1. Privilege: important rulings on scope of protection for internal investigations and for advice on 'redundancy' of aggrieved disabled employee
- The Court of Appeal has handed down its eagerly awaited decision in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd. The High Court had found that notes of interviews with employees were not protected by litigation privilege, given that the employer's purpose was to investigate allegations made by a whistleblower and, in its view, this failed the dominant purpose test. Employers will welcome the Court of Appeal ruling that the purpose of investigating allegations made by a whistleblower was part and parcel of preventing or defending litigation and therefore sufficient to meet the dominant purpose test. It also considered that documents prepared in order to avoid or settle contemplated litigation were covered by litigation privilege.
In relation to legal advice privilege, the Court of Appeal considered itself bound by Three Rivers No 5 to find that the privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. However, the court said that, if it had been open to it to depart from Three Rivers No 5, it would have been in favour of doing so – but this is a matter for the Supreme Court. The decision is considered further in our litigation blog post.
The Employment Appeal Tribunal in X v Y Ltd has ruled that an email containing advice from an in-house lawyer was not protected by privilege due the “iniquity principle”. There was a strong prima facie case that the email was to be interpreted as advising that a genuine redundancy exercise could be used as a "cloak" to dismiss the claimant to avoid his continuing complaints and difficulties with his employment (which he alleged were related to his disability). As such, the advice was an attempt to deceive both the claimant and, ultimately, an employment tribunal. Relevant passages in the claimant’s claim should therefore not have been struck out.
- The EAT considered that advice that a certain course of action runs the risk of being held unlawful discrimination would not be iniquitous, whereas advice that a course of action, which may be unlawful, could be taken, does "shade into iniquity". Whether privilege is lost will depend on whether the discrimination advised is “so unconscionable as to bring it into the category of conduct which is entirely contrary to public policy”.
In-house and external legal advice should be framed carefully in light of this ruling, particularly where written advice is given on the potential to dismiss for a fair reason where there are allegations of discrimination in the background.
See our blog post for further details. It is not yet known whether the ruling will be appealed.
2. Gender pay gap: guidance for employers on closing the gap; no imminent reforms to duty despite parliamentary committee's recommendations
The GEO has published new guidance on the effectiveness of various approaches to reduce the gender pay gap in order to help employers create more effective action plans (although of course the specific actions adopted should be tailored to the particular causes of an individual employer’s gender pay gap). The guidance states that there is positive evidence on the impact of using skills-based assessment tasks and structured interviews for recruitment, making clear whether salary is negotiable and publishing salary ranges. Other promising actions include improving workplace flexibility and encouraging the uptake of shared parental leave by men and women equally. The guidance also notes that unconscious bias and diversity training can have a negative impact in some cases. The recommended actions mirror some of the conclusions of the Institute for Public Policy Research in its report “The State of Pay: demystifying the gender pay gap” published in May 2018. Further details can be found our blog post here. Many employers will already have collected their April 2018 data and know whether their gender pay gap has moved at all – and in which direction. Given the likely media interest in the second year’s figures, employers may want to review the guidance and IPPR report to see what more they could consider doing to improve their figures and perhaps include some of the recommendations in an action plan to be published with the data. In July 2018 the House of Commons’ Business, Energy and Industrial Strategy Committee published a report on the gender pay gap reporting obligation calling for changes to the reporting duty. The Committee recommended that the publication of a narrative and action plan should be made mandatory for reports published in April 2019 onwards and that reports should include additional data on salary deciles, part-time vs full-time gaps, pro-rated bonuses and equity partner remuneration. From 2020, it suggested that the obligation should be extended to smaller employers with 50 or more employees and cover disability and ethnicity pay gap data. Further details are set out in our blog post here. The EHRC made similar recommendations in a report published on 30 August noting that data deficit is hampering the progression of ethnic minority and disabled staff at work. The EHRC stated that it should be a legal requirement by April 2020 that employers with over 250 employees monitor and report on ethnicity and disability in recruitment, retention and progression and publish a narrative and action plan alongside their data explaining why pay gaps are present and what they will do to close it. However, on 13 September the Government published its response that it will not be amending the regulations as yet, given they are "still in their infancy". It committed only to review the legislation in five years. It did note that it was pleased to see employers voluntarily reporting partner data and reporting even if below the size threshold.
