Employment Law Update

Issue 43

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.

Very warm compliments of the season from the Employment Group and best wishes to all for a successful 2010. 

1.        The year ahead and beyond

In the Queen’s speech on 18 November 2009 there were a number of proposals affecting employers.  Progress of these bills will depend on the Election next year.  The present Government intends to pursue the Equality Bill tackling discrimination, equality and pay which is due to come into force in October 2010, the Financial Services and Business Bill and the Agency Workers Regulations.  It is still the Government’s intention to provide agency workers with the right to be treated equally with permanent staff for pay, holidays, working hours and other basic conditions.  Equal treatment will apply however from day one of the job. These Regulations are to be deferred until October 2011. 

The ACAS Code of Practice on time off for training and duties and activities is due to come into force in January 2010.  Regulations outlawing trade union blacklists are due to come into force between January and April 2010. 

The Apprenticeship Skills, Children and Learning Bill is due to come into force in September 2010 and finally the Government intends to introduce the right to request time off to train for businesses with more than 250 employees in April 2010 (and to extend this to all businesses in April 2011 or later).

2.        Directors’ residential addresses  

As from 1 October 2009 all directors (and company secretaries if the company has one), must provide a service address as well as a residential address.  Only the service address will appear in the Companies Register of Directors.  This enables directors to have residential addresses kept private.  Existing directors will continue to have their residential addresses publicly available until such time as they apply to change the address for service. 

3.        Company cars

Advisory fuel rates from 1 December 2009 have been issued by HMRC which will apply to all journeys on or after 1 December 2009 until further notice.  These range from 11p to 20p.

4.        Compromise Agreements – entire agreement clause

Personnel Hygiene Services Ltd v Mitchell [2009] ETCA Civ 1047

Covenants in a Compromise Agreement which contained an entire agreement clause do not replace those in a share purchase agreement under which the employee had sold his shares. 

Mr Mitchell was employed by Rent a Crate Ltd under a service agreement which contained restrictive covenants.  He sold shares in his employer’s holding company to PHS under a share purchase agreement.  That agreement also contained restrictive covenants on Mr Mitchell.  Six weeks after the sale his employment was terminated and he entered into a Compromise Agreement with his employer and PHS which contained restrictive covenants that were different to both those in his contract and the SPA.  The Compromise also contained an entire agreement clause.  PHS applied for an interim injunction to enforce covenants in the SPA.  It was held that the Compromise Agreement was clearly intended only to replace the covenants in the service agreement. 

Key point:  When drafting and negotiating Compromise Agreements employers should ensure that contemporaneous or existing shareholder agreements or share purchase agreements are also considered to ensure that any restrictions on the departing employee are not adversely affected. 

Compromise Agreements – breach of confidentiality clause

Dunedin Canmore Housing Association v Donaldson 2009 UKEAT 0014/09

Ms Donaldson entered into a Compromise Agreement with her employer following her dismissal.  This provided for the payment of certain sums of money and bound her to keep the fact of the agreement and its terms strictly confidential. 

Dunedin withheld payment from her on learning that she had breached the confidentiality clause.  The Tribunal found that Dunedin were in the circumstances entitled to withhold payment.  At a second hearing Dunedin sought an award of expenses as the original Tribunal had earlier refused their application for expenses on the basis that Ms Donaldson had not acted unreasonably in giving an explanation as to her disclosures although these assertions were found to be false.  The EAT ordered Ms Donaldson to pay Dundedin’s legal costs.  This case follows the earlier judgment in Daleside Nursing Home Ltd v Mathew which held that it was perverse for a Tribunal not to award costs where the central allegation of racial abuse was a lie.

Key point:  Although costs awards are rarely made, where there is a gross abuse of the process employers should not be shy about seeking costs. 

5.        Model clauses for mediation in employment cases

The Centre for Effective Dispute Resolution has updated its model clauses for mediation in employment contracts and policies.  Complimentary copies of the clauses are available on request. 

6.        Avoiding and resolving discipline and grievance issues at work

The Department for Business, Innovation and Skills, the Chartered Institute of Personnel and Development and ACAS have collaborated to produce a joint leaflet to inform employers about dealing with workplace disputes.  Complimentary copies are available on request. 

7.        Immigration - points based system changes

From 14 December 2009 in respect of new advertising campaigns all jobs in the UK affected by the resident labour market test for Tier 2 of the points based system will have to be advertised in a Job Centre for up to 4 weeks before employers can look for staff from outside Europe.  In addition in Spring 2010 overseas workers who want to transfer to the UK base of their company will have to work for that company for 1 year rather than just 6 months prior to the move.  The minimum salary which allows a worker to qualify as a skilled worker will also then rise from £17,000 to £20,000. 

