1. Statutory holiday: employers should review holiday pay policy following ECJ ruling

Employers should review their approach to calculating holiday pay for employees and workers who have fixed normal hours but receive variable payments such as commission. An ECJ ruling has held unlawful UK provisions which permit employers to pay such workers statutory holiday pay at the rate of basic salary and ignore commission that the worker would normally generate when working. 

The ECJ has ruled that workers must be paid for their 4 week statutory minimum holiday entitlement at their normal pay rate, to include all elements of pay which are “intrinsically linked” to the performance of the tasks which the worker is required to carry out under their contract. This includes commission paid for sales a worker would have generated had they not been on holiday (even where payable after, rather than during, the holiday). In such cases pay should be calculated using an average over a representative period. 

The case will now return to the employment tribunal to determine whether UK law can be interpreted in line with the ruling. The recent trend of creative judicial interpretation suggests this is likely to be possible. The Advocate General proposed averaging pay over a 12 month period, but it may be that the tribunal will instead average over 12 weeks, given this is the period already used in UK law for workers with no normal working hours. (Lock v British Gas Trading C-539/12)

Holiday pay claims can be brought within 3 months from the last of the series of deductions (or underpayments), therefore potentially going back years. Employers may wish to consider making contingency plans in respect of  their potential liability. There may also be an opportunity for employers to break the chain of deductions and thereby potentially render historic claims out of time, by paying a higher rate for holiday from now on (at least for the first 4 weeks of entitlement). On the downside is the risk of alerting employees to potential claims and the uncertainty over what the tribunals will decide - see our blog for further details (and to subscribe for alerts).  

Similar issues may arise where workers receive voluntary overtime pay or bonuses;  the EAT is due to consider the issue of overtime in two cases at the end of July 2014 (Neil v Freightliner, Fulton v Bear Scotland).  

Employers should look carefully at the nature and drafting of any bonus schemes they operate for employees with fixed normal hours, to identify possible claims that holiday pay should include a bonus element, but also to minimise the potential for claims when drafting future bonus schemes.

2. LLPs: Supreme Court determines that LLP members are “workers” able to bring whistleblowing claims

The Supreme Court has overturned the Court of Appeal’s decision and determined that members of limited liability partnerships (“LLPs”) are workers protected from detriment for whistleblowing. (Clyde & Co LLP v Bates van Winkelhof))

The decision also means that LLP members benefit from other statutory rights and protections available to workers, including entitlement to rest breaks and paid annual leave, protection from being treated less favourably on account of part-time status and, it is likely, rights under the pension auto-enrolment regime.

Firms that operate as an LLP should therefore urgently review the policies and working conditions that apply to their members to ensure compliance.

See our blog for further details.

3. Appeal news: tribunal fees, unfair dismissal compensation cap, retirement age

  • UNISON has been granted permission to appeal to the Court of Appeal in its judicial review application challenging the introduction of tribunal fees, summarised here.
  • Last year the upper limit on the unfair dismissal compensatory award was varied to the lower of 52 weeks’ pay and the annually fixed limit (currently £76,574), for cases where the effective date of termination is on or after 29 July 2013. An application for judicial review was made challenging the new cap as indirectly discriminating against older employees.  It has now been reported that the High Court has dismissed the challenge, although apparently an appeal is being considered.
  • The EAT has upheld the tribunal's ruling in Seldon v Clarkson Wright & Jakes (summarised here) that a mandatory retirement age of 65 for law firm partners was objectively justified on the facts. The EAT rejected the argument that, if the firm’s aims could also have been achieved by a retirement age of 66, it could not justify choosing 65. It would always be possible to argue that the employer could have reduced the discriminatory effect by choosing an age slightly higher than it had - this was just the reality of selecting a bright-line date. The key question was whether the chosen age was reasonably necessary to achieve the legitimate aims. 

    The ruling is helpful in its comments on bright-line dates, but it should not be taken as a green light for employers who have chosen to retain compulsory retirement ages, given the importance of the size and culture of the firm in this case, the more equal bargaining power of partners compared with employees, and the fact that at the time the default retirement age (since abolished) provided a rationale for choosing 65. 

4. Flexible work regulations published: employers should review their policies

From 30 June 2014, the right to request flexible working will become available to all employees with 26 weeks' service, not just those with caring responsibilities. Implementing regulations have now been published, available here.