3. Discrimination legislation: no new caste law, transgender consultation, proposed sexual harassment reforms, inquiry into enforcement
- The Government Equalities Office has published its response to a consultation on how best to address caste discrimination in Britain, concluding that this is best dealt with by case law and that it will remove the Equality Act obligation to legislate in this field. Current authority suggests that caste is protected to the extent that it is bound up with racial origin.
- The Government Equalities Office is consulting until 19 October on its proposals to reform the Gender Recognition Act 2004 and make it easier for a trans person to obtain a gender recognition certificate. The consultation also considers issues for non-binary gender and intersex individuals.
- In July the House of Commons Women and Equalities Committee published its report on sexual harassment at work, including a recommendation to impose a mandatory duty on employers to protect workers from harassment and victimisation, supported by a statutory code of practice and enforcement powers for the Equalities and Human Rights Commission including financial penalties for breach. Other proposals include the reintroduction of employer liability for third party harassment (including first occurrences), statutory questionnaires, and tribunal powers to make wider recommendations (for the benefit of persons other than the claimant), and the introduction of longer time limits, punitive damages and default costs awards for sexual harassment claims. Mandatory wording for confidentiality clauses and strengthened regulatory sanctions are also proposed - for further details see our blog post here. The government has yet to respond to the recommendations. In the meantime, employers may want to review existing harassment policies and procedures to ensure they are effective and consider refresher training for staff.
The Women and Equalities Committee has also launched an inquiry into the enforcement of the Equality Act 2010 and the effectiveness of the EHRC, with submissions sought by 5 October 2018.
Lack of enforcement was one of the themes highlighted in the Committee's report into age discrimination also published in July. The Committee recommended that larger employers should be required to publish the age profile of their workforce and that all jobs should be available on flexible terms unless an employer can demonstrate an immediate and continuing business case against doing so. It also proposed a statutory entitlement to five days’ paid carer’s leave, and four weeks' unpaid leave. The Government is yet to respond.
4. Brexit: Government's white paper on future relationship and technical notes in the event of a no-deal
Over the summer the Government published its white paper on the future UK-EU relationship post transitional period, covering a wide range of issues including immigration and employment. On immigration, the Government stated that it recognises the importance of moving and attracting talent across Europe to support the global operations of UK firms and global investors. It suggested that business visits would continue to be permitted to and from the EU under new arrangements but for paid work in only a limited number of circumstances (perhaps in line with the current business visitor rules for non-EEA nationals). The paper also suggested permitting intra-corporate transfers across Europe, based on existing arrangements with other non-EU countries. Finally, the Government made clear that it intends to seek the secure onward movement opportunities for UK nationals in the EU who are covered by the citizens' rights part of the withdrawal agreement, should they wish to change their member state of residence in the future. There is little further detail on how migration arrangements could work after Brexit but a further white paper on immigration has been promised this autumn.
The Home Office has published an employer toolkit and briefing pack to support UK employers in their communications with staff currently in the UK who wish to apply to remain here under the EU settlement scheme.
On employment the white paper confirmed the Government's intention to maintain current UK employment laws, so that existing workers' rights enjoyed under EU law will continue to be available under UK law on the day of withdrawal. The Government proposes that the UK and the EU commit to the non-regression of employment law standards and to uphold their obligations that derive from their International Labour Organisation commitments.
This position is reiterated in the Government's recently published note on workplace rights in the event of a no-deal Brexit. Minor amendments to the language of existing legislation will be made, to reflect the fact that the UK will no longer be an EU Member State. Only two areas will see a more significant impact: European Works Councils and rights of employees working on another EU state on the insolvency of a UK employer. Further details are set out in the note here. Employers will also be interested in the technical note on data protection in the event of a no-deal. The Government confirms that in recognition of the unprecedented degree of alignment between the UK and EU’s data protection regimes, the UK would at the point of exit continue to allow the free flow of personal data from the UK to the EU (to be kept under review). In relation to the flow of personal data from the EU to the UK, if the European Commission does not make an adequacy decision regarding the UK at the point of exit, companies will need to identify a legal basis for transfers. For the majority of organisations the most relevant alternative legal basis would be standard contractual clauses.
