Employment Law Update

Welcome to the latest issue of the Steptoe & Johnson Employment Law Update. 

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 the 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. Reminder of Annual Increase in Compensation Limits

A week’s pay for the purpose of the basic award and redundancy payment calculation rises from £310 to £330; and

The maximum compensatory award rises from £60,600 to £63,000

The new limits apply to dismissals occurring on or after 1 February 2008.

2. Maternity, Paternity and SSP rates

The weekly rates of statutory maternity, paternity and adoption pay will increase from April 2008 to £117.18.  The standard rate of statutory sick pay will increase to £75.40.  The earnings threshold for the above payments will increase to £90.

3. Smoking at Work

Figures released by the Government found that smoking inspectors had issued 1,233 written warnings to employers for failing to prevent smoking in their premises between July and November 2007 leading to 8 court hearings.  A further 6,646 warnings were issued to firms which failed to display the correct “no smoking” signs in their premises or vehicles according to the Department of Health. 

Employers are reminded that they should communicate their no smoking message to their staff and check that they are complying with the law. 

Smith v Michelin Tyre 2007 IDS 839 ET  

Dismissal for a first offence relating to the breach of an employer’s smoking policy fell within the band of reasonable responses and was therefore fair in this case.  Mr Smith had worked for Michelin for 12 years.  There was a very strict smoking policy because of the use of highly flammable products.  Smoking was prohibited in unauthorised areas and contravention of the smoking policy was specifically referred to in the disciplinary procedure as gross misconduct. 

On 21 November 2006 Mr Smith went to the staff locker room, opened the fire door and sat smoking.  He did not deny misconduct at the disciplinary hearing but said he had been under pressure and was suffering from depression and expressed regret about the incident.  He unsuccessfully appealed his dismissal for gross misconduct.  The Tribunal acknowledged that the decision to dismiss was harsh but accepted Michelin had to weigh Mr Smith’s personal circumstances against the importance of preserving its business, its property and more importantly the lives of its other staff.  The decision to dismiss was not considered unreasonable given the safety rules involved and the long-standing existence of a smoking policy. 

4. Immigrant Workers – Changes from 29 February 2008

There are substantial changes being introduced into all aspects of business immigration as a result of the introduction of civil penalties for illegal workers on 29 February 2008 and the new points based system which will affect 80 current work and study immigration categories. 

The points based system will be based on a 5 tier structure and will have significant impact on those companies proposing to make new work permit applications and/or extension applications in that they will need to apply to be licensed as a sponsor and have ongoing obligations in order to maintain their licence. 

5. Age Discrimination – Objective Justification

Hampton v Ministry of Justice ET/2300835/2007

An Employment Tribunal has held that the compulsory retirement of a recorder who sat as a part-time judge, was not objectively justified and therefore amounted to unlawful age discrimination.  The Tribunal rejected an argument that it was necessary to retire recorders at 65 in order to create vacancies for new blood to enter the judiciary. 

Seldon v Clarkson Wright and Jakes ET/110275/2007

The Tribunal here came to the opposite conclusion to the case above and held that the compulsory retirement of a partner in a law firm was objectively justified.  Both these decisions highlight the extent to which each case turns on its own facts and the age regulations.  Further guidance from the Employment Appeal Tribunal on precisely what can amount to objective justification would be helpful.  The aims relied on by the firm in this case will be familiar to any professional partnership.  The firm argued that it needed a compulsory retirement age for partners in order to ensure that associates stayed with the firm and were given the opportunity of partnership after a reasonable period. 

Mr Seldon was compulsorily retired from the partnership having reached 65.  After he retired he brought two claims, one for direct age discrimination due to his compulsory retirement and a claim for victimisation based on the firm’s subsequent withdrawal of the firm’s offer of £30,000 as a gesture of goodwill reflecting his long service.  He lost his claim for direct age discrimination but his claims of victimisation was upheld. 

