Employment Law Update

Issue No. 41

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.    Right to Legal Representation at Internal Disciplinary Hearing

R v The Governors of X School 2009 AER 181

The High Court held in this case that in certain circumstances an employee has the right to be represented by a lawyer and not just a workplace colleague (or union official) at an internal disciplinary hearing. 

The Claimant was employed as a music assistant at the school.  He was dismissed after an alleged breach of trust concerning a 15 year old boy.  The school had a duty to report whether he should be entered on the register of those who are unsuitable to work with children.  The school refused his request to be legally represented at the internal disciplinary hearings.  He sought a judicial review on the basis that the refusal was a breach of Article 6 of the European Convention on Human Rights – his right to a fair trial.  The Administrative Court held that the school was required to have regard to Article 6 and the internal disciplinary and appeal procedures had to be viewed as part of the same procedure as the Secretary of State’s procedure relating to entry on to the register of those unsuitable to work with children. 

Due to the gravity of allegations it was held that the Claimant should have been entitled to legal representation at the disciplinary hearing and his appeal as his potential right to claim unfair dismissal would not have been an adequate alternative remedy. 

Key point: Not all employees will be entitled to such an enhanced measure of procedural protection as employees do not have the right to be accompanied by their legal advisor unless this is agreed to.   

2.    Statistics

The Employment Tribunal Service’s latest statistics have been published.  They reveal a 43% rise in tribunal claims.  Equal pay disputes top the league followed by working time claims with unfair dismissal coming in third place.  Age discrimination claims leapt from 972 in 2006/7 to 2,949 in 2007/8. 

3.    Workplace Equality

ACAS has launched a new guide on equality and diversity in the workplace which aims to help employers review, implement and monitor their equality policies.

Complimentary copies of the guide are available on request.

4.    Is a Controlling Shareholder an Employee?

Secretary of State for BERR v Neufeld & Anor 2009 EWCA Civ 280

Mr Neufeld and Mr Howe were both controlling shareholders and directors of their respective companies.  They both claimed to have been employees of their now insolvent companies which they worked for and claimed entitlement to a payment from the Secretary of State.  BERR asked the court to clarify the approach that tribunals should adopt in dealing with similar cases given the present number of insolvencies and the consequential claims by directors for payment from the National Insurance Fund. 

The Court of Appeal upheld the EAT decision that both Claimants were employees.  It rejected the previous view that an individual could not be an employee if they were also a controlling shareholder of the company.  Lord Justice Rimer summed up the position as follows: 

“In a case in which no allegation of sham is raised, or in which the claimant proves that no question of sham arises, the question….for the court or tribunal will be whether the claimed contract amounts to a true contract of employment…..given that the critical question in cases such as those under appeal is as to whether the putative employee was an employee at the time of the company’s insolvency, it will or may be necessary to inquire into what has been done under the claimed contract:  there will or may therefore need to be the like inquiry as in cases in which an allegation of sham is made.  In order for the employee to make good his case, it may well be insufficient merely to place reliance on a written contract made, say, five years earlier.  The tribunal will want to know that the claimed contract, perhaps as subsequently varied, was still in place at the time of the insolvency.  In a case in which the alleged contract is not in writing, or is only in brief form, it is obvious that it will usually be necessary to inquire into how the parties have conducted themselves under it.”   

Key point:  This is an important case for Director shareholders but the parties’ conduct has to be consistent with the contract terms as at the date of the insolvency.

5.    Working Time

The second round of talks between the European Council of Ministers, the European Parliament and the European Commission aimed at reaching an agreement on proposals to amend the Working Time Directive has failed.  The future of the working opt-out and on call time remained the principal sources of disagreement. 

Apart from the UK, 14 other Member States make use of the opt-out but only 6 including the UK apply it across the whole of their workforce. 

As no agreement has been reached the current proposal for amendment will fall and the European Commission will have to consider whether to introduce new legislative proposals to amend the directive. 

