The European Commission has published a scaled back proposal to increase the number of women on boards, setting a minimum objective of a 40% presence of female non-executive directors in publicly listed companies by 2020.

There is a powerful business case for addressing lack of female representation in top jobs, the reasons for which are varied and largely intractable. International interest in boardroom gender diversity has grown significantly in recent times and in October the EU Justice Commissioner signalled her intention to introduce decisive legislative action on mandatory gender quotas for corporate boards.

Reportedly, the plan was to force Europe's listed companies to reserve at least 40% of board seats for women by 2020 or face fines or other sanctions. However, stiff opposition from a number of EU member states effectively derailed those plans and the Commission has now published watered down proposals.

A number of EU countries have adopted a quota system to bring about change, apparently successfully. However, many others (including the UK) are opposed to "one-size-fits-all" quotas and there are inherent risks that this type of positive discrimination might undermine women's progress by leading to accusations of tokenism.

When the Coalition Government came to power in 2010, it pledged to "promote gender equality on the boards of listed companies" and tasked Lord Davies to review the situation. His 2011 report Women on Boards rejected the idea of quotas, favouring self-regulation. One of his main recommendations was for FTSE 100 companies to aim for at least 25% of female board representation by 2015. However, he left the door open for the Government to introduce more prescriptive alternatives if his recommended business-led approach failed to achieve significant change.

The annual review following the Davies report showed that women accounted for 15.6% of all directors within the FTSE 100 (up from 12.5%) and 9.6% within the FTSE 250 (up from 7.8%). Although progress by way of self-regulation has been slow, this represented the highest percentage increase for several years.

The Government has introduced a number of self-regulatory initiatives over the last few years to improve boardroom diversity. Most recently, the Government made changes to the Corporate Governance Code to deal with gender diversity and, in September, launched an inquiry into Women in the Workplace to consider broad issues of gender inequality. In addition there are plans to introduce new regulations next year to require listed companies to include information on the number of women and men on the board, in executive committees and in the organisation as a whole in their strategic reports.

European Commission Proposals

The European Commission has been frustrated by the snail's pace of progress and perceived lack of commitment among some EU member states. In March, as part of its gender equality strategy, the Commission called on all publicly listed EU companies to sign a pledge to increase the presence of women on boards to 30% by 2015 and 40% by 2020. By March 2012, only 24 such companies had signed up.

In July 2011, the European Parliament called on the European Commission to propose legislation on boardroom diversity, resulting in the Commission's consultation in March 2012 on possible action at EU level to introduce mandatory female quotas.

The Commission's new proposal would a minimum objective of a 40% presence of female non-executive directors in publicly listed companies by 2020. To achieve this, companies would have to apply pre-established, neutral criteria when making appointments and companies with less than 40% of women in non-executive positions would have to use positive action provisions contained in the proposed Directive.

This means a female candidate would have to be appointed in circumstances where there were two equally qualified candidates of both sexes, unless an objective assessment tipped the balance in favour of the other candidate. Companies would also have to set themselves individual, self-regulatory targets for 2020, to ensure both sexes were represented amongst executive directors, and report annually on progress.

Although the proposed legislation is expected to apply to around 5,000 publicly listed companies in the EU, it will not apply to small and medium-sized companies (with less than 250 employees and an annual worldwide turnover not exceeding € 50 million) or non-listed companies.

The decision on what sanctions will apply for failing to meet the target will rest with individual member states and we could see a real divide between different countries as to how strongly the proposals are enforced in each jurisdiction. In addition, the proposed Directive will allow member states with effective systems in place already to keep those systems provided they are equally as efficient as the Commission's proposal in meeting the 40% target.

This scaled back proposal will allay some of the UK Government's concerns around quotas and gives it an opportunity to make a case that the existing regime in the UK is enough to comply with the objectives set out in the Directive. The proposed Directive now needs the support of the European Parliament, where MEPs must adopt it before it can become law. The Commission hopes that the proposals will become law in 2014.

Photo credit: bowdenImages

The UK Government has set out its plans for a new system of shared, flexible parental leave to be introduced in 2015 and confirmed that it will be extending the right to request flexible working to all employees from 2014.

These proposals originated from the Department for Business Innovation & Skills May 2011 Consultation on Modern Workplaces, which contained a number of proposals aimed at creating more flexible and family-friendly workplaces.

With regard to parental leave, the Government aims to give working parents more flexibility and choice. Under the latest proposals, parents will be able to share the statutory leave which is currently only available to mothers, either consecutively or concurrently. The details of the scheme can be summarised as follows:

• The current 52 weeks of maternity leave will be retained as the default position for all employed women.
• The current eligibility and entitlement to the 39-week paid period will be retained, as will the two-week compulsory maternity leave period.
• Where both parents meet the relevant qualifying conditions a woman will be able to end her maternity leave and pay, or commit to it ending at a future date, and share the untaken balance as flexible parental leave and pay.
• The new scheme will therefore enable working parents to share up to 50 weeks of leave and 37 weeks of pay, which can be taken consecutively or concurrently with the mother on maternity leave - so long as the total amount of leave and pay does not exceed what is jointly available to the couple.
• Employees must work for the same employer during the whole flexible parental leave period, so employees will not be able to carry over flexible parental leave to a new job.
• Flexible parental leave must be taken in minimum blocks of one week, in patterns to be agreed with the employers. The default position, where agreement cannot be reached, will be for a parent's paid leave to be taken in one continuous block, starting on a day of their choice.
• Ordinary paternity leave and pay will remain at the current level of two weeks and there will be no new dedicated parental leave for fathers. The current provisions on additional paternity leave will be repealed when the new flexible parental leave arrangements come into force.
• Adoption leave and pay will be changed to bring it more closely in line with the leave and pay rights available to birth parents.
• Flexible parental leave and pay will be introduced in 2015, with consultation expected in the New Year to consider the detail of how the new system will work.
• With effect from 2015, fathers and partners of pregnant women be entitled to take unpaid time off to attend two antenatal appointments with their partner,
• Unpaid parental leave will be increased from 13 to 18 weeks, in order to comply with the revised EU Parental Leave Directive, in March 2013. In addition, the age limit applicable for parental leave will be increased from 5 years to 18 years in 2015.

Although the Government envisages that the administration of the new system of flexible parental leave will be "light touch", the shared element of the leave may prove problematic for employers. For example, although the Government states that the respective employers of each parent will not need to contact each other to discuss an employee's leave entitlement, it will be difficult for employers to verify leave entitlement and arrangements without doing so.

Furthermore, both employers need to agree the pattern of shared leave and there may be operational reasons why one employer may be able to agree to the arrangement and one employer may not. Employers will also need to consider how feasible it is to cover absences which are broken up into different periods.

Flexible Working

Currently, only certain employees with at least 26 weeks' continuous employment have the statutory right to request to work flexibly - i.e. parents of children under 17, parents of disabled children under 18 and some carers. The Government plans to extend this right, with the stated objective of bringing about a culture where flexible working is accepted in every workplace. In summary:

• The right to request flexible working will be extended to all employees with at least 26 weeks' continuous employment.
• The current statutory procedure for considering requests will be replaced with a new duty on employers to deal with requests in a reasonable manner and within a reasonable period of time.
• A statutory Code of Practice (which employment tribunals will take into account when considering complaints) will be produced to give guidance as to the meaning of "reasonable". A consultation on this is expected during 2013.
• Guidance will be produced for employers on how to prioritise conflicting requests from different employees and the interaction between flexible working rights and discrimination legislation.
• The Government plans to implement the extended right to request by 2014, via provisions in the Children and Families Bill.

Whilst employers may welcome the move away from the current statutory procedure, there will no doubt be disputes about what is "reasonable" in particular situations despite the plans to give employers guidance on this in the proposed Code of Practice.

However, the maximum compensation that a tribunal can award in respect of an employer's breach of the right will still be only eight weeks' pay (subject to the statutory limit on a 'week's pay', currently £430). As is the position under the current law, the main concern for employers is likely to be employees deploying the flexible working provisions as a precursor to more powerful remedies for indirect discrimination under the Equality Act (where no upper limit on compensation applies).

Photo credit: Abejon Photography

The UK Government is pressing ahead with plans for a new type of employment contract for "employee shareholders", with a view to implementing the scheme in April 2013.

The proposal, first announced by the Chancellor George Osborne in October, originally referred to "employee owner" status. In essence, the idea is that employees would give up certain employment rights, such as unfair dismissal and statutory redundancy pay, in return for between £2,000 and £50,000 of shares in the company which would be exempt from capital gains tax (CGT). Employers could determine the type of shares offered, including whether they carry voting rights or the right to receive dividends.

The response to the consultation has now been published, which unsurprisingly confirms that the BIS will be going ahead with the proposal. This is despite the fact the vast majority of respondents to the consultation were opposed to the proposals: 92% of respondents saw the plans in a negative or mixed way, and only three out of the total 184 respondents said that they would take up the new status.