Age Discrimination – Recruitment

McCoy v McGregor and Sons Limited and others 00237/07/IT

A Northern Ireland Industrial Tribunal found that a timber merchant had discriminated against a job applicant on the grounds of his age.  The employer had advertised for a sales representative with “youthful enthusiasm” and rejected the Claimant, Mr McCoy who was aged 58 but who had over 30 years relevant experience.  Instead two significantly less experienced applicants both 15 years younger than the Claimant were offered jobs. 

The Tribunal decided it was appropriate to draw an inference of age discrimination from the usage of the term “youthful enthusiasm” when taken in the context of other evidence in the case.  The other evidence included asking the Claimant questions which linked his age with energy, motivation and enthusiasm in each of his three interviews and the “ad hoc” scoring.  As McGregors had failed to provide any credible explanation or evidence to show that the less favourable treatment to Mr McCoy had occurred for a non-discriminatory reason, the Tribunal concluded that but for his age Mr McCoy would more probably than not have been selected for one of the two posts.

6. Disability Discrimination

Coleman v Attridge Law and Steve Law Case C - 303/06

The Attorney General has expressed an opinion that EC Directive 2078 which establishes a general framework for equal treatment in employment should be interpreted as protecting those although not themselves disabled nevertheless suffer discrimination or harassment owing to their association with a disabled person.

Mrs Coleman worked for Attridge Law as a legal secretary.  She was the main carer of her disabled son.  She claimed she had been discriminated against based on her son’s disability when they had refused her time off to care for her son and her request for flexible working whereas they had allowed such request for members of staff who did not have disabled children. 

This decision may lead to a change in all relevant discrimination legislation to cover discrimination by association and the ECJ will rule on this later in the year.

Employers should ensure they keep an open dialogue with their employees and understand all the reasons behind any special requests for flexible working or time off.  If employers are able to justify or explain any decision made in response to a negative response to an employee’s request they will not be held in breach. 

Although the reference to the ECJ was limited to persons who are disabled the Advocate General indicated that the same principal will apply to any of the prohibited grounds, namely religion or belief, disability, age or sexual orientation. 

McDougall v Richmond Adult Community College [2008] EWCA Civ 4

The Court of Appeal has held that the likelihood of the recurrence of a disability must be assessed at the date of the act of discrimination and that subsequent events cannot be taken into account.  Ms McDougall had a job offer withdrawn after medical evidence revealed she suffered from a mental illness.  In fact while the condition was lifelong she had not suffered an episode of her illness for three years at the date of her job application.  However, shortly after the job offer was withdrawn she suffered a relapse and was committed to hospital under the Mental Health Act. 

The EAT held that when deciding whether an impairment has a long-term effect, Tribunals should take account of all the information available at the date of the hearing rather than restrict themselves to asking what the likelihood of recurrence was at the date of the alleged discriminatory act.  That was not permissible and wrong held the Court of Appeal and her appeal was allowed. 

7. IT35 Legislation and IT consultants

Four decisions of the Special Commissioners have been reported dealing with the application of the IR35 legislation to specialist IT consultants.  The IR35 rules allow HM Revenue & Customs to ignore the legal relationships between the parties and instead determine the tax treatment by considering whether had the services been provided under a contract made between the worker and the client direct, the worker would have been regarded as employed by the client for Income Tax and NIC purposes.  If the worker would have been so regarded, Income Tax and NICs must be deducted by the intermediary under the PAYE system. 

This question was determined in the four cases of First Software Limited, MKM Consulting, Dragonfly Consulting and Datagate Services Limited v Commissioners for HMRC. It was first necessary to determine the terms of the notional contract between the consultant and the client and then ascertain whether that notional contract represented a contract of service or for services by applying the indicia of employment.

The burden was on the personal service company to show that the notional contract was inconsistent with the employment contract.  The four decisions were heard by three different Special Commissioners but had similar facts and are useful indications of the Special Commissioners’ approach. 

