UK: Employment Update

Last Updated: 10 February 2011
Article by David Green


Happy New Year! In our first update for 2011 we have a look at what this year will have to offer for those involved in HR and employment issues. One of our employment partners, Nick Hurley, provides an overview of the final version of the FSA's Remuneration Code issued just before Christmas, we bring you up to date on recent employment-related news and cases and we take a look at some of the cases currently on appeal.

2010 saw the implementation of the Equality Act, one of the most significant pieces of legislation in the last decade. This year, the biggest impact on employers will be the removal of the default retirement age with the focus shifting to objectively justifying retirement ages. We will also see the implementation of the Agency Workers Regulations, the Bribery Act and other minor legislative changes. In addition, developments in case law are likely to be the focus for employers, and areas which are emerging as particularly contentious include religious discrimination: what this encompasses and the issues involved where there is a clash of rights with other workers and disability discrimination particularly the new provisions under the Equality Act.

Unfortunately, I think we are also likely to see a continuation of strike action and the effects of job losses. It will be interesting to see what, if any, steps the Government takes to assist businesses faced with strike action and whether there will be an erosion of employee rights. There were also rumblings in 2010 that there may be an increase in service required to make an unfair dismissal claim from one to two years, which would be welcomed by many employers.

With the public sector needing to make major cuts we are likely to see job losses and also cancelled or renegotiated outsourcing contracts, bringing TUPE issues into play.

Clearly 2011 is likely to be another busy year for those dealing with HR issues.

Curbing bankers' bonuses - An overview of the FSA's Remuneration Code

It's that time of year again for bankers to wait in eager anticipation of confirmation of their annual incentive awards (bonuses to you and me) and