As the clock ticks down to 29 March 2019, the UK and the EU are stepping up their preparations for the possibility of a “no-deal” outcome. From a corporate governance and risk management perspective, businesses that have not done so already should carry out a Brexit assurance process in order to identify all Brexit-related risks and, to the extent practicable, take appropriate and timely steps to respond to them. This article summarises at a high level the kinds of issues more generally that we are coming across in helping clients plan for a ‘no-deal’ Brexit. It supplements our pamphlet Delivering Brexit: Putting Plans into Practice. To keep up to date with our latest Brexit analysis, subscribe to our Brexit blog.
5. Unfair dismissal developments: dismissal at 103 weeks' service, internal appeals, postponing hearings to accommodate a companion
Care needed over dismissal timing when employee approaching two years' service
The EAT has confirmed for the first time that an employee dismissed for gross misconduct in the week prior to accruing two years' service will not gain unfair dismissal protection provided that the tribunal agrees that they have indeed committed gross misconduct. However, if the tribunal disagrees, the statutory minimum notice period will be added to the actual service in calculating eligibility to claim unfair dismissal. Earlier caselaw establishes that the termination date is also extended by statutory notice if the employer dismisses by making a payment in lieu of notice, so it is prudent to consider carefully the timing of dismissals of employees approaching their two year anniversary. (Lancaster & Duke v Wileman)
Employers should offer internal appeal
The case of Afzal v East London Pizza Ltd t/a Dominos Pizza highlights the importance of offering a right of appeal against dismissal. In that case the employer was justified in urgently dismissing an employee for failure to provide evidence of his continued entitlement to work in the UK on the basis that it genuinely believed that his employment was illegal. However, the tribunal was wrong to conclude that the dismissal was necessarily fair, given the employer's failure to allow an appeal. Had an appeal been offered, the employee would have had an opportunity to produce evidence of his right to work and the employer could then have rescinded the dismissal without fear of prosecution or penalty. The case was remitted to a fresh tribunal.
Poor communication of successful appeal could itself amount to constructive dismissal
The Court of Appeal in Patel v Folkestone Nursing Home Ltd has confirmed that where an employee's internal appeal against dismissal is successful, the effect will be to reinstate the employee with retrospective effect. The earlier dismissal will 'vanish' without any need for the employee to 'accept' this, preventing the employee from claiming unfair dismissal based on the earlier dismissal.
However, in this case the dismissal had been based on two charges of gross misconduct, the second of which would have resulted in a reference to the Disclosure and Barring Service. The employee's appeal was successful on both counts, but the letter confirming the decision only addressed the first charge. The Court considered that the failure to communicate the decision on the second charge and to confirm that no reference would be made to the DBS was arguably a breach of trust and confidence which might amount to constructive dismissal (an issue remitted to the tribunal). The decision serves as a reminder to employers to ensure that appeal decisions are properly communicated.
Employers may need to go further than strict compliance with the statutory right to a companion to ensure fairness
Employees have a statutory right to be accompanied to a disciplinary or grievance hearing by their chosen companion and, if that companion is unavailable on the date set, to have the hearing postponed by 5 working days. A failure to comply with this right is likely to render a dismissal procedurally unfair in most cases, but the corollary is not true. In Talon Engineering Ltd v Smith, a dismissal was found to be procedurally unfair where the employer refused to postpone the hearing by 10 days to allow the chosen companion to attend. The tribunal had not erred in concluding that the employer had acted unreasonably in refusing the request for a short postponement based on genuine unavailability, particularly given the employees' 21 years' unblemished service.
6. Vicarious liability: Supreme Court confirms employers do not owe duty of care to employees in relation to conduct of the litigation
The Supreme Court has overturned the Court of Appeal ruling (discussed here) and held that, where an employer is sued on the basis that it is vicariously liable for the acts of its employees, it does not owe those employees a duty to defend the proceedings in such a way as to protect their economic or reputational interests (James-Bowen & Ors v Commissioner of Police of the Metropolis).
The court unanimously concluded that it would not be “fair, just and reasonable” to extend an employer's implied contractual or tortious duties in this way given that this would potentially stifle an employer’s defence of claims and would require it to “constantly look over its shoulder” for fear of exposing itself to claims by employees that the defence should have been run differently.
The decision provides welcome reassurance for any employer (or quasi-employer, as in this case) facing claims based on the alleged wrongdoing of its employees, particularly where fraud or other serious wrongdoing is alleged and there is potential for the employees to face public criticism. See our litigation blog post for further details.
