Employment Law Update

1. Legislative Changes Effective April 2007

Statutory Payments

Maternity pay, Maternity allowance, Paternity Pay and Adoption Pay will all increase to £112.75 per week from 1 April 2007. 

The smoking ban in Wales takes effect on 2 April 2007.

Statutory Sick Pay increases to £72.55 per week with effect from 6 April 2007.

The Equality Act 2006 will amend the definition of "any religion, religious belief or similar philosophical belief" by removing the word "similar" so that it covers being of no religion or belief and widens the scope of what may be regarded as a philosophical belief, with effect from 6 April 2007.

The Employment Equality (Age) (Consequential Amendments) Regulations 2007 will make a number of changes to the Employment Equality (Age) Regulations 2006 to make a dismissal unfair if the reason for dismissal is the employee exercising, or seeking to exercise, his or her right to be accompanied, at a meeting to request working beyond the intended retirement date, with effect from 6 April 2007.

The Information and Consultation of Employees Regulations 2004 will be extended with effect from 6 April 2007 to cover employers with 100 or more employees, who request a formal procedure.

The Flexible Working (Eligibility, Complains and Remedies) (Amendment) Regulations 2006 with effect from 6 April 2007 extend the flexible working scheme to include carers of adults.

The following sections of the Companies Act 1985 will be repealed with effect from 6 April 2007:

• Ss. 293-294, relating to the enforced retirement of directors aged 70 and over in public companies or private companies which are subsidiaries of public companies.
• Provisions in part 10 and schedule 13 relating to the disclosure of share dealings by directors and their families.
• S. 311 regarding the prohibition on tax-free payments to directors.

With effect from 30 April 2007 the Smoking (Northern Ireland) Order 2006 will ban smoking in enclosed public spaces in Northern Ireland.

2. Restrictive Covenants

Intercall Conferencing Services Ltd v Steer 2007 EWHC 519

Intercall’s business was to provide conference calling, audio, video and web and event conferencing.  It had customers both in the UK and abroad.  Mr Steer was employed to produce the full induction agenda, training programme and accreditation process for Intercall’s sales force.  He signed a 6 months non-compete clause and had full access to a wide range of confidential business information.  He tendered his resignation and was reminded at the time of the non-competition clause.  Intercall sought and obtained an interim injunction against him restraining him from working with named competitors.  There was no claim for damages.  Mr Steer claimed the non-competition clause was too wide and too vague as it was effectively worldwide and prevented him from working in any capacity.  The Court held it was neither too wide nor too vague and 6 months was appropriate.  The words “which are in competition with the business carried on by the company” were reasonable and the clause was reasonable at the time Mr Steer accepted it as a term of the contract by which he was bound.  He was also not prevented from obtaining other employment for the period of the restriction anywhere without territorial limits, provided it was not in competition with Intercall.  His seniority and industry knowledge were such that there was a risk of inadvertent disclosure of confidential information without such an interim injunction.

Beckett Investment Management Group Limited and others v Hall

The High Court in this case dismissed an employer’s claim for breach of a non-dealing covenant in its former employees’ contracts of employment.  The claims failed because the employer was a holding company which did not provide those services which the former employees were prohibited from providing.  The High Court also stated that, had it been required to do so, it would have made findings that the covenant did not protect the legitimate business interests and that it exceeded what was reasonable and necessary to protect such interests.