These moves are intended to ensure British workers are first in line for the jobs and also have longer to apply.

Immigration – Progress of Bill

The draft Immigration Bill has been published.  There are currently 5 categories of leave that may be applied for by those seeking entry to the UK and these will be replaced with a single concept of “immigration permission”, with permission either being temporary or permanent.  The aim is to strengthen border control, simplify the immigration process and streamline the removal of those who do not have the right to remain in the UK. 

8.        Executives’ pay

The CIPD has launched a set of general principles on executive pay designed to act as a framework to help companies develop executive remuneration policies, practices and structures.  The principles provide a framework to test remuneration practices which should be sustainable over time particularly in the context of the current debate around executive pay. 

The National Association of Pension Funds has written to the Chairmen of Britain’s top 350 companies urging executive pay restraint and making it clear that company remuneration should be aligned with long-term interests of shareholders, including pension funds.  The growing trend of deferring parts of bonus payments into shares is good practice and the Association expects more companies to go down this route in 2010. 

In the meantime the Chancellor introduced the Financial Services Bill in the House of Commons on 19 November 2009.  The Bill contains a requirement for the FSA to regulate financial sector remuneration, to promote effective risk management and compliance with international standards.  The Bill contains provisions about executives’ remuneration reports and new FSA duties and powers to regulate remuneration. 

9.        Women’s bonuses

The Equality and Human Rights Commission has published its Finance Service Inquiry into sex discrimination and the gender pay gap.  It finds that there is still a major difference in performance related pay received by male and female finance workers.  The EHRC recommends that firms set gender equality as a business objective and it will encourage the Government to strengthen the pay secrecy clause in the Equality Bill.

In the interim the EHRC is currently compiling 5 Statutory Codes of Practice and non statutory guidance to be used in conjunction with the Equality Bill when enacted in 2010. 

10.        Constructive Dismissal – compensation

Stuart Peters v Bell 2009 EWCA Civ 938

Ms Bell was found to have been unfairly dismissed by her employer SPL.  She had been constructively dismissed when resigning in response to her employer’s conduct which the Tribunal found had undermined the trust and confidence in the employment relationship.  She was entitled to a 6 month contractual notice period.

The Tribunal found that she could effectively mitigate her loss by obtaining employment at the same level of remuneration at the end of her notice period.  The compensatory loss was therefore limited to the loss suffered during her notice period.  During this period she found temporary work for a different employer covering a period of some 3 months.  SPL claimed that Ms Bell should give credit for those sums. 

The Tribunal declined to offset these earnings against the compensatory award on the grounds that to do so would be inconsistent with the principle in Norton Tool that employers who summarily dismiss their employees should not be entitled to the benefit of sums earned by them during their notice period. 

The Court of Appeal disagreed, holding that the Norton Tool principle does not extend to constructive dismissal claims and Ms Bell had to give credit for sums earned from other employment during the notice period.

Key point: This case prevents the employee receiving windfall compensation in these narrow circumstances. 

11.        Collective redundancies

Akavan Erityisalojen Keskusliitto AEK ry and others v Fujitsu Siemens Computers Oy

In this case the ECJ ruled that the duty consult under the EC collective redundancy Directive was triggered where the strategic decisions or change of activities were taken which compelled the employer to contemplate or plan collective redundancies.  In a corporate group, the duty to consult only arises however once the parent company identifies the subsidiary to be affected and is not dependent on the subsidiary employer being able to supply all necessary information to employee representatives.  The subsidiary employer must conclude the consultation procedure before the parent company makes the final decision on the redundancies. 

Key point:  A critical issue for employers in a collective redundancy situation is when does the obligation to hold consultation with their employees arise. 

12.        Time off for civic duties

The Government has now published its response to the consultation on proposals to widen the range of civic duties for which employees are entitled to take time off work and ways to encourage people to take on governance roles in other organisations.  The Government intends to produce an information pack for employers explaining what is involved in volunteering and how volunteering can help their businesses. 

13.        Equal pay – service related pay schemes

Wilson v Health and Safety Executive 2009 EWCA Civ 1074

Ms Wilson was employed by the HSE as an inspector in Band 3.  In 2002 she presented a claim under the Equal Pay Act 1970 taking as comparators 3 male inspectors who were paid more partly because of their longer service record and as a result of HSE’s incremental scale pay which varied with length of service, typically up to ten years.  The Tribunal accepted HSE’s argument that it did not need to justify the length of service criterion because of the Danfoss ruling that service related pay was appropriate.  Ms Wilson appealed. 

The Court of Appeal held that an employer can be required to provide objective justification for the way in which it has applied a length of service criterion as well as its adoption in the first place.  The Court also gave guidance on when the burden of proof shifts to the employer to establish that the length of service criterion is appropriate. 