6.    Disability Discrimination

Chief Constable of Dumfries & Galloway Constabulary v Adams UK EATS/0046/08/BR

The court had to consider in this case what the word “normal” meant when considering whether an activity was a “normal day to day activity” for the purposes of the Disability Discrimination Act 1995. 

In this case the skills required specifically of a policeman would not be a “normal day to day activity”.  However, where the activity was a common one across the range of work situations (namely walking around during night shifts) then it did qualify as a normal day to day activity. 

The court held that a police constable, who suffered from ME and had a mobility problem between about 2am and 4am at the end of working a night shift, was disabled.  On appeal it was argued by the Chief Constable that the tribunal should have determined that the constable was not disabled as when he was not at work he was not affected but this was rejected.

Key point:  Night shift activities can be a normal day to day activity for the purpose of disability discrimination.  

7.    Revised Tax Arrangements for Short Term Business Visitors

With effect from 6 April 2009 where an employee is expected to stay in the UK for 183 days or less in any 12 month period then so long as the UK company or branch will not ultimately bear the cost of the employee’s remuneration and certain other conditions are met the employer can agree with HMRC that they need not operate PAYE in respect of those duties. 

Until now when counting to 183 days for these purposes a part day is counted as a part day.  So someone spending 3 consecutive 8 hour days working in the UK was regarded as having spent 1 day in the UK for this purpose. 

With effect from 6 April 2009 a part day spent working in the UK generally counts as a day at present for the purpose of computing the 183 day period.  The example above would result in the employee having spent 3 days in the UK for this purpose. 

8.    Increase in Redundancy Payments

In his budget the Chancellor of the Exchequer announced that the maximum of a week’s pay for statutory redundancy payment purposes would increase from £350 to £380 making the maximum statutory redundancy payment £11,400.  However, the budget speech was silent about whether the basic award for unfair dismissal would also increase and when the change would come into effect.  The Government has now confirmed that the increase will take effect on 1 October 2009 and will remain in place until February 2011. 

9.    Further Budget News

From April 2011 the availability of higher rate relief on contributions to registered pension schemes will be restricted for those earning more than £150,000 a year.  Tapering will operate so those earning above £180,000 a year relief will only be available at the basic rate.  For money purchase schemes, contributions are protected provided that on or after 22 April 2009 the rate at which contributions are being paid under the arrangement does not increase otherwise than in accordance with an increased rate which was expressly agreed before 22 April 2009. 

From 6 April 2010 new top rates of income tax will apply for those with taxable income over £150,000.  Basic personal allowance for income tax from 2010 will be reduced for individuals with an adjusted net income of over £100,000.  The reduction will be £1 for every £2 over the income limit until the allowance is reduced to nil. 

Key point:  This change together with a restriction on tax relief for pension contributions will clearly have significant impact on high earning executives and will lead to individuals looking for other ways to reduce their tax liability or increase their pension savings.  Businesses should now be reviewing their remuneration strategies and executive incentive schemes to be more tax efficient. 

10.    Tips

Commissioners for HM Revenue & Customers v Annabel’s & ors

The Court of Appeal has held in this case that tips distributed through a “tronc” system do not count towards the National Minimum Wage.  The allocation of tips was not a payment by the employer.  In the interim the Government had already announced that it will legislate to ensure that no tips will count towards the National Minimum Wage from 1 October 2009. 

11.    Costs Award

Daleside Nursing Home Limited v Mathew

The EAT has overturned a tribunal’s decision not to make a costs order after it found that the central allegation of the Claimant’s case was a lie.  Having made such a finding the tribunal should have gone on to conclude that the Claimant had acted unreasonably.  It was perverse for the tribunal to conclude that this did not constitute a person acting unreasonably.  The lie was “so much at the heart of the case” that the tribunal had reached a perverse conclusion and was wrong in law to reject the application for costs.  The issue of the appropriate level of award for costs was remitted to the same tribunal.