Many respondents indicated that they did not think that the take up would be high amongst employers, and there was a great deal of concern as to how the proposal would work in practice (particularly from businesses and their professional advisers). However, the Government remains committed to making this proposal a reality, indicating that it will rely on published "guidance" to overcome any confusion about the new status.

Many questions surrounding the proposal remain unanswered, but the response to the consultation does clarify certain matters. These include:

• The "employee owner" title has been dropped in favour of "employee shareholders", which the Government feels is a more accurate description.
• The Secretary of State at BIS will have the power to increase the minimum value of shares that someone must receive to qualify for employee shareholder status from the current level of £2,000.
• Employers will be able to grant employee shareholders more than £50,000 worth of shares if they wish to, although only £50,000 will be exempt from CGT.
• Non-UK companies will be able to use employee-shareholder status.
• Employee shareholders may receive shares in the parent company of their employer rather than their actual employer (although not shares in a subsidiary).
• The Government is committed to "reorganising" its guidance on employment status (including the existing statuses of "worker" and "employee") in light of the introduction of employee-shareholder status, with a view to providing clear guidance to employers and employees on the implications of the proposal.
• Employee shareholders who dispute that they have been issued with shares worth the minimum £2,000 will be able to challenge their employment status in an employment tribunal.
• The employer will be able to require employee shareholders to forfeit their shares in contractually agreed circumstances (e.g. gross misconduct), as long as the forfeiture provisions do not reduce the value of the shares granted to below £2,000
• The Government has pledged to look into ways of reducing the income tax and national insurance contributions arising from the granting of shares to employee shareholders

Further changes and clarifications are expected as the proposal makes its way through Parliament. BIS appears to be sticking to an implementation date of April 2013, in which case it is likely that the proposals will be published in their final form early in the New Year.

Implications

While some employers could be attracted to buying off employment rights for a one-off share issue of as little as £2,000, the proposal raises many potential problems. For instance, it is suggested that a company would have to pay "reasonable value" for shares surrendered on termination of employment, but there are questions over how this would be established. Moreover, how would shares be valued if they are not publicly traded?

One of the questions raised in the consultation document was whether there would be any "unintended consequences". One implication might be to enable entrepreneurs to set themselves up as employee shareholders, simply to avoid tax. It could turn out that "owners", rather than employees, end up being the big winners under this arrangement.

Photo credit: PMSI Web Hosting and Design

The European Court of Human Rights (ECHR) has ruled that the UK Government must take measures to protect employees from dismissal on grounds of their political opinions or affiliations, including extreme opinions that others might find offensive or shocking (Redfearn v United Kingdom [2012] ECHR 1878).

There have been various cases over the last couple of years about the types of belief that fall within the definition of a "philosophical belief" for the purposes of discrimination law, as now contained in the Equality Act 2010. However, this case concerned an employee who was dismissed for his membership of a particular political party.

The case involved a bus driver, Mr Redfearn, who worked for Serco Ltd. In his spare time, he was a local councillor for the far-right British National Party (BNP). When the company found out about Mr Redfearn's political activities, it dismissed him. There was no evidence that he had behaved inappropriately at work, but Serco was concerned about the possible reaction of its largely Asian customers and the effect on its reputation.

Mr Redfearn was unable to bring a claim for unfair dismissal as he did not have the one year's service which was at that time required (the qualifying period has since been increased to two years). Instead, he claimed race discrimination, on the basis that he had been dismissed from a job working with people of Asian origin because of his racial views.

This argument was ultimately rejected by the Court of Appeal, so Mr Redfearn decided to try a different tack. He brought a claim against the UK based before the ECHR, asserting that his human rights had been breached. In particular, he argued that by being a member of the BNP he was exercising his right to freedom of association.

By a majority of four to three judges, the ECHR agreed with Mr Redfearn's argument, and found that his right to freedom of association had not been sufficiently protected in the UK. The Court held that association with political parties is essential to democracies and this must include protection of views which "offend, shock or disturb". This right then needed to be balanced against the employer's interests in each particular case.

Mr Redfearn had no protection at all, the ECHR noted, because he did not have the service needed to claim unfair dismissal. Accordingly, the UK needed to take "reasonable and appropriate" measures to protect all employees from dismissal on grounds of political opinion or affiliation.

Practical Implications

It remains to be seen whether the UK will appeal to the Grand Chamber of the ECHR, which would allow the decision to be reconsidered by a full panel of 17 judges. If the Government chooses not to appeal, or the decision is not overturned, it will have to consider whether and how to comply.

One option might be to include political beliefs within the definition of "religion or belief" under the Equality Act 2010. However, the Government has previously commented that political views are not akin to religious or philosophical beliefs and it was not the intention of the Equality Act to protect such beliefs. It is also interesting that the ECHR did not see Mr Redfearn's case as involving the right to freedom of thought, conscience and religion. Nevertheless, it is possible that the courts and tribunals will try to interpret the law to include political beliefs, in order to comply with the ECHR's judgment.

Another option would be to amend unfair dismissal law, to provide that employees who are dismissed because of their political opinion or affiliation do not require any period of qualifying service in order to bring an unfair dismissal claim. The ECHR did not say that it was definitely unfair to dismiss Mr Redfearn, recognising that in some situations an employer may be justified in dismissing employees on the basis of their political views. However, the Court was concerned that Mr Redfearn simply had no right to claim unfair dismissal, meaning that his employer did not have to justify its actions at all. This option may fit better with the ruling, but it would create a confusing exception to the current law.

For employers in the private sector, it is largely a case of waiting to see what the Government and the courts decide to do about this ruling. However, for employers in the public sector, it is possible for an individual to bring a claim for breach of the right to freedom of association under the Human Rights Act 1998. It would probably be advisable for all employers to exercise caution, if dismissing someone because of their political membership or opinions, and ensure that this decision is necessary and justified in all the circumstances.

The Government is proposing to reduce the UK's 90-day minimum consultation period for large-scale redundancies.

While the rules governing collective redundancy consultation have remained relatively unchanged since they were introduced in the mid-1970s, the same cannot be said for the UK labour market. In an increasingly global and competitive market, the Government sees the existing redundancy consultation scheme as a barrier to competitiveness, flexibility and growth.

As a result, the Department for Business, Innovation and Skills (BIS) has published a consultation document suggesting some changes to the legislation. (This follows an earlier call for evidence on the operation of the rules, which closed in January this year.) The main proposals are:

• reducing the 90-day minimum consultation period for large-scale redundancies; and
• introducing a new Code of Practice to address a number of key issues affecting redundancy consultations.

Reducing the Consultation Period

Currently, employers must consult with trade unions or employee representatives for a minimum of 30 days before the first redundancy dismissal takes effect when proposing to dismiss between 20-99 employees, and for a minimum of 90 days when proposing to dismiss 100 or more. The EU Collective Redundancies Directive does not prescribe minimum consultation periods and the Government regards the time periods in the UK legislation as unacceptable "gold plating".

Despite proposing to reduce the 90-day minimum period, the Government has confirmed that the protective award will stay at 90 days pay per affected employee and the threshold for triggering collective consultation duties will remain at 20 proposed redundancies. The rules will also continue to cover termination of employees' contracts and re-engagement on different terms and conditions, in addition to straightforward redundancy dismissals.

New Code of Practice

The Government also proposes to produce a new Code of Practice to address concerns about the quality of collective consultation. Specifically, the consultation paper states this will cover areas such as:

• when the consultation should start;
• who should be covered by the consultation;
• who should be consulted;
• what should be discussed;
• how the consultation should be conducted; and
• when the consultation can be considered to be complete.

The Code will also cover conducting consultations in non-standard circumstances such as insolvency and situations in which the Transfer of Undertakings (Protection of Employment) regulations (TUPE) apply. (However, BIS intends to tackle the interplay between TUPE and collective redundancies in a future consultation on TUPE rather than as part of the current exercise.)

The consultation paper recognises that there is a lack of clarity around some fundamental issues arising in a collective redundancy, such as the scope of "establishment" and whether fixed-term employees whose contracts are due to expire need to be taken into account. The Government says it will attempt to clarify a number of these issues in the Code.

There is, however, a danger that a Code could create more problems than it hopes to resolve. Much will of course depend on the quality of the final content, but the fact that the current intention is for the Code to be "non-statutory" risks adding another layer of compliance for businesses without providing the desired certainty. Moreover, there is only so far the Government can go in clearing up confusion given that many aspects of the collective redundancy consultation regime are constrained by EU law.

The consultation will close on 19 September 2012.

Photo credit: belterz

The Government has confirmed its plans to introduce employment tribunal fees in 2013 and broadly approved the results of an independent, fundamental review of the Employment Tribunal Rules.

Charging Fees for ET Claims

Earlier this year, the Ministry of Justice conducted a public consultation on potential options for charging employment tribunal claimants fees in order to bring a claim. The response to the consultation has now been published, recommending that a regime of fees should be introduced from summer 2013.

