On 1 October 2012 s.87 of the Pensions Act 2008 came into force which removes the statutory duty for employers to have a designated stakeholder pension scheme. However, where employees are already making regular contributions under their employer’s stakeholder pension scheme through payroll they will continue to be able to do so until they stop or leave.
- ‘Owner Employee’ Status
Plans have been announced for a new type of employment contract whereby employees may waive their employment rights for unfair dismissal and redundancy in return for “owner employee” status and any gains on their shares will be exempt from capital gains tax for up to £50,000 worth of shares of their employer company. Companies of all sizes will be able to use the contracts which are intended to come into effect from April 2013. There has been much debate in the press about the details of the proposed scheme and how the forfeiture provisions would work if the ‘owner employee’ leaves or is dismissed. Questions will remain unanswered until the draft legislation has been disclosed and many practical issues will require to be managed, not least of which are the valuation of these shares, income tax liabilities, voting rights and what the EU will have to say about the waiver.
- Women on Company Boards and Gender Balance
The EU’s new proposals which will require listed companies to reserve a mandatory 40% of their non executive board seats for women by 2020 have been postponed. The EU commissioners decided on new proposals whereby the 40% quota will be an objective to be met not a legally binding obligation. The UK and Sweden are opposed to any mandatory requirements and sanctions for failure to meet the target.
The Government has now published the draft Companies Act 2006 (Strategy Report and Directors’ Report) Regulations 2013. Under the Regulations, companies will be required to report on the number of men and women on their board, the number of men and women who are managers and in the organisation as a whole. A “manager” for this purpose is a person who has authority and responsibility for planning directly and controlling the activities of the company and is an employee of that company. The Regulations will come into force in October 2013.
- Senior Employees
Edinburgh Home Link Partnership and others v The City of Edinburgh Council and others 2012 EATS/0061/11/BI
The EAT found in this case that TUPE did not apply to two directors of a company which provided services for the homeless on behalf of the Council when the Council decided to take homelessness services in house. The directors did not provide homelessness services themselves but their role was one of strategic management of the company employing the staff who provided the services. The directors appealed but were unsuccessful. Their direct services to the Council formed a minimal part of their day to day activities, thus their roles were not sufficiently connected with the services to the Council which were transferred.
Key point: Senior individuals’ contracts will not necessarily transfer under a TUPE service provision change if their roles are not sufficiently dedicated to the provision of the services which are being transferred.
- Harmonisation of Terms
Manchester College v Hazel and another UK EAT/0642/11
Mrs Hazel and Mrs Huggins were teachers who were transferred along with about 1,500 other employees to Manchester College under TUPE. Five months later the College proposed redundancies together with changes to employment terms for staff. After consultation Mrs Hazel and Mrs Huggins were not at risk of redundancy but were offered alternative employment terms and these included a substantial pay cut of up to 18.5%. The College explained that the new terms were necessary for harmonisation across the workforce to remove inequalities. When Mrs Hazel and Mrs Huggins refused to accept the new terms they were dismissed.
They were then offered employment on new contracts at a reduced salary which they accepted and they returned to work after their dismissals but then brought claims against the College arguing that their dismissals had been unfair connected with the TUPE transfer and not for an ETO reason. They sought reinstatement on their old terms and conditions. The Employment Tribunal agreed that they had been automatically unfairly dismissed and that they should be re engaged on their original salaries with a pay freeze until their colleagues’ salaries caught up. The College appealed but was unsuccessful. The changes to their contracts were separated in time from the redundancy exercise and were a simple harmonisation which was not an ETO reason. The College could have avoided these problems if they had required Mrs Huggins and Mrs Hazel to enter into a Compromise Agreement on termination.
Key point: Successful post TUPE harmonisation remains uncertain where there is no change in the number or functions of employees.
