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

The High Court has ruled that an employer could be liable to a former employee for negligent and damaging comments made in an email to his new employer - even though it was sent six years after the employment relationship had ended (McKie v Swindon College [2011] EWHC 469).

The case concerned Mr McKie, who worked at Swindon College between 1995 and 2002. He received an excellent reference when he left their employment. By 2008, he was working in a new role as director of studies at the University of Bath. Part of this role involved visiting various further education colleges, including his former employer.

Swindon's HR director sent an email to the University of Bath which stated that they did not want Mr McKie on their premises or dealing with their students. The reasons given included "real safeguarding concerns for our students", and also "serious staff relationship problems" during his previous employment. As a result of receiving this email, the University of Bath dismissed Mr McKie.

The High Court observed that this was not a reference situation, where Swindon College had been asked to provide information about Mr McKie. However, in the circumstances, the former employer still owed him a duty of care.

• Given that Swindon College realised the email may have an impact on Mr McKie's current employment, the damage of losing his job and salary was "eminently foreseeable".
• There was a sufficiently proximate relationship between the parties, despite the six-year gap, as the University of Bath was relying on information about a previous employment relationship.
• It was fair just and reasonable to impose a duty of care on the college in relation to the content of the email.

The High Court found that this duty of care was clearly broken by a procedure in relation to the email which was described as "slapdash, sloppy, [and] failing to comply with any sort of minimum standards of fairness". The judge was particularly influenced by the fact that Mr McKie had been highly respected when at Swindon, the author of the email had no personal knowledge about him, relying on comments from a colleague, and the contents of Mr McKie's personnel file had not been taken into account.

This Court went on to find that the breach of the duty of care had caused Mr McKie to lose his job, opening the way for him to obtain compensation from Swindon College.

Implications for Employers

Previous cases have established that employers owe a duty of care in relation to references, and can be liable for negligent misstatement if a careless reference affects a former employee's job prospects (Spring v Guardian Assurance [1994] IRLR 460). It is also well established that an ex-employer can be liable for victimisation under discrimination law for providing a bad reference or otherwise behaving in a way which harms an ex-employee. However, this case makes it clear that a former employer may owe a wider duty of care in relation to comments made about ex-employees, even where no reference or discrimination claim is involved.

Liability for negligent misstatement arises where a false statement is made without the person making it having taken proper care. Where there has been an employment relationship, it now seems that this duty to take care remains in place even years after that relationship has ended. Moreover, although this communication in this case was in writing, there seems to be nothing in the judgment to prevent the same principles applying to verbal conversations.

Swindon College got into particular trouble in this case by making comments that were obviously very damaging to Mr McKie, but without having followed any adequate procedure to ensure that those comments were accurate or fair. Following this decision, employers would be well advised to think carefully and follow a fair process before making damaging negative comments about an ex-employee in any form and at any time.

In particular, employers should observe the following:

• All written communications regarding former employees that are passed to third parties should be carefully vetted and channelled through a central and accountable source such as the HR department.
• HR should verify any statements by using the former employee's personnel file and/or checking with people who have direct knowledge of him or her. Care should be taken to ensure that comments are consistent with earlier references and a paper trail should be kept recording the sources of the information.
• Policies, procedures and disciplinary codes should be reviewed to ensure that all communications of this nature - written as well as verbal - are accurate and fair and staff should be made aware of the implications of making careless, incorrect or rash statements about ex-colleagues.

Photo credit: Inkastudio

Significant changes to the UK legislation on European Works Councils (EWC) enter into force on 5 June 2011. The reforms are contained in the Transnational Information and Consultation of Employees (Amendment) Regulations 2010, which implement the requirements of the recast European Works Council Directive 2009/38/EC (PDF).

The recast Directive made a number of changes to the original EWC Directive (94/45/EC) following a review of its operation by the European Commission. The objectives were as follows:

• to increase the number of EWCs established;
• to improve the effectiveness of information and consultation in EWCs;
• to provide legal certainty; and
• to enhance coherence between European and national-level consultation.