12.    Financial Services Sector Pay

The European Commission has adopted a Recommendation on remuneration in the financial services sector.  It recommends that Member States should ensure that financial institutions have remuneration policies for risk taking staff that are consistent with, and promote sound and effective management.  The recommendation sets out guidelines on the structure of pay and the process of designing and implementing remuneration policies and on the role of supervisory authorities. 

The Commission has also adopted a Recommendation on directors’ pay.  The Recommendation invites Member States to adopt measures in four areas: structure of pay, governance, disclosure and supervision.  The Recommendation includes the bulk of bonuses being deferred to enable better judgment of performance and claw back clauses where data proves to have been materially mis-stated.

13.    Agency Workers’ Directive

On 8 May 2009 the Government launched a consultation on implementing the Temporary Agency Workers’ Directive in domestic law.  The Government is proposing that the equal treatment rules should apply only to those taking up temporary employment through an employment business and not those seeking permanent employment through an employment agency.  The Government takes the view that in the latter case a worker’s contract tended to be with the end user and the Directive was not intended to cover this situation. 

The Government intends to make use of a permitted derogation to provide that the equal treatment rule will apply only after the agency worker has been in the same job for 12 weeks. 

14.    TUPE

Royden and others v Barnetts Solicitors ET 2103451/07

An employment tribunal has held that the TUPE Regulations applied when a client moved its legal services between law firms.  The case concerned law firms H&B successfully tendering for conveyancing referrals to S.  The tribunal upheld two claims of two employees previously employed by L who had resigned.  They argued that the requirement by B that they relocate to Southport repudiated their employment contracts under either common law or Regulation 4(9) resulting in an unfair dismissal.  They also complained that B had failed to consult under Regulation 13. 

The fact that an employee registered his concerns and asks for them to be resolved does not amount to an objection to the transfer of employment under TUPE and so they had automatically transferred.  The employees’ employment contracts provided that their workplace was in the Birkenhead office.  There was no repudiatory breach of contract at common law because there was an implied mobility requirement but the requirement that they should work in Southport was a substantial change to their detriment under Regulation 4(9) entitling them to claim constructive dismissal.  The Tribunal also held that B had failed to inform and consult on the measures it was taking on the relevant transfer.

Key point:  Although the new firm B was not obliged to consult over the measures they were found liable for failing to do so. 

15.    Redundancy

Akavan Erityisalojen Keskuslitto AEK ry and others v Fujitsu Siemens Computers (C-44/08)

The Advocate General has delivered his opinion in this Finnish case concerning the EC Collective Redundancies Directive.  In his view the Directive’s consultation provisions are not necessarily triggered when an employer plans to take or indeed takes measures as a result of which collective redundancies are to be expected.  The duty to consult will arise where the employer intends to make collective redundancies or at least foresees the possibility of doing so.  Where a parent company contemplates redundancies therefore the employer’s duty to consult only arises once the parent company identifies the subsidiary to be affected.  The subsidiary employer must also conclude the consultation procedure before the parent company makes the final decision to dismiss.  

The overriding requirement in English law is for consultation to take place “in good time”.  Under TULR(C)A and the scheme of the Directive advisors should work backwards from the date on which the first of the dismissals occurs to examine whether the consultation began sufficiently far in advance of that date. 

Specific minimum periods must elapse between the start of the consultation and the date of the first dismissal if 20+ dismissals are proposed. 

Redundancy - Length of Service Criterion

Rolls Royce plc v Unite    14 May 2009 Court of Appeal

The Court of Appeal has held by majority that the inclusion of a length of service criterion in a redundancy selection policy constituted a proportionate means of achieving a legitimate aim.  Rolls Royce had asked the Court to consider and determine whether length of service within a selection matrix for a redundancy selection would be a breach of the Age Discrimination Regulations and therefore unlawful.  It was not. 

The legitimate aim was to reward loyalty and create a stable workforce in the context of a fair redundancy selection process.  Length of service was just one of the many criteria used by Rolls Royce for measuring suitability for redundancy but it was not determinative of the selection. 