- Service Provision Change
SNR Denton UK LLP v Kirwan and Jarvis plc (in Adminstration) UK EAT/0158/ZT
Ms Kirwan brought a claim against the solicitors Denton UK after she was made redundant. She worked in house at JAS, a subsidiary of Jarvis, and when the Jarvis plc experienced financial difficulties she was responsible for the disposal of facilities management service contracts to outside purchasers. Deloittes were eventually appointed as joint administrators of Jarvis, who in turn engaged Denton UK to act as their solicitors in relation to the administration of JAS. When she was not kept on by Denton UK she argued successfully before a tribunal that there had been a service provision change. However, on appeal Denton UK were successful in overturning this decision. The EAT held that the activities carried on by Ms Kirwan and Denton UK were not on behalf of the same client. Denton UK were performing their activities on behalf of the administrators not JAS and so Regulation 3 of TUPE could not apply.
Key Point: This is the first case on the application of the Service Provision Change in an Administration. There may be circumstances, however, where Administrators do act on behalf of a company and so professional advisers who are retained by them may also be acting on behalf of the company. It will be a question of fact in each case.
McCarrick v Hunter 2012 AER 315
The Court of Appeal in this case denied Mr McCarrick his claim for unfair dismissal, holding that there was no service provision change under TUPE when the property management services were transferred from one contractor to another and the new contractor provided the services on behalf of a new client, in this case the mortgagee. For there to be a service provision change the client must be the same before and after the change of contractor under Regulation 3 of TUPE. Accordingly, Mr McCarrick did not have sufficient continuous employment.
Key Point: The arrangements in this case were unusual but Regulation 3 is only applied where there is the same client throughout, in second generation outsourcing.
- Working Time Directive
The European Commission has agreed to extend the period for the European social partners to agree on the reform of the EU Working Time Directive to 31 December 2012. Negotiations began in December 2011 to update the working time rules to reflect the needs of employers and workers in the 21st century. Negotiations are making progress but certain Member States including the UK are adamant that the opt out from the 48 hour week must be retained as being of vital importance to UK businesses.
- Restrictive Covenants – Unsigned Contract
FW Farnsworth Ltd and another v Lacy and others 2012 EWHC 2830
Mr Lacy was employed as a graduate by Northern Foods from 2000 and worked for its subsidiary Farnsworth. He was later promoted. His first contract of employment was in 2003 which did not contain any post restrictive covenants. In April 2009 he was formally promoted to site technical manager and five months later he was provided with a new contract which did contain post termination covenants and certain new benefits. He did not sign or return the contract nor raise any objections about the terms but he joined the company pension scheme which was an additional benefit not provided to him earlier.
In March 2012 he left to join a competitor and Northern Foods brought proceedings to enforce the post termination restrictions. An interim injunction was granted but at a return hearing Mr Lacy argued that he was not bound by the 2009 contract because he had not signed and returned it. Although he had joined the defined contribution pension scheme and applied for PMI cover, he was entitled to do so because he was an employee not because of the contract. The High Court held that he was bound by the contract from the date he applied for PMI cover for him and his family and not when he moved to the defined contribution pension scheme. His acceptance of the contract could not be inferred by this latter step. As the source of the PMI cover was contractual he had impliedly accepted the new contract and he was therefore bound by the covenants.
Key point: Employers should ensure that existing employees sign and return any new contractual terms issued following a change in role or otherwise.
- Deferred Bonus Scheme
Singh v Cargill TSF Asia Pte Ltd 2012 SGCA 42
In this Singapore case Mr Singh was eligible for an annual discretionary bonus based on his previous year’s performance. Half of the bonus was paid in cash, the other was deferred for three years. However, there was a non compete clause in place under which the deferred bonus would be forfeited if he left during that period and joined a competing business within two years of leaving. When Mr Singh left and set up in competition, he was not paid his deferred bonus and he commenced proceedings which, on appeal, were successful. He was entitled to the bonus plus interest. Cargill appealed.
The Court of Appeal was concerned with whether the non compete payment was there to incentivise the employee not to compete or whether it was taking away something the employee would otherwise have received because he had competed. The Court of Appeal decided that the non compete was a restraint of trade on the basis that the benefit which it purported to take away, being the deferred bonus, had already vested in the employee.
Key point: Incentive arrangements may be drafted and still be enforceable if the restraint is reasonable in the circumstances. In the alternative, incentive payments which lapse if the employee leaves within say a 3 year period are more likely to be enforceable in Singapore than an arrangement whereby the payment is forfeited if he engages in certain conduct after the employment terminates.