Under the proposals, claimants would have to pay fees to in two stages - firstly to issue the claim and secondly to proceed to a tribunal hearing. The amount of the fees will depend upon the type of claim:

• Level 1 (straightforward claims such as deduction from wages or redundancy pay) will cost £160 to issue and a further £230 for a hearing.
• Level 2 (more complicated claims such as unfair dismissal, equal pay or discrimination) will have a £250 issue fee and then cost £950 to bring to a hearing.

Claims with multiple claimants will cost more: the fee for proceedings with two to 10 claimants would be twice the individual claim fee. This would increase to four times the individual fee for between 11 and 200 claimants, and six times the individual fee for over 200 claimants.

Judge-led mediation is generally going to be a cheaper option at £600, particularly for the claimant because it would be payable by the employer. There will also be a fee for various other applications, such as: an application to set aside a default judgement (£100); an employer's counterclaim to a breach of contract claim (£160); an application for review of a tribunal decision (£100 for level 1 and £350 for level 2 claims).

The fee for bringing an appeal to the Employment Appeal Tribunal (EAT) would be £400 to issue it and £1,200 for the hearing.

There will be no exemptions from the requirements to pay the above tribunal fees. However, in order to protect access to justice, the remission system which currently excludes low-income applicants from paying fees for County Court and High Court actions would be extended to tribunal claims.

In addition, tribunals will be able to order the unsuccessful party to reimburse the fees paid by the successful party - although this will be at the judge's discretion rather than automatic.

Employment Tribunal Rules

Last November, the Government asked Mr Justice Underhill, a former president of the EAT, to conduct a "fundamental review" of the Employment Tribunal Rules, with a view to ensuring that cases can be managed proportionately, quickly and cost-efficiently. In addition, the review was targeted at making the rules simple and easy to follow, and the system as standardised as possible with like cases being treated alike. Underhill J has now come up with several recommendations and has supplied a new set of draft rules, which are around half the length of the existing ones.

Noteworthy changes in the proposed new rules include the following:

• Revised ET1 (claim) and ET3 (response) forms - Underhill J has not yet published these.
• A "sift" stage, where a tribunal judge considers the claim and response forms at the start of the proceedings in order to identify necessary directions (e.g. for further information) and to strike out weak cases.
• Allowing a request to present an ET3 late to be made after the original claim deadline has elapsed. (Currently, the request must be made before the original deadline has expired.)
• Combining "pre-hearing reviews" (in which a tribunal determines if a case is so weak that the employee has to pay a deposit to continue with it) and "case management discussions" (where the tribunal gives directions for the conduct of the hearing, such as preparing and exchanging witness statements) into the same hearing - to be called a "preliminary hearing".
• Allowing tribunals to timetable oral evidence and submissions and enforce this by means of a "guillotine".
• Enabling tribunals to assess cost orders of more than £20,000. (These currently have to go to the County Court to assess the amount recoverable.)
• Making the rules on restricted reporting orders and anonymity more flexible, giving tribunal judges greater discretion.
• Provision for the Presidents of the Employment Tribunals to issue non-binding guidance on good practice. This would be designed to inform users what they can expect at different stages and ensure consistency between judges.
• Streamlining the process for withdrawing a claim, so that the other party does not have to apply for the claim to be dismissed after it has been withdrawn.
• Simplifying the procedure for setting aside default judgements.

Certain of Underhill J's recommendations would require changes in primary legislation in order to bring them into effect. These include:

• Giving tribunals power to apportion the damages between respondents, when more than one person is liable for discrimination. (Currently, both respondents will be liable for the full amount.)
• Allowing a winning party to recover the costs of instructing a lay representative. (This is not currently possible.)
• Providing that deposit orders can be limited to particular issues, rather than the full claim as at present.

The Government has broadly welcomed the proposals as "sensible" and said that a formal consultation on the review will follow later this year. Otherwise, the timetable for implementing the new rules remains unclear.

Commentary

The introduction of fees for employment tribunals is obviously hugely controversial, but the Government seems determined to plough ahead despite the widespread concerns and dissatisfaction evident in a large proportion of responses to the consultation. Ministers are quite open about the fact that the main purpose in introducing fees is to move some of the costs operating the tribunal system onto the users and relieve the burden on the taxpayer.

The Government also suggests that fees will encourage parties to try alternative methods of resolving disputes first, before resorting to litigation. But how likely is this to happen? Employers may take a harder line if they know a claimant will have to pay to issue proceedings and again for a hearing. Equally, once the hearing fee has been paid, claimants feel they have paid for their "day in court" and will be less inclined to settle.

Whilst the focus of the fees proposal has moved away from the idea of deterring weak and "vexatious" tribunal claims, this will undoubtedly be one of the outcomes. But fees are a blunt instrument which will impact on meritorious and unmeritorious claimants alike. Even taking into account the extension of the civil courts remission scheme to tribunals, we may well see employee groups mounting legal challenges to the fees regime on "access to justice" grounds.

A more robust costs regime or more effective claims management of the type advocated by Underhill J would seem to be better targeted methods of dealing with unmeritorious claims. Yet arguably, tribunals already have significant powers under the existing rules to weed out weak and invalid claims but often fail to make effective use of them.

Photo credit: Ericsphotography

The Government is consulting on some significant revisions to the Equality Act 2010, including abolishing the discrimination questionnaire procedure and the rules on third-party harassment.

The Equality Act 2010, which brought together all UK discrimination laws in one place, was developed under the previous Labour Government and has been in force since October 2010. However, the Conservative/Liberal Democrat Coalition Government which came to power that year decided not to implement certain parts of the Act, including the provisions allowing a claim for discrimination based on a combination of protected characteristics (e.g. sex and race). It also put on hold the requirement for larger companies to report on their gender pay gap.

Now it looks like the Government is planning some substantive changes to discrimination protection under the Act. The aim of the proposed reforms is said to be reducing "bureaucracy" in equality law. But while these changes will no doubt be welcomed by many employers, on a closer look they may not be as helpful as they first appear.

Third-Party Harassment

The first major change is a proposal to abolish the rules on third-party harassment. Employers are currently liable for harassment of their employees by third parties, such as clients and contractors, if they know an employee has already been harassed twice before and fail to take reasonable steps to prevent a third incident. This is known as the "three strikes" rule.

It is understandable for employers to be concerned about being held liable for acts of third parties over whom they have no control. However, it seems that abolishing the three strikes rule would leave employers in a position of uncertainty. Although unwieldy, the current provisions do make clear that an employer who finds out about third-party harassment needs to consider what it can do to stop it happening again. Without this framework, employers will still need to have effective policies to prevent this type of harassment, while employees will be uncertain about how far they are protected.

Discrimination Questionnaires

The second significant change is the proposal to scrap discrimination questionnaires. Employers who have had to deal with lengthy requests for statistics, documents and explanations for decisions going back over years will probably be breathing a huge sigh of relief.

The main purpose of questionnaires is to assist employees in obtaining information to assess the strength of a claim and whether to bring one at all. On that basis, there is certainly an argument for removing the right to put in a questionnaire after the claim has been submitted.

Otherwise, this is not necessarily all good news for employers either. It is undeniable that, before a claim has been issued, questionnaires can be misused as a "fishing expedition" which causes the employer a lot of work and expense. But they can also provide an opportunity for the employer to provide information showing that an employee's complaint is relatively weak. This can arise particularly in equal pay cases, where there are often misunderstandings about what colleagues are paid and the basis for pay differentials.

In any kind of discrimination case, the information provided can potentially discourage an employee from submitting a claim, or at least reduce its scope. Without questionnaires, there is a risk that employers will find themselves defending broader, unmeritorious claims. That means spending more time on steps like disclosure, not to mention more in legal fees.

In addition, the abolition of discrimination questionnaires will not stop employees from asking questions to find out whether they have a claim - it will merely remove the formal, structured process for doing so. Although questionnaires can seem onerous to deal with, they do at least provide a clear format for questions and answers, together with time limits for both submitting and replying to the questionnaire. Without this structure, employers could find themselves bombarded with questions at any time, and still risk the tribunal drawing an inference of discrimination from a failure to reply to those questions.

Tribunal Recommendations

The third significant proposal concerns remedies in discrimination cases. The Government intends to repeal employment tribunals' new powers to make recommendations.

The Equality Act widened the tribunals' powers in this area, allowing them to make recommendations which benefit the employer's wider workforce. The law previously only allowed recommendations to be made which would assist the claimant. This was of limited use as claimants who had been discriminated against would in many cases have left the employer's employment, so no recommendations could be made.

It is rather early to assess the effect of this new rule, as the first cases under the Equality Act are only just making their way through the tribunal system. However, there have been at least a couple of cases where the tribunals have exercised their new powers to make recommendations about matters such as training and review of policies in order to help ensure that discrimination does not reoccur.