Key point:  The legal burden of proof in relation to objective justification including proportionality remains on the employer in accordance with ordinary principles under the Equal Pay Act 1970. 

14.        Age discrimination – Heyday decision

The High Court has held that the UK’s default retirement age of 65 is lawful. 

The Court was satisfied the Government had proved to the requisite high standard that the default retirement age was a proportionate means of achieving legitimate social policy aims such as securing the integrity of the labour market and its short term competitiveness.  The Court might have reached a different conclusion if the Government had not brought forward a review of the Age Equality Regulations to 2010.  2 days before trial the Secretary of State for Business Innovation and Skills announced it would review regulation 13 in early 2010.  The Equality and Human Rights Commission considers that 70 is the earliest appropriate age for the default retirement age but this has little popular support. 

Age Discrimination - Failure to redeploy

London Borough of Tower Hamlets v Wooster UKEAT/044/08

Mr Wooster was employed by Tower Hamlets on secondment.  Under the terms of his pension scheme he would be entitled to an early retirement pension if he remained in the Council’s employment until his 50th birthday in July 2007.  In October 2006 he was notified that his secondment was coming to an end and that unless alternative employment within the Council could be found he would be dismissed for redundancy in 12 weeks’ time. 

In the absence of any suitable alternative role being identified his employment was terminated at the end of December.  In the lead up to his redundancy, Council refused an offer by the seconded employer to extend his secondment until he became entitled to his pension.  Mr Wooster brought a claim for unfair dismissal and unlawful age discrimination.  As the Council had failed to comply with the statutory dismissal procedure the dismissal was automatically unfair and it was held that he had been discriminated against, as an employee who was not aged 49 would not have been treated in the same way. 

Key point:  Employers should be cautious about dismissing an employee so close to retirement age where this would deprive him or her of access to age related employment benefits.  However there may be circumstances in which a dismissal might be justified on the grounds of costs.

Age discrimination – avoiding early retirement

Woodcock v Cumbria Primary Care Trust

In this case the Tribunal held that an employers’ decision to dismiss an employee before his 49th birthday in order that he would not become entitled to substantial early retirement and pension benefits was less favourable treatment on the grounds of his age.  However the treatment was justified since it was a proportionate means of bringing an end to the Claimant’s employment and thus avoiding the additional cost of enhanced benefits.

Mr Woodcock had been employed as Chief Executive of the North Cumbria PCT.  His role disappeared under the restructuring plans of the National Health Service.  He was unable to secure alternative employment by the PCT who became aware that if he remained in employment until his 50th birthday, he would be entitled to early retirement and enhanced pension benefits which would cost the PCT in the region of up to £1m.  He was therefore sent a letter on 23 May 2007 giving him 12 months’ notice of his dismissal for redundancy to take effect just before his 50th birthday. 

Taking into account that he had been paid a substantial redundancy payment of some £230,000 the Tribunal considered that Mr Woodcock had been treated unreasonably by being dismissed without a consultation meeting.  The dismissal was however a proportionate means of pursuing the PCT’s aims of preventing Mr Woodcock becoming entitled to a windfall with the result that the dismissal was justified under the Age Regulations. 

Key point: Cost cannot be the sole justification for age discrimination but it can be included in the balance with other justifications, unlike the Wooster case above where the Respondents did not raise a defence of justification. 

Age discrimination – factors for objective justification

Pulham and ors v London Borough of Barking and Dagenham UKEAT/0516/08

In this case the EAT had to consider whether an employer was able to objectively justify the continuation of a remuneration scheme which relied on both length of service and age after 1 October 2006 when the Age Regulations came into force. 

The Council operated a scheme to reward loyalty and experience under which employees were paid increments provided they had completed 25 years’ service and were aged over 55.  Ms Pulman satisfied the length of service criterion but was not old enough to join the scheme.  Although the Council identified the policy as potentially discriminatory it agreed with the unions that it should deal with it in the course of negotiating a single status agreement.  When this was agreed with the majority of unions it was treated as taking effect from 1 April 2007 and closed to new entrants. 

Ms Pulman was then told that since she was not currently receiving payment she was not entitled to any payment under the scheme.  The Council’s aim was to modify the scheme to remove the illegality resulting from the Age Equality Regulations and this was therefore a legitimate aim and reflected the interests of the workforce as a whole, so the discrimination was justified.  Ms Pulham appealed. 

The EAT considered the Tribunal’s reasoning was flawed in that the correct question was whether it proportionate for the Council to have pay protection arrangements in place which continued for a substantial period where there was a difference in treatment based on age. 

Key point:  Employers must be able to provide Tribunals with sufficient information about the costs of changing such a scheme.  The fact that a scheme or policy may have union or workforce support is not an automatic route to justification. 

