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. Sex Discrimination Act 1975 (Amendment) Regulations 2008

These came into force on 6 April 2008.  The Regulations amend the Sex Discrimination Act to bring it in line with the Equal Treatment Directive.  Employers should note the following and ensure that their maternity and harassment policies and procedures are updated to take account.  Changes include:

• The broadening of the definition of harassment.
• The removal of a comparator in pregnancy or maternity related discrimination. 
• Employers liability for third party harassment.
• Benefits payable during additional maternity leave if the baby is due on or after 5 October 2008. 
• Discretionary bonuses payable during compulsory maternity leave.

2. TUPE

Coutinho v Vision Information Services (UK) Ltd and anor, EAT 0469/07  

Mr Coutinho was employed by VIS until 30 March 2004 when he was made redundant.  He commenced tribunal proceedings claiming unfair dismissal and race discrimination in June 2004.  On 30 July 2004 a transfer took place under TUPE from VIS to RN.  Initially, Mr Coutinho’s claim was against VIS only but following the transfer RN was joined as a Respondent.  In June 2006 the tribunal upheld Mr Coutinho’s claims against RN on the basis that it was liable by virtue of the transfer. 

An issue then arose about the provision of a reference and he brought a claim asserting that the duty not to victimise him by failing to provide a proper reference had transferred to RN under TUPE but this claim was struck out against RN.  On appeal the EAT upheld that decision.  Liability for an act of victimisation committed by a transferor after a relevant transfer relating to a former employee whose contract was terminated prior to that transfer was not an existing liability of the transferor at the date of the transfer and thus could not pass the transferee under TUPE.  The tribunal had therefore been right to strike out his claim of victimisation against RN. 

3. Statutory Dispute Resolution Procedures

Davies v Farnborough College of Technology EAT 0137/07

Mr Davies was a lecturer in the marketing department at Farnborough College for nearly 20 years.  Due to declining demand the college decided that one of the three lecturers in the marketing department would have to be made redundant.  It sent Mr Davies a letter setting out the redundancy selection criteria explaining the consequences if he was to be selected  and inviting him to a meeting.  On 11 July prior to any decision being taken, the college and Mr Davies met to discuss the situation.  There was a further meeting on 19 July when he was informed that he was to be made redundant because he had received the lowest score.  The dismissal was confirmed in a letter sent to him on the same day and his dismissal was upheld at a subsequent appeal hearing. 

He then presented a claim for unfair dismissal claiming his dismissal had been automatically unfair owing to the college’s failure to comply with the statutory dismissal procedures.  The Tribunal found that the three stage dismissal procedure applied to his claim.  This required the college to inform him prior to the step two meeting of the basis for the grounds that led the college to contemplate dismissal and to give the employee a reasonable opportunity to consider a response to that information.  So in failing to provide him with his marks prior to the step two meeting on 19 July the tribunal found the college in breach of the statutory procedure. 

Nevertheless it went on to conclude that this breach was cured at the appeal hearing where a full discussion of the application and selection criteria took place.  Consequently his claim failed.  He appealed to the EAT.  The EAT agreed with the tribunal that there had been a breach of step 2 but this was not cured on appeal.  If there is a breach of procedure the dismissal would be automatically unfair notwithstanding any appeal. 

The tribunal considered whether compensation for future loss of earnings should be reduced to reflect the possibility that Mr Davies would have been dismissed even if a fair procedure had been followed.  In the EAT’s view it was clear beyond doubt that Mr Davies would still have been fairly dismissed if the procedure had been complied with.  Therefore his compensatory award was reduced to nil but the basic award which was not affected was uplifted by 25% owing to the college failing to follow the standard procedures. 

Key point: This case again brings home the difficulty of ensuring full compliance with statutory procedures and the complexity of the compensation provisions where the statutory procedures are breached.  The uplift in percentage is only however applied to the compensatory award and therefore the EAT was wrong to apply an uplift to the basic award it seems. 

4. Unfair Dismissal Compensation

Cowen v Rentokil Initial Facility Services (UK) Ltd 2008 AER 70

This case concerned the chain of causation for the purpose of calculating compensation where an employee is dismissed from his second job.  Mr Cowen was employed as a contracts manager and was dismissed for redundancy with effect from 6 October 2006.  On 23 October he obtained a new job at a higher salary than in his previous role.  He was dismissed from that employment with effect from 16 January 2007 not having been kept on following the expiry of his probationary period. 