The indicia of employment are:

• personal service and the right of substitution
• mutuality of obligation
• control
• intention of the parties
• provision of own equipment
• financial risk
• part and parcel of the organisation
• length of engagement
• employee type benefits
• right to terminate.

Complimentary copies of this decision are available on request. 

8.  Residence and Domicile Tax Rules

HMRC have published draft legislation and explanatory notes setting out changes to the taxation of income and gains of non-domiciled individuals.  The effect of the proposed changes that would reduce the number of visits that an individual can make without becoming a UK resident.  This would affect employees of international businesses who make frequent business trips to the UK .

Additionally a non-domiciled individual who has been resident in the UK for 7 out of the past 10 years must pay an additional tax charge of £30,000 per annum in order to continue to be taxed on a remittance basis.  The new rules come into effect on 6 April 2008, subject to any last minute Government U turn.

9. Maternity Rights and Entitlement to Sick Pay

Department of Work and Pensions v Sutcliffe UKEAT/0319/07

The EAT has dismissed a Tribunal’s decision that an employee who was certified sick during her ordinary maternity leave (OML) was entitled to be paid contractual sick pay during that period.  The EAT held that as sick pay is remuneration it is excluded from the benefits available to women during OML.  The case is a useful illustration of the distinction in the payment of sick pay to women who are absent with pregnancy related sickness.  During pregnancy and prior to maternity leave normal contractual sick pay rules apply.  During maternity leave the statutory maternity pay scheme replaces ordinary pay including sick pay.  After maternity leave a woman who is off sick once again is entitled to contractual sick pay in the normal way. 

Ms Sutcliffe started work on 18 April 2006 and informed her employer that she was pregnant in May 2006 and applied for her maternity leave to start on 1 August 2006.  However she became unwell on 2 June with pregnancy related complications and was certified sick until January 2007.  Ms Sutcliffe received full sick pay from 2 June to the start of her OML on 1 August.  Thereafter in light of her short service she received only the maternity allowance for the duration of her OML.  The DWP refused to make up her maternity allowance to the full sick pay on the basis that her maternity leave was not sick absence. 

10. Taxis and Taxable Benefits

HMRC has extended its Guidance on the application of the employment income tax exemption for late night taxis provided for employees.  If the journey from work to home is a private journey and the taxi is paid for by the employers this is a benefit to the employee which would normally be taxed accordingly.  Such benefits can however be treated as exempt from tax if all four late night working conditions are met and the number of late night taxis provided for employees in a tax year is no more than 60.  This figure only acts to provide a ceiling on the number of journeys that can be treated as exempt from tax and NICs exceeding the limit in a tax year and does not disqualify any of the first 60 journeys from the exemption. 

The late night working conditions are as follows:

• The employees is requested to work later than usual and at least until 9pm;
• This occurs irregularly;
• By the time the employee ceases work either public transport has ceased or it would be unreasonable to expect the employee to use public transport; and
• The transport is by taxi or similar road transport.

Due to these requirements, the key to claiming this exemption is accurate record keeping.  Employers must implement the necessary management checks and keep sufficient records to be able to show that late night working conditions have been met in each case.  No tax charge arises where transport between home and work is provided for a disabled employee.

Complimentary copies of the HMRC guidance are available on request.

11. Statutory Dismissal Procedure – Extension of Time

Ashcroft v Haberdasher’s Askes’ Boys School UKEAT/0151/07CEA

In this case the employer dismissed Mr Ashcroft’s appeal against dismissal at 6pm on the last day of the three month period for filing a claim in time.  The effect of this was that, when the normal limitation period expired 6 hours later at midnight there was no pending appeal and therefore no automatic extension of time by three months.  Mr Justice Burton held however that Mr Ashcroft had the protection of Regulation 15 (extending the time for commencing proceedings by three months), up to 6pm on the last day of the limitation period.  Given that the purpose of the statutory disciplinary grievance procedures was to discourage tribunal proceedings before an internal appeal was dealt with, the Tribunal ought to have concluded that it was not reasonably practicable for him to lodge the tribunal proceedings within the normal three month period.

