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. New legislation with effect of April 2008

The Information and Consultation of Employees Regulations 2004 will be extended to apply to employers with 50 or more employees. 

The Social Security (Contributions) (Amendments) Regulations 2008 will come into force increasing the lower earnings limit to £90 and the upper earnings limit to £770.

The Corporate Manslaughter and Corporate Homicide Act 2007 comes into force creating a new criminal offence of corporate manslaughter replacing the common law offence of manslaughter by gross negligence for companies and other organisations.

The Sex Discrimination Act 1975 is amended.  The new Regulations have been laid before Parliament and will come into force on 6 April 2008.  In Section 4A the phrase “on the ground of her sex” has been substituted with “related to her sex or that of another person”.  The Regulations further add a provision to impose liability on an employer for failing to protect employees from harassment by third parties such as customers or clients.  In relation to less favourable treatment on the ground of pregnancy or exercising the right to maternity leave the Regulations remove the current requirement for a woman to compare her treatment to that of a woman who is not pregnant or not exercising a right to maternity leave.

Finally, the Regulations make amendments which set out a series of exceptions to the right to claim discrimination in relation to terms and conditions during maternity leave.  Following the implementation of these changes a woman on maternity leave will be able to claim discrimination for non-payment of a discretionary bonus that relates to the two week period following childbirth when she is on compulsory maternity leave.  Furthermore the same types of discrimination claim which are permitted during the ordinary maternity leave period i.e. the first 26 weeks of maternity leave can now be bought during the additional leave period i.e. in weeks 27 to 52.  This appears to represent a significant extension in maternity rights but will only apply to those women whose expected week of childbirth falls on or after 5 October 2008. 

2. Budget 2008

In relation to employment and small businesses, the Government has accepted that a further period of consultation is required before the rules on income shifting can be introduced.  Legislation has been promised to counter arrangements which divert income from one individual to another who is subject to a lower tax to obtain a tax advantage e.g. a wife.  Diverted income in the form of company dividends or partnership profits will be targeted but not employment income, savings interest and income of any other type.

The non-dom tax reforms will adversely affect the taxation of share incentives granted to employees and officers who are not ordinarily resident from 6 April 2008.  From that date such share incentives will be taxed on the same basis as incentives granted to individuals who are ordinarily resident unless they elect for the remittance basis of taxation and have unremitted gains from share incentives relating to non-UK duties.

The Chancellor has announced changes to the EMI option regime and 2 key changes are:

• Only companies with fewer than 250 employees will be able to grant EMI options.
• The three year EMI option grant has been raised to £120,000.

The Government is concerned by the growing use of structures by temporary workers such as umbrella companies and overarching contracts of employment with employment businesses which allow workers participating in such structures to obtain tax relief for ordinary commuting expenses that would not be available to other workers. The Government may take action in relation to this issue in the future. 

3. Immigration Changes

The Border and Immigration Agency has now commenced accepting applications for employers’ licences to issue sponsorship certificates under the new Tier 2 skilled worker category coming in Autumn 2008. 

All employers who wish to employee foreign non-EEA nationals in the future including those on existing work permits other than individuals who will hold Tier 1 permits or already hold permanent residence or status as a spouse/partner, will need to obtain a licence from the Border and Immigration Agency to employ such foreign nationals in the future.  The application process for a licence is complicated and involves ultimately an online application followed by presentation of the appropriate documentation.  Employers with not more than 250 employees and a turnover of not more than £22.8 million may be able to qualify as a small sponsor which involves a reduced fee of £300 as opposed to £1,000 if the application for registration is lodged prior to 6 April 2008.

From 29 February 2008 Highly Skilled Migrants will be known under the new scheme as Tier 1 applicants.  The criteria that must be met to make a successful application under Tier 1 is very similar to that under the existing Highly Skilled Migrant Programme (HSMP).  The applicant will need to obtain 75 points in various sub-categories such as experience, qualifications, age, UK experience and earnings.

The English Language requirements have also been increased.  Highly Skilled Migrants who need to make an application for an extension of their existing leave to remain must do so under Tier 1. 

