Introduction of National Living Wage

The National Minimum Wage (Amendment) Regulations 2016, made on 22 January 2016, introduce the National Living Wage with effect from 1 April 2016.

The regulations provide for a new higher rate under the National Minimum Wage legislation for workers aged 25 and over. The initial National Living Wage rate is set at £7.20 per hour, and the government’s aim is to increase this to £9.00 per hour by 2020. The penalty payable by employers who underpay will also increase from 100% to 200% of the underpayment due to each worker.

For more detail on the changes and a guide on how to prepare, see Rob Eldridge’s blog, National living wage guide.

Tribunal finds trader was unfairly and wrongfully dismissed for breach of confidentiality

In Stimpson v Citibank N.A., a Tribunal has held that the dismissal of an FX trader for disclosing confidential client information to traders at other banks via an online chat room was both unfair and wrongful dismissal. Under the respondent’s disciplinary policy, unauthorised disclosure of confidential information was included as a specific example of gross misconduct, and the trader was summarily dismissed following a disciplinary investigation into such disclosures.

The Tribunal held that it was insufficient for the bank to rely on a strict reading of its policies on protecting confidential information and that it had failed to carry out a reasonable investigation. In particular, the bank’s disciplinary and appeal investigations did not adequately consider the defence that the employee’s actions should be viewed in the context of the culture of information sharing within the FX business. Further, a reasonable investigation should also have taken into account the Final Notice issued by the FCA following its regulatory investigation into the FX business, which addressed similar issues and identified systemic failures by the bank. This Notice was never provided to the dismissal officer. The failure to conduct a reasonable investigation made the dismissal unfair, notwithstanding the “correctness of [the] black and white analysis of the policies.”

Although the Tribunal acknowledged the employee’s contributory fault, he was held not to have committed a repudiatory breach as he had reasonably believed his actions were permitted: he had been encouraged to join the chat room by his manager; he had not been given specific guidance for using the platform; the information was in the public domain; and similar behaviour had been shown by his peers and managers. The employee had also refrained from sharing such confidential information in chat rooms for the three years before his dismissal following management instruction. This meant that his wrongful dismissal claim also succeeded.

This case is important not only for employers facing similar claims but also for all employers conducting disciplinary investigations. Employers in regulated sectors should note the need for particularly thorough investigation, as gross misconduct decisions could seriously damage an employee’s future career prospects and the Tribunal has noted that this places such cases “at the higher end of the spectrum of investigation”. More generally, disciplinary managers should take note of how policies are applied and enforced in the business rather than relying solely on black letter rules.

Data protection developments

The European Commission has reached a political agreement with the US on the new framework for transatlantic data flows, which it says reflects the requirements set out by the ECJ in Maximillian Schrems v Data Protection Commissioner, which declared the old Safe Harbour framework invalid. The new framework, the “EU-US Privacy Shield”, includes stronger obligations on US companies handling EU citizens’ personal data, limitations on US government agencies’ access to such data, and robust enforcement measures. The framework also contains several possibilities of redress, including the creation of a new Ombudsman to deal with complaints.

The Information Commissioner’s Office (“ICO”) has noted that it is too early to say whether the Privacy Shield provides adequate protection. It has advised that in the meantime organisations may continue to use other tools for transfers from the EU to the US. It has also helpfully confirmed that it will only expect what is reasonable of data controllers in the current circumstances and will not seek to expedite complaints about Safe Harbour while its replacement is still being finalised.

Our blog post ‘Is it safe? Question marks remain over safe harbor’  offers a fuller discussion on the Privacy Shield.

EC not required before adding or substituting a new respondent to an existing claim

The EAT has given two further indications of its willingness to take a flexible approach to compliance with the requirements of early conciliation.

In Mist v Derby Community Health Services NHS Trust,  the claimant had originally stated an incorrect name for her employer when contacting ACAS, and the EC certificate referred to the employer by that incorrect name. However, she had used the correct name on her ET1 when bringing various claims against the same employer. The EAT held that despite the discrepancy between the name of the respondent on the EC certificate and the ET1, the Tribunal had a discretion to accept the claim. It indicated that a trading name would be sufficient when contacting ACAS, provided that enough information was given for ACAS to be able to contact the prospective respondent.

The claimant had also later applied to add another employer (the transferee in a TUPE transfer) to the claim without going through the EC process a second time. The EAT confirmed that an application to amend an existing claim (in this case by adding a second respondent) did not require further EC.

In Drake International Systems Ltd and others v Blue Arrow Ltd, the claimant had originally engaged in EC and brought proceedings against a parent company before learning that it should have brought the proceedings against four subsidiary companies instead. The EAT confirmed that whether to allow substitution of a party was a case management decision. The claimant could substitute the subsidiary companies as respondents to the claim at the discretion of the Tribunal, without going through a further EC process. The EAT considered that, following the overriding objective, ACAS should not have the expense of considering EC twice for the same issue.

The EAT drew a distinction between prospective claimants (for whom observance of the EC procedure is necessary) and existing claimants (for whom case management of proceedings should be dealt with by the tribunal). The EC procedure refers to “prospective” claimants, and it does not make sense to apply such a procedure when relevant proceedings have already been instituted.

These decisions are consistent with the flexible approach recently taken by the EAT in Science Warehouse Ltd v Mills. Following these cases, employers should take note that it is likely that tribunals will accept claims regardless of an incorrect name being stated on the EC form. Perhaps of more concern to employers is that they (or their employees) could potentially be added or substituted as respondents to an existing claim despite not having been party to the EC process.

Employer’s failure to act was detriment for the purpose of preventing trade union participation

The Court of Appeal has confirmed that a worker’s right not to be subjected to any detriment on the grounds of trade union membership or activities by an act or failure to act by their employer only applies if the employer’s sole or main purpose is to cause such a detriment (rather than such detriment merely being the effect of the employer’s conduct).