12. Protective Awards

Evans & Ors v Permacell Finesse Ltd in administration UKEAT0350/07/2310

The EAT held in this case that the presumption of a 90 day protective award in a collective redundancy consultation case applies in the same way when the minimum period of consultation is 30 rather than 90 days. 

In this case more than 20 but less than 100 employees were made redundant thus the consultation period was 30 and not 90 days.  The Employment Tribunal awarded 30 days’ pay as a protective award taking into account the lower duration of the consultation period.  The EAT reversed this holding the 90 day presumption applies equally to 30 day consultation cases as it does to 90 day consultation cases.  Mr Evans was originally awarded 30 days’ pay of £2,742 but on appeal he was awarded £8,226.

13. Jurisdiction

Ashbourne v Department of Education and Skills and Collins v Department of Education and Skills 01230/07 EAT

Two teachers working exclusively in European schools for the Department of Education and Skills in Belgium and Holland on successive fixed term contracts which were expressly governed by English law and conferred exclusive jurisdiction on the English courts were not able to show that there was sufficiently strong connections with Great Britain to satisfy the “employment in Great Britain test” in order to bring a claim for unfair dismissal. 

Both Ashbourne and Collins were employed on fixed term contracts and when these were not renewed they brought claims before an English Employment Tribunal for unfair dismissal and breach of the Fixed Term Employment Regulations.  The Tribunal held that neither was working for a British employer or within a social enclave within a foreign territory or able to show equally strong connections with Great Britain and British employment law to bring themselves within the protection of the relevant legislation although they remained domiciled and ordinarily resident in the UK.  Both appealed to the Employment Appeal Tribunal but their appeals were dismissed as they were teaching in European schools abroad exclusively and they did not fall under UK jurisdiction.

Bleuse v MBT Transport Limited and Tiefenbacher UKEAT/0339/07

In this case the EAT considered claims brought by a German national who lived in Germany who was employed by a company registered in the UK and who worked throughout Europe, but never in the UK.  The EAT held that if a fresh Tribunal accepted that the employees’ claims had been presented in time it would not have jurisdiction to hear the claims for unfair dismissal or unlawful deductions from wages which were purely domestic rights but would have jurisdiction to hear the employees claims for unpaid holiday pay.  This was because the Working Time Regulations 1998 gave the effect to derive from EU law and where English law was either the proper law of the contract or where it provided the mandatory rules applicable to the employment relationship by virtue of the Rome convention, an English court properly exercising jurisdiction had to construe the relevant English statute, if possible, in a way which was compatible with the EU right conferred. 

As employees and workers increasingly move across European borders clarity and understanding of applicable law and the court through which it may be enforced will become more important.  To protect their rights individuals will need to be better informed and aware that a choice of law clause in a contract may not have the effect they believe it has. 

14. HolidayPay and Sick Leave

Stringer and others v Her Majesty’s Revenue and Customs C-520/06

Following a referral from the House of Lords, the Attorney General had to consider whether Article 7 of the EC Working Time Directive meant that workers must receive a minimum annual paid leave of 4 weeks during a long period of incapacity for work.  The Advocate General opined that a worker can accrue paid holiday leave while off sick but cannot take that paid annual leave during their sick leave.  On termination of employment workers are entitled to compensation for annual leave which has accrued but has not been taken due to illness.  This opinion however begs the question of what happens to workers rights to annual leave if at the end of the leave year they remain on sick leave. 

It appears that they may be able to carry forward all or part of the annual leave into the following year.  However there is no right to carry forward annual leave entitlement under the Working Time Regulations. 

Employers of course can still provide in the employment contracts that contractual leave over and above the statutory minimum does not accrue during sick leave.  Otherwise workers absent on sick leave throughout an entire year should take their minimum annual leave entitlement on their return to work.  The next stage in this case will be for the full court of the ECJ to give a definitive ruling.  Although the full court tends to follow the Advocate General’s opinion this is not always the case.  Judgment is expected in around 6 months time. 