From April 2008 Indian Highly Skilled Migrants coming to the UK for the first time must make their application under the new scheme and from Summer 2008 the scheme will go live for all highly skilled migrants coming to the UK .

4. Employer liable for employee’s suicide

Corr (Administratix of the Estate of Thomas Corr (deceased) v IBC Vehicles Limited 2008 UKHL 13

The House of Lords held in this case that an employer was liable under the Fatal Accidents Act 1976 for the suicide of a former employee who suffered from severe depression as the direct and foreseeable result of being seriously injured in an accident at work. 

There was no need to establish that suicide itself was reasonably foreseeable at the time of the accident, as the suicide was a consequence of the severe depression brought on by the accident and could not be regarded as so unusual and unpredictable to be outside the bounds of what was reasonably foreseeable. 

Mr Corr was a maintenance engineer who had suffered severe injuries following a very serious accident at work in which he was nearly decapitated.  His depression deepened to the extent that after 6 years after the accident he committed suicide by jumping from the top of a multi-storey car park.  The High Court originally rejected Mrs Corr’s claim but the Court of Appeal overturned this decision.  When the IBC appealed to the House of Lords, they unanimously upheld the Court of Appeal’s decision.

Keypoint: Employers must be alive to the risk in cases where an employee suffers depression and/or psychiatric illness that it is open to the court to find that the employer is liable for all the reasonably foreseeable consequences flowing from that injury even suicide.  However the question of whether an employer is liable in such circumstances is a factual one and rests on the issue of causation. 

5. Race Discrimination

D’Silva v NATFHE UKEAT/0384/07/LA

This case concerned a claim by a university lecturer about decisions taken by his union about assisting him with a discrimination claim against the university.  The Claimant lost his case but one important aspect of the decision was that the Tribunal held that a failure by the employer to respond to a discrimination questionnaire was not without more a presumption of discrimination.  As the judge stated in the case there will often be good reasons why questionnaires have not been answered or documents not disclosed but that the failure will have no bearing on whether an act of discrimination took place and in such cases “time and money should not be spent pursuing the point”. 

6. Age Discrimination – dismissed for being too young

Wilkinson v Springwell Engineering Limited ET/2507420/07

Miss Wilkinson started working for the company on 3 January 2007 and was placed on a 3 month probationary period.  In February 2007 she was only doing 90% of her role and was asked to improve her work rate.  In March 2007 a conversation took place between her and her line manager in which she alleged she was informed that her employment was being terminated on the grounds that she was too young for her job.  She was required to leave the premises immediately and was not informed of her right to appeal the decision.  She was 18 years old at the time of her dismissal. 

Springwell refused to reply to a pre-action letter and an age discrimination questionnaire allegedly on advice.  Miss Wilkinson brought a successful claim for discrimination on the grounds of her age.  The Tribunal held that she was not dismissed on grounds of capability but on the grounds of her age.  This was a breach of Regulation 3 of the Employment Equality (Age) Regulations 2006.  The Tribunal found that the employer had made a stereotypical assumption founded on age to her detriment and went on to award Miss Wilkinson loss of earnings up to the Tribunal hearing and future loss for 26 weeks together with an award of £5,000 for injury to feelings.  The Tribunal also applied a 50% uplift of the compensation on the basis that the employer had failed to follow any procedure before dismissing her.  As well as compensation for unfair dismissal the Tribunal also invoked Regulation 38 (1)(c) of the Age Regulations to order Springwell to provide a “truthful and not misleading” reference for Miss Wilkinson which did not indicate that she was dismissed on capability grounds. 

Keypoint: Employers are reminded that they must have procedures in place for managing and dismissing all employees even probationers and be able to point to concrete evidence of why the employee was dismissed. 

7. Changing terms of employment

Robinson v Tescom Corporation UKEAT/0567/07

Mr Robinson was a territorial manager selling components to Tescom.  He had responsibility for part of the South of England.  In February 2006 Tescom underwent a restructuring plan and it was proposed that Mr Robinson’s area be extended to include the whole of the South of England.  Mr Robinson raised a grievance relating to the increased time he would have to spend away from home staying in hotels and stated that he wanted to remain in his existing position. 

