Employment Law Update

Welcome to the January 2007 issue of the Steptoe & Johnson Employment Law Update. This update will now be published monthly to respond to the ever-increasing growth in employment legislation and case law.

The Employment Law Updates are aimed at providing information on recent developments in UK employment law. It is our desire to provide you with not only an update of the law, but also a practical insight in managing workplace issues on a proactive basis.

To achieve our objectives and to continuously improve these updates, it is important that we receive feedback from you. With a view to this, please e-mail any comments or suggestions which you may have relating to the updates to employmentgroup@steptoe.com. We look forward to hearing from you.

1. Rates of Statutory Payment for 2007/2008

The flat rates for Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay will increase to £112.75 per week from 1^st April 2007.

The flat rate of Statutory Sick Pay will increase to £72.55 per week from 6^th April 2007.

2. No Smoking

The Smoke-Free (Premises and Enforcement) Regulations 2006 have been made. From 1^st July 2007 it will be a criminal offence in England to smoke in a smoke-free place. The ban on smoking covers premises that are enclosed or substantially enclosed and the Regulations define these terms. Complimentary copies of the Regulations are available on request.

3. Flexible Working

The Government has now published the Flexible Working (Eligibility, Complaints and Remedies) (Amendment) Regulations 2006 which will extend the right to request flexible working to certain carers of adults. The Regulations will come into force on 6^th April 2007. An employee may make a request for flexible working if the employee is or expects to be caring for a person who is over the age of 18 and needs care and is either married to, the partner or civil partner of the employee, a relative of the employee or living at the same address. The right is subject to a qualifying period of 26 weeks' continuous employment. A complimentary copy of the Regulations is available on request.

4. Statutory Dispute Resolution Procedures

The DTI has formally confirmed that there is to be a review of the options for simplifying and improving all aspects of employment dispute resolution. A recent survey suggests that only 14% of respondents believe that the grievance procedures were leading to more claims being resolved before reaching a Tribunal and nearly all those surveyed thought that they were costing employees and employers more in terms of both time and money.

Indeed, CEDR, in conjunction with Barclays Bank and a City law firm, has now published results of research into the cost of dispute resolution. They found that a dispute that goes before a Tribunal will on average cost £277,000, a quarter of it in management time. However, if a dispute can be resolved in its early stages before legal fees begin to escalate, then the cost falls to an average of £9,000.

5. Paternity Leave

The Government has decided to grant employee fathers a new right of up to 26 weeks' Additional Paternity Leave, some of which could be paid if the mother returns to work. Draft Regulations will be issued and put out for consultation later this year.

6. Inconsistent Dismissal Decisions

Levenes Solicitors v Dalley 2006 UK EAT/0330/06

This is a useful decision by the EAT dealing with inconsistent sanctions by employers during the dismissal process. In this case a firm of solicitors dismissed one of their solicitors, mainly for missing a limitation deadline. At least one other solicitor had not been dismissed for that reason in the past. Questions of disparity with earlier treatment are not allowed to supplant the statutory test of fairness. If the substantive treatment of the employee was fair, the procedures were reasonable and the dismissal was amongst the band of reasonable responses, then the employee was not unfairly dismissed.

7. Companies Act 2006

This Act, when it comes into force, will affect all companies whether large or small, quoted or unquoted, and their shareholders, directors, secretaries and auditors. A few parts of the Act have come into effect by or in January 2007. The remainder of the Act will come into effect by October 2008.

A summary of the changes expected to take effect in or by January 2007:

• Changes to business correspondence/company websites;
• Provisions facilitating electronic communication;
• Disclosure of major shareholdings in fully listed and AIM companies;
• Full listed company reporting;
• Public takeovers provisions.

8. Stress Absence

Royal Bank of Scotland v McAdie UK EAT/0268/06

This case concerned the fairness of a dismissal where the employee was on long-term stress-related sick absence caused by bullying and mismanagement at work. The Tribunal held that the dismissal was unfair because no reasonable employer would have mismanaged and bullied the employee. However, the fact the employer caused the incapacity in question, however culpably, does not preclude it from ever effecting a fair dismissal. The real question is whether the employer acted reasonably in all the circumstances and the circumstances include the fact that the employer was responsible for the original absence. Where the employer is responsible for an employee's incapacity, the employer should normally be expected to "go the extra mile" in finding alternative employment for such employee or to put up with a longer period of sickness absence than would otherwise be reasonable.