Key point:  Rewarding long service by employees in a redundancy selection process is a legitimate employment policy. 

16.    Compromise Agreement void for ultra vires

Gibb v Maidstone and Tunbridge Wells NHS Trust EWHC 862

The High Court held in this case that a Compromise Agreement entered into between NHS Trust and its then Chief Executive was unenforceable because the NHS Trust had acted outside its powers in agreeing an “irrationally generous” compensation payment. 

Ms Gibb’s claim arose when the Department of Health instructed the NHS to withhold the compensation payment following signature of the Compromise Agreement. 

The Compromise Agreement provided a severance payment of £250,000 to Ms Gibb, of which £75,000 represented payment in lieu of notice and the remainder was compensation for loss of office.  The Department of Health authorised the Trust to make a payment to Ms Gibb of only £75,000 in respect of her 6 month notice period but to withhold payment of the remaining sum.  She brought a claim against the trust for approximately £175,000.  Her claims failed before the High Court. 

The Judge concluded the Trust would have reasonably assessed its liabilities to Ms Gibb arising out of the termination of her contract at approximately £145,000.  In assessing the level of compensation to be paid the non-executive directors were affected by their personal views of Ms Gibb and their desire to be generous to her in light of her previous good service.  Although the Trust was in breach of the implied term of trust and confidence in entering into the Compromise Agreement, this gave rise to no civil remedy for her. 

Key point:  The decision will be of interest to those carrying out senior level terminations.  Under company law there are specific constraints on severance payments to directors and shareholder approval is required for compensation for loss of office, employment under sections 215 to 222 of the Companies Act 2006. 

17.    Religion and Belief Discrimination

Nicholson v Grainger PLC and others ET 2203367/08

In this case the employment tribunal held that an individual’s beliefs about climate change were capable of being a “belief” for the purposes of the Employment Equality (Religion or Belief) Regulations 2003.  This is the first case in which a claimant has successfully argued that a belief which is not similar to a religious belief may be protected by the Regulations.  Mr Nicholson still has to show that he suffered discrimination on the basis of his belief.

18.    National Minimum Wage

The new rates to apply from 2009 are as follows. 

Workers age 22 and over - £5.80. 

Workers age 18 to 21 - £4.83. 

Workers 16 and 17 - £3.57. 

The Government has also announced that the adult rate will be extended to 21 year olds from October 2010. 

19.    Union Representation

The TUC, BERR and the CBI have launched a joint statement on the potential benefits of unionised workplaces and the positive contribution that modern union representatives can make to a workplace.  The statements features real-life examples where well-known companies have worked with union representatives to bring about changes that have been in the best interests of the employer and the workforce. 

Complimentary copies of the “Reps in Action” are available on request. 

20.    Equality Bill

The Government has now published its long awaited Equality Bill.  It replaces over 100 existing discrimination measures with one single piece of legislation.  It introduces the concept of protective characteristics namely sex, race, disability, age, sexual orientation, religion/belief, gender reassignment, marriage and civil partnership, pregnancy and maternity.  The Bill aims to harmonise the myriad of discrimination legislation currently on these topics in force and to simplify existing discrimination and equal pay law. 

Further updates will be provided on key points as the Bill develops and comes into force.

21.    Stress Claim

Connor v Surrey County Council (unreported)

The High Court upheld a head teacher’s negligence claim and awarded her £387,788 in damages, not including interest and past loss.  After a detailed analysis of two years of anxiety and low morale in the school the Court held that the Council ought to have considered that Mrs Connor, the head teacher, was at risk of psychiatric injury from stress and it had breached its duty to put a stop to her stress so far as it was within their power. 

Mrs Connor joined the school in 1994 and continued as head until September 2005.  Under her leadership the school’s SATS results improved.  In 2003 several new members joined the school’s governing body, two of whom caused Mrs Connor considerable problems.  One of them sought to stir up disaffection in the local community by circulating a petition against Mrs Connor. 

