1. Employment law reforms: changes in force from May 2014
- From 6 May 2014 it became mandatory for claimants to submit to Acas an early conciliation form (or provide the details by telephone) before lodging an employment tribunal claim. For further details see here. Provided the potential claimant agrees, Acas will contact the employer using the contact details provided by the claimant - which may not be for the most appropriate person at the employer. Clients may therefore wish to take advantage of the option to provide their preferred contact details for early conciliation calls, for inclusion on a register maintained by Acas. To do so, email ECcontactslist@acas.org.uk or telephone 0151 728 5615.
- For TUPE transfers taking place on or after 1 May 2014, transferors must provide Employee Liability Information at least 28 days prior to the transfer (increased from 14 days).
- April 2014 changes were summarised in our last ebulletin, here.
2. Industrial action: UK prohibition on secondary action upheld; independent review of law
Employers will welcome news that secondary industrial action, or 'sympathy strikes', remains unlawful despite the RMT's challenge before the European Court of Human Rights. The court has ruled that the UK ban on such action does not breach the right to freedom of association in Article 11 of the European Convention on Human Rights. Although secondary action is covered by Article 11, the ban pursued the legitimate aim of protecting the rights and freedoms of others, including the employer and the wider interests of the public, and was proportionate.
The RMT's claim that the notification rules for industrial action ballots infringe Article 11 was inadmissible on the facts. (RMT v United Kingdom, application no. 31045/10, ECHR)
On 4 April the Government announced an independent review led by Bruce Carr QC into the legal implications of alleged intimidation tactics, examining the law around so-called ‘leverage’ tactics used by trade unions and the role of employers in industrial disputes. The review is expected to take six months and include recommendations for change.
3. Changes to benefits: trust and confidence breached by changes contrary to reasonable expectation
A recent pensions case has highlighted the risks inherent when communicating with employees about benefit changes. Assurances given may create 'reasonable expectations' that there will be no further changes (absent exceptional circumstances), so that subsequent changes then amount to a breach of trust and confidence. Our pensions group's briefing is available here.
4. Finance Bill 2014: dual contracts and use of intermediaries
The 2014 Budget contained various anti-avoidance measures – see our tax group's briefing here.
An important change for multi-national businesses is the introduction of legislation targeting the artificial use of dual contracts by non-domiciles in the Finance Bill 2014. The measure will tax non-domiciles on the overseas employment income it identifies according to the ‘arising’ basis. In other words, the income caught by this measure will cease to be eligible for remittance basis tax treatment. It is worth noting a few points on the draft legislation:
- Dual contracts have historically been used for resident non dom individuals; s.23 ITEPA provides broadly that for such an individual earnings from an employment with a foreign employer, where duties are performed wholly outside the UK ("chargeable overseas earnings") , are taxed on the remittance basis – hence the attraction in performing the non UK duties under a contract with a non UK employer. There are similar rules for calculating benefits from unapproved share schemes for resident non doms.
- These structures have been under attack by HMRC for a number of years, principally on the basis that the split was artificial or not adhered to in practice. Unless the roles are entirely separate it is hard to ensure that no duties are carried out in the UK for the non UK employer.
- This change, in effect, looks to remove the benefits of dual contract arrangements in many circumstances for all chargeable overseas earnings arising on and after 6 April 2014. Income which arises on or after this date but which is related to employment duties performed in a year prior to 2014-15 will not be subject to this change. The background notes (and the Autumn statement) state that the target here is the "artificial" use of dual contacts. However there is no motive test in the legislation. Instead if a number of prescriptive tests are met the new legislation applies and the overseas earnings are taxed as they arise, not as they are remitted.
- There are a number of conditions that have to be met for the new legislation to apply. As well as the employers being associated, the two employments have to be "related". This limb of the test goes to artificiality to some extent, but again it is widely drafted – where an employee is "senior" or receives the "higher or highest level of remuneration" (neither term is currently defined) the employments will be deemed to be related.
- The new rules only apply where the amount of overseas tax suffered on the income is broadly less than 65% of the current UK 45% top rate of income tax. In practice, though, it is often only worth considering putting in place these arrangements where there is a significant difference between the UK and overseas tax rates, so this test may not offer much comfort.
- Directors (or their associates) holding less than 5% of the company's ordinary share capital are expected not to be caught by these new rules, although this is assumed to be only in respect of director's fees and similar. An exemption is also created for employment duties performed overseas due to legal or regulatory reasons.
- Of course even if a dual contact arrangement survives these new rules, the existing pitfalls/difficulties with these arrangements remain, so advice needs to be sought on a case by case basis.
- HMRC's own tax impact assessment states that the measure will only impact around 350 individuals, although it is not entirely clear how this number was arrived at.
Other measures are aimed at the use of offshore intermediaries and false self-employment through intermediaries, to ensure that the proper tax and NICs are deducted by the intermediaries. Deductions will now be required unless the agency can show that the worker was not subject to supervision, direction or control by any person. End-users who provide the agency with a "fraudulent document" which falsely states that the individual is not subject to their supervision, direction or control will become liable for the relevant tax and NICs. Employers should check that their agreements with agencies do not include any such statements.