The recast Directive must be implemented by all EU member states by the 5 June 2011 deadline, before the original Directive is repealed with effect from 6 June 2011. However, the new rules do not apply to existing agreements for transnational consultation that were entered into before 22 September 1996 (often referred to as "Article 13 agreements"), apart from in exceptional circumstances. Also generally exempt from most of the changes are EWC agreements that were created or revised between 5 June 2009 and 4 June 2011. All other EWCs will be subject to the new regime.

Further information on the changes and, in particular, their likely practical impact in the UK can be found in Lewis Silkin LLP's guide (PDF) to the recast EWC Directive.

Image credit: rzdeb

The UK Government's latest employment law consultation paper, Consultation on Modern Workplaces (PDF), sets out plans to introduce a new system of flexible, shared parental leave. This would build upon the Government's decision earlier this year to implement the previous Labour administration's legislation on additional paternity leave with effect from April 2011.

Other proposals covered by the consultation include:

• Extending the right to request flexible working to all employees.
• Amendments to the Working Time Regulations 1998 (WTR) relating to annual leave entitlement and its interplay with sickness absence.
• Mandatory equal pay audits for employers who are found by an Employment Tribunal to have discriminated on grounds of sex in relation to pay.

In outline, the main elements of the proposed flexible parental leave regime are:

• Prospective fathers would be entitled to unpaid leave to attend ante-natal care appointments. (Pregnant employees are currently entitled to paid time off to attend such appointments.)
• The mother would be entitled to 18 weeks' maternity leave to be taken in a block at or around the time of the birth of the child.
• The father would remain entitled to two weeks' paid paternity leave following the birth of the child.
• The remaining 34 weeks of the current 52-week maternity leave period would be reclassified as "parental leave" and may be taken by the mother or the father.
• The first 21 weeks of the new parental leave period would be paid and the remaining 13 weeks unpaid.
• Within the new parental leave period, the mother and father would each have four weeks of "reserved paid parental leave" for the exclusive use of each parent.
• The consultation document raises the possibility of taking leave in blocks followed by taking it in short periods (e.g., a mother taking maternity leave and then using short periods of parental leave to work only two days a week in the first year following the birth of her child).
• The current unpaid parental leave regime extending beyond the first year following the birth of the child would be maintained.

If parents wish, the scheme would allow a similar arrangement as under the current law, with the mother taking 52 weeks' statutory leave and 39 weeks' statutory maternity/parental pay. However, because the four-week protected period of paid parental leave could be taken concurrently by both mother and father, they would have an additional four weeks' aggregate leave (i.e., 56 weeks rather than 52 weeks). Accordingly, this could represent an additional cost to employers.

Right to Request Flexible Working

The Government is proposing to extend the right to request flexible working to all employees. It is currently available only to parents of children under 17 (and disabled children under 18) and certain carers. The 26-week qualifying period for the right will remain, but employers will be encouraged to consider flexibility before recruitment and to discuss it at interview with candidates.

Requests would be considered by using the current statutory process, but there would be a new duty to consider requests "reasonably" alongside a Code of Practice providing guidance for employers. Employers may be allowed to prioritise competing requests according to the personal circumstances of the employees making them. The consultation document also mentions the possibility of an employee making a second request for flexible working in a 12-month period if the original request states that the change is expected to last for less than a year.

Whilst many employers already have policies allowing any employee to request flexible working, those that do not are likely to see this as a burdensome reform. In particular, the possibility of making a second request within 12 months and the management time required to respond will be unpopular with many employers. Similarly, encouraging flexible working to be considered at recruitment may be received less than enthusiastically by employers with a culture of predominantly full-time working.

Working Time Regulations

The Government's proposals to amend the WTR aim to resolve uncertainty following a series of problematic European and UK judgements on the rights of workers who are unable to take holiday due to sickness. The main idea is that annual leave can be "carried over" to the next leave year in certain circumstances where leave cannot be taken at the scheduled time due to sickness or where the employee is sick during scheduled annual leave. In addition, it is proposed:

• An employer can insist rescheduled leave is taken in the leave year to which it relates, if there is sufficient time remaining in that year.
• The employer may require the employee to take rescheduled leave in the following leave year for a justifiable business reason (e.g., the need for increased staff numbers to cover peak Christmas trading in retail environments).
• Where leave is carried over due to sickness, the maximum that can be carried over is four weeks (in line with the EU Working Time Directive). However, where leave is carried over on account of absence due to family-related leave, the full 5.6 weeks under the WTR can be carried over.
• Views are sought on making it possible for employers to "buy out" the additional 1.6 weeks' leave under the WTR.