3. Contributory Fault

Mullinger v Department for Work and Pensions 2007 AER

Mr Mullinger was employed as an investigator in respect of dubious claims.  He was reprimanded in respect of a particular investigation and appealed against that reprimand.  Before the final determination of his appeal, he was interviewed about two allegations regarding his conduct, namely failing to hand over notebooks and misuse of office equipment.  Charges were subsequently raised against him under a disciplinary procedure.  A hearing took place which he refused to attend subsequent to which he was dismissed.  On the day of dismissal he removed official papers from his employer’s office.  He brought proceedings claiming inter alia unfair dismissal.  The Tribunal held that he had been unfairly dismissed but stated that whilst not a factor in his dismissal, the removal of papers was a factor which had to be taken into account in considering what was, in all the material circumstances, just and equitable.  It was held that he should receive only 25% of the compensation and his contributory fault should be assessed at 75%.  The employee’s appeal was allowed.  What the contributory conduct had to cause, or contribute to, was the dismissal.  It was therefore obvious, held the EAT, that his actions after the dismissal could not be taken into account.  The Tribunal was therefore wrong in assessing his contributory conduct at 75%.  A fresh Tribunal would consider the extent to which his culpability should reduce the award by reference only to two matters, namely his failure to return the notebooks and misuse of computer equipment.

4. Holiday Pay

The DTI has amended its non-statutory guidance to confirm that the payment of rolled-up statutory holiday pay is unlawful and employers are now required to ensure that payment for statutory annual leave is made at the time when leave is taken.  This change should prompt employers who have not changed their rolled-up holiday pay provisions to do so now.

5. Bank Holiday Mondays and Part-time Workers

McMenemy v Capita Business Security Limited

The Court of Session has affirmed the EAT’s decision holding that an employer who does not give a part-time employee pro rata days off work to reflect Monday bank holidays is not discriminating under the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000.  Mr McMenemy worked on Wednesdays, Thursdays and Fridays.  His employer allowed people to have bank holidays off, but only if they actually worked on a Monday.  Mr McMenemy claimed that amounted to less favourable treatment on grounds of his part-time status, as most bank holidays fall on a Monday.

The Court of Session, construing the Regulations and the underlying Directive, held that the treatment must be solely on grounds of the worker’s part-time status.  It held that, because the employer would have treated a full-time worker who did not work on a Monday in the same way, Mr McMenemy had failed to establish causation.

6. Patent Ownership

LIFFE Administration and Management v Pinkava and Another 2007 EWCA Civ217

The Court of Appeal upheld a decision that an invention relating to credit swaps belonged to the inventor’s employer as it was made in the course of the employee’s normal duties and those normal duties were not to be defined by those set out in the initial written contract of employment.  The law acknowledges that terms of employment can vary from time to time and the Court held in this case that the employee’s normal duties had evolved to cover developing credit-swap systems of the type covered by the invention. It was not his own invention.  This is the first appellate decision construing the provisions of section 39(1) of the Patents Act 1977 in almost 30 years of the life of the Act.

7. Data Protection Act Breaches

The Information Commissioner’s Office has issued a ‘name and shame’ list identifying organisations which have breached one of the Eight Data Protection Principles, being the duty to take appropriate technical and organisational security measures in order to prevent unauthorised or unlawful processing, accidental loss of or destruction or damage of personal data.  One example cited was the disposal of customers’ information simply by leaving it in rubbish bins outside their premises, thereby risking that their customers’ personal and financial information might be intercepted by others and used fraudulently.  Those organisations regulated by the Financial Services Authority (FSA) should also have in place adequate risk management systems.  The FSA recently announced that it issued a £980,000 fine for a failure of effective systems and controls to manage information security risks.  The failings came to light following the theft in 2006 of a laptop from an employee which contained confidential customer information.  Given this stance, employers should be looking at measures to protect personal information, both in computerised form or otherwise, as well as warning employees of the risks and consequences of theft of laptops and the like.

8. Implied Duty of Trust and Confidence

Takacs v Barclays Services Jersey Limited

Mr Takacs was entitled to a minimum guaranteed bonus and an additional bonus, conditional upon his achieving sales targets.  The latter was only payable if, at the time of payment, he remained in employment.  Shortly before any bonus payment for 2004 became due, he was dismissed.   He brought various claims against the Bank in the High Court, contending that he was entitled to the bonus.   Mr Takacs’ claims were for  damages for breach of implied duty of trust and confidence asserting that the Bank had undermined his efforts to complete the transaction he had been working on which would have given him the sales targets for the bonus; breach of an implied duty on the Bank to cooperate with him in achieving the sales targets; and breach of an implied term that the Bank would not terminate his contract in order to avoid paying the additional bonus all of which were ready to be heard but settlement of these was then reached. The details are confidential so it is not still clear whether the Bank’s right to terminate the employee’s contract at any time can be overridden and modified by the implied terms.