On 8 May subsequent to lodging a claim for unfair dismissal he was offered a new contract by his first employer which he declined.  He brought proceedings in the employment tribunal which held that his dismissal had been unfair on account of failings in the handling of the redundancy.  However, in relation to compensation it found that the employee had mitigated his financial loss from 23 October so he could not recover any compensation for the period following the dismissal from his second job.  He appealed.  The appeal was allowed in part. 

The fact that a job taken by an employee who had been dismissed had been of relatively short duration did not inevitably mean that the chain of causation had been broken.  It depended on the circumstances.  The reason why the employee had lost the second job might have a bearing on that question.  Tribunals should not become embroiled in satellite litigation as to the precise circumstances in which the second dismissal took place. 

In this case the tribunal had erred by simply assuming that the obtaining of permanent employment necessarily broke the chain of causation.  In the unusual circumstances of the case, the only proper conclusion open to the tribunal should have been that taking the job for a limited period had not broken the chain of causation.  It had been obvious when the job had been taken that it might only last for the probationary period and that in fact happened.  Accordingly, compensation would be reconsidered on the basis that the employer remained liable for losses flowing after the dismissal from the second job. 

Key point: Fresh employment may not mean compensation will be limited.

5. Part-time equality on pensions and sick pay

Matthews and others v Kent & Medway Town Fire Authority and others ET/6100000/2001

An employment tribunal held that the retained firefighters were employed on the same work as their full-time colleagues and their terms as to pension and sick pay were less favourable.  That was unjustified.  The Tribunal therefore reversed its original decision following a successful appeal to the House of Lords. 

The Claimants were some 12,000 part-time or retained firefighters.  The tribunal had originally held that the retained firefighters were employed under a different type of contract than the full-time firefighters since there were several differences between the two.  Both the EAT and the Court of Appeal rejected the firefighters’ appeal from this decision but the House of Lords overturned the tribunal’s decision. 

The tribunal had focused too much on the differences between the two jobs rather than the similarities.  The matter was admitted to the same tribunal for a re-hearing and the tribunal upheld the claims on the basis that they carried out broadly similar work to the full-time firefighters and as they were treated less favourably, the differences were not justified. 

Key point: The decision demonstrates that following the House of Lords’ decision it is much easier to establish that a full-time comparator is doing the same or broadly similar work for the purpose of the claim under the Part-time Workers Regulations.  The case also suggests that it will be difficult for an employer to use an “overall package” approach to justify individual less favourable terms.

6. EU

France – Completing Foreign Assignments

In addition to satisfying requirements for a work permit, non-EU nationals must now obtain a valid residence permit to cover their stay in France .  Several new types of residence permit are available now.  Those on inter-company assignments who have completed at least three months service with a foreign employer may apply for a permit which allows them either to live in France on a temporary or intermittent basis while remaining on their home country payroll or to be transferred to a French contract and reside for the entire period in France .  In the latter case assignees must receive remuneration of at least €1,900 per month.  Companies may also hire foreigners for projects of up to three years on a talents and competencies permit.  This is available to certain highly skilled immigrants and must be linked to the completion of a specified assignment approved by an official state body.

France – Appraisals

Companies in France with 50 or more employees must take special care when introducing an employee appraisal scheme, whether or not it is linked to remuneration.  A recent Court de Cassation (Supreme Court) ruling makes it obligatory to consult the comité d’entreprise (works council) or integrated representative body and the health and safety committee before establishing an appraisal scheme.  According to the Court the involvement of the latter body is necessary because the introduction of any form of performance assessment is potentially stressful for employees and may endanger their mental health.

Pay in Europe 2008

Denmark continues to be the European country with the highest median hourly pay, but the gap between Denmark and Moldova , the lowest paying country in Europe , has narrowed significantly over recent years.  In 2006 the median hourly pay in Denmark was 70 times that in Moldova, but now, the ratio between the two countries has narrowed to 33 times.  The 5 top-paying countries below Denmark in 2006 were Norway , Switzerland , Liechtenstein , Luxembourg and Germany .  Now, the top 5 countries are the same, but their order has changed to Switzerland , Norway , Liechtenstein , Germany , Luxembourg . 

Belgium holiday leave

Much confusion still exists about whether May 2nd will be a public holiday in Belgium this year.  Because of the conjunction of Labour day and Ascension on May 1st, the Belgian government initially designated May 2nd as a public holiday.  Then, on January 9th 2008, the acting Labour Minister announced that May 2nd would only be a holiday for banks.  However, this decision has now been reversed again and May 2nd will be a public holiday unless another day has been designated under a sectoral collective agreement (before February 16th) or through a company-level agreement.