9. Is Stress a Disability?

The TUC has prepared a short paper on the frequently asked question: Is Stress a Disability? Complimentary copies are available on request.

10. Concurrent Disciplinary and Criminal Proceedings

Ali v Sovereign Buses (London) Limited UK EAT/0274/06

Mr Ali was dismissed for misconduct while criminal proceedings were still pending. The EAT reviewed the case law on the circumstances in which the employer can fairly dismiss an employee who has been advised not to comment on the allegations. In this case the Tribunal's decision that the dismissal was fair was overturned as the Tribunal had not addressed the essential question of whether the employer's investigation was adequate. Article 6 of the ECHR does not give employees of private employers the "right to silence" in internal disciplinary proceedings. There are no hard and fast rules to apply when determining whether to press ahead with disciplinary proceedings when there is a criminal trial pending. Employers have to consider the circumstances known at that time but any hasty dismissal may be unfair.

11. Compensatory Award

Burlo v Langley and Carter

This is an important judgment dealing with the calculation of a compensatory award for unfair dismissal during an employee's notice period. If an employee is ill when summarily dismissed, he or she should only receive the equivalent of Statutory Sick Pay in respect of the contractual notice period, not full pay if unfit for work through sickness.

12. TUPE

Print Factory v Millam

The EAT has confirmed that the established rule under TUPE 1981 Rules remains unchanged, namely that TUPE does not apply where a control of a company's business transfers by means of a share sale. The EAT acknowledged that it is difficult to justify treating share sales differently from other business transfers but that distinction was firmly rooted in the law. The rule is strict and applies even if a share sale is chosen specifically to avoid TUPE and even where the purchaser of the shares effectively runs the business after the sale. The only situation where the courts could look behind the share sale was where the sale was a mere facade concealing the true facts, which is likely to be rare in practice.

13. ETO Reason for Dismissal

London Metropolitan University v Sackur and Others UK EAT/0286/06

Under TUPE 1981 a "change in the workforce" due to an economic, technical or organisational (ETO) reason means a change in the numbers or functions of the employees. In this case, the change in terms and conditions were still regarded as connected with the TUPE transfer two years after the transfer date. If the underlying rationale for making the changes has links to the transfer, then unless it is an ETO reason it will be an unfair dismissal. To implement changes to remunerative terms and conditions following a TUPE transfer, employers must be able to pin these to another non-TUPE-related decision.

14. Agency Workers

James v Greenwich Council UK EAT/0006/06

Mrs James was an agency worker who worked for Greenwich for five years. She argued an implied contract had arisen. The EAT upheld the Tribunal's decision that there was no implied contract as no mutuality of obligation existed. The Judge gave the following guidance:

• it is not appropriate to imply a contract where the end user cannot insist on the agency supplying a particular worker; nor
• where the arrangements are genuine and when implemented accurately represent the actual relationship between the parties as is likely to be the case where there is no pre-existing contract between the worker and end user;
• the reality of the relationship is only consistent with the implication of the contract;
• the passage of time does not justify the implication of the contract.

15. Unlawful Industrial Action

Abbas and others v Gale Gourmet London Limited ETS/2701979/05

On a preliminary hearing it was held that employees who were dismissed for refusing to work and had gathered in a canteen and other employees who were subsequently dismissed for failing to attend work were participating in unofficial industrial action. Their actions were not authorised or endorsed by their respective trade unions, and their refusal to work was of their own choice. Employees who are found to have been taking part in unofficial industrial action cannot claim unfair dismissal. The issue concerned seasonal workers to be employed at Heathrow. When the seasonal workers arrived at the premises, the other employees congregated in the staff canteen and refused to work. They were warned that unless they returned to work they would be summarily dismissed and not paid for their shift. After three warnings the employees were dismissed.

16. Whistleblowing

Bolton School v Evans

The Court of Appeal has upheld the EAT's finding that the protection from detriment given to whistleblowers applied only to the disclosure of relevant information and not the whistleblowers' actions and behaviour in connection with that disclosure. Mr Evans had been disciplined for the act of hacking into his employer's IT system and for not telling his employer about it. His conduct did not constitute disclosure. There has to be a link between the protected disclosure and the detriment for the protection to apply. Employers should therefore make it very clear in letters or meetings what the specific basis is for any disciplinary action where the circumstances could give rise to a whistleblowing claim.