- Health and Safety
- Age-related changes
The Health and Safety Executive has produced a report highlighting tools which may assist employers in evaluating the ability of employees to carry out certain work as they become older. Current evidence suggests that age-related decreases do not have an adverse impact on work performance. The report aims to assess existing evidence on age-related changes in performance and safety-critical work. View the Health and Safety Executive report here.
- Cyber Security
The Department for Business Innovation & Skills has produced new guidance about how to defeat most cyber attacks. The guidance is aimed at company boards and their senior management to instil the idea that this is a strategic risk which needs to be managed. Access the “Cyber Risk Management - a Board Level Responsibility”, “Ten Steps to Cyber Security - Executive Companion”, and “Ten Steps to Cyber Security” advice sheets here.
- Equality Act 2010 – Enforcement Provisions
Despite considerable opposition to its proposals, the Government intends to continue with its plans to repeal the power of employment tribunals to make wider recommendations in discrimination cases and to abolish the procedure for obtaining information through Questionnaires. This will leave businesses free to decide how and whether they respond to any enquiries from employees at the pre-issue stage or during the course of proceedings, and if so, whether the risk in not responding to an employee’s enquiries is significant.
- Ending the Employment Relationship - Government Consultation
The Department for Business, Innovation and Skills issued a consultation document seeking views on settlement agreements in the workplace, whether there is need for guideline tariffs, and proposals for changes in the level of compensatory awards in unfair dismissal claims. The Government believes that this will provide the necessary flexibility to encourage job creation, effective management, and strong employment protection. Many employers consider that the link between managing under-performing employees out of an organisation and being able to increase recruitment and therefore grow their businesses is not made out.
Consultation is open until 23 November 2012. Response to the consultation is likely to be provided by Spring 2013. The good news for lawyers is that the proposed settlement agreement does still require an employee to take formal legal advice.
Although the Government’s response is not due for some months, the Government has requested ACAS to draft a new Code of Practice on Settlement Agreements in support of the Government’s proposals that offers of settlement of workplace disputes will not be admissible as evidence. Either party may propose settlement but if a settlement offer is rejected, an employer will have to go through a fair process before dismissing the employee. The Government intends to the Code to be available to employers and employees and their representatives before the changes to the unfair dismissal rules come into force.
- Territorial Scope of Union Recognition Rules
NetJets Management Ltd v Central Arbitration Committee and Skyshare 2012 EWHC 2685
The CAC in this case decided there were no territorial restrictions preventing Skyshare’s application for recognition for collective bargaining in respect of pilots employed by NetJets across Europe despite the majority of the pilots living abroad and the High Court agreed.
The private airline however, objected and applied for a judicial review. Although the pilots’ contracts were governed by English law, they paid National Insurance contributions and NetJets was registered in Great Britain, the pilots’ instructions were actually issued by the Lisbon-based company which owned the airplanes and 616 of the 779 pilots lived in countries other than the UK. Nevertheless, the High Court decided that applying the test set out by the Supreme Court in Ravat (see Bulletin 54 – June 2012) the connection with Great Britain was sufficiently strong for the Union to be able to seek recognition to conduct collective bargaining on their behalf. The fact that the administration of the employment relationship took place in Portugal could not properly lead to the conclusion that a stronger connection existed with Portugal.
Key Point: There are no territorial limitations on the jurisdiction of the Central Arbitration Committee under the Trade Union and Labour Relations (Consolidation) Act 1992 in respect of overseas-based employees of companies incorporated inside Great Britain.
- Continuity of Employment
Holt v EB Security Ltd – In Liquidation 2012 AER 152
Mr Holt had been employed with Prosec at a public house from July 2007 to 3 March 2009. His employment with EB commenced on 16 March 2009 and ended on 11 January 2010. Prosec and EB were associated employers. Mr Holt brought proceedings for unfair dismissal against EB but the Tribunal found that the gap in his employment between 3 -16 March was fatal to his contention that he had qualifying service between the two associated employers. Mr Holt appealed.
The material issue on appeal was whether there had been a temporary cessation of his employment. Although the public house had closed, Mr Holt had shortly after that secured employment with an associated employer in a different role. Thus, the reason for his absence of two weeks was a temporary cessation of work. Accordingly, he had been continuously employed. The cessation of work between 3-16 March was temporary looking back from the vantage point of his employment with EB and his claim for unfair dismissal could proceed.