The Government's consultation paper suggests that employers fear "inappropriate or excessive recommendations" being made. Employers may rightly be wary of tribunals telling them what to do in their own organisations. However, it is worth remembering that the power only applies where an employer has fought and lost a discrimination case.

In addition, there is no direct sanction for a failure to comply with tribunal recommendations aimed at the entire workforce. Such a failure can be used as evidence in any future discrimination claim against the same employer, but employers do have the option of rejecting an impractical recommendation and achieving the same result in a different way. An alternative way of looking at these recommendations is that the employer has the benefit of an experienced, independent tribunal panel giving advice on how to avoid similar claims in the future.

The consultation process on all of these reforms closes on 7 August 2012 and the Government's final proposals are expected later this year.

Image credit: danleap

The High Court has upheld a claim by 104 investment bankers for unpaid bonuses totalling EUR 52 million (Attrill and others v Dresdner Kleinwort and Commerzbank). The claim was based on verbal promises as to the size of a bonus pool which were found to have contractual effect.

The judgment, though lengthy, is at heart a straightforward breach of contract claim. It is very fact-specific, and care should be taken not to read too much into its broader implications.

Nevertheless, it serves as a salutary warning to staff involved in the annual compensation process in banks and other financial services institutions - from the CEO and the board down - of the need to exercise caution in the nature and content of communications about bonus pools and individual awards. Failure to do so may mean that binding commitments, later regretted, come into effect.

In 2008, the investment bank Dresdner Kleinwort was the subject of speculation as to its future, including a dramatic scaling down of operations, winding down, or a sale. Unsurprisingly, this created widespread uncertainty and many staff left. The Financial Services Authority placed the bank on its "watchlist" and required it to take action to address the risk of the loss of key staff.

In August 2008, and in response to these developments, the bank's board approved the creation of a guaranteed minimum EUR 400 million bonus pool, the purpose of which was to ensure stability. This was communicated to staff by the then CEO, Dr Stefan Jentzsch, by way of a so-called "town hall" meeting, broadcast on the intranet and available to all staff. The pool was to be awarded on a discretionary basis according to individual performance.

In December 2008, the bank issued bonus letters to individual employees notifying them of their provisional discretionary bonus awards of a specific sum, but stating that these were subject to a "material adverse change" ("MAC") clause. The letters stated that this clause would be applied if "additional material deviations in the bank's revenues and earnings against forecast for November and December 2008 are identified during the preparation of annual financial statements for 2008".

In January 2009, the sale of Dresdner Kleinwort to Commerzbank was completed. The new CEO informed staff that the MAC clause was being invoked and that the provisional bonuses communicated in December would be reduced by 90%.

The Claims

The claimants argued that contractually binding promises were made to them regarding the creation of a guaranteed bonus pool of a particular size. The bank argued that the promises were not intended to have contractual effect and did not do so. The claimants also argued that the imposition of the MAC clause was a breach of contract, and/or that the basis on which the bank purported to apply it was a breach of its terms.

The employment contracts and staff handbooks applicable to the impacted staff included what might be considered "standard language" in the banking world - to the effect that, while they were eligible to be considered for a bonus, the payment of any such award was at the company's absolute discretion. As the Court noted, it is long settled law that employees who have a contractual right to be considered for a bonus payment also have a right to a bona fide and rational exercise of their employer's discretion in deciding whether and how much to pay (Clark v Nomura [2000] IRLR 766, Horkulak v Cantor Fitzgerald [2004] IRLR 942). The promises made by the CEO at the town hall meeting were therefore capable of having contractual effect and the only question was whether they did so.

The Court made a finding that Dr Jentzsch had clearly promised a guaranteed bonus pool of a particular size and not (as the bank alleged) merely a promise that a pool from which bonuses would be paid would be made available by Allianz (the bank's parent company). The promise was that the guaranteed pool would be allocated to individuals on a discretionary basis in the usual way - i.e. depending on individual performance - but that the pool itself would remain no matter what and regardless of any ownership change.

The promise as to the size of the pool was sufficiently certain to be contractually binding. The fact that it did not give rise to an expectation on the part of any individual of receiving a particular share of the pool did not prevent it from operating as a constraint on the bank's discretion in awarding bonuses - the constraint being that the total pool would not be less than EUR 400 million.

It was then an objective question as to whether the parties intended to create legal obligations. On the facts, there was a clear and unequivocal promise, the purpose of which was to stabilise the workforce and retain staff at a time of uncertainty. If the promise was not intended to have legal effect, the Court found it hard to see how it could be effective.

The Court held that there is no reason in principle why an announcement addressed to an entire workforce should not give rise to contractual obligations, provided it is couched in sufficiently certain terms. While the bank's argument that the failure to put the promise in writing showed that it was not intended to be legally binding "carried force", the board had approved the "town hall" mechanism as its means of formally conveying its intention to establish a minimum bonus pool. This was the usual means of communicating with staff and around 50% of them attended the town hall, with all others finding out shortly thereafter what had been said.

Perhaps somewhat surprisingly, while the Court recognised that, had the announcement failed to stem the departures, a very small number of employees could have been left with the right to enforce a EUR 400 million bonus pool among themselves, it held that this was a "calculated risk" the bank had chosen to take.

Each individual contract was accordingly found to have been varied to the effect that the 2008 bonuses were to be determined by reference to a minimum EUR 400 million bonus pool. The employees' "acceptance" of the "offer" made by the bank was not, on the facts, required because the bank had not stated that it was. Their position was analogous to that of employees to whom a salary increase had been communicated. The higher salary became a contractual right notwithstanding the absence of formal acceptance by the employees. To the extent that consideration was needed, it existed in the form of a promise from the bank from which it intended to derive particular benefits, namely to retain and incentivise staff.

With respect to the MAC clause, the Court found that its introduction was driven by Commerzbank for reasons unrelated to the performance of the investment bank - namely, the public perception of paying generous bonus awards following a large German government bailout. Its introduction was a breach of the implied term of trust and confidence, as it was simply a means of enabling the bank to renege on its promise.

Even if the bank had been entitled to rely on the MAC clause, the Court found that there was a failure to comply with its terms anyway, such as to invalidate the purported reductions in bonus awards. The bank did not conduct the assessment as to whether there had been additional material deviations in its revenues and earnings in the way required by the clause.

Comment

It was highly significant that the evidence clearly showed that it had been the bank's intention to create a binding commitment with respect to the size of the bonus pool. The evidence of Dr Jentszch was particularly important here. He was described by the Court as evidently regarding himself as independent of the parties, and seeing it as an inquisitorial rather than an adversarial process. He had made written statements to the effect that he thought it would be incomprehensible and irresponsible to go back on the commitments made.

This evidence, against the comparatively unusual backdrop of takeover talk and the need to find an urgent means of stemming staff departures, means that it would be sensible not to be too alarmist as to the broader implications of this decision. Nevertheless, it does highlight the importance of being extremely careful about what managers and HR communicate to employees, verbally as well as in writing, about matters such as the overall size of bonus pools and individual bonus awards.

It can be all too tempting, particularly when faced with concerns about possible employee departures, to "over-promise" about compensation. The maxim "If in doubt, say nothing" has much to recommend it. Or, if employers do have to say something, they should ensure it is hedged with caveats that allow as much future room for manoeuvre as possible - and this should be done at the time of making commitments rather than later.

Photo credit: Kemter

In the weeks since our previous review, in April, of recent and forthcoming legal changes affecting UK workplaces, the detail of some of the Government's reform plans has become a little clearer and some novel proposals have emerged.

The Queen's Speech

The Queen's Speech on 9 May 2012 heralded two bills that will overhaul significant aspects of employment law - the Children and Families Bill and the Enterprise and Regulatory Reform Bill.

The Children and Families Bill - not yet published - will include some of the reforms mooted in last year's Modern Workplaces consultation, although possibly not all of them. The Government's formal response to the consultation is expected shortly. The most significant proposals were:

• A new system of flexible parental leave, designed to give parents more choice about sharing childcare responsibilities in the early stages of as child's life. In outline, the scheme is likely to entail the mother taking 18 weeks' leave at or around the birth, with the remainder of the current 52-week maternity leave period being reclassified as "parental leave" to be taken flexibly by either parent.
• Extending the right to request flexible working to all workers who have been employed for 26 weeks, irrespective of the reason for the request. This would be based on the existing system for requesting flexible working for children/adult carers, retaining the current list of eight business reasons for employers turning down a request.

The Enterprise and Regulatory Reform Bill, introduced into Parliament on 23 May 2012, will implement a number of the measures raised in the 2011 Resolving Workplace Disputes consultation. The key provisions are:

Pre-tribunal claim conciliation. Claimants will be required to send information about their dispute with their employer to the conciliation service Acas before lodging an ET1 application. Acas will then have a duty to try to promote settlement within a "prescribed period" (yet to be clarified). If settlement is not reached, Acas will issue a certificate to that effect. The claimant will not be able to submit a claim without obtaining this certificate. The time limits for issuing proceedings will be extended to enable settlement talks to take place.