A new regime will apply to flexible work requests made on or after 30 June. The statutory procedure for dealing with a request will be replaced with a duty to consider requests in a reasonable manner, supplemented by an Acas Code of Practice. (The Code is currently still in draft, but due to be approved under the negative resolution procedure by 18 June 2014.) The change means that employers are no longer obliged to allow employees to be accompanied by a work colleague to a discussion meeting, nor to allow an appeal where a request is rejected, although the draft Code states that these remain good practice. The strict time limits for meetings and notices under the old procedure are also removed. Instead, the employer has 3 months to consider the request, discuss it with the employee if appropriate and notify its decision; this period can be extended by agreement with the employee (perhaps to allow for a trial period).

Employers may need to update their flexible working policies to reflect these changes. Please do contact your usual HSF contact if you would like further advice on this.

Various elements of the right remain unchanged: employees can only make one request a year, and the employer can refuse on any of eight broad business grounds. A tribunal can award up to 8 weeks' pay (currently capped at £464 a week) for failure to properly follow the procedure.

Acas has also published a good practice guide to supplement the code, available here. Of particular interest to employers will be the section on handling competing requests, at pages 15 to 17. The guidance states that employers are not required to make value judgements about the most deserving request. It does not expressly note that this might be subject to the positive duty to make reasonable adjustments for a disabled employee, though this is referred to earlier in the guidance.

If all requests cannot be accommodated, the guidance suggests that employers discuss with the employees to see if there is room for adjustment or compromise and, if not, that the employer could get the employees’ agreement to some form of random selection such as drawing names from a hat; ideally the approach in such cases would be set out in a flexible working policy. The guidance also notes that, if an employer is unable to accommodate a request due to the number of other employees already working flexibly, it would be good practice to consider calling for volunteers working flexibly to change their contracts back, in order to create capacity for granting new requests.

Employers will, of course, need to bear in mind the potential for some employees to bring discrimination claims if their requests are refused without adequate justification. It will be important to put in place a paper trail to explain the decisions made.

5. Immigration: new penalty and codes of practice for employing illegal workers

The maximum civil penalty for illegally employing adults who do not have the right to work in the UK has increased from £10,000 to £20,000 for contraventions not occurring solely before 16 May 2014. Two revised codes of practice for employers, on preventing illegal working and avoiding discrimination when carrying out recruitment checks, also came into force on 16 May (available here, along with various new guidance notes for employers).

The revised code of practice on preventing illegal working includes guidance on the factors that will be considered by the Home Office when determining the amount of the civil penalty and sets out a reduced list of documents employers need to check if seeking to establish a defence.

The previous requirement for employers to check the documents of those with only a temporary right to work every 12 months (as well as before they start employment) has been removed. Instead, employers will only need to repeat the check when the original permission to work expires. The new code also requires employers of overseas students with the right to work limited hours to request a copy of the student timetable, as evidence that the student is not working in excess of the permitted hours.

A significant change for those acquiring businesses or service contracts is that an employer will now have a “grace period” of 60 days to carry out fresh checks following a TUPE transfer, rather than the previous 28 day period.

6. Queen's Speech: employment law measures

The Queen's Speech on 4 June 2014 included a number of employment proposals. The Small Business, Enterprise and Employment Bill will include measures to address national minimum wage and zero-hour contracts abuses and "crack down on costly tribunal delays"; the detail of the measures proposed is not yet available. Other plans include reforms to apprenticeships, childcare tax relief, taxation of the self-employed and workplace pensions.

The background briefing notes are available here.

7. New publications

8. Arbitration of UK employment disputes: HSF webinar

There is currently a growing trend to submit employment disputes to arbitration, partly as a result of complaints about the tribunal and court systems. Although not suitable for every case, arbitration can prove useful for all manner of employment disputes, as diverse as team moves and restrictive covenants, whistleblowing cases, deferred remuneration and bonus disputes, terminations and discrimination. At our webinar on Tuesday 24 June 2014, 1.00-2.00pm BST, Paul Goulding QC of Blackstone Chambers and Peter Frost of Herbert Smith Freehills will examine the pros and cons, and explain the basics of the arbitration agreement and process.