The Government's proposals relating to the WTR will provide some welcome certainty and flexibility for employers in this difficult and confusing area. However, a key danger for employers is that disability-related issues may arise when managers are making decisions about staff based on sickness absence without first investigating the cause of the absence.

Equal Pay

The Government's proposal to imposing mandatory equal pay audits on employers who lose an Employment Tribunal claim for sex discrimination in pay is highly controversial and will be met by unease by many employers. Tribunals would be obliged to order such an audit unless the employer could show that:

• it had been audited in the past three years;
• it had other appropriate means of ensuring non-discriminatory pay; or
• it would not be productive to order an audit in the circumstances.

If implemented, this may have a knock-on effect on settlement of equal pay claims. The fear of an audit being ordered is likely to be a compelling reason for many employers to compromise such cases. The consultation closes on 8 August 2011 and the Government intends to legislate on flexible parental leave, flexible working and equal pay as soon as possible in this Parliament (with introduction of the new system of flexible parental leave targeted for April 2015). The amendments to the WTR are likely to be implemented in 2012.

Photo credit: Abejon Photography

The UK's Coalition Government has announced that it will be extending its review of employment law to cover three new areas. This forms part of a broader strategy to simplify legislation, improve efficiency and reduce business red tape. The latest announcement follows a recent major consultation on proposals to reform employment tribunal and resolution of workplace disputes, including extending the qualifying period for claiming unfair dismissal from one year to two years.

• Compensation for discrimination. The Government believes that high awards at employment tribunals in discrimination claims may be encouraging litigation. Compensation for unlawful discrimination is currently unlimited in the UK and the Government is concerned that high awards "may encourage people to take weak, speculative or vexatious cases in the hope of a large payout". Clearly, it appears that the Government may propose some sort of cap on discrimination compensation awards - although there is likely to be a question mark over how far that would be permissible under European Union (EU) equality legislation.
• Transfer of Undertakings Regulations ("TUPE"). The Government is also looking critically at the Transfer of Undertakings (Protection of Employment) Regulations 2006 - known as TUPE - which provide protection for employees when the business in which they work is transferred to a new owner. Some business groups believe that the rules under TUPE are "overly bureaucratic" and extend too far beyond the requirements of EU law in this area. This suggests that the Government may be considering whether to abolish provisions in TUPE which specifically extend the legislation's application to outsourcing scenarios and changes in service provider.
• Collective redundancies. According to the Government press release, "Employers are concerned that the current requirement that consultation over collective redundancy runs for a minimum period of 90 days is hindering their ability to restructure efficiently and retain a flexible workforce. Employers in financial difficulties sometimes worry about how long they need to keep paying staff after it has become clear that they need to let them go." It remains to be seen what scope the Government considers there may be under the EU Collective Redundancies Directive to introduce greater flexibility into the current UK redundancy consultation obligations (set out in sections 188-198 of the Trade Union and Labour Relations (Consolidation) Act 1992).

The Government is to start reviewing the above areas this year. It "wants to ensure that the regulations are fit for purpose, and legislation will not necessarily be the route to implement any change if there is a case for reform."

Photo credit: Alina Hart

The Bribery Act 2010, originally scheduled for implementation in April, will now come into force on 1 July 2011. The UK Government has finalised and published its formal guidance on the legislation.

Richard Alderman, director of the UK's Serious Fraud Office has described the Act as "the toughest bribery legislation in the world". (For a brief summary of the Act, see our previous note New Bribery Act - Implications for Employers.)

When the Act comes into force it will be unlawful to offer, promise, give, request, agree to receive or accept a bribe. Most significantly, a commercial organisation can be liable for a failure to prevent bribery by a person associated with it.