Rapid resolution. Not all claims will need to be dealt with by an employment judge or panel. "Legal officers" will be able to determine some less complex proceedings, provided the parties consent in writing.

Changes to the Employment Appeal Tribunal. In line with recent changes in employment tribunals, appeals to the EAT will be heard by a judge sitting alone unless directed otherwise.

Unfair dismissal compensation. One previously unpublicised proposal is a provision enabling the Secretary of State to vary the statutory cap on the compensatory award for unfair dismissal awards (currently £72,300). The Bill specifies three alternative ways this could be done:

• substituting a new figure between one and three times median annual earnings. (Based on current official figures, this would be between £26,200 and £78,600);
• limiting compensation to a multiple (not less than 52) of the claimant's weekly pay. (This is likely to be actual pay, rather than the current £430 statutory limit on a week's pay); or
• imposing a limit of the lower of the above two amounts.

The Bill provides that different amounts may be specified in relation to employers of different descriptions. This may indicate that the Government is thinking about, for example, introducing a lower cap for smaller employers.

Financial penalties for employers. Employment tribunals will have the power to impose a financial penalty on a losing employer, which will be payable to the Government (in addition to any compensation payable to the claimant). However, this will only be where the employer's breach has "aggravating features" (as yet undefined). The penalty will be 50% of the financial award made by the tribunal, subject to a minimum of £100 and a maximum of £5,000 (reduced by 50% if paid within 21 days).

Whistleblowing. In order to gain the protection of the whistleblowing legislation, a worker's disclosures will in future need to be made "in the public interest". This will close a so-called "loophole" that has enabled workers to claim that blowing the whistle about a breach of their own employment contract qualifies as a protected disclosure.

Compromise agreements will be renamed "settlement agreements" in an attempt to help understanding and encourage their use. No substantive changes to the rules governing such agreements are currently included in the Bill, but the Government has announced that significant amendments will be tabled in the forthcoming Committee stage. It seems that these new measures will be designed to facilitate the use of settlement agreements by all employees - including SMEs - particularly before a formal dispute with an employee has arisen.

The Government will also apparently be publishing a consultation in summer 2012 on the principles of guidance for using settlement agreements, including draft letters and model templates for employers and employees to use.

Equality Act Reforms

The Home Office has unveiled a number of proposed reforms aimed at scrapping "bureaucracy" in equality law. Some of these are now open for consultation (until August 2012). The key reforms affecting the Equality Act 2010 are:

Third-party harassment. The Government is seeking views on the repeal of the third-party harassment provisions. Employers are currently liable for harassment of their employees by third parties, such as clients and contractors, in certain circumstances. The Government's view is that these provisions are unworkable, there is no real or perceived need for them and employees are adequately protected through other routes (e.g. health and safety, constructive dismissal, Protection from Harassment Act 1997 and the general Equality Act anti-harassment provisions).

Discrimination questionnaires and ET recommendations. The Government is seeking views on abolishing the statutory discrimination questionnaire procedure and removing tribunals' power (introduced in October 2010) to make recommendations which benefit the wider workforce rather than just the claimant.

Reform of the Equality and Human Rights Commission. The Government has now published its response to the consultation on reforming the EHRC and has put forward a package of reforms designed to clarify the Commission's remit and improve its financial and operational performance.

The Beecroft Report

The genesis of some of the Government's proposals for reform was Adrian Beecroft's report on employment law, which was commissioned by the Department for Business Innovation and Skills as part of the Government's "red tape challenge". Ministers received the draft report several months ago and, following a storm of controversy surrounding its recent publication, have tried to distance themselves from certain aspects. Some of Mr Beecroft's headline proposals were to:

• Scrap unfair dismissal laws or introduce a system of compensated no-fault dismissals for all employers. (The Government issued a call for evidence on compensated no-fault dismissals for micro-businesses, which closed on 8 June 2012, but has indicated that it will not take the broader Beecroft proposals forward. Indeed, we understand the Government is highly unlikely to proceed with no-fault dismissal even for small employers.)
• Enable micro-businesses with fewer than ten employees to opt-out of a range of employment rights when hiring new employees. (The Government has indicated that it will not be taking this idea forward.)
• Abolish the provisions on third-party harassment (see above).
• Review the abolition of the default retirement age provisions. (The Government intends to do this in 2016.)
• Introduce a cap on compensation in discrimination cases. (It is unlikely that the Government will take this forward.)
• Allow harmonisation of terms after one year following a TUPE transfer and reduce the consultation period from 90 to 30 days in all cases of collective redundancy. (The Government issued a call for evidence on TUPE and a separate call for evidence on collective redundancies, both of which closed on 31 January 2012.)

Photo credit: Janusz B

In contrast, the Supreme Court's judgment in Homer v Chief Constable of West Yorkshire Police [2012] UKSC 15 concerned a complaint of indirect age discrimination - an employer making attainment of a higher grade dependent on having a law degree. Mr. Homer was 61 and could not obtain such a degree - and thereby benefit from increased status and salary - because of his impending retirement.

The Court decided that Mr. Homer had suffered indirect discrimination, since a person in his age group did not have time to acquire a law degree before retirement and was therefore put at a disadvantage compared with persons in another age group. On the issue of justification, the Court said that the range of aims that could potentially justify indirect age discrimination was greater than for direct discrimination. It was not limited to social policy considerations and a real business need on the part of an employer may be sufficient.

For further details and commentary on the Homer ruling, continue reading Lewis Silkin's article.

Finally, in Woodcock v Cumbria Primary Care Trust [2012] EWCA Civ 330, the Court of Appeal has made a significant ruling on the extent to which employers can rely on considerations of cost as a justification for age discrimination. The Court held that cost alone cannot be used to justify discrimination, but it can form part of a valid justification defence in combination with other factors. Continue reading Lewis Silkin's report for further discussion of this case.

Photo credit: Johnny Greig

It is official policy in the UK for most changes to employment legislation to take effect in either April or October each year. This article summarises both the reforms coming into force this month and the major Government proposals for the future currently stacked up in the pipeline.

The most noteworthy changes being implemented in April 2012 are as follows:

Unfair Dismissal Qualifying Period

In a highly controversial reform that was confirmed by the Government last October, the period of employment before an employee qualifies for the right to claim unfair dismissal has increased from one to two years. This applies only to employees who start a new job on or after April 6, 2012: employees already in employment on that date retain the one-year qualifying period.

Various changes to Employment Tribunal (ET) procedures took effect on April 6, including:

• Witness statements will not now be read out but will be taken as read by the ET (unless the judge directs otherwise).
• Unfair dismissal cases will be heard by a judge sitting alone without lay members (unless the judge orders otherwise).
• State-funded expenses for witnesses have been withdrawn.
• The amount of costs an ET can award (without referring the case to the county court) has increased from £10,000 to £20,000.
• The amount of the deposit that ETs can order a claimant to pay to proceed with a claim (if their case has little reasonable prospect of success) has risen from £500 to £1,000.

Statutory Pay Rate Changes

With effect from April 1, 2012, the rates of statutory maternity pay, adoption pay and paternity pay rose from £128.73 to £135.45 per week. Statutory sick pay increased from £81.60 to £85.85 per week on April 6, 2012.

What's Coming Next?

Looking ahead, the most significant reform proposals currently on the table are as follows:

• Modern Workplaces consultation. The Government published a consultation document in May 2011, containing plans to: introduce a new system of flexible, shared parental leave from 2015; extend the right to request flexible working to all employees; amend the Working Time Regulations 1998 regarding the interplay between annual leave and sickness absence; and introduce mandatory equal pay audits for employers who lose an equal pay claim. The consultation closed last August and the Government's response is expected soon.
• New national minimum wage rates. From October 1, 2012, the standard adult minimum wage rate (workers aged 21 and over) will rise from £6.08 to £6.19 per hour. The development rate (workers aged between 18 and 20) will remain at £4.98 per hour and the young worker's rate will remain at £3.68 per hour. The rate for apprentices will increase to £2.65 per hour (up from £2.60) and the accommodation offset will rise to £4.82 (up from £4.73). Further details are available on the Directgov NMW page.
• Pension auto-enrolment. Starting from October 2012, employers in Great Britain will be required automatically to enrol eligible workers into a pension scheme. The new duties will be implemented over a four-year period, with larger employers being affected first. The regime is fully explained in Lewis Silkin's 'inbrief' guide.
• Fees for Employment Tribunals. The Government has decided to introduce fees in ETs and the Employment Appeal Tribunal and a consultation on the arrangements for charging fees closed on March 6, 2012. Two alternative fee structures were proposed. Under option 1, the claimant would pay an initial fee to lodge a claim and a second fee to take the claim to a hearing. Under option 2, there would only be a fee to issue a claim but those seeking an award of £30,000 or more would have to pay more. For option 1, introduction is proposed in 2013/2014, whereas option 2 would be implemented by 2014/2015.
• Compromise agreements. The Government is proposing to consult during 2012 on the introduction of measures to simplify compromise agreements, the main method used in the UK for employers and employees to settle claims and effect a 'clean break' on the termination of an employment relationship. These are likely to be renamed 'settlement agreements'.
• Protected conversations. A consultation is expected during 2012 about allowing 'protected conversations', in which employers could discuss issues such as poor performance openly with employees without the details of the conversation subsequently being used as evidence in an ET claim.
• Rapid dispute resolution scheme. The Government proposes to consult during 2012 about whether to have a quicker and cheaper 'rapid resolution' scheme as an alternative to an ET claim for simple, low-value disputes. This would involve a determination by someone other than a judge relying on paper evidence rather than full hearings.
• Mandatory conciliation before ET claim. The Government is intending to introduce a scheme whereby employment disputes will have to go to the UK's conciliation service Acas for pre-claim conciliation before an ET claim can be lodged.
• Financial penalties for employers. The Government plans to introduce a discretionary power for ETs to impose financial penalties on employers who lose cases. The level of penalty that the Government has suggested is half of the total award made by the tribunal, with a minimum threshold of £100 and a maximum of £5,000. The penalty would be reduced by 50% if paid within 21 days.
• Review of ET rules of procedure. The Government has commissioned a leading judge, Mr Justice Underhill, to conduct a thorough review of the rules of procedure governing ET proceedings. he review, due to be completed by the end of April 2012, will consider whether the rules have become overly complex.
• Whistleblowing. The Government announced in November 2011 that it intends to close a 'loophole' in the UK's legislation on whistleblowing which allows employees to claim that blowing the whistle about a breach of their own employment contract is a protected disclosure.
• TUPE. The Government issued a call for evidence last November on the effectiveness of the Transfer of Undertakings (Protection of Employment) Regulations 2006, the UK legislation that protects employees on business transfers and outsourcing. The review focuses in particular on whether the rules are too bureaucratic and unnecessarily 'gold plate' the requirements of European Union law. The closing date for responses was January 31, 2012.
• Collective redundancy consultation. Another recent call for evidence concerned the statutory obligation for employers to consult about collective redundancies and, in particular, whether the 90-day minimum consultation period should be reduced. The closing date for responses was January 31, 2012.
• 'No fault' dismissals for small firms and simpler dismissal rules. Finally, the Government is currently seeking views on its proposal to introduce 'compensated no fault dismissals' for micro businesses (those with fewer than ten employees) and on ways to slim down existing dismissal procedures for all employers.

Photo credit: Bernd Klumpp

The UK's Department for Business, Innovation and Skills has published a Call for Evidence on workplace dismissal processes. This was announced by Secretary of State for Business, Vince Cable, in a speech to the British Chambers of Commerce on 15th March 2012.

The Call for Evidence is designed to help inform the Government's understanding of the current dismissal system. It includes:

• Gathering information on awareness and use of the Code of Practice on Disciplinary and Grievance Procedures issued by the UK's conciliation service Acas. In particular, BIS wants to understand whether this could be adapted to make it easier to use and more accessible for smaller businesses.
• Seeking views on the idea of compensated no-fault dismissal for "micro businesses" (those with fewer than ten employees). Under such a system, the employer would pay a set amount of compensation to the employee but would not be required to go through a formal dismissal procedure.

Secondly, there is a revised version of the Employer's Charter, first published in January 2011. The Charter is designed to dispel myths around employment law and, in particular, give clarity to employers about what they can already do to deal with staff issues in the workplace. It has been refreshed with further pointers on sickness absence and recruitment, in response to a recommendation in last year's independent review of sickness absence by Dame Carol Black and David Frost CBE.

Photo credit: Diego Cervo

The Supreme Court has handed down a significant ruling (PDF) on the ability of an employee who worked overseas to make a claim for unfair dismissal in the UK, in the case of Ravat v Halliburton Manufacturing and Services Ltd.

Background

The Employment Rights Act 1996 currently allows employees with more than one year's service to make a claim for unfair dismissal. This legislation does not contain any specific limit on territorial jurisdiction. However, previous cases have established that there must be some limits on the ability of an employee who works overseas to make a claim in the Employment Tribunal.

In the earlier decision of Lawson v Serco [2006] IRLR 289 in the House of Lords (the predecessor of the Supreme Court), Lord Hoffman identified three categories of employees who would fall within the jurisdiction of the Employment Tribunal:

• employees working in Great Britain;
• "peripatetic" employees, where the employee is based in Great Britain;
• expatriate employees in "exceptional" cases.

Ravat v Halliburton concerned an employee who did not fit clearly into any of the above three categories. He was employed by a UK company based in Scotland. At the time of his dismissal, he was working in Libya on a rotational working pattern. He would work for 28 days in Libya, and then spend 28 days at home in the England (when he was not required to carry out significant work). His work was done for an associated company based in Germany, he reported to a manager based in Libya, and he was dismissed by a manager employed by another subsidiary based in Cairo. He was treated as a "UK commuter" by his employer, and all of his travel costs were paid. His employment contract remained governed by UK employment law, and his manager had assured him that he would continue to be protected by UK law while he worked overseas. He was paid in UK sterling into a UK bank account, and paid UK tax and NI through PAYE.

An Employment Tribunal had initially found that Mr Ravat's claim for unfair dismissal could be heard in Scotland. This was overturned by the Employment Appeal Tribunal (EAT). The case then went to the Scottish Court of Session which by a majority reversed the EAT's decision, but took three different approaches. Lord Osborne thought the case fell outside the three categories in Lawson but there was a sufficiently strong connection with Great Britain to allow the claim, Lord Carloway thought Mr Ravat fell within the "peripatetic" category, and Lord Brodie found Mr Ravat to be an expatriate and so unable to make a claim for unfair dismissal. The employer appealed to the Supreme Court.

The Supreme Court's Decision

By a unanimous decision, the Supreme Court found that there was jurisdiction to hear Mr Ravat's claim in Scotland, based on the findings of fact made by the Employment Tribunal. Lord Hope gave the leading (and only) judgment.

The Court found that Mr Ravat's case did not fall within any of the specific categories given by Lord Hoffman in Lawson. However, these are not exclusive categories, and the question is one of "fact and degree". Although the general rule is that the place of employment was decisive, there can be exceptions to this, and the starting point is whether "the employment relationship has a stronger connection with Great Britain than with the foreign country where the employee works". The key question is whether the connection is sufficiently strong that it can be presumed that Parliament intended the Employment Rights Act to apply, even though the employee worked abroad.

The decision also draws a distinction between employees who both work and live abroad, and those who work overseas but have a home in Great Britain. In the first category, referred to as "truly expatriate", the Court agreed with Lord Hoffman that an exceptionally strong connection with Great Britain is required for an exception to be made. However, the position is different where an employee worked overseas but had a home in Great Britain. The Court regarded such employees as not being truly expatriate, as they do not live as well as work overseas. Where a commuter has a "home" in Great Britain, with the consequences that flow from this for terms and conditions of employment, the burden of showing a sufficient connection with Great Britain is less onerous.

In Mr Ravat's case, the Court decided that the factors pointed towards Great Britain as the place with which Mr Ravat's employment had the closer connection, in comparison with anywhere else. The Court also held that the expressed law of the contract, and the reassurances provided to Mr Ravat about UK law being applicable to him, were relevant factors although not decisive ones. The question is "ultimately one of degree".

Practical Implications

The Supreme Court appears to have added a fourth category to the three identified by Lord Hoffman in Lawson. Expatriate employees can now be divided into "truly" expatriate employees who both work and live abroad and "commuter" employees who work abroad but live in Great Britain. True expatriates still need to show an exceptionally strong connection with Great Britain in order to make a claim in the Employment Tribunal. However, commuter employees simply have to show a sufficient connection with Great Britain.

It is perhaps slightly surprising that the location of an employee's home rather than their workplace should be so relevant to establishing jurisdiction. In Mr Ravat's case, although he lived in Libya while he was working there, it was clear that he spent at least half of his time living in England. This was also closely bound up with his UK terms and conditions and expressed status as a "commuter". However, there may be many cases where the situation is less obvious - e.g. an employee who retains a family home in Great Britain, but spends the majority of his/her time working at one location overseas. Is this really so different from an employee who happens to have moved permanently overseas for the purposes of a particular job?

As the Supreme Court has said, ultimately this is a question of fact and degree. As is the case for some other jurisdictional issues, such as determining employment status, Tribunals will be looking at all of the factors in a particular case in order to decide whether there is a "sufficient" connection with Great Britain. For employers who want to avoid UK jurisdiction for international "commuter" employees, it will be important to try and ensure that as many of the other aspects of the employment relationship as possible as distanced from the UK. Although an employee's home on its own will not be decisive, it seems that home plus other connected factors may be enough to establish the connection required for an Employment Tribunal to have jurisdiction, even where the whole of the employee's job is based overseas.