In September 2006 Mr Robinson agreed to work under the terms of the varied job description but under protest.  When he did not work the new terms he was eventually dismissed for gross misconduct.  The Tribunal found that although he had agreed to work under the new terms his subsequent refusal to do so was gross insubordination.  He had confused the options of working under the varied terms under protest and refusing to work at all. 

Keypoint: The case is a lesson for employees in how to deal with proposed changes in their employment that they do not agree with.  If they do not want to resign they can either agree to the change and work under protest or refuse to work under the varied contract.  The employee in this case prejudiced his position by mistakenly combining both options. 

8. Grievance

Ward v University of Essex UKEAT/0391/07

A letter raising several grievances about an employer’s conduct which also contained an offer to settle with the employer could amount to a step one statement of grievance under the Statutory Grievance Procedure the EAT so held in this case. 

The essential characteristic of a grievance letter is that the employer should be put on notice of what the employee is complaining about and the employer in this case could be in no doubt as to the nature of the dispute.  The letter could therefore stand as a valid grievance. 

Mrs Ward worked for the university which had concerns about her performance.  She wrote to the university setting out her concerns and stated that she was willing to put on the table a negotiated package for her amicable withdrawal from the university.  Although a Compromise Agreement was later signed by the parties Mrs Ward then changed her mind and submitted a claim for constructive dismissal and harassment to the Employment Tribunal.  The Tribunal held as a preliminary issue that she had not raised a relevant grievance and dismissed her claims for want of jurisdiction.  The EAT held that she had raised a grievance by her letter and her claim should proceed.  It was not invalidated by her offer to settle. 

9. Dismissal of a pregnant employee

Mayr v Backerei und Konditorei Gerhard Flockner OHG (Case C-506/06)

In this case the European Court of Justice had to determine the question whether a worker who had undergone in vitro fertilisation was a pregnant worker and therefore within the statutory protection for Health and Safety of Pregnant Workers at Work.  The Court ruled that the Directive had to be interpreted as not extending to a female worker who was undergoing in vitro fertilisation where on the date she was given notice of a dismissal she was not actually pregnant.  However the dismissal of a woman if related to her ongoing treatment will amount to direct discrimination on the grounds of sex.

10. Procedure and Heads of Claim

Hyde-Walsh v Ashby and others UKEAT/0463/07

The EAT held in this case that Tribunals are not under the duty to consider claims that Claimants in person ought to have brought but did not bring and which may be fairly evident to the Tribunal from the facts before it. 

In this case the Claimant argued that the Tribunal should have found that she had a claim for detriment under the whistleblowing provisions after it had dismissed her claim for unfair dismissal on the grounds that she was not an employee but a worker.  The EAT rejected this and said that although Tribunals do on occasion assist unrepresented litigants for a Tribunal to be obliged to consider a claim that has not been raised would put an intolerable duty on it. 

Mrs Hyde-Walsh was an NVQ trainer and she did not have legal representation at the Tribunal.  She succeeded in her claim for holiday pay and invoices but failed in her breach of contract claim.  She appealed to the EAT for it to consider a new claim.  She argued that she had suffered a detriment if she was a worker for having made a protected disclosure and the Tribunal should have gone on to decide that she had suffered a detriment, so entitling her to compensation. 

Keypoint: The decision in this case highlights the importance of identifying all possible heads of claim.  When her employer denied that she was an employee that ought to have triggered a response by her to contemplate applying to amend her claim but without legal advice it would be difficult for litigants in person to consider doing this. 

11. Compensation – Constructive Dismissal

Triggs v GAB Robins (UK) Ltd [2008] EWCA Civ 17

The Court of Appeal held in this case that while loss flowing from a dismissal should be compensated by a Tribunal in unfair dismissal proceedings the loss flowing from an employers antecedent breaches of the implied term of trust and confidence can only be claimed as part of a common law claim for damages in the civil courts. 