Key point: Where there is a change of employer this does not break the continuity of the period of employment if they are associated employers.
- Redundancy – Collective Consultation
USA v Nolan C-583/10
This case concerned a claim on behalf of employees on a US military base who alleged they had not been consulted soon enough on the closure of the base. The Court of Appeal referred the case to the European Court for a preliminary ruling on when consultation should have begun. The European Court held that it did not have the jurisdiction to respond to the questions referred by the Court of Appeal. Therefore the Court of Appeal will have to make its own mind up on the question of when consultation should have begun in this case. See Bulletin 48 – Winter 2011 for the background to the case. The decision means it is still unclear as to when the trigger point is for collective consultation. The relevant law is found in s.188 of the Trade Union Labour Relations (Consolidation) Act 1992 which implements the European Collective Redundancies Directive and the Directive. Unfortunately the Directive provides that where an employer is contemplating collective redundancies he shall begin consultations “…in good time”. The Act provides that the obligation to consult arises when the employer is “proposing to dismiss” the relevant number of employees within the relevant timescale and that it must begin “in good time”.
The difference in wording has led to different interpretations of the trigger point. Originally the tribunal found that there had been a failure to consult the workers representatives in good time when in June 2006 the US Authorities gave the representatives a memo stating that all 200 employees would have to be made redundant after a decision to close the base had been made by the secretary of the US Army no later than 13 March 2006. The case will now go back to the Court of Appeal.
Key point: Until the position is clarified in collective redundancy situations, employers should consult on the underlying commercial reasons for the closure of a workplace as soon as practicable.
- Competency Bar
Steel v Cumbria Partnership NHS Foundation Trust 2012 All ER 12
This case concerned the imposition by an employer of a competency bar in its restructuring exercise. Mr Steel was one of the displaced staff within the policy and his role was subject to competitive slotting in. He was interviewed and scored for roles within three separate bands but failed to achieve the required minimum score for two higher bands and was not selected for appointment. He did not apply for a role in the lower band. He raised a grievance and ultimately issued proceedings in the tribunal. The tribunal held that no employer acting reasonably would have imposed a competency bar in respect of existing employees in a procedure that was stated to be a method of avoiding compulsory redundancies. The imposition of this was outside the band of reasonable responses available to the employer. Although the employer appealed it was unsuccessful.
Key point: The selection process for alternative roles for existing employees in the confines of a redundancy process must be reasonable.
- Directors’ Apparent Authority
Newcastle International Airport Limited v Eversheds LLP 2012 EWHC648
This was a negligence case concerning solicitors Eversheds who accepted instructions from a director to draft a service contract that awarded him a substantial bonus. The court held that the solicitors were not negligent in accepting his instructions even though they knew that his remuneration had to be determined by the remuneration committee of the company. The director had had apparent authority to instruct Eversheds who were entitled to rely on this holding out. The non-executive director who chaired the remuneration committee had as a matter of choice left all the contact between the airport and Eversheds to the directors.
Although the new service contract drafted by Eversheds gave the airport director a siginificant bonus as part of a refinancing deal, the firm argued successfully that there was no duty to check whether the directors had apparent authority to give them instructions. Eversheds also denied there was a conflict between the non-executive director and the directors. The judge agreed. The judge added that even if there had been breach of duty by Eversheds the whole of the subsequent loss suffered by the airport would have arisen purely from the non-executive director’s failings.
Key point: Solicitors are not required to check the word of those instructing them and can rely on the apparently authorised agents of the company - the executive directors - when drafting service agreements.
- Arbitration Scheme
A new Labour Relations Agency Arbitration Scheme has been launched under which claimants and respondents can choose to refer a claim to an arbitrator instead of going to a tribunal. The arbitrator’s decision is binding as a matter of law and has the same effect as a tribunal’s decision. The benefits of the scheme include its confidentiality and speed. The informality of the process means it is less expensive and there is no cross examination of witnesses. View the Scheme here.
- Age discrimination
The ban on age discrimination against adults in the provision of services and public functions has been brought into effect on 1 October 2012. It is now unlawful to discriminate on the basis of age, unless the practice is covered by an exception or there is an objective justification.