Both a "quick start guide" to the Act (PDF) and full guidance (PDF) are available. The former provides some reassurance by stating that "no one can be prosecuted in England and Wales unless one of the two most senior prosecutors ... is personally satisfied that a conviction is more than likely and that prosecution is in the public interest". So whilst the Act itself is fairly draconian in nature, it seems that enforcement is unlikely to be.

In light of the guidance, this article focuses solely on the types of measures that employers will need to take to avoid corporate liability for failing to prevent bribery.

A bribe is any financial "or other advantage" and does not need to take place within the UK. This is a very broad definition which is causing many organisations to review their approach to corporate entertainment and practices around tendering and bidding processes.

However, the guidance states that genuine hospitality, promotional or other business expenditure that is "reasonable and proportionate" should not be caught. Providing this test is met, "...you can continue to provide tickets to sporting events, take clients to dinner, offer gifts to clients as a reflection of your good relations, or pay for reasonable travel expenses in order to demonstrate your goods or services to clients..."

With regard to facilitation payments: the guidance suggests that these will be bribes where they are "payments to induce officials to perform routine functions they are otherwise obligated to perform". However, legally required administrative fees or fast-track services are not regarded as facilitation payments for these purposes.

Who can be bribed?

In essence, a bribe occurs when a person, intending to obtain business or some other advantage for a commercial organisation, seeks to induce another person to perform a function or activity improperly or reward them for improper performance. The definition is sufficiently broad to ensure that more or less anyone can be bribed.

Who is "associated with" an organisation?

Associated persons are those who perform services for and on behalf of the organisation, including employees, agents and subsidiaries. It may also, depending on the circumstances, cover third parties such as subcontractors, intermediaries, joint venture partners and advisers. Such individuals do not necessarily have to be located in the UK or commit bribery offences there in order for the organisation to be liable for their actions.

How can an organisation protect itself?

The offence of failure to prevent bribery specifically punishes organisations with a weak compliance culture. Organisations have a defence if they had "adequate procedures" in place to prevent bribery. The guidance sets out six basic principles which should inform a business in determining what procedures it may need to put in place:

• proportionality
• top-level commitment
• risk assessment
• due diligence
• communication
• monitoring and review.

What should Human Resources be doing?

The steps that HR should consider include the following:

• Codes of ethics. Do you have one? If not, consider implementing one. If you do have one does it set clear standards? Consider whether existing codes apply to the extended audience of "associated persons". In particular, they may need to be adapted and rolled out to staff and associates in subsidiaries, branches and business partners wherever they are located. If so, you will need to give thought to how this may be achieved, taking account of legal formalities required in the relevant jurisdiction to effect binding change.
• Review related policies (e.g. conflict of interest and gifts/corporate entertainment policies). Consider inserting specific maximum limits on expenditure and a prohibition on entertainment at certain times or in certain circumstances, such as when a pitch is underway.
• Audit business partners' arrangements. What do the equivalent policies that relevant "associated persons" have in place say? Are they adequate?
• Check disciplinary rules. Do they cover bribery? Are the consequences of breaching the rules clear?
• Review employment contracts. Is there an express obligation to disclose wrongdoing? Clarify any uncertainty over the extent of an employee's general duty to disclose wrongdoing by inserting a requirement to do so. Consider also introducing an annual self-certification process.
• Review whistleblowing policy. Given the range of those who may perform services on behalf of the organisation, consider whether you can extend your policy to cover them.
• Review remuneration/commission arrangements. Do these pose a risk? Could they reasonably be considered to incentivise bribery? Risk may be reduced if plans themselves cross-refer to anti-corruption statements in relevant policies.
• Training. This should be carefully targeted, have high-level sponsorship within the organisation and be packed full of relevant examples.

What other steps might organisations need to take?

HR therefore has a substantial role to play in ensuring that standards are clear and well publicised, contracts are brought up to date, effective reporting mechanisms are in place and training given to employees and other staff on compliance.