In Bone v North Essex Partnership NHS Foundation Trust, the Court of Appeal overturned the EAT and reinstated the Tribunal’s decision that an employer had deliberately failed to take action when a prominent member of a trade union, WEU, was bullied and harassed by fellow employees who were members of Unison. The employer’s failure to investigate, suspend and discipline responsible employees was held to have been “weak and lamentably ineffective conduct”, and as such the employee had been subjected to a detriment. Despite the employer’s claim that its purpose had been to remain “neutral” with regard to the two unions, the Court of Appeal found that its purpose had been to marginalise or eliminate the WEU’s influence and to achieve a “quiet life” by placating Unison. This went far enough to satisfy the requirements of the test.

TUPE: temporary cessation of work by subcontractor

In Mustafa and another v Trek Highways Services Ltd and others, the EAT held that temporary cessation of activities by a subcontractor at the putative transfer date did not prevent there from being a business transfer or a service provision change under TUPE.

In this case, a subcontractor’s employees had been laid off following a commercial dispute with the main contractor shortly before the expiry of the main contract and the transfer of the services to two new contractors. The Tribunal had found that there had been no relevant transfer, but the EAT overturned its decision, highlighting that it had been wrong to focus on the temporary cessation of activities when assessing whether a business transfer had taken place. Despite the suspension of activity by the subcontractor, the entity itself continued in existence (in the form of staff, vehicles, equipment and the subcontract itself). Further, for the purpose of assessing whether there had been a service provision change, the Tribunal had been wrong to conclude that a temporary cessation of work necessarily meant that a grouping of employees could no longer be said to be an “organised grouping”.

This confirms that employers should not rely on the fact that there has been a temporary cessation of work when assessing whether a transfer has occurred under TUPE. A transfer may have occurred even if there has been a temporary cessation of work, as the length and purpose of the cessation should also be taken into account.

No implied term that employees will only be laid off for a reasonable period

Following previous conflicting decisions on the issue, the EAT confirmed in Craig v Bob Lindfield & Son Ltd, that no reasonableness term should be implied into a provision in an employment contract allowing an indefinite period of lay-off and short-time working without pay.

In this case, the employer had followed the statutory scheme which provides that a redundancy payment does not have to be paid in circumstances where there is a reasonable expectation that further work will become available within four weeks. As such, an employee who resigned after being laid off for over four weeks had not been constructively unfairly dismissed because the employer had informed him that it expected work to resume shortly.

This case provides welcome clarity for employers. However, employers should also be aware that although there is no implied term of reasonableness with regard to the length of a lay-off period, acting unreasonably may still amount to a breach of the implied duty of mutual trust and confidence.

Government response to consultation on devolving Sunday trading rules

BIS has published its response to the consultation on devolving Sunday trading rules to local areas. The Government proposes to devolve the power to extend Sunday trading hours in England to all unitary and shire district councils (or mayors in the case of London and Manchester), and in Wales to all county and county borough councils. Shop workers’ rights to opt out of working Sundays will be strengthened: workers will only be required to give one month’s notice to large shops (rather than the current requirement for three months’ notice), and a minimum award will be guaranteed where a related claim is brought and a tribunal finds that the employer failed to notify the worker or their opt-out rights.

Regulatory references

In its initial feedback to the FCA and PRA joint consultation paper on regulatory references, the FCA has postponed implementing its proposals until after the introduction of the Senior Managers and Certification Regimes on 7 March 2016. It intends to publish the final rules in Summer 2016. As an interim measure, the FCA has continued the current referencing requirements under the approved persons regime for pre-approved roles in relevant firms and insurers. The PRA has also published a first tranche of its rules on regulatory references, which will be supplemented with its full policy at a later date.

Compensation for lost rights on TUPE transfer only taxable in part

In Reid v HMRC, the First-tier Tribunal (Tax Chamber) held that a single lump sum payment to compensate an employee for the loss of various rights on a TUPE transfer was only taxable in part.

In this case the Tribunal noted that the reason for the payment was to compensate for loss of pension, share and bonus rights, and the loss of lunch allowances, as evidenced in the settlement agreement. The payment was not made to induce the employee to become an employee of the transferee. As the sole reason for the payment was to compensate for these lost contingent rights, the tax treatment was held to be determined by the tax treatment of the lost rights. The taxpayer’s compliance with the terms of his settlement agreement, and his entering into a new employment contract, were not sufficient to make the payment an emolument of employment – his compliance was merely the trigger for the payment.

The decision goes against HMRC’s long-held general position that payments to employees to compensate for changes in terms of employment are taxable as earnings deriving from employment. The Tribunal highlighted that the reasons for the payment should be carefully analysed. Employers should therefore be reminded of the importance of recording the reasons for payment in the settlement agreement.

Gender Pay Gap Reporting

The Government has issued a second consultation and draft Regulations which will force employers with 250 or more employees to publish gender pay gap statistics about their British workforce by no later than 30 April 2018 (and annually thereafter).

These developments are covered in greater detail in Rebecca Harding-Hill’s blog, ‘Gender Pay Gap Reporting: draft regulations now out – 5 key things you need to know’.

BLP will be submitting a response to the consultation.

Holiday pay

The EAT has given a safe decision in Lock v British Gas, which upholds the current status quo. The issue for the appeal was whether holiday pay under the Working Time Regulations can be interpreted as including commission. The EAT declined to reconsider the issue, instead concluding that it is bound by the EAT’s decision in Bear Scotland. British Gas has been given leave to appeal the decision to the Court of Appeal.

This case is covered in greater detail in Rob Eldridge’s blog, Holiday pay – what the EAT’s decision in Lock v British Gas means for you.