She brought a claim against the Council and the local education authority for psychiatric injury resulting from negligence, breach of the protection from Harassment Act 1997, breach of the duty of trust and confidence, breach of the statutory duty under the management of

Health and Safety at Work Regulations 1999.  It was found that the LEA disregarded her health and welfare and that of her staff. 

Key point:  Employers should always take care for the health and safety of employees and in particular to support employees and investigate stress claims diligently.  The financial consequences of not doing so could be disastrous.

22.    EU

Belgium

A new Belgian law on the revival of the economy now requires all employers undertaking a collective redundancy to establish a special coordinating body called an “employment cell”.  This will be composed of employee and employer representatives, together with external outplacement consultants.

The cell is responsible for organising counselling, competency screening, training and advice on interview techniques.  Workers selected for redundancy must be paid a “redirection indemnity” in addition to payment for or in lieu of notice.  This indemnity must continue for 9 months if an employer is under 45 years old and 3 months if they are 45 or more. 

Plans are also being finalised for several measures to encourage employees to avoid redundancies.  From 1 July 2009 employers will be able to reduce the working time of employees either by 20% or by 50% for a maximum of 6 months.  The state will compensate those laid off for 20% of their time with a monthly flat rate allowance of €188 and those laid off by 50% with an allowance of €440. 

Agreement on Parental Leave

A draft agreement on parental leave has been drawn up by the EU umbrella group, Business Europe and the European Trade Union Congress increasing the minimum leave period from 3 to 4 months and extending the maximum age of a child for which parental leave may be taken from 8 to 9 years.  The agreement requires employees to give a minimum notice period before starting leave and to specify in advance when they would be returning to work.  Each parent would be required to take at least one month of leave and employers will be obliged to consider and respond to a request from returning parents to changes in their working hours.  The agreement contains no facility for payment during leave and this would remain an issue for individual EU member states to resolve.  The draft is currently being circulated among member organisations at a national level.   

23.    Post Termination Discrimination

Rank Nemo (DS) Ltd and others v Coutinho [2009] EWCA Civ 454

The Court of Appeal held that a former employee could proceed with a victimisation claim founded on the employers’ unexplained conduct in failing to pay a tribunal order for unfair dismissal and race discrimination.  The Court held that the fact that an employment tribunal had no jurisdiction to enforce an unpaid award did not prevent it from investigating whether the reasons for the non payment of the debt established a sufficiently close link between the previous employment relationship to support a claim for post termination discrimination. 

Mr Coutinho had been found to have been unfairly dismissed and discriminated against by his employer Vision and was awarded £72,000.  Rank who acquired liability for this award from Vision under TUPE inexplicably failed to pay this.  The Tribunal will now adjudicate on the claim. 

Key point:  The case raises the possibility that employers who evade their obligations to pay judgment debts could, where there has been a protected act for the purpose of discrimination legislation and subject to double recovery considerations, be liable for the original tribunal award and damages for victimisation. 

Since 1 April 2009 employers who failed to pay tribunal awards now also face being named and shamed in the register of judgments, orders and fines once enforcement proceedings are brought against them in a county court. 

24.    Poaching a Competitor’s Workforce

Tullett Prebon PLC and others v BGC Brokers LP and others [2009] EWHC 819

In this case a number of Tullett Prebon employees were poached by BGC.  The High Court ordered that BGC be prevented from approaching any other UK based employees of Tullett Prebon pending trial in July.  The Court accepted the offer of forward contracts by BGC to the employees which would only start after their obligations to Tullett Prebon have fallen away, was not necessary unlawful.  However the wide scope of the order was justified because there was evidence that BGC had tried to fabricate cases of constructive dismissal in order to justify recruits leaving early and en masse. 

The Court referred to BGC’s disregard of the law and employee’s duties and acknowledged that their tactics were likely to destabilise the substantial part of Tullett Prebon’s workforce. 

Key point:  The decision shows the Court’s willingness to grant orders preventing parties from carrying out apparently lawful activities on the basis that if the order was not granted those parties could take unfair advantage of the situation they had created.