But compliance with the Bribery Act requires more than HR input. Finance, Compliance and Risk Management departments will also be important contributors to the overall strategy. Organisations will need to conduct a comprehensive, group-wide risk assessment to ascertain where there may be risk of bribery occurring, including as it relates to business partners. Accounts functions should review approval processes and auditing arrangements.

Parent companies should adopt a robust "zero tolerance" approach at the highest level, including the appointment of a senior officer responsible for the group's stance. Public commitments and statements are also helpful in ensuring that the message is clear.

Photo credit: Kippa-Ring, QLD

• The Intra Company Transfer route (ICT)*
• Tier 2 extensions with the original employer
• Tier 2 switching to a new employer - i.e. lateral hires from within the UK
• Switching within the UK from another permitted immigration category
• Where the salary offered is £150,000 or more p.a. (no Resident Labour Market Test)

*The Intra Company Transfer route (ICT), although not part of the annual limit, has been changed in three ways:

• The job will have to be in an occupation on the newly updated graduate occupation SOC Code list
• Only those paid £40,000 or more will be able to stay for more than 12 months. They will be granted permission for an initial three year period with the possibility of extending for a further two
• Those paid between £24,000 and £40,000 will be allowed to come to the UK for no longer than 12 months, at which point they must leave and will not be able to re-apply for 12 months

Also, Tier 1 of the Points Based System will be restricted to all but entrepreneurs, investors and people of exceptional talent. The old Tier 1 (General) category has now been completely abolished.

Photo credit: David Franklin

The UK Government has announced its intention to review and reduce the amount of red tape faced by business, including the planned extension of the rights to request flexible working and time off for training.

In a speech to the Federation of Small Businesses, the Secretary of State for Business Vince Cable revealed that the Government is planning a range of measures to help small businesses, including a public audit of almost 22,000 existing regulations. Part of the review will include:

• repealing the regulations extending the right to request a flexible working arrangement to parents of 17-year-olds. These were due to come into force on 6 April 2011. As a result, the right to request flexible working will continue to be available only to parents of children aged 16 and under (and disabled children under 18) and certain adult carers.
• not extending the right to request time off to train to firms with less than 250 employees. The extension had been due to take effect from April 2011, but had become doubtful following a government consultation last autumn.

The Government is also intending to impose a moratorium exempting businesses with fewer than ten employees and "genuine start-ups" from new domestic regulation for a period of three years. Such businesses will, for example, be exempt if the Government presses ahead with plans to create a new, flexible system of shared parental leave, or extends the right to request flexible working (see above) to all employees. The Government intends to consult on both of these proposals later this year.

Photo credit: ODonnell Photograf

In essence, the new Regulations remove the exceptions that currently say it is not age discrimination to retire someone and that retirement in itself is a potentially fair reason for dismissal. However, there are some intricate transitional provisions (explained below).

The Regulations (coming into force on 6 April 2011) will delete the statutory provisions which currently say that it is not age discrimination:

• to dismiss someone at or over age 65 if the reason is retirement; or
• to refuse to offer someone employment who will reach retirement age within six months' time.

Once the DRA has gone, it will be unlawful age discrimination for employers to require an employee to retire at any age, unless this is objectively justified. It may also amount to an unfair dismissal, unless the employer can establish a valid ground such as poor performance or redundancy and show that its decision was reasonable in all the circumstances.

For further details, see  Lewis Silkin's guide (PDF) to working without the DRA.

Transitional provisions

The Regulations are subject to transitional arrangements that will allow retirements to take place on or after 6 April 2011 in certain circumstances. In order for the transitional provisions to apply:

• the employee must reach 65 (or the employer's normal retirement age if later) by 30 September 2011; and
• the employer must give notice of retirement to the employee under the DRA notification procedures on or before 5 April 2011.

Note that the employee's right to request an extension will still apply. The Regulations provide that if an employee makes a request to stay on beyond retirement, an extension of up to six months can be added to the retirement date notified under the transitional provisions. (An extension of any longer than this would mean that the retirement would fall outside the transitional provisions - making it unlawful unless justified.)