15. Agency Workers

James v London Borough of Greenwich 2008 EWCA Civ35

The Court of Appeal has handed down its judgment in this important case and confirmed that only on grounds of necessity can an Employment Tribunal imply a contract of employment between an agency worker and the end user of his or her services.  The Court made clear that it is not for the courts or tribunals to extend the employment protection rights to agency workers and that further developments need to come from Parliament. 

Ms James’ services were continuously supplied to the Council through an employment agency over a period of several years.  Written agreements between Ms James and the agency was expressly provided that she would carry out her work as a self-employed temporary worker and that her work would not give rise to a contract between herself and the end-user of those services.  On her return to the Council after a period of sickness absence Ms James was told she was no longer required because the agency had sent a replacement.  Ms James subsequently brought a claim for unfair dismissal.  An Employment Tribunal held that there was no implied contract of employment between the Council and Ms James. 

The Employment Appeal Tribunal upheld the Tribunal’s decision and set out the guidance for tribunals to follow in agency worker cases.  Ms James had then appealed to the Court of Appeal where she lost her appeal.  The Court held that although Mr James could hardly be described as a temporary worker the Employment Tribunal had correctly applied the test of necessity in assessing whether the contract of employment should be implied between Ms James and the Council. 

The Court also expressed its approval to Appeal Tribunal’s guidance to be followed in agency worker cases.  The Court commented that that Dacas case is not authority for the proposition that the implication of a contract of service between the end user and the worker in a tripartite agency relationship is inevitable in the long term agency worker situation. 

LJ Mummery, giving the lead judgment made it clear that the question of whether an agency worker is an employee of an end user is a question to be decided in accordance with the common law principles of implied contract and that labels are not a substitute for legal analysis of the evidence. 

Employers using agency workers on a long term basis should consider whether a contract of employment could be implied on the facts of their particular case. 

16. Unfair dismissal and Expired Warnings

Airbus UK Ltd v Webb 2008 EWCA Civ49

Mr Webb had been employed by Airbus since 1990.  In 2004 he was accused of gross misconduct and summarily dismissed.  He appealed against the dismissal and the final written warning was substituted.  Under the disciplinary procedure that warning would expire after 12 months.  Some 13 months later Mr Webb was against accused of misconduct.  Following an investigation he was dismissed and an appeal against his dismissal was rejected.  However four other employees who were accused of the same misconduct were given final written warnings due to their previous good disciplinary records. 

The Court of Appeal held that whilst it was desirable for there to be consistency as regards the interpretation of unfair dismissal the fact that a warning had expired had tipped the balance in favour of his dismissal and was not on account of the expired warning.  The Tribunal was correct in finding Airbus’ response reasonable in the circumstances.  The relevance of an expired warning was only part of the overall question of reasonableness. 

It would still be unreasonable for an employer to rely on an expired warning as the principal reason for dismissal.  Then such dismissal will be unfair but it is not unreasonable for an employer to take into account a previous expired warning and the underlying misconduct in deciding whether or not to dismiss.  The employees’ appeal was therefore allowed. 

17. Data Protection - Enforcement Notice

The Information Commissioner’s Office (ICO) has issued a data protection enforcement notice against Marks & Spencer in relation to the theft of an unencrypted laptop containing the personal pension details of around 26,000 M&S employees.  The laptop was stolen during a burglary at the home of the managing director of the independent company retained by M&S in connection with its pension scheme.  The ICO found that M&S was in breach of the seventh data protection principle in the Data Protection Act 1998, which requires appropriate technical and organisational measures to be taken to prevent unauthorised or unlawful processing of personal data and accidental loss or destruction of, or damage to, personal data.  The notice requires M&S to ensure that all laptop hard-drives are fully encrypted by April 2008. 