Default retirement age consultation

The Government has asked businesses and individuals to submit evidence on the default retirement age for the review taking place next year.  The law around employment and retirement needs to reflect changes in economic and social circumstances.  The Government is asking for evidence by 1 February 2010 including the following:

• The operation of the default retirement age in practice.
• The reason that businesses use mandatory retirement ages.
• The impact on businesses, individuals and the economy of raising or removing the default retirement age.
• Experience of businesses operating without a default retirement age.
• How could any costs of raising or removing the default retirement age be mitigated and benefits realised.

Age discrimination: redundancy payment scheme

ABN Amro v Hogben 2009 UKEAT/0266/09 

Mr Hogben was employed at ABN until his dismissal for redundancy with effect from August 2008.  He was head of structured funding and investments and a post at managing director level.  His redundancy was as a result of the integration process which followed the takeover of ABN by RBS in mid-2007.  He was unsuccessful for three new roles and in November 2008 he presented a claim in the Employment Tribunal complaining of unfair dismissal and age discrimination.  He claimed that his non-selection for the three roles was discriminatory on the grounds of age, age discrimination in respect of his bonus, and age discrimination in respect of his enhanced redundancy payment because depending on the length of service, younger employees were unable to achieve the same level of payment as older employees with longer service.  All of his claims were struck out, save his claim that the length of service element in the Bank’s redundancy payment scheme was discriminatory.  In respect of his other claims there were no facts indicative of any discrimination. 

15.        Compensation: aggravated and exemplary damages

Ministry of Defence v Fletcher UKEAT/0044/09

The Employment Appeal Tribunal has upheld claims brought by Ms Fletcher against the Ministry of Defence for sex discrimination.  During her service with the Army, she was subjected to direct discrimination and harassment and victimised following appallingly inappropriate behaviour by her superior.  The Tribunal awarded Ms Fletcher compensation for pecuniary losses, £30,000 for injury to feelings, £20,000 aggravated damages, £50,000 exemplary damages and £10,000 in respect of costs.  The Tribunal considered the behaviour towards Ms Fletcher had been high handed, oppressive and unconstitutional.  The MOD appealed alleging that the claim did not warrant an award of aggravated damages, there was an element of double recovery arguing whether the Tribunal had had proper regard to the totality and proportionality of the awards for non pecuniary loss.  In other words, were the awards perversely high?

The EAT reduced the aggravated damages award from £20,000 to £8,000 and set aside the award of exemplary damages in its entirety.  These types of awards are rare and the Appeal Tribunal found that the Tribunal had not been entitled to make an award of exemplary damages.  Although the Army’s failures were oppressive, arbitrary and unconstitutional these were not sufficient to warrant an award of exemplary damages. 

In the light of the authorities the EAT held that it would have awarded Ms Fletcher no more than £7,500 had it been possible to award such exemplary damages. 

Key point:  Total damage awards in discrimination claims should be proportionate taking into account for example the value in every day life of the amount of money in issue.

16.        Compensation: injury to feelings in discrimination cases

Da’Bell v NSPCC UKEAT/0227/09

In this case the judge indicated that the Vento damages for injury to feelings in discrimination cases should be increased for inflation as follows:

• lower band: up to £6,000;
• middle band: up to £18,000;
• upper band: up to £30,000;

Ms Da’Bell started work for the NSPCC in 2002.  She was fitted with a pacemaker and the NSPCC accepted that she was disabled.  The Tribunal upheld her discrimination claim in part because of the NSPCC’s failure to follow some of the recommendations made by the reports and the delay in dealing with her grievances.  The Tribunal awarded her £12,000 for injury to feelings to which interest of £2,160 was added.  The NSPCC cross appealed the amount of the injury to feelings award.  This was dismissed, as the applications of the Vento guidelines was not an exact science.  The Tribunal had had sufficient information before it to make the award it made in the middle of the Vento band. 

Key point:  Employers will not welcome the increase but the EAT did not give general advice on the approach to be taken in future cases or as to the fixed nature of the bands for the foreseeable future.  Placement of a claim in the wrong band is likely to give rise to an appeal.

17.        Flexible working

The Equality and Human Rights Commission has published a guide designed to help business managers to discover and implement innovative working methods which improves productivity and customer service to enable employees to balance their work and personal lives.  A complimentary copy of “Working Better: A Managers Guide to Flexible Working” is available on request.

18.        Holiday pay on termination

Beijing Ton Ren Tang (UK) Ltd v Wang UKEAT/0024/09

In this case the EAT upheld the Tribunal’s decision that an employee had the right under her oral employment contract to pay in lieu of untaken holiday entitlement to the whole period of employment not only her final year.  She accrued 30 days’ per year under and had taken hardly any of her holiday during her 7.5 years’ employment.  On termination the Tribunal held that she was entitled to 131 days’ pay in lieu.  The employer argued that under the Working Time Regulations holiday may not be carried over from one year to the next and that only untaken holiday accrued in the final year could be paid in lieu. 