7. Victimisation: employees protected despite ulterior motive for alleging discrimination if acted honestly
The EAT in Saad v Southampton University Hospitals NHS Trust has held that an employee was able to claim victimisation where subjected to detriment for alleging discrimination even though the allegation was made for an ulterior motive (to deflect criticism of his performance). The requirement for the allegation to be made "in good faith" simply means that the employee must have acted honestly, ie subjectively believed in what they said (even if the allegation is later found to be false).
8. Trade union representatives: dismissal for misuse of confidential information automatically unfair
The Court of Appeal has ruled that the protection against unfair dismissal for taking part in trade union activities should be interpreted broadly and will not necessarily fall away where the activity involves misconduct. In Morris v Metrolink a trade union representative unlawfully retained confidential information that had been obtained without consent and sent to him anonymously, and then shared it with HR on the basis that it contained detrimental information about union members involved in a restructuring exercise. The Court of Appeal concluded that the wrongfulness of his conduct was not sufficient departure from good industrial relations practice to take it outside of protected trade union activity and therefore his dismissal for that conduct was automatically unfair. Employers should consider carefully all the circumstances of any misconduct connected with trade union activity before determining whether to discipline or dismiss, bearing in mind the wide scope of the special protection.
9. National minimum wage: sleep-in carers not entitled to NMW when asleep
The Court of Appeal has ruled that on-call employees who have to remain available for work at a particular location but are expected to sleep will only be eligible for the national minimum wage in respect of hours when they are actually awake and carrying out work. This can be contrasted with employees who are actually working throughout their shift (such as a night watchman with periodic patrolling duties), who will be entitled to the national minimum wage for the whole shift albeit that they may be permitted to sleep in the intervals between tasks. Leave to appeal to the Supreme Court has been sought. (Royal Mencap Society v Tomlinson-Blake).
10. New publications: revised corporate governance code, minimum wage liabilities on a TUPE transfer, statutory sick pay, domestic abuse, references, challenges for pharma industry, trade secrets video
- The FRC has published a new version of the UK Corporate Governance Code applicable to accounting periods beginning on or after 1 January 2019. The changes include a requirement to have a board-monitored whistleblowing mechanism and a mechanism for workforce engagement, additional diversity reporting requirements and a greater focus on diversity in succession planning, and that remuneration committees should take into account workforce remuneration policies when setting director remuneration. See our corporate governance briefing here for more detail. Reporting requirements for some companies have also been amended by the Companies (Miscellaneous Reporting) Regulations 2018 applicable to financial years beginning on or after 1 January 2019, introducing mandatory reporting on employee and stakeholder engagement and information on the ratios between CEO and average staff pay.
- HMRC has issued an update confirming that, with effect from 2 July 2018, where there has been a TUPE transfer of employees, all national minimum wage (NMW) liabilities, including the full penalty amount, will now be enforced against the transferee employer, including penalties triggered by pre-transfer arrears. This highlights the importance of transferees obtaining an indemnity from the transferor to cover these liabilities where possible.
- HMRC has created a new online guide on statutory sick pay.
- Public Health England and Business in the Community have published a new toolkit to help employers support workers affected by domestic abuse.
- Acas has published new guidance on job references.
- Our article Recruitment and protection of talent: a boardroom issue for pharma is available on our pharma hub here. Technological advancement is key amongst the forces driving change in the pharmaceutical healthcare sectors, with businesses increasingly partnering with non-traditional players such as tech giants, agile biotech start-ups and insurers. In this article we explore how the industry's increasing focus on tech, including AI, will give rise to a corresponding need to find innovative solutions to attract, retain and incentivise talent experienced in those areas, given the relatively small and highly mobile pool of potential recruits. We also consider the scope for businesses to protect their valuable knowhow and intellectual property from potential threats from ex-employees. Given the critical importance of talent to the pharma industry, we highlight issues that should be factored into strategic decision-making by the board, influencing choices on collaboration, acquisition and business location.
- A short video has been made by Herbert Smith Freehills IP and Employment Professional Support Consultants, Rachel Montagnon and Anna Henderson, for Practical Law, discussing the impact of the UK’s recent Trade Secrets (Enforcement etc) Regulations 2018 and practical approaches to protecting confidential information and trade secrets. For further information see our blog post here.