The Court of Appeal held that Mrs Triggs could have a common law claim for loss caused by her employer’s conduct prior to her dismissal (which had caused her to be signed off work) from the business as distinct from the loss flowing from her dismissal which resulted from her decision to accept her employer’s conduct. 

Mrs Triggs was a secretary, but she felt bullied and was signed off sick with stress and depression.  She received full sick pay and then submitted a written grievance about the long term bullying.  She later resigned due to ill health as a result of the stress.  She could not claim in a Tribunal for the loss and future loss from the wrongs inflicted on her employer prior to her termination. 

12. Sex Discrimination

English v Thomas Sanderson Blinds Ltd UKEAT/0556/07

An individual’s claim for harassment by his colleagues on grounds of sexual orientation failed on the basis that he was not, and was not perceived to be homosexual and because he accepted that his colleagues did not believe him to be homosexual. 

Mr English had put up with banter of a homophobic nature over some years.  Although this was unacceptable, it had only been a vehicle for teasing the Claimant and therefore his complaints did not fall within the Employment Equality (Sexual Orientation) Regulations 2003.  However, Mr English was given the right to appeal to the Court of Appeal on this point. 

13. Pension Scheme: correcting mistakes

Smithson v Hamilton [2007] EWHC 2900 (Ch)

A mistake in the scheme’s rules permitted deferred members to take an unreduced early retirement pension from the age of 60.  The scheme’s normal retirement age was 65.  The equivalent rule for active members taking early retirement from age 60 required an actuarial reduction to reflect early payment but the Court declined to correct the mistake. 

The High Court took a strict approach in its refusal.  It held that the employer company was principally responsible for the mistake.  The Court also refused to provide equitable relief for the employer for its mistake simply because it was more expensive for the employer to fund the schemes benefits. 

Keypoint: A permission to appeal has been granted but it is important to note that in this case it was held that the definitive deed and rules were the employer’s documents.  This could mean that trustees in similar situations have a reduced responsibility to the employer in relation to drafting pension documentation and that their primary responsibilities are to scheme members. 

14. TUPE

CAB Automotive Ltd v (1) Blake and others UKEAT0298/07

The EAT held in this case that where an administrator was slimming down the business with a view to sale the Tribunal could properly conclude that the reasonable principal reason for the dismissal of some of the redundant employees was the transfer or a reason connected with it even though no potential buyer was yet on the scene.  This case confirms the earlier EAT decision in Morris v Johon Grose Group Ltd.  The case concerned the companies which were affected by MG Rover’s administration in April 2005.  The Court held that Regulation 8 of TUPE can apply where a number of potential transferees are interested in the business but at the time of the dismissal matters are at a very early stage. 

15. Health and Safety – risk assessment for expectant mothers

Home Farm Trust Ltd v Nnachi 2008 All ER (D) 179

Ms Nnachi was a care support worker.  Her employer had to make a suitable and sufficient assessment to the risks to the health and safety of the employees for the purpose of identifying measures he has to take to comply with requirements and prohibition imposed upon him via the statutory provisions.  Once Ms Nnachi told him she was pregnant, a risk assessment meeting took place.  That meeting used a 3 page form and a 2 page memorandum was also prepared giving details of what was discussed at the meeting and the conclusions as to whether there was or might be a risk and what action, if any, was to be taken. 

Ms Nnachi complained to the Employment Tribunal who held that her employer had unlawfully discriminated against her for failing to comply with the Regulations.  The employer appealed but this was dismissed.  An employer has not to wait until the employee is pregnant before making an assessment.  There should be such an assessment in place for each undertaking where the person’s work included women of child bearing age.

In this instance it was not arguable that the three page form on its own amounted to an assessment which met the requirements of the Regulations.  A list of potential risks which required to be assessed was not an assessment of those risks, nor was the meeting a risk assessment. 

Keypoint: Risk assessments for expectant mothers should be regularly reviewed.