17. Implied Terms and Flexibility

Luke v Stoke-on-Trent City Council

There is an implied right in exceptional circumstances to temporarily transfer an employee to do other work provided the need for the employee to do such work is plainly justified, the work is suitable, the employee suffers no detriment in terms of benefit of status, and the change is only temporary. Employers are often faced with the need to make changes to contracts of employment and employees do need to be adaptable but it is a rare case where redeployment will be temporary employers cannot resort to any implied term in order to impose a unilateral and permanent change in the employee's terms. In this case Mrs Luke was absent between October 2002 and April 2003 after she was allegedly bullied by the Head of the centre where she worked. The case concerned the action plan to help her return to work. The Council was prepared to move her within the organisation; however, she insisted she should return to the centre. In February 2004 the Council stopped paying her wages and she brought claims for unlawful deduction of wages. The Court of Appeal held that the Council was entitled to require her to work elsewhere even though it was an express term of her contract that she worked at the centre.

18. Disability Discrimination

NCH Scotland v McHugh UK EAT S/0010/06

Consideration of reasonable adjustments for an employee who had been on long-term sick leave is not triggered until there is some sign that the employee would be returning to work. In this case the duty to make reasonable adjustments had not been triggered by the time the employee resigned. The EAT followed the previous decision in Tarbuck v Sainsbury's Supermarket Limited that an employer's duty is to make (as opposed to consider) reasonable adjustments. Mrs McHugh was signed off with depression in April 2001 and she resigned on notice having never returned to work on 1 July 2004. The Tribunal rejected her claim for constructive dismissal but upheld her claim for disability discrimination on the grounds that the NCH had failed to consider making reasonable adjustments to facilitate her return to work. In this case Mrs McHugh was either unwilling and/or unable to return to work. Medical opinion never consistently supported an ability to return to work. Until there is a realistic expectation of a return to work, the duty to consider adjustments does not arise. However, communication and meaningful consultation should take place about rehabilitation consistent with certified absence if disability discrimination is to be avoided.

19. Executive Remuneration

The ABI has published a new version of its Remuneration Guidelines. The substance for the Guidelines is largely unchanged but some changes have been made in relation to share schemes and pensions. The key theme is for a Remuneration Committee to keep increases in overall remuneration in line with improvements in performance and to avoid increases in bonuses to compensate for the failure of share scheme payouts.

Complimentary copies of the Guidelines are available on request.

20. Preparing to Compete

Helmet Integrated Systems Limited v Tunnard 2006 EWCA Civ 1735

The Court of Appeal in this case held that a salesman did not breach his contract nor any fiduciary duties when he failed to inform his employer that he was taking preparatory steps to develop a product which he intended (following his resignation) to market in competition with the employer. The steps taken included obtaining funding from the DTI to develop the product, commissioning concept drawings, and sending these drawings to his employer's rival (who later invested in the project).

Although the employee was obliged under his contract to report any competitor activities to his employer, the Court of Appeal held that in the circumstances there was no contractual fiduciary duty to report his own activities. The employers were therefore not entitled to an account of profit. There had been no misuse of confidential information or involvement of other employees and no breach of any restrictive covenants. Mr Tunnard had carried out his activities in his own time and had reached no commercial agreement or arrangement before he left his employment. Mr Tunnard was not a director but a middle ranking senior salesman. His actions were merely preparatory and were not "competitor activities" in the context of his employment as a salesman. Employers should review such clauses in employment contracts to ensure there are explicit terms as to what their employees may or may not do.

21. Compromise Agreements

Palihakkara v BT plc UK EAT 0185/06

Mrs Palihakkara could pursue her pre-termination claims against BT despite a Compromise Agreement because BT failed to ensure that the Compromise was not simply in relation to claims arising out of the termination of her employment. Further, as the statutory requirements had not been complied with, even though the parties clearly intended the Compromise to be in full and final settlement, this was fatal to BT's agreement that Mrs Palihakkara's race discrimination claim should not proceed. Advice should be taken when drafting this type of Agreement to ensure it is as comprehensive as possible.

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