The EAT disagreed as her claim was one under contract.  Since the contract gave her greater rights than the Working Time Regulations it was enforceable.  This case concerned the interpretation of a specific oral agreement and sets no general precedent for pay in lieu of holiday and termination.  However, the case suggests the “use it or lose it” principle under the Working Time Regulations may be disapplied in a contract of employment claim. 

Key point:  Employers and their advisers should take care with the way in which employment contracts deal with accrued holiday on termination.  Where there is an express right to pay in lieu of untaken holiday on termination, employers may wish to explicitly limit this to holiday for the year in which the termination takes place. 

19.        Whistleblowing: protected disclosures

Cavendish Munro Professional Risks Management Ltd v Geduld

Mr Geduld was a director, shareholder and employee of Cavendish.  By late 2007 the relationship between Mr Geduld and Cavendish was acrimonious and he met with two directors in January 2008 to discuss the future of the company and a possible buyout of shares.  No agreement was reached and his solicitors wrote a letter on his behalf to Cavendish alleging unfair prejudice to their client as a shareholder by the alleged actions of the company’s accountant regarding the purported valuation of his shares.  On receipt of this letter, Mr Geduld was dismissed. 

He brought a claim for unfair dismissal on the basis that he had been discriminated against as a direct result of the letter which contained a qualifying disclosure as it referred to legal obligations with which the other directors had failed to comply.  The Tribunal agreed and Cavendish appealed.  The EAT upheld the appeal.  The solicitor’s letter which set out the objections to the way in which he had been treated and complaints that he had suffered unfair prejudice as a shareholder, did not amount to a protected disclosure.  It was simply a statement of the employee’s position which was designed to bring about a settlement in relation to the termination of his employment.  Mr Geduld had not been unfairly dismissed. 

Key point:  The letter was part of an ongoing dispute and there was no protected disclosure but not every letter will have the same status. 

20.        Religious discrimination

Grainger plc and others v Nicholson UKEAT/0219/09

Mr Nicholson was head of sustainability at Grainger plc and was made redundant in 2008.  He successfully argued that his belief in man-made climate change and the existence of a moral duty to live in a way that mitigated or avoided it, was capable of being a “philosophical belief” for the purposes of the Religion or Belief Discrimination Regulations. 

The case will now proceed to a hearing on the substantive merits of whether Grainger did actually discriminate on the grounds of his belief when dismissing him for redundancy. 

The EAT found that to fall within the Regulations a belief must concern a weighty and substantial aspect of human life and behaviour and have a similar status to a religious belief.  Mr Nicholson was able to demonstrate that his belief in climate change was so great that it affected many of his lifestyle changes such as not travelling by aeroplane, his choice of home and what he bought.  The EAT set out in the case guidelines for determining what is a “philosophical belief” for the purposes of the Regulations. 

Key point:  The case raises uncertainty about what could constitute a belief under the Regulations but employers should always try to address any issue an individual finds offensive in the workplace in order to find a practical and sensible solution to the problem before it escalates or gives the employee a right to claim discrimination. 

21.        Disability discrimination: “associative” discrimination

EBR Attridge Law LLP v Coleman UKEAT/0011/09

The EAT has upheld the decision of the employment judge that the Disability Discrimination Act 1995 is capable of being interpreted so as to protect people who suffer discrimination or harassment by reason of the disability of another person.  The case will now be remitted to the Tribunal to be considered on its substantive merits. 

Key point:  For the purpose of all acts of discrimination on or after 1 October 2004 the effect of the EAT’s judgment is that the Act should be read as if new sub-sections were added.  This judgment will primarily and immediately affect carers of disabled people where they are treated less favourably or are subject to harassment because of the disability of the person they care for. 

22.        Disability Discrimination Act - voluntary workers

X v Mid Sussex Citizens Advice Bureau UKEAT/0220/08

The EAT upheld a Tribunal’s decision that a voluntary worker whose volunteer arrangements with the CAB were non-contractual, could not pursue employment claims against that organisation under the Disability Discrimination Act. 

Ms X worked for 4-5 hours a week as a volunteer which was described as “binding in honour only and not a contract of employment or legally binding”.  She was not obligated to provide services and while she undertook a wide range of advice work she often did not attend work when she was expected to (some 25% - 30% of the time).  When the CAB asked her to cease working there, she brought a claim under the DDA. 

Key point:  Employers using volunteers should review the contractual documentation they have detailing the arrangements between them. 