7. Directors

Various provisions of the Companies Act 2006 came into force on 6 April 2008 including the following:

• Private companies will no longer be required to have a company secretary although they may still choose to have one.
• New provisions for the executions of documents by companies come into effect.

The extension and codification of directors duties under the Act means that companies should reassess their insurance policies for directors and officers in view of the increased risks they could now face.  The review should also take into account the risks faced by directors under the new Corporate Manslaughter and Corporate Homicide Act 2007.

8. Age Discrimination

Standard Life Bank Ltd v Wilson UKEATS/0017/07

Age regulations affecting pension rights and benefits came into force after 1 December 2006. 

Mr Wilson was employed on a fixed-term contract until April 2006 when he reached 65 following his retirement in 2001 at 60.  He claimed in June 2006 that he had received less favourable treatment as a fixed term employee and the Bank had failed to make employers’ contributions to his pension between April 2001 and April 2006.  He then sought to amend his claim to include an age discrimination claim. 

He failed in his claim.  He was trying to inject unlawfulness retrospectively into the Bank’s acts during their employment relationship when they were lawful at the time they were carried out. 

Key point: This is the first reported case to raise the issue of construction of Regulation 24 which covers post termination discrimination.  Although this is a Scottish case, it provides useful guidance on Regulation 24. 

9. Same sex partner and entitlement under occupational pension scheme

Tadao Maruko v Versorgungsanstalt der deutschen Bühnen Case C-267/06

In 2001 under the relevant German law, Mr Maruko entered into a life partnership with a designer of theatrical costumes.  Since 1959 Mr Maruko’s partner had been a member of a pension institution responsible for managing old age insurance for the theatrical professions from the German theatres and their related survivors’ benefits.  Following the death of his life partner in 2005, Mr Maruko applied to the institution for a widower’s pension.  His application was rejected on the grounds that the regulations made no provision for such an entitlement in the case of surviving life partners.  The court which had to rule on the action brought by Mr Maruko referred to the Court of Justice of the European Communities the question whether a refusal to grant a survivors’ pension to a life partner constitutes discrimination prohibited by the Directive on Equal Treatment in employment and occupation.  The aim of that Directive is to combat inter alia discrimination on the grounds of sexual orientation.  However that Directive did not cover social security and social protection schemes, the benefits of which are not equivalent to pay within the meaning of Community Law. 

The Court was asked to determine first whether the survivor’s pension could be classified as pay.  The Court held that it could.  Although Germany reserves the right to marry solely to persons of a different sex, it had also established the life partnership, the conditions of which have gradually been made equivalent to those applicable to marriage.  The provisions of the pension institution restrict entitlement to survivor’s pensions to surviving spouses.  That being the case, and since life partners are denied the pension, the latter are thus treated less favourably than surviving spouses.  Consequently the Court ruled that the refusal to grant the survivor’s pension to life partners constituted direct discrimination on the grounds of sexual orientation, if surviving spouses and surviving life partners are in a comparable situation as regards pension.  It is for the German court to determine whether that condition is satisfied.

10. Race Discrimination

Mamedu v Hatten Wyatt Solicitors [2008] All ER 76

Mr Mamedu was from Nigeria and had trained as a barrister and solicitor.  He was offered work at the end of July 2006 as a locum solicitor by Hatten Wyatt.  He accepted the offer but prior to starting work the employer withdrew the offer and employed another candidate.  Mr Mamedu presented a claim for race discrimination and the Tribunal found Hatten Wyatt responsible.  In relation to the breach of contract claim the Tribunal decided that it could not succeed given that the employment was to be temporary and further it was terminable without notice at any time prior to the commencement of work.  The employer appealed against the finding of race discrimination and the employee cross-appealed against the dismissal of his breach of contract claim. 

His race discrimination claim was upheld and in respect of the breach of contract claim the appeal tribunal held that the tribunal, by basing its decision on whether the employee be entitled to notice of termination of his contract prior to the commencement of work, had applied the wrong test.  The case was a classic example of anticipatory breach of contract.  Accordingly, the withdrawal of the offer of employment had amounted to a breach of contract. 

Key point: The withdrawal of a job offer without cause before it commences may not mean that no compensation is due to the prospective employee. 

11.  Collective statutory grievances

Alitalia Airport v Akrif EAT

A valid collective grievance can be lodged by union representatives on behalf of a number of individuals who need not be identified in the actual grievance if they are identified in writing by the union subsequently.  However there must still be 28 days between the grievance identification of the individuals and submission of the tribunal claim form.  The EAT in this case left open a question of whether it is sufficient to identify employees by category, i.e. all union employees in a particular location.  However even where a union has not itself identified Claimants as included within the collective grievance but the Claimants had submitted statutory questionnaires in the union standard form making clear that they shared the same grievance, their tribunal claims were admissible. 