Image credit: Janusz B

The UK's Supreme Court has handed down a major judgment (PDF) on damages for breach of an employment contract in the joined cases of Edwards v Chesterfield Royal Hospitals NHS Trust and Botham v Ministry of Defence. Both cases concerned whether a dismissed employee can claim damages arising from breach of a contractual disciplinary procedure.

Background

In the case of Johnson v Unisys Ltd [2001] IRLR 279, the House of Lords (predecessor of the Supreme Court) had ruled that an employee cannot recover compensation for the "manner of dismissal" by means of a breach of contract claim, but must instead bring an unfair dismissal claim in the Employment Tribunal where the statutory limit on compensation would apply. (This is the so-called "Johnson exclusion".) Subsequently, in Eastwood v Magnox Electric plc [2004] IRLR 733, the House of Lords clarified that a claim for an employer's breach of the implied duty of trust and confidence during a disciplinary process could be made where this breach was both prior to and independent of any later dismissal.

Mr Edwards was dismissed from his role as a consultant orthopaedic surgeon on grounds of gross personal and professional misconduct. He made a High Court claim for breach of his employment contract based on loss of reputation, alleging that his employer had failed to comply with a contractual disciplinary procedure. This included an allegation that the disciplinary panel had not been properly constituted and he would not have been dismissed if the panel had correctly included a clinician of the same discipline. Somewhat controversially, on appeal, the Court of Appeal had held that it was possible to bring a claim for breach of an express contractual procedure in these circumstances.

Mr Botham was also dismissed for gross misconduct, from his role as a youth community worker. He similarly brought a High Court claim for damages for breach of express terms of his employment contract, in this case failure to follow the provisions of a contractual Disciplinary Code. This had caused him a loss of reputation and inability to work in his chosen field. His claim was dismissed by the High Court on the basis that the "Johnson exclusion" applied, but his appeal was then allowed by consent in the Court of Appeal, following the decision in Edwards.

The Supreme Court's Ruling

By a narrow majority decision, the Supreme Court allowed the employers' appeals in both cases and held that employees cannot claim damages for loss resulting from breach of an express term in their employment contract where this relates to the manner of dismissal. In accordance with Eastwood v Magnox, contractual damages can only be claimed where the loss founding the cause of action both "precedes and is independent of" the dismissal process.

Lord Dyson gave the leading judgment, with which Lords Mance and Walker agreed. They held that these cases fell within the "Johnson exclusion" and so were prohibited by the principle that an employee is not entitled to claim contractual damages for the manner of a dismissal. This was the case even though the claims were based on breach of an express contractual term, rather than breach of trust and confidence. Parliament had specified a statutory scheme of unfair dismissal placing deliberate limitations on the right to make a claim, including time limits for bringing claims, qualifying service requirements, and a cap on compensation. Parliament had also linked failure to comply with disciplinary procedures with the outcome of unfair dismissal claims. This meant that even express terms about disciplinary procedures were not ordinary contractual terms, but were intended to operate to protect employees from unfair dismissal.

In Mr Edwards' case, his dismissal flowed from the disciplinary panel's findings, which in turn flowed from its improper constitution. The claim did not arise from anything said or done before the dismissal. Similarly, Mr Botham's loss of reputation was caused by the dismissal itself. Therefore, in both cases the procedural breaches formed part of the dismissal process, and so fell within the Johnson exclusion.

The Other Opinions

Lord Phillips also allowed both appeals, but for a different reason. He considered that both claims were prevented because they were effectively claims for "stigma" damages. These could not be awarded in respect of wrongful dismissal (following Addis v Gramaphone Co Ltd [1909] AC 488) and similarly should not be allowed for failure to follow a disciplinary procedure.

Lords Kerr and Wilson both distinguished between the two cases. They agreed with allowing the appeal in Botham, on the basis that this claim arose solely from the fact of dismissal. However, they would not have allowed the appeal in Edwards, finding that he had established a cause of action before dismissal. The adverse findings against him by the improperly constituted panel had caused the dismissal. However, independently of the dismissal, these findings also damaged his reputation. Therefore, he had a cause of action for damage to reputation before the dismissal occurred, which fell outside the Johnson exclusion.

Lady Hale dissented altogether, finding that unfair dismissal law did not mean that Parliament intended to limit employees' contractual rights, and the Johnson exclusion only applied to cases involving breach of the implied term of trust and confidence.

Practical Implications

Although the seven Supreme Court judges gave a variety of opinions, it is clear that the basis of the Court of Appeal's decision in Edwards has been overturned. The "Johnson exclusion", which prevents contractual claims for the manner of dismissal, applies irrespective of whether the claim is based on breach of an implied term or an express contractual term.

The majority decisions will come as a relief to employers, because they seem to close off the possibility of an employee making a High Court claim for career-long loss arising from breach of a contractual disciplinary procedure - at least where the procedure has led to the dismissal.

However, the remaining grey area concerns the circumstances in which an individual claim falls within the Johnson exclusion, or can be shown to be independent of the dismissal. This is a question of fact, and will depend on whether the procedural breach forms part of the dismissal process. Examples of matters potentially independent of the dismissal are claims for loss caused by a suspension, or psychiatric injury caused by pre-dismissal treatment.

In his majority judgment, Lord Dyson recognised that this can lead to "unsatisfactory and anomalous" results - including the fact that an employer may be better off dismissing an employee than suspending him. The room for disagreement on the facts of a particular situation is also shown by the dissenting judgments of Lords Kerr and Wilson in the Edwards case, where they appear to apply the same test as the majority but come to a different conclusion.

Future claims by employees are likely to focus on the effect on their reputation or health of contractual breaches early on in a disciplinary process, in an attempt to show that this damage is independent of any later dismissal. For employers with a contractual disciplinary process, it will be advisable to move through the process as quickly as possible and make a clear link between any disciplinary findings and the decision to dismiss.

Lord Dyson's judgment also expressly notes that it is still open to an employee to seek an injunction and/or declaration if an employer starts a disciplinary process in breach of express contractual terms. This is despite the fact that contractual damages might not be available for any resulting dismissal. This decision may well result in such applications becoming more common, particularly for employees where damage to professional reputation caused by a flawed disciplinary process may have a significant impact on future employment prospects.

Photo credit: RTimages

The UK's Ministry of Justice has issued a public consultation document on the Government's proposals for introducing fees in the Employment Tribunals and the Employment Appeal Tribunal (EAT). This is not a consultation on whether or not to introduce fees, as that has already been decided. Rather, the consultation is about the proposed structure and arrangements for charging fees. There are two alternative proposals for fee structures, Option 1 and Option 2, which are outlined below.

The key features of the first option are as follows:

• Fees would initially be set to recover a proportion of the cost of providing the service.
• The fee payable would vary depending on the nature of the claim made, the stage reached in the proceedings, and (for multiple claims) the number of people in the claim.
• Fees would be payable in respect of two stages: (1) the issue of the claim; (2) before the hearing. However, both the issue fee and hearing fee would be payable by the claimant when the claim is made.
• The fee level payable would depend upon the claim type, allocated into three levels: Level 1 (sums due on termination); Level 2 (unfair dismissal); and Level 3 (discrimination/equal pay/whistleblowing).

The fees for issuing a claim would be: Level 1 £150; Level 2 £200; and Level 3 £250. The fees for proceeding to a hearing would be: Level 1 £250; Level 2 £1,000; and Level 3 £1,250.

Option 2

The key features of the second option are as follows:

• Fees would only be charged at the issue of claim stage.
• The level of fees would vary depending on the nature of the claim made and the value of the claim, and (for multiples) the number of people in the claim.
• If the claimant seeks an award over £30,000, a higher fee would be payable (Level 4), irrespective of the nature of the claim.
• Where a claimant seeks an award less of than £30,000, the Tribunal would be prohibited from making an award above that threshold if the claim was successful.
• The fee for Level 4 claims would be initially set to recover the full cost of providing the service, with other fees set below full cost recovery.

The fees would be: Level 1 £200; Level 2 £500; Level 3 £600; and Level 4 (£30,000 or over) £1,750.

Under both Option 1 and Option 2, a remission system would apply for those who need to access an Employment Tribunal but cannot afford to pay the fee. Full remission could be sought based on receipt of specific benefits or gross threshold income, or partial remission based on monthly disposable income.

Also under both options, the Tribunal would have the power to order that the unsuccessful party reimburse the fees paid by the successful party.

The consultation document also proposes fees for making various types of application to a Tribunal, payable by the party making the application. For example, an application to review a Tribunal decision would cost £100 (Level 1) or £350 (other levels).

Fees in the EAT

The document proposes a fee of £400 for issuing an appeal to the EAT and a further fee of £1,200 for proceeding to hearing.