16. Direct Race Discrimination – public statement

Centrum voor Gelijkheid van Kansen en voor Racismebestrijding v Firma Feryn NV C-54/07

The Advocate General has delivered his opinion that a public statement made by the employer in the Belgian media to the effect that they would not employ Moroccans was direct discrimination contrary to the EU Race Discrimination Directive.  The UK Government intervened in the case to argue that as the employer had not actually acted on their discriminatory statement then the discrimination was only hypothetical with no identifiable victim and so the Directive should not apply.  In the Advocate General’s view a statement of an employer’s race recruitment policy had an actual discriminatory effect as it deterred individuals of certain racial origins from applying for a position when they knew in advance they would not be hired because of their race. 

Furthermore he considered that to limit the Directive to cases which the identifiable victim complainants would undermine the effectiveness of the principle in equal treatment.  It is well established that advertisements which display an employer’s discriminatory recruitment practices are unlawful. 

If the Advocate General’s opinion is followed by the ECJ, public statements about an employer’s recruitment policies will also be unlawful.  In this case a Belgian door fitting firm put up a large road side sign advertising vacancies.  The employer subsequently stated in the media that he would not employer Moroccans as his customers were scared of them breaking into their houses.  Employing immigrants would be “putting himself out of business” he claimed.  The ECJ judgment is expected later this year. 

17. PAYE Recovery

Demibourne Limited v HM Revenue & Customers [2005] ScP 00486

In this case the Special Commissioners held that where an employment relationship exists, the employer is responsible for deducting income tax under the PAYE system.  Accordingly, HMRC must recover underpaid tax from the employer even if the employee has already paid tax under self-assessment on the basis that he was self-employed. 

On 27 February 2008 HMRC released a statement confirming that it intends to amend this and this change will come into force on 6 April 2008.  The draft Regulations are not yet available but the intention is to extend the circumstances in which HMRC can transfer a PAYE liability from the employer to the employee.  In effect the amount of income tax assessed on or paid by the employee will be set against the employer’s liability.  The employer will remain liable for any excess together with interest and penalties. 

18. National Minimum Wage

The increases for 1 October 2008 have now been announced.  The Government has accepted the Low Pay Commissions recommendations that the adult rate should raise to £5.73 per hour.  This will apply to workers age 22 or over.  There is no upper age limit.  For workers aged between 18 and 12 the rate will be £4.77 and the young workers rate for workers aged under 18 but above the compulsory school age that are not apprentices the rate will be £3.53. 

When an employer provides work with accommodation the cost of that accommodation can count in part towards the employer’s liability to pay the National Minimum Wage but there is an upper limit on the amount that may be off set, which is currently £4.30 a day.  The Low Pay Commission recommended that 21 year olds should be entitled to the adult rate but this was rejected by the Government.  The Government have yet to provide reasons behind this decision. 

19. Statement of Best Practice on Contracts and Severance Policies

The Association of British Insurers and the National Association of Pension Funds have published an updated statement for directors and senior executives.  The statement is intended to emphasise certain aspects of the Combined Code and provide guidance on shareholders’ expectations.  It does not introduce any significant new obligations which companies should not already be complying with.  The main changes to the statement are the inclusion of the following principles:

• Disclosure of key elements of directors’ contracts on website.
• Approach to mitigation should be explained in the Remuneration Report.
• Objectives on directors’ contracts should also be stated in the Remuneration Report.
• Discretionary payments on termination for poor corporate performance should be removed.
• No additional compensation for severance as a result of change of control should be paid.
• Liquidated damages clauses should be replaced by phased payments.
• Guaranteed pensions arrangements with no abatement should not be acceptable.

20. When is a controlling shareholder an employee?

Clark v Clark Construction 2008 UK EAT/0225/07

The EAT has handed down guidelines in this case on the relevant criteria to consider when seeking to determine whether a controlling shareholder is an employee and therefore covered by all the relevant statutory protections. The mere fact that someone has a controlling shareholding does not itself prevent a contract of employment arising.

A complimentary copy of this case is available on request.