The upshot is that the long-stop date for retirements under the transitional provisions will be 5 October 2012 - i.e., six months after the twelve-month notice of retirement that must be given by 5 April 2011 at the latest. This is a change from the Government's initial position, which was that all retirements under the old procedure would end by October 2011.

Insured benefits

The Regulations contain a significant new exemption from age discrimination law in relation to insured benefits. It will not be unlawful to provide access to "insurance or a related financial service" only to employees aged under 65 (or State Pension Age, if greater). While the State Pension Age is still 65, the exemption itself only applies to:

• ceasing benefits at 65; or
• restricting benefits to the under-65s.

This does not expressly cover a situation where, for example, an employer already provides a benefit up to age 70. In that situation, a 71-year-old could potentially bring a claim comparing herself to a 69-year-old. This would not be covered by the exemption, so the employer would have to justify the difference in treatment in the normal way.

This may be an issue for employers who have extended cover for employees they have allowed to stay on under the duty to consider procedure.

Also, the exemption is restricted to the insurance/service being provided pursuant to an arrangement between the employer and a third party - the classic insured benefit situation. (There is a specific provision for employers who are in the insurance business, where they can provide their own product.) This means the exemption will not necessarily cover employers who self insure.

The draft Employment Equality (Repeal of Retirement Age Provisions) Regulations 2011 had not been formally published at the time of writing, but will be available shortly on legislation.gov.uk.

This entry was written by Bethan Carney.

Image credit: sculpies

Employment Newsnotes

• Equal pay (Made in Dagenham)
• Industrial action (Billy Elliot)
• Sexual orientation discrimination (Philadelphia)
• Business immigration (Green Card)
• Facebook and the workplace (The Social Network)
• Whistleblowing (Silkwood)
• Harassment at work (Disclosure)

• achieving more early resolution of disputes;
• ensuring that the employment tribunal process is as swift, user friendly and effective as possible; and
• helping business feel more confident about hiring people.

The document includes two highly controversial proposals that the Government has previously trailed: an increase in the qualification period for claiming unfair dismissal from one to two years (see our previous article on the background to this); and the introduction of a fee for lodging an employment tribunal claim. With regard to the latter, employers' organisations in the UK have been lobbying hard for a fee of up to £500 to discourage weak and spurious applications.

The Government has also published its so-called Employer's Charter (pdf) - a short, rather anodyne document reminding employers of certain 'rights' they have - e.g., to contact a woman on maternity leave and ask when she plans to return; to ask an employee to take a pay cut; to dismiss for poor performance.

Other proposals set out in the consultation document include:

• Exploring how greater use can be made of alternative dispute resolution tools such as mediation.
• Requiring all claims to be submitted to the Advisory, Conciliation and Arbitration Service (ACAS) in the first instance, rather than the Tribunals Service, and allowing ACAS a specified period (up to one month) to offer pre-claim conciliation.
• More flexible powers for employment tribunals to strike out weak and vexatious claims.
• A process for allowing offers of settlement to be 'paid in' to the employment tribunal if they are rejected, with the prospect of a costs order if the tribunal subsequently makes a lower award.
• Withdrawing the payment of expenses in employment tribunal hearings, to encourage parties to settle earlier and to think more carefully about the number of witnesses they call.
• Extending the jurisdictions where employment tribunal judges can sit alone (without lay members) to include unfair dismissal; and removing the general requirement for tripartite panels in the Employment Appeal Tribunal.

The consultation will close on 20 April 2011.

This entry was written by Richard Lister.

Photo credit: iofoto

The DRA is shorthand for the law that currently allows employers to require employees to retire at the age of 65 or older without attracting age discrimination or unfair dismissal liability. The Government's decision to phase out the DRA follows an extensive consultation process which closed last autumn.

It has now been confirmed that:

• Retirements using the current DRA will cease completely on 1 October 2011. This will apply to any notice to retire an employee after that date, even if already issued.
• Transitional arrangements will apply to retirements notified before 6 April 2011 to take effect before 1 October 2011.
• However, the last date on which employers will be able to give notice that they wish to retire employees by 1 October 2011, without breaching the current retirement procedures, will be 30 March 2011.
• Employers will continue to be able to issue notices of retirement between 1 April and 5 April 2011 (inclusive), but they will need to use the 'short notice' provisions in the current legislation - which will mean the employee can claim compensation of up to eight weeks' pay.