- Bribery and Serious Fraud Office Guidance
The Serious Fraud Office has withdrawn its guidance on inter alia self-reporting and has published revised policies relating to gifts and hospitality, facilitation payments and self-reporting. Legitimate hospitality is of no interest to the SFO but self-reporting will not automatically avert prosecution. Having adequate procedures in place to prevent bribery is even more important than before. View the policies and the SFO’s Q&A here.
- Holiday Pay
British Airways plc v Williams and Others (No 2) 2012 UKSC 43
In this case the Supreme Court considered whether pilots were entitled to receive supplementary payments in addition to their basic pay during periods of annual leave. The Supreme Court overturned the Court of Appeal’s decision that by paying airline pilots basic pay only during periods of annual leave without taking into account contractual supplementary payments this was not a breach by BA of Regulation 4 of the Civil Aviation (Working Time) Regulations 2004.
Mr Williams was the lead claimant for some 2,750 pilot claimants employed by BA. The pilots were successful before the employment tribunal and the appeal tribunal but unsuccessful before the Court of Appeal. They then appealed to the Supreme Court who referred the matter to the ECJ. The ECJ stated that it was for the National Court to determine into which of the two categories any payment falls.
The claim has now been remitted to the employment tribunal to assess the appropriate payments to be included in respect of flight pay supplements and to consider the extent to which time away from base allowances were intended exclusively to cover costs and therefore should be excluded from holiday pay. The case brings into question whether the “week’s pay” regime for calculating holiday pay under the Working Time Regulations is consistent with the requirement for a worker to receive normal remuneration as interpreted by the ECJ. It is BA’s argument that the time away from base allowances was intended exclusively to cover costs and therefore should not be included in the calculation of holiday pay.
Key point: The case could have wider implications for the calculation of holiday pay under the Working Time Regulations which requires a worker to receive “normal remuneration” during paid holiday leave.
- Financial Incentives
The FSA has published a guidance consultation on the risk to customers from financial incentives paid to sales staff. The FSA reviewed a number of financial incentives schemes and found that most firms had schemes that could lead to mis-selling but did not have effective systems and controls in place to manage this risk adequately. Responses to the consultation closed on 31 October 2012. The consultation provides guidance on managing the risks and governance of incentive schemes including examples of good practice. These include ensuring effective oversight of incentive schemes by appropriate senior management.
- Mitigation of loss: refusing an offer of re-engagement
Saddington and other v F&G Cleaners Ltd UKEAT/0140/11/JOJ
The employees were transferred to F&G following a re-tendering process but F&G did not consider that TUPE applied, and therefore instead of continuing the employees’ employment, offered to engage them as self-employed contractors, which they refused. The tribunal found they had been automatically unfairly dismissed and EAT dismissed the F&G’s appeal. It found that the employees had not acted unreasonably and had not failed to mitigate their loss by accepting self-employed terms. The difference between their previous terms and those offered by F&G were crucial. As F&G had effected their dismissals at the point when they had declined the offers of self-employment and not at the date of transfer, they were employed by F&G. The employees had not acted unreasonably as no duty to mitigate had arisen until they had been dismissed.
Key point: The test is not whether it would have been reasonable for the employees to have accepted the changes but whether the employees had been unreasonable in rejecting them.
- Immigration Law
From 1 October 2012, if an individual has overstayed their permission to remain in the UK by more than 28 days, then any application to UKBA for any further permission to remain in the UK will be refused. Accordingly, applicants should ensure they apply for further permission to remain before their current permission expires.
- Deleting Personal Data
The Information Commissioner’s office has published guidance on deleting and archiving electronically stored personal data under the Data Protection Act 1988. Personal data is not to be kept for any longer than is necessary. Personal data has not been deleted if in fact it has only been archived and could be reinstated. Data can be placed “beyond use” if it is not possible to delete the information permanently. The Information Commissioner’s office will be satisfied that it is “beyond use” provided safeguards are put in place. View the ICO's guidance here.
