no more than a diversion of salary does not accord with the usual analysis in a tax context, where exemptions are conditional on the arrangements amounting to a legally binding change to contractual entitlements (to a lower salary plus benefits). The ruling could well be challenged at a higher level, even if an appeal is not made in this case.

Employers currently providing salary sacrifice vouchers during family leave should carefully consider the possible legal and other implications (eg, damage to goodwill, impact on diversity) before changing their practice. Note that the government plans to introduce a new tax-free childcare scheme not involving employers in "early 2017" (although employers will be able to continue to offer vouchers to those enrolled before the new scheme is launched).

6. Early conciliation: EAT rulings establish flexible approach to compliance

A number of recent EAT rulings suggest that technical arguments over compliance with the early conciliation rules for tribunal claims may be given short shrift.

Normally a prospective claimant must provide certain information to Acas and obtain a certificate of early conciliation from Acas before a tribunal claim will be accepted. However, the EAT has ruled that claims will not be thrown out simply because the claimant gave Acas a different name for the employer (eg, a trading name) from that included in the tribunal claim, provided Acas has sufficient information to enable it to contact the employer. (Mist v Derby Community Health Services NHS Trust)

The EAT has also endorsed a flexible approach by tribunals exercising their discretion to permit amendments to existing claims without requiring fresh early conciliation. In Mist this was the addition of a second respondent, in Drake International Systems Ltd v Blue Arrow Ltd it was the substitution of four subsidiary companies as respondents in place of the parent company, and in Science Warehouse Ltd v Millsthe claimant was permitted to add an additional related claim even though it arose after the ET1 has been issued. Employers should therefore be aware that they could potentially be added or substituted as respondents to an existing claim, or that new claims could be added, without having an opportunity to engage in early conciliation.

7. Budget 2016: key announcements for employment law

The 2016 Budget delivered by the Chancellor on 16 March includes the following:

  • From April 2018, the Government will tighten the scope of the income tax exemption for payments on termination of employment "to prevent manipulation" and will also align the rules so employer National Insurance contributions are due on those payments above £30,000 that are already subject to income tax. The first £30,000 of a termination payment will remain exempt from income tax and the full payment will be outside the scope of employee NICs. The Government will undertake a technical consultation on tightening the scope of the exemption.
  • The Government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice schemes and is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. However, the intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.
  • The Government will launch a consultation in May 2016 on how to implement its commitment to extend Shared Parental Leave and Pay to working grandparents. The consultation will also cover options for streamlining the system, including simplifying the eligibility requirements and notification system, and will explore the potential to make better use of digital technology.

Meanwhile, BIS has published a departmental plan for 2015 to 2020 confirming the government's intention to allow employees of public employers and large private employers to take three days volunteering leave each year. The plan does not confirm a timescale for introducing this right nor whether the leave will be paid. Our HSF tax team will be producing a detailed briefing on the Budget shortly.

8. New publications: data transfer, discriminatory adverts, autism, bonus tax avoidance schemes