Employers attempting to retain an NRA will be at risk claims of unfair dismissal and age discrimination. To successfully defend such claims, they will need to show that the NRA is 'objectively justified' - i.e., a proportionate means of achieving a legitimate aim or aims. (See this article for more detailed discussion of the issues.)

The Government has also published its final response to the consultation (PDF), which has confirmed the following points:

• Retirement will no longer be one of the fair reasons for dismissal under unfair dismissal law. Employers retaining an NRA will need to rely on the catch all 'some other substantial reason' as their reason for dismissal (which will, in turn, depend on showing that the NRA is objectively justified).
• The abolition of the DRA will also entail the repeal of the current rules which allow employers to refuse to employ individuals once they have reached the age of 64 years and six months.
• The current, rather cumbersome statutory retirement procedures will be withdrawn. Employers will still be encouraged to discuss retirement with employees, but there will no longer be a specific legal 'prompt' for broaching the issue.

ACAS Guidance

The Government has decided that guidance for employers on this area is preferable to a formal statutory code of practice. The Advisory, Conciliation and Arbitration Service (ACAS) has already published its guidance on working without the DRA.

The guidance is designed, in particular, to assist employers on how they can hold discussions about retirement plans in a non-discriminatory way. In practice, ACAS envisages that employers should ask all employees - old and young - about their future plans on at least an annual basis, possibly as part of an appraisal meeting. The guidance also suggests that employers might wait until employees bring up the topic of retirement before embarking on detailed discussions about it.

Insured Benefits Exception

The most significant revelation in the Government's response to consultation concerns insured benefits. It recognises that there is a risk that employers may cease to offer such benefits as a consequence of the DRA's removal. Crucially, therefore, an exemption to the principle of equal treatment on the grounds of age will be introduced in respect of group risk insured benefits provided by an employer.

The consultation response lists these benefits as being: income protection; life assurance; sickness and accident assurance (presumably permanent health insurance and critical illness cover); and private medical insurance. The exemption will permit such benefits to be withdrawn, initially for employees aged 65 and over, and then rising in line with the state pension age. Further details will become apparent when draft legislation is published. There are, however, no plans to make any changes in respect of employee share schemes. Some employers had raised concerns that many such schemes specify that employees leaving employment because of retirement will be 'good' rather than 'bad' leavers (which is financially advantageous to the employee). The Government considers it is for employers to decide whether the circumstances in which employees leave make them a 'good' or 'bad' leaver and to satisfy themselves that the rules of the scheme comply with the law.

No doubt the withdrawal of the DRA will continue to be a hot topic during the remainder of 2011 and beyond.

This entry was written by Hester Briant.

Photo credit: sculpies

Following the general election in May 2010, Home Secretary Theresa May announced the introduction of a limit on migration into the UK by non-European Economic Area (EEA) nationals. This was in keeping with a Conservative Party manifesto commitment, subsequently incorporated into the Coalition Government's programme for government (PDF).

An interim limit was swiftly implemented by the UK Border Agency (UKBA) on 19 July 2010. This continues to operate today, ahead of the permanent limit on non-EEA economic migration which is likely to be implemented on 1 April 2011.

Under the interim limit, 600 applications per month were permitted for the Tier 1 (General) immigration route - highly-skilled migrants - for those applying from outside the UK.

This monthly limit was first reached on 20 October 2010, with applications submitted after that date being rolled over for consideration the following month. The foreseeable knock-on result was November's allocation being reached on the tenth of the month - and December's on the first!

On 17 December, the High Court ruled that the interim cap had been implemented unlawfully. The Government hastily pushed through the necessary legislation and on 23 December proceeded to close the Tier 1 (General) category to applicants from outside the UK. Clearly, the concern was that there were already applications to satisfy the limited allocation for January, February and March 2011.