Data Protection – Subject Access Requests

Ezsias v The Welsh Ministers, Claim No 6CF90111

The High Court held in this case that the Welsh National Assembly had acted reasonably and proportionately when identifying and disclosing personal information in response to a subject access request by a data subject.  Data controllers are often uncertain about the scope of subject access requests and the length to which they must go to respond to them. 

Mr Ezsias, the Claimant, had brought unfair dismissal proceedings against his former employer, the North Glamorgan NHS Trust claiming that the reason for his dismissal was that he had made various protected disclosures.  The Claimant made five subject access requests to the National Assembly.  When the Assembly did not comply with his request to his satisfaction the Claimant applied to the High Court seeking a declaration and an order and damages.  The High Court held that the National Assembly’s search for personal data, which was disclosable to the Claimant following his requests, was reasonable and proportionate and that it would not be reasonable for them to conduct any further searches. 

The Court was satisfied the National Assembly had disclosed to the Claimant all personal data disclosable to him under the Act and although the National Assembly had breached the provisions of the DPA by not disclosing the data within 40 days the Court found no damage or prejudice to the Claimant had resulted from this. 

18. Compensation and Duty to Mitigate

Bannister v Jeremy Ticktum trading as Schranks Solicitors 2008 All ER 37

Ms Bannister was employed from 1983 to 2005.  She was dismissed following a serious of lengthy absences from work.  She brought claims of unfair dismissal and disability discrimination.  She was awarded £11,623.27 for loss of future earnings but the employer appealed saying that once she had recovered from her illness to be fit for work she should have been looking for work in Central London and not just in the South London area, where she had previously worked for her employer.  That appeal was unsuccessful.

It was held that the Tribunal had properly come to the conclusion that the employee had not failed in her duty to mitigate because she had done enough to comply with her duty by looking for work in the South London area from a number of different sources.  It had not been necessary for the Tribunal to resolve the issue of fact as to whether she had in addition looked or looked sufficiently for work in Central London and what if anything would have happened if she had. 

19. The Companies Act 2006 - Provisions coming into effect on 6 April 2008. 

The next phase of the implementation of the Companies Act 2006 is due to take place on 6 April.  There are key provisions coming into effect including Company Secretaries, Execution of documents, Liability Limitation Agreements, Accounts and Reports, Distributions, Audits, Debentures, Certification and Transfer of Securities.  Further information on these issues is available on request. 

20. US Visas

For the fiscal year 2009, US Citizenship and Immigration Services (USCIS) will begin accepting cap subject H-1B petitions on Tuesday, 1 April 2008.  This is the earliest date for which an employer may file a petition requesting H-1B employment with a start date of October 1, 2008.  USCIS anticipates that April 1, 2008 will see a repeat of the mass filings from last year, when the annual H-1B cap was reached within the first two days after the initial filing date and accepted petitions were selected randomly using a lottery system.  Petitions received on or after April 4, 2007 were rejected. 

US businesses utilise the H-1B program to employ foreign workers in “specialty occupations”.  A “specialty occupation” is an occupation that requires a bachelor’s degree or equivalent for the application of theoretical and highly specialised knowledge.  H-1B employment is temporary in nature and may be granted for an initial period of three years.  As part of the H-1B program, the Department of Homeland Security (DHS) and the Department of Labor (DOL) require US employers to meet specific labour conditions to ensure that American workers are not adversely impacted.

There are also 20,000 H-1B visas reserved for aliens with US-earned masters’ or higher degrees. 

Employers who plan to hire talented and skilled foreign workers should plan ahead so that H-1B visa petitions can be prepared and filed for April 1, 2008 receipt by USCIS to increase their chance of approval before the fiscal year 2009 cap is reached.  Since cap H-1B visa petitions can be filed no more than six months prior to the date the employee will begin working for the petitioner, employers are strongly encouraged to assess their staffing needs for the upcoming year now to prepare for the upcoming filing season.