A statutory questionnaire can itself be a grievance but the EAT found that the collective grievance could be viewed as those Claimants’ individual grievances lodged by the union as their agent. 

Key point: This decision could cause employers some difficulty in identifying whether an employee who is not named by the union in or after a collective grievance, has made it plain that they share the same grievance and therefore should be invited to a meeting to consider the grievance. 

12. Share plans operated in 2007/2008

A reminder that companies with employee or director owned share options need to submit annual returns for 2007/2008 before 7 July 2008.  Form 40 is for EMI and approved plans, and Form 42 is for unapproved arrangements. 

13. Data loss

HSBC is facing the prospects of an investigation by the FSA after admitting it had lost a disc containing the details of 370,000 customers.  This latest data loss echoes last year’s breach by HMRC in which 2 CD’s with personal details of 25 million child benefit recipients were lost in the post suggesting that parties are a still long way from learning lessons when it comes to the secure handling and storage of data. 

HSBC has informed the FSA about the breach and it is thought the group could be investigated and face a fine if the Regulator finds the security was lax. 

14. Ill-health early retirement

Determination in complaint by Miss MR Murray 18 March 2008

The Pensions Ombudsman has upheld a complaint by Miss Murray against the trustees of the Royal Bank of Scotland staff pension scheme who wrongly refused her ill-health early retirement.  The trustees had accepted without question a medical practitioner’s opinion that on the face of it was not on the right basis and they had failed to request certification from an appropriately appointed and approved medical practitioner in the right terms at the right time. 

Miss Murray went on sick leave from April 1998 with stress.  The staff pension scheme provided for ill-health early retirement which she applied for.  Her application was put to the Bank’s medical adviser.  The medical adviser was asked whether she fell within the ill-health retirement criteria and if not how could they progress a suitable return to work. 

On 14 January 1999 the medical adviser replied that a return to work should be achievable with rehabilitation, set out the means of facilitating this and concluded that this condition did not constitute permanent incapacity.  On 16 April 1999 Miss Murray’s consultant psychiatrist wrote that her prognosis was good if she avoided contact with the Bank, but she would not be able to return to the Bank in any capacity although she may be able to take up useful alternative employment.  The Bank informed Miss Murray that her condition did not fill the ill-health retirement criteria and was dismissed in September 1999.  Miss Murray complained that the trustees had wrongly refused her ill-health retirement and the medical practitioner’s apology was not appropriate. 

The Ombudsman directed the trustees should request certification under the scheme rules from an appropriately appointed medically approved practitioner based on Miss Murray’s health at the date her service ended.  If the criteria were fulfilled her ill-health retirement pension must be paid from the date service ended with interest on back payments.  

Key point: This complaint emphasises the pitfalls for trustees who do not follow a scheme’s correct procedure to the letter.  The problem in this case was that the employment related health issues were confused with scheme related ill-health retirement issues with a result that the retirement procedures were not followed.  This is a reminder that trustees should do their best to keep the two aspects separate and that the best way to do this is to stick rigidly to the procedures specified in their trust deed. 

15. Temporary workers’ rights

The government is still trying to strike a behind the scenes deal with the European Commission over planned EU legislation on agency staff.  The UK has been left isolated in its opposition to the draft law which would give temporary workers full pay and conditions after 6 weeks in the job.  The government is seeking confirmation that a forum which the Prime Minister hopes to set up with unions and employers would allow the UK to apply the Directive sensibly. 

16. Territorial jurisdiction and unfair dismissal

Hunt v United Airlines Inc UKEAT/0575/07

The EAT considered in this case whether a flight attendant with United Airlines who transferred from Paris to London could claim unfair dismissal despite the fact that she had never worked at her new base in London due to long term sickness absence.  The Appeal Tribunal held that the correct approach in determining jurisdiction is to consider what was happening at the material time rather than the contractual entitlement or what might have happened had the facts been different.  Her argument that the correct question to ask was where the employee had been ordinarily working or based if she had not been absent through sickness was rejected. 