23.        Disability discrimination - exemption from making reasonable adjustments

DWP v Alam UKEAT/0242/09

Mr Alam was given a 12 month written warning after leaving work early one day without permission.  A GP report produced for the purposes of his subsequent disability discrimination claim stated that at the relevant time he suffered from symptoms of depression, as a result of which he sometimes had severe headaches and was apt to lose concentration and also his temper.  The Tribunal found that Mr Alam’s conduct in failing to secure permission before leaving was a symptom of his disability and the employer failed to make a reasonable adjustment when it gave him the warning. 

DWP appealed the decision on the basis that it did not know that Mr Alam was disabled at the time it made the decision to give him a warning. 

The EAT held in this case that when deciding whether the exemption from the duty to make reasonable adjustments applies, two questions arise: 1) did the employer know both that the employee was disabled and that his disability was liable to affect him in the manner set out in s.4A(1) of the DDA?  If the answer to that is no then there is a further question 2) ought the employer to have known that the employee was disabled and that his disability was liable to affect him in the manner set out in s.4?  DWP’s appeal was successful.

Key point:  Employers should take note of this two stage test. 

24.        Discrimination compensation: stigma loss

Chagger v Abbey National plc and another EWCA Civ 1202

The Court of Appeal held that in a case involving a discriminatory dismissal an employer can be liable for stigma compensation where other employers are unwilling to employ the dismissed employee because he brought discrimination proceedings. 

Mr Chagger was dismissed by reason of redundancy and Abbey National was held to have discriminated against him on the grounds of race when dismissing him.  He was awarded nearly £2.8m in compensation.  This figure was calculated on the basis that he would never be able to obtain employment in the financial services sector again together with compensation for Abbey National’s refusal to comply with an order for reinstatement and compensation for injury to feelings as well as an uplift for the failure to follow the now repealed statutory dispute resolution procedures.  

Mr Chagger cross-appealed on the 2% uplift but was unsuccessful on the basis that any other figure would have resulted in a sum which was disproportionate to the nature of the breach.  The Court of Appeal upheld Abbey National’s appeal on quantum in part and remitted the issue of compensation to the Tribunal for further consideration. 

It held that the Tribunal ought to have considered reducing Mr Chagger’s compensation to reflect the chance that even without discrimination he would have been dismissed for redundancy. Mr Chagger was one of only two candidates in the selection pool.  Therefore there was a realistic chance that Mr Chagger would have been dismissed even if the redundancy selection had taken place and the compensation should have been reduced to reflect that chance. However compensation for future loss should not be limited to the period during which Mr Chagger would have remained in employment with Abbey National.  Abbey could and was liable for stigma consequences in Mr Chagger bringing his discrimination claim.

Key point: This case is a useful clarification of the principles to be followed in assessing the level of future loss in a discriminatory dismissal case. 

25.        Tax: hired or fired

From December 2009 HM Revenue & Customs will begin issuing a warning to companies with 50 or more employees that fail to notify them via their online service about new and terminated employees. 

From 6 January 2010 HMRC will start fining larger companies that continue to notify them in paper form.  These penalties range from £100 to £3,000 according to the volume of submissions.  These requirements apply not only to British citizens resident in the UK but also to foreign nationals posted to the United Kingdom, foreign nationals returning home from the UK and British citizens posted abroad. 

26.        Notice during parental leave

Meerts v Proost NV ECJ 2009 AER 259

In this Belgian case, the ECJ held that the EC Framework Agreement on parental leave entitles workers, dismissed without the statutory period of notice while on part time parental leave, to be paid compensation based on his or her full-time salary rather than on the reduced salary received while on parental leave.

Key point: In the UK, an employee is not entitled to be paid his or her full salary in respect of the contractual notice period that falls within a parental leave period only parental leave pay. 

27.        TUPE: failure to consult

Cable Realisations v GMB 2009 UKEAT 0538/08

This case concerns the obligation to inform and consult with affected employees in a transfer situation.  Under TUPE an employer may be liable if it has failed to comply with the requirement to inform and consult the representative long enough before the relevant transfer to enable the employees to consult with their appropriate representatives.  This arises even if no measures are contemplated in relation to the transfer. 

In this instance, for a large period of time after the information was provided the factory was closed for the annual summer shutdown.  Without that shutdown there would have been sufficient time to allow consultation to have taken place.  The Tribunal awarded 3 weeks’ wages in respect of each of the union members who were affected.  Cable appealed and the employees also challenged the award of 3 weeks’ pay.  Although the maximum award is 13 weeks’ pay the EAT held that this was not a case in which no information had been provided.  There was no failure to engage in mandatory consultation.  The award reflected the justice of the case.

Key point:  Employers should heed the financial risks of failing to consult properly whether or not it is obligatory. 