- Guarantee Payments
Abercrombie and others v Aga Rangemaster Ltd UKEAT/0099/12
Where an employer fails to provide work for an employee who would normally be required to work in accordance with his contract of employment the employee is entitled to a statutory guaranteed payment. In this case, however, the employment tribunal found that the employees had agreed a temporary variation to their normal working hours which meant that they had ceased to work on Fridays for several months and this precluded them from being entitled to a guarantee payment.
The employees had voted in favour of a temporary reduction in working hours to avoid a redundancy exercise. Their working hours were compressed into four days. Aga declined to give them a guaranteed payment on the grounds that there had been an agreed variation of their working terms. Unfortunately for the employees the tribunal and EAT agreed.
Key point: Where there is an agreement to varying working patterns, that pattern will become the standard and employees should be aware of this if they are to reach an agreement on short term working as otherwise it will disentitle them to guaranteed payments.
- Equity Partner in LLP Not a Worker
Clyde and Co LLP and Anor v Bates Van Winkelhof 2012 EWCA Civ 1207
The Court of Appeal held that a member of a limited liability partnership (LLP) was not an employee or worker for the purposes of the Employment Rights Act 1996. The court held that it was a legal impossibility for a partner to be both a worker and an employer. So Miss Bates lost the right to bring her whistleblowing claim against the LLP but the Court upheld the employment judge’s finding that she had a sufficient connection with Great Britain and British employment law to pursue her claims against the LLP before the Employment Tribunal for discrimination.
Key point: Employees on secondment to a foreign company may well be able to bring claims in Great Britain and displace the territorial pull of their place of work.
- Equal Pay Claims in High Court
Birmingham City Council v Abdulla UKSC/2012/47
The Supreme Court held by a majority decision that equal pay claims which were out of time in an Employment Tribunal can proceed as breach of contract claims in the High Court. The Council failed in its application to strike out 174 equal pay claims after the six month time limit for bringing claims in the Tribunal had elapsed. The Court of Appeal held that an equal pay claim could not be more conveniently dealt with by a tribunal if it was statute barred. The reasons for failing to bring a claim in time were irrelevant as to convenience.
There were two dissenting judgments by Lord Sumption and Lord Carnwath, who both considered that the limitation provisions were an important part of the statutory scheme and there should have been an enquiry into why the Claimants failed to submit their claims in time and all other factors which would have a bearing on whether the claims should be struck out. In their view the 174 claims should have been remitted for individual consideration.
Key point: Private sector employers are now open to the risk of equal pay claims long after the employment relationship has come to an end, through such claims in the High Court, because of the costs risk. Monitoring gender pay may well provide a better “defence” against such claims.
- Nationality Discrimination
Dziedziak v Future Electronics Ltd 2012 Reading Tribunal
Ms Dziedziak was found to have been directly discriminated against on the grounds of her nationality when she was instructed to refrain from speaking “her own language” at work, which was Polish. Ms Dziedziak was called to a meeting shortly after she had been overhead having a work-related conversation with a colleague in Polish. She was reprimanded for speaking Polish by her line manager as a colleague had complained that their conversation was distracting her.
On the evidence heard by the Tribunal, employees of other nationalities were not subjected to the same restriction and there was no general policy in place that applied to all nationalities. Future Electronics was unable to provide an explanation for the instructions and the Tribunal’s view was that on the evidence direct discrimination had occurred.
Key point: Any language restriction policy or constraints in a business with global or international employees will have to be applied carefully. Employers should equally ensure that employees who do not understand the employer’s first language are not discriminated against or made to feel or uncomfortable.
- Using Personal Phone Devices at Work
ACAS has published brief guidance on the use of smartphones and other devices at work. Some businesses allow employees to access company resources and data on their personal devices, by having a “bring your own device” policy. Whilst this may be advantageous and save costs by not having to buy the device themselves, there are risks if the policy is not managed properly. Employers should be concerned about threat to their security. Well managed policies should separate business use from personal use. It is also suggested that employers should consider making provision for remotely deleting sensitive data from such devices.
- Cyclists’ Breakfasts
On 6 April 2013 the Income Tax (Exemption of Minor Benefits) (Amendment) Regulations 2012 come into effect which will remove the tax exemption on food and drink provided by an employer for an employee who has cycled to work. The Office of Tax Simplification identified this among other tax relief where evidence showed that it was superfluous or little used.