9. Equal Opportunity

British Airways PLC v Starmer

The Court of Appeal was due to hear British Airways’ appeal on 19 March but the airline withdrew its appeal.  The Employment Appeal Tribunal found that BA had indirectly discriminated against a full-time female pilot with childcare responsibilities on the grounds of her sex in unjustifiably refusing her request to halve her hours.  The EAT rejected the airline’s argument that it was entitled to refuse her part-time request on the grounds that safety would be compromised if pilots who had completed less than 2000 flying hours were permitted to reduce their hours to below 75% of full-time.  The airline had failed to produce sufficient evidence to support this argument.  In a statement BA said that it would now allow Ms Starmer to halve her hours and that the airline intends to review its 2000 hour threshold in due course.

10. Disability Discrimination and Sick Pay

O’Hanlon v Revenue and Customs Commissioners

The Court of Appeal has dismissed Ms O’Hanlon’s appeal that her employer’s sick pay rules were discriminatory against her because of her disability.  Although she had been less favourably treated due to her disability, the discrimination had been justified.  Her employer was not required to adjust the sick pay rules so that she could have received full pay while absent for reasons of disability after the expiry of the initial 6 month sick pay period.

11. Maternity Leave:  Pension Rights

Employees will have new rights to pension benefits during maternity and adoption leave from April 2007. 

An employee must be provided with pension benefits during paid maternity and adoption leave as if they were working normally and receiving the remuneration likely to be paid for doing so.  However, they can only be required to pay contributions to a pension scheme on the amount of any contractual remuneration or statutory maternity or adoption pay that they actually receive (Schedule 5, paragraph 5 and 5B, Social Security Act 1989).  This means:

• In a defined benefit scheme, an employee on paid maternity or adoption leave will receive the same pension benefits as if they were working normally during the whole 39 weeks of paid maternity or adoption leave.
• In a defined contribution scheme, an employer must pay contributions in respect of the employee during the whole 39 weeks of paid maternity or adoption leave, as if the employee were working normally.
• If keeping in touch days are paid, pension benefits must be provided in respect of the employee as if they were working normally.

12. Abolition of Statutory Dispute Resolution Procedures

The DTI launched a consultation with a view to abolishing the statutory dismissal and grievance procedures, introduced in 2004.  The consultation follows a report from Michael Gibbons on the efficacy of the 2004 Regulations.  The consultation will be focused on better regulation.  The consultation will ask if there should be:

• a new, swift approach for dealing with straightforward claims without the need for employment tribunal hearings,
• a reformed tribunal system with simplified process and timings;
• an invitation to the CBI, TUC and other representative organisations to produce guidelines aimed at encouraging and promoting early resolution in the workplace;
•  incentives for employers to make reasonable attempts to resolve a dispute early; and
• a redesigned application process to tribunals so potential claimants access the system through a new advice service, and receive advice on alternatives when doing so.

Consultation will close on 20 June 2007.

In the meantime….

13. What is a Grievance?

Gibbs (trading as Jarlands Financial Services) v Harris UKEAT/0023/07RN

The EAT has confirmed that an employee cannot rely on an ET1 as their written statement for the purpose of Statutory Grievance Procedures.  The whole purpose of the statutory structure was to give the employee time to resolve matters before commencing litigation and it would run wholly counter to the statutory scheme if the two processes could run in parallel. 