TUPE: employers consultation obligations

Royal Mail Group Limited v Communications Workers Unions 2009 EWCA Civ 1045

The Court of Appeal held in this case that the only obligation on transferor employers in a transfer situation to communicate matters such as the legal, social and economic implications of the transfer as it believes them to be.  The employer does not warrant the truth of what it says so if it makes a mistake about the legal implication of the transfer, it will not without more be liable for a failure to inform and consent.  The employer does not in effect warrant the accuracy of the law.  The case concerned the transfer of certain post office businesses from Royal Mail to WH Smith.  In this case TUPE did not apply. 

TUPE: No service provision change

OCS Group UK Ltd v Jones and another UKEAT/0038/09

The EAT upheld a Tribunal decision that the service provision changes under TUPE did not apply to the re-tendering of a catering contract.  The activities carried out by the incoming contractor were wholly different to those carried out by the outgoing contractor.  In earlier cases the EAT has confirmed that the activities need not be identical and it will be sufficient if they are essentially the same as those carried out as the alleged transferor.  In this case however, the catering operation had changed from the provision of a full canteen service where the OCS catering staff were chefs to staff becoming sales assistants in a kiosk.  On that basis no service provision change had occurred.  OCS appealed. 

The EAT held that Tribunals should adopt a common sense and pragmatic approach but whether the activities were fundamentally and essentially the same was a question of fact and degree to be assessed by the Tribunal. 

OCS’s argument that the contract was a sham to avoid TUPE when the cold food regime was not successful and MIS was replaced by new contractors providing hot food was not accepted by the Tribunal. 

Key point:  Employers should welcome the fact that Tribunals are prepared to define the contractual services narrowly when considering whether TUPE 2006 applies but it will be a rare case where there are such marked differences in the nature of the activities carried out, following a change of service provider. 

28.        EU – France

All companies located in France and with at least 50 employees are required to enter into an agreement on the employment of seniors before 1 January 2010 under the French Labor Code.  The agreement is to be entered into according to the standard rules of collective negotiations.  Failing such an agreement the business must include a plan of action which it must submit to its staff representative authorities before filing it at the latest on 31 December 2009. 

The agreement or plan of action must include an objective to maintain employees aged 55 and over in employment and/or to hire individuals aged 50 and over.  Failure to have such an agreement or plan compliant with the applicable regulations may result in companies being liable to pay a penalty of 1% of their total payroll to the French social security authorities for periods during which they are not covered by such an agreement or plan of action. 

At the same time as promoting longer careers and increasing the employment or seniors the French legislation has created a mandatory mechanism which consists of pushing back the retirement age to 70.  Since 1 January 2009 employers can no longer impose retirement on their employees who have reached the age of 65 without their prior consent.  However employers recover the right to impose retirement as from the employee’s 70^th birthday.

The above has been taken from a briefing note first published by Gide Loyrette Nouel, a fellow Lex Mundi law firm member.

29.        Holiday leave

Pereda v Madrid Movilidad SA C-277/08

Where a worker’s pre-arranged annual holiday leave coincides with a period of sick leave the worker must have the option to designate an alternative period for the exercise of his or her right to annual leave.  Thus if an employee is ill whilst on holiday it does not count towards the minimum period of 4 weeks’ paid annual leave under the Working Time Directive. 

Mr Pereda, a driver, suffered an accident at work around 14 days before his 4 weeks’ annual leave.  The injury put him out of action for 6 weeks.  His sick leave therefore almost entirely overlapped his planned holiday but his request for an additional period of annual leave was refused.  Under the ECJ’s ruling his period of sick leave should not have counted towards his holiday time. 

This ruling emphasises that there can be no derogation from the entitlement to paid annual leave, the purpose of which is to enable the worker to rest and enjoy a period of relaxation and leisure.  By contrast, the purpose of entitlement to sick leave is to ensure that the employee can recover from being ill.  Thus if a worker decides not to take annual leave during a period of illness he must be granted a replacement holiday period to ensure that he is not deprived of his entitlement to rest, relaxation and leisure. 

Key point:  Employers should review their current holiday leave policy and terms in light of this case. 

30.        Protection from Harassment Act 1997

Veakins v Keir Islington Ltd 2009 EWCA Civ 1288

Ms Veakins was employed as an electrician.  She was on sick leave for depression from September 2005 until June 2006 when she decided to terminate her employment.  From July to September 2005 she had a new supervisor.  Ms Veakins felt that she was picked on and that her life was made hell by Ms Lavy.  She brought an action for damages for harassment and claimed that her employer was vicariously liable for the acts of Ms Lavy. 