The consultation will be open until 6 March 2012. The timing of the introduction of fees will depend on which option is chosen. For Option 1, implementation is proposed in the 2013/14 financial year. For Option 2, because of the requirement for legislation preventing a Tribunal awarding a sum in excess of £30,000 where the appropriate fee has not been paid, full implementation is proposed by the 2014/15 financial year.

Photo cerdit: Ericsphotography

The UK Government has announced wide-ranging plans for what it claims to be "the most radical reform to the employment law system for decades". The proposals were set out by the Secretary of State for Business, Dr Vince Cable, in a speech to the EEF manufacturers' organization. Some of the measures had been previously floated but others were novel, including:

• amending the UK's whistleblowing legislation so that complaints by employees about a breach of their own employment contract will no longer constitute a protected disclosure;
• seeking views on introducing compensated no-fault dismissals for "micro employers" with fewer than ten employees;
• simplifying and "slimming down" the processes required to carry out a fair dismissal, including potentially working with the conciliation service Acas to change their Code of Practice on Disciplinary and Grievance Procedures;
• consolidating the myriad regulations relating to the national minimum wage; and
• streamlining the current regulatory regime for the recruitment sector.

In addition, some significant changes in relation to Employment Tribunals were rather hidden away in the notes to the Department for Business, Innovation and Skills press release, including judges sitting alone without wing members to hear unfair dismissal cases from April 2012.

The Government has also published its formal response to the Resolving Workplace Disputes consultation that took place earlier this year. Amongst other things, the response reveals that the Government is committed to:

• increasing the qualifying period for unfair dismissal to two years from April 2012 (as previously announced);
• publishing a consultation on options for the introduction of Employment Tribunal fees;
• introducing compulsory conciliation of all employment disputes by Acas before an Employment Tribunal claim can be brought;
• consulting on "protected conversations", which would allow employers to have discussions with staff about retirement or poor performance that could not subsequently be relied on in tribunal proceedings;
• giving Employment Tribunal judges the power to levy a financial penalty on employers found to have breached employment rights;
• consulting on simplifying compromise agreements - to be renamed "settlement agreements";
• developing a "rapid resolution" scheme to offer a quicker and cheaper alternative to Employment Tribunals for simple cases; and
• commissioning a fundamental, independent review of the Employment Tribunal Rules of Procedure (PDF), to address concerns that tribunals have become complex, inefficient, and are no longer fit for purpose.

Dr Cable claimed that the various measures taken as a whole would "retain key protections for employees, but also fundamentally improve the way employers take people on, manage disputes and let people go". Whilst he emphasized that the package was "emphatically not an attempt to give businesses an easy ride at the expense of their staff", the response from British trade unions has been predictably scathing.

Photo credit: Janusz B

The UK Government has confirmed that it will be increasing the qualifying period for claiming unfair dismissal from one to two years and introducing fees for bringing employment tribunal claims.

These were two of the most significant proposals contained in a consultation document on reforming employment tribunals and the resolution of workplace disputes, published by the Department for Business, Innovation & Skills (BIS) last January. At the Conservative Party conference on 3 October 2011, the Chancellor of the Exchequer, George Osborne, announced that both reforms are to be implemented. This pre-empted the Government's formal response to the consultation, which is expected shortly.

A BIS press release published on the same day revealed that the change to the unfair dismissal qualifying period will take effect on 6 April 2012, but gave no information as to what the transitional arrangements for existing employees would be.

The stated purpose of the reform is to encourage employers to take on new employees, with the Government estimating that the number of unfair dismissal claims will drop by around 2,000 a year. But the change is hugely controversial, with predictions that it will merely have the effect of encouraging more discrimination and whistleblowing claims, which apply from "day one" - i.e. there is no qualifying period.

Trade unions are naturally vehemently opposed to the change but even some employer organisations are questioning the merits, including the Chartered Institute of Personnel and Development.

Fees for Employment Tribunal Claims

The Chancellor's speech on 3 October also included a commitment "to introduce for the first time ever a fee for taking a case to a tribunal that litigants only get back if they win". As yet, there are no official details of how this will work and it seems that a consultation on fees will be launched later in the autumn. According to the BBC, the projected implementation date is April 2013.

There is serious opposition to this proposal too, primarily on the basis that fees are likely to have the unfortunate effect of deterring genuine claims as well as spurious and weak ones. It has also been suggested that it will merely ratchet up the cost of settling cases, with claimants expecting to recoup any fee from their employer.

There have been unconfirmed media reports that the fee for issuing a tribunal claim will be £250, with a further fee of £1,000 payable by the claimant when the hearing is listed (and even higher fees if the claim exceeds £30,000). No source is given for these figures and the Government's forthcoming consultation will reveal whether or not they are genuine.

It does at least seem clear that any fee will be recoverable by the claimant if successful, but will that mean that the tribunal will make a refund or order the employer to pay it? If the latter, this would chime with another proposal in the January 2011 BIS consultation paper - imposing financial penalties on employers found to have breached their legal obligations.

Photo cerdit: Ericsphotography

For a practical discussion of the main compliance issues from an employment perspective and guidance as to where U.S. organizations, used to complying with the Foreign Corrupt Practices Act and the patchwork of U.S. anti-bribery laws, should focus their attention, continue reading U.K. Bribery Act "On-Line" as of July 1 - U.S. Employer Impact, by Philip Berkowitz and David Goldman of Littler Mendelson and Ellen Temperton of Lewis Silkin.

Photo credit: MBPhoto, Inc.

Employment Newsnotes

• Dangers for employers in relying on surveillance film in disciplinary proceedings
• Controlling employees' use of social media in the workplace
• How employers should go about implementing a pay cut lawfully
• The Government's proposal to introduce financial penalties for employers losing Employment Tribunal claims
• The latest cases concerning employees claiming discrimination on grounds of their 'philosophical belief'
• Interns - are they entitled to be paid the national minimum wage?
• The potential sanctions for businesses employing people who are working in the UK illegally
• The prospects of former News of the World staff being able to claim stigma damages

The UK's Supreme Court has held that for a contract to be deemed a 'sham', it is not necessary to show that the parties intended to deceive. It is enough that the reality of the situation is very different from the written terms and conditions.

The case, Autoclenz Ltd v Belcher and others [2011] UKSC 41 (PDF), concerned 20 car valeters. They claimed that they were 'workers' within the meaning of the National Minimum Wage Regulations 1999 and the Working Time Regulations 1998 and so entitled to the minimum wage and statutory paid annual leave.

The valeters had each signed a written contract describing them as "a self-employed independent contractor" with an express acknowledgement that they were not an employee. They paid their own tax (and indemnified Autoclenz for any liability to tax and/or national insurance) and were required to purchase their own overalls from Autoclenz.

The Employment Tribunal found that if it were looking solely at the written contracts in determining the valeters' employment status, it would be impossible to determine that they were working under contracts of employment and very difficult to construe the relationship as one requiring personal service.

However, the Tribunal observed that there was previous case law in the context of employment contracts requiring a court not just to look at the contractual position but also to ask what the parties actually agreed. This would involve looking at the operation of the relationship in practice. The Tribunal went on to make a number of findings about this, including:

• Although the valeters went into the agreements "with their eyes open", in fact, they were forced to do so as otherwise they would have received no further work.
• They had very little control over the way in which they did their work, and were subject to the direction and control of Autoclenz employees on site.
• They worked in teams and not as individuals and all equipment and materials were provided by Autoclenz.
• The invoices that they submitted were prepared by Autoclenz.
• The valeters were fully integrated into Autoclenz and had no other real sources of work.
• The substitution clause that had been introduced was wholly inconsistent with actual practice.

On consideration of the reality of the relationship, the Tribunal determined that the valeters had entered into contracts of employment, from which it followed that they constituted workers for minimum wage and working time purposes. The case ultimately reached the Supreme Court, which agreed with the Court of Appeal that the Tribunal's approach had been correct.

Practical Implications

This decision is the latest in a line of cases providing guidance on how tribunals should deal with disputes over the genuineness of a written term of a contract. The traditional definition of a 'sham' contract was set out some years ago in Snook v London and West Riding Investments Ltd [1967] 2 QB 786, in which it was held that there had to be a common intention to mislead a third party before an express contractual term could be disregarded.

However, subsequent cases have widened that interpretation to require the court to look at the true agreement between the parties, not just as evidenced in the written contract but by how the parties have conducted themselves in practice (e.g. the Court of Appeal's judgment in Protectacoat Firthglow Ltd v Szilagyi [2009] IRLR 36).

In practice, this an emphatic warning for businesses to take care not only over what is written in contractual documentation, but also to look at the operational reality of relationships with contractors. The express contractual wording alone will not be determinative.

In this case, the valeters had originally only claimed certain rights to which they would be entitled as 'workers', but the Court determined they were entitled not just to be treated as that but as full-blown 'employees' with all the rights that employment entails.

So the moral of this case is that where a contractor is in reality operating like an employee - or at least a worker - then contractual documentation stating otherwise is likely to be deemed a sham.

Photo credit: Mac Art Grafik