In February 2005 Ms Hunt was informed that she was to be transferred from United’s base at Charles de Gaulle Airport in Paris to Heathrow in London due to the expiry of her working visa in France .  On 24 February 2005, United wrote to the immigration authorities at Heathrow confirming that Ms Hunt would transfer to Heathrow on 1 April 2005.  Her transfer never became effective because she was absent from work due to illness from 10 March 2005 onwards and remained in France .  She was told in September 2004 that during her leave of absence she would report to the centre, as opposed to her home domicile.  In fact United closed their base at Charles de Gaulle airport although Ms Hunt continued to live in Paris .  Long term sickness issues were dealt with under an arbitration process with Ms Hunt in accordance with the US collective agreement, US law and the notice.  However the arbitration process was unsuccessful and Ms Hunt was invited to a disciplinary meeting on 6 February 2007 pursuant to the terms of the collective agreement. She did not attend and was dismissed one week later. 

She brought a claim for unfair dismissal and breach of contract in the Tribunal.  It concluded that she was not in employment in Great Britain at the time of her dismissal so it had no jurisdiction to hear her claim.  She appealed.  The EAT dismissed her appeal.  The EAT held that she could only establish jurisdiction if her base was shown to be London .  It was only necessary for the Tribunal to consider whether Ms Hunt’s base was or was not London .  It did not need to go further and state the location of her base.  The EAT found that since Ms Hunt’s transfer to London had never taken effect and that she had never had any contact with London the only active element of her employment was the management of her continuing ill-health absence and ultimately her dismissal which was directly managed from Chicago. 

Key point: The correct approach in deciding territorial jurisdiction is to consider what was happening at the material time rather than the contractual entitlement or what might have happened. 

17. When is controlling shareholder an employee?

Neufeld v A&N Communication in Print Ltd UKEAT/0177/07

A different division of the EAT has agreed in this case with the judge in Clark v Clark Construction (see Update 32, March 2008) as to whether a controlling shareholder of a company is also its employee.  In this case a 90% shareholder of a company was also its employee.  The case concerned the definition of an employee for the purpose of claims against the Secretary of State following the insolvency of a business.  The Claimant sought a redundancy payment, notice pay and holiday pay.  The Secretary of State contended that Mr Neufeld was not an employee and so his rights under section 182 of the Employment Rights Act did not apply.  This was despite the fact that he had a contract of employment as a salesman which was not a sham. 

Mr Neufeld had commenced employment in 1982 and he was a managing director as well as being part of the sales team.  He held 90% of the ordinary shares and his co-directors 5% each.  He was very much engaged in the business working 60 hours a week carrying out his sales and managerial roles. 

Two additional points of interest were also raised in the case:

• The date at which the individual status is to be considered is the date of the dismissal, not the date he or she is alleged to have entered into a contract of employment; and
• The fact that the individual has offered guarantees is not inconsistent with employment status. 

18. Redundancy or some other substantial reason

Martland v Cooperative Insurance Society Limited UKEAT/0220/07/RN

The case concerns whether a dismissal, when the workforce is immediately offered re-engagement on new terms and conditions of employment, amounts to a “redundancy dismissal” entitling the workforce to redundancy payments.  The Tribunal found such dismissals were not redundancy dismissals but were dismissals for “some other substantial reason”. 

The employees all appealed claiming that they had been dismissed because there was a reduction in the need for employees to do work of a particular kind i.e. work under those terms and conditions.  The EAT upheld the Tribunal’s decision holding that work of a particular kind referred to the generic types of job, in this case insurance salesman.  The Tribunal was entitled to find that the job was still essentially the same, despite the substantial changes to the terms and conditions of employment.  The employees were at all material times described as financial advisers.  The board when facing severe financial difficulties sought to implement a new operating model in order to transform its entire operation. 

Under the new terms the administration was to change so that there was very little customer contact.  The employer expected the financial advisers to increase by 50% the time spent selling.  When the financial advisers failed to agree new terms, their contracts of employment were terminated and they were offered new contracts on terms reflecting the changes to be introduced by the employer.  The employees refused to accept those new contracts. 

They presented claims that they had been dismissed by reason of redundancy and that they were entitled to a contractual redundancy pay worth significantly more than the statutory entitlement.  The Tribunal dismissed their claims holding that the changes to the way in which the work was reformed did not constitute a change in the kind of work within the meaning of redundancy under the statute.  The Tribunal went on to hold that had it found the employees had been dismissed by reason of redundancy it would have held that they were entitled to enhanced contractual redundancy payments.  The appeal and cross-appeal were dismissed. 

The EAT held that the Tribunal had correctly identified the principle issue being whether the effect of the new arrangements had been to alter the particular kind of work which the employees were carrying out.  The EAT agreed that they had not and on the materials before the Tribunal this was a proper conclusion for the Tribunal to have reached. 

Key point: Employers should always consider the “some other substantial reason” category for dismissal when contemplating a fair dismissal where no other reason fits precisely.