At the first instance her claim was dismissed although her evidence was not challenged as the judge decided that the proven acts did not amount to harassment.  The Court of Appeal held however that the proven conduct crossed the line into conduct which was oppressive and unreasonable which it considered would in the event of a prosecution be sufficient to establish criminal liability.  Although it was never intended that the Act should cover workplace harassment, when deciding whether the conduct complained of constitutes harassment within s.1 of the Act the primary focus should be whether the conduct is oppressive and unacceptable and of an order which would sustain criminal liability.  Her appeal was therefore allowed. 

Key point:  It would be unusual for a harassment case to be brought outside the Employment Tribunal but where it is, employers should avoid the risk of claims by dealing with the harassment at the source where conduct goes beyond the banter of everyday life. 

31.        Employment status

Autoclenz Ltd v Belcher & ors 2009 ETCA Civ 1046

The Court of Appeal held that where documents contained express contractual terms that were inconsistent with employee or worker status these could be correctly disregarded by the employment tribunal. 

The case concerned car valeters and the EAT held that the individuals were not employees, [Issue 38].  The Court of Appeal reinstated the Tribunal’s decision finding.  Where there is a dispute as to the genuineness of a written term in a contract the court must look at the legal obligations of the parties and the contractual documents.  However, if the evidence is such that the contract departed from what was expected of them, then the written terms can be ignored and the court can look at what was expected and what happened in practice.  Lady Justice Smith stated that individuals should not be stopped from contending that they are employees simply because they had been content to accept the tax benefits of self-employed status for many years.

It was not necessary to show a common intention of the parties to mislead the other.  The decision confirms the guidance on sham contracts provided in the case of Protectacoat Firthglow Ltd v Szilagyi.

Autoclenz’s appeal was dismissed and the Claimant’s cross-appeal was allowed.  The valeters were employees. 

Key point:  Substitution uses in self employed contracts will rarely be sufficient evidence of employee/worker status.  Tribunals will have to examine the true intentions and expectations of the parties throughout the duration of the arrangement. 

32.        Christmas Cheer

Don’t forget if businesses are not giving away festive alcohol free at seasonal entertainments for staff or customers then it may need a licence under the Licensing Act 2003. 

And finally, an employee has been forced to pay compensation to his employer following a ruling by the labour court in Frankfurt, Germany.  The employer had taken his company laptop on holiday to Croatia and had accumulated a €31,000 bill through internet and roaming charges.  While the judge agreed that the employee was allowed to use the laptop it was not proven by the employee that he used the internet for business purposes.  Therefore he could not justify the bill being paid by his employer. Ouch! 

Stop press: Pre Budget Report 2009

No festive cheer for employers.

The New Bank Payroll Tax

A new tax known as ‘bank payroll tax’ has been introduced.  It applies to banks, building societies and financial businesses and in each case, their holding companies, as well as UK branches of foreign banks that provide a bonus exceeding £25,000 to a banking employee directly or through an intermediary.  The bank payroll tax will have effect from 9 December 2009 until 5 April 2010 for all discretionary and contractual bonus awards and is payable by the institution to which the bank payroll tax applies.  Furthermore, the tax is not deductible in calculating the profits of that institution.  There are exceptions for: (i) contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at 9 December 2009; and (ii) regular salary, wages or benefits.  However where a contractual obligation to pay or provide the bonus arises on or after 9 December 2009, it will be subject to the bank payroll tax.  The rate that applies is at 50 per cent.  The draft legislation has targeted anti-avoidance measures and various other provisions to ensure that these rules are not circumvented. 

National Insurance Contributions

The announcement made in last year’s Pre-Budget Report of increases in NIC from April 2011 has been revised to make the increase 1% instead of 0.5%.  This means that the employer rate of NIC will be 13.8% for 2011/12 and not 13.3%.  The employee main rate will be 12% and employee rate over the upper limit will be 2%.

Income Tax

For the 2010/11 tax year, all allowances and thresholds will be the same as 2009/10.  The 50% tax rate will apply to income over £150,000 from 6 April 2010 as announced in this year’s Budget.

Pensions: Restricting Tax Relief for High-Income Individuals (Anti-Forestalling)

The pensions anti-forestalling measure will be amended with immediate effect to introduce a new income threshold of £130,000.  This will create a “second phase” anti-forestalling effect for those with income between £130,000 and £150,000, with all references in the original legislation in FA 2009 to 22 April 2009 being amended to 9 December 2009 in respect of these newly affected taxpayers.  It has also been announced that the legislation due to commence in 2011 will treat employer contributions as part of income for the purposes of that legislation, but only where the income excluding employer contributions is more than £130,000.  This has only been the case up until now if there is a post Budget Day salary sacrifice arrangement in place.  The definition of “relevant income” for the £150,000 test in the new legislation will therefore be amended form that applying currently under the anti-forestalling rules.