DMC Business Machines PLC v Plummer

The EAT decided that a constructively dismissed employee had lodged a written grievance with his former employer within the normal time limit for bringing an unfair dismissal claim and therefore was entitled to an extension of time to submit his Tribunal claim.  Any failure to lodge a grievance does not automatically, however, deprive a tribunal of jurisdiction.  Either the tribunal must identify the failure to raise a grievance if the ET1 claim form does not state it, or the employer must explicitly specify the failure in the response.  As neither of these had occurred in this case, there was no basis for the EAT to stop the Tribunal hearing even if it found the employee had not submitted the necessary grievance.  In other words, no-one raised it as an issue, so the EAT did not have to consider it.  The case is a warning to employers to state in their ET3 response form any alleged failure by the employee to raise a grievance.  In doing so the employee’s failure will be brought to the Tribunal’s attention and then the Tribunal will be prevented from considering the complaint.

Lawrence v H M Prison Service UK EAT / 0630 / 06 / CEA

The statutory grievance procedure does not apply where the grievance is that the employer has dismissed the employee but it was unclear whether that regulation applies where the complaint is one of say, discrimination, notwithstanding that it relates to the dismissal decision.  The EAT has now held in this case that the grievance procedure does not apply in those circumstances.  So, where an employee claims discrimination arising from a dismissal she or he is under no obligation to lodge a step 1 grievance letter and is not entitled to a 3 month extension of time.

14. Statutory Dismissal Procedure

Premier Foods PLC v Garner

An employer had a dismissal and disciplinary procedure which allowed it to increase (or reduce) the sanction in the event of an appeal by an employee against a disciplinary decision.  In this case, an employee appealed against a final written warning but the employer increased the sanction to summary dismissal on appeal.  The EAT agreed with the tribunal that the whole disciplinary procedure could not be looked at as one continuous process and the employer should have started the procedure again when the new evidence came to light which it took into account in increasing the sanction. 

15. Flexible working

ACAS have published an Advice Leaflet and short guide on flexible working for employers, working parents and carers. Complimentary copies are available on request.

16. Employees With Babies Due On Or After 1 April 2007

Employers should not assume that pregnant employees will know their entitlements which take effect from 1 April 2007.  Mothers whose babies are due on or after 1 April are entitled to 52 weeks’ maternity leave whatever their length of service and 39 weeks of maternity pay.  Employers should make sure that pregnant employees are clear about what their duties, responsibilities and benefits now are.

And finally….

Expansion of Steptoe & Johnson's Tax Group

Steptoe & Johnson have expanded their UK tax capability with the recent hire of partner Kassim Meghjee from DLA Piper UK LLP. Kassim is based in the London office and can assist with all aspects of employment related tax advice. For further information please contact Kassim or your usual Steptoe & Johnson contact.

Domestic and foreign clients regularly retain Steptoe & Johnson to advise and represent them in all aspects of domestic and international tax.  Steptoe & Johnson provides comprehensive, solutions driven and seamless tax advice to clients who operate in single or multiple jurisdictions.  Steptoe & Johnson’s tax specialist lawyers understand the importance of providing specialist tax advice blended with a comprehensive understanding of its clients’ businesses and the legal framework within which they operate.

Steptoe & Johnson tax specialist lawyers have a reputation for providing pro-active advice on the full spectrum of taxes including tax advice on the following:-

• domestic and international corporate acquisitions and disposals (including acting for private equity houses as well as management) and on funding structures to facilitate corporate acquisitions;
• domestic and international group re-organisation (pre-disposal or listing on Nasdaq, AIM or the London Stock Exchange);
• all aspects of UK real estate acquisitions and disposals including advice on SDLT, VAT (including capital goods scheme), capital gains tax and capital allowances as well as on real estate acquisition finance;
• all aspects of domestic and international transfer pricing as well as domestic and European VAT;
• all aspects of employment related taxes including advice on PAYE compliance;
• all aspects of employee remuneration including employee share schemes; and
• all aspects of tax investigations and tax litigation.

For further information, please go to www.steptoe.com/practices-4.html