Whilst Tier 1 (General) has closed to overseas applicants, individuals already in the UK with valid permission of longer than six months are still able to apply. Applications will be received until 31 March 2011, although the UKBA may decide to cut this short. Those eligible to apply who wish to do so are strongly urged not to delay.

Tier 2 (skilled workers)

Notwithstanding the plight of Tier 1 (General), it has been Tier 2 - the immigration category under which UK employers are able to sponsor overseas workers - that has been causing most of the headlines.

Since November 2008, UK employers seeking to sponsor non-EEA nationals have required a sponsorship licence issued by UKBA. Licence holders are awarded a yearly allocation of certificates of sponsorship, which they then issue to overseas national recruits so that they can apply for visas to enter the UK.

Following the introduction of the interim limit, existing sponsors had their allocation of certificates for 'new hires' drastically reduced, whilst new sponsors were granted an automatic zero allocation. Whilst a mechanism for requesting an exceptional allocation was introduced, this has proven to be a cumbersome and lengthy process with very few requests granted.

Almost overnight, UK employers found that they no longer had the means to sponsor non-EEA nationals to whom they had already offered positions. Graduate trainees, often recruited two years in advance, suddenly had no route for sponsorship into the UK, whilst migrants identified through weeks of mandatory advertising were unable to progress their visa applications.

UK industry has been vocal in its criticism of the cap and its potential detrimental effect on the economy as we aim to move out of recession. The Conservative London mayor, Boris Johnson, has claimed that the cap will harm Britain's economy and make the nation uncompetitive.

In response to lobbying, the Government announced that it would not cap employers' ability to transfer existing staff in international offices to the UK. The conditions for the intra-company transfer route have however been tightened, with established staff now needing to have worked in overseas offices for at least 12 months - up from the previous six-month requirement.

The permanent cap

Towards the end of last year, the Government announced the figures for the permanent cap to be implemented on 1 April 2011. With a view to reducing net migration to the tens of thousands by 2015, the Home Secretary announced a figure of 21,700 as the yearly limit on migrants entering the UK from outside the EEA. This excludes Tier 2 (intra-company transfer) migrants.

Tier 1 (General) will be drastically restricted, with only 1,000 visas being issued to those who are deemed to be of 'exceptional talent' - yet to be defined. Tier 1 categories for investors and entrepreneurs will not be capped and the Government is looking at ways of encouraging more people to use these routes into the UK. The requirements for these existing categories are likely to change as well.

For new hires under Tier 2 (General), the minimum level of English language competency is likely to be increased from basic to intermediate level. Applications from UK employers for certificates of sponsorship will be considered on a monthly basis, with greater priority being given to applications for UKBA-defined occupations for which the UK has a shortage, followed by posts demanding higher academic qualifications and thereafter posts which command a higher salary. The mechanics of the system have yet to be announced.

Going forward

The Government has already indicated that the limit on non EEA migrants entering the UK will reduce each year. With the UK's unemployment rate at its highest level since 1996, it is clear that ministers will continue to pursue immigration policies that force business to consider the domestic labour market more closely in the first instance.

As the UK claws its way out of recession, the need for employers to formulate a coherent immigration strategy in order to satisfy their staffing needs has never been more crucial.

This entry was written by George Koureas.

Photo credit: David Franklin

The changes are set out in the Employment Rights (Increase of Limits) Order 2010 (pdf). The most important ones are:

• The statutory limit on the amount of a 'week's pay' will increase from £380 to £400. Among other things, this figure is used to calculate statutory redundancy payments and the 'basic' award for unfair dismissal. (As a result, the maximum redundancy payment/basic award will rise from £11,400 to £12,000.)
• The maximum compensatory award for unfair dismissal will go up from £65,300 to £68,400.

The maximum that an unfairly dismissed employee can recover (basic award plus compensatory award) will accordingly be £80,400.

Meanwhile, in a statement to Parliament, the Secretary of State for Work and Pensions has announced the new rates of statutory maternity pay, adoption pay and paternity pay that will apply from April 2011. Each of these payments will rise from £124.88 to £128.73 per week. Statutory sick pay will increase from £79.15 to £81.60 per week.

This entry was written by Richard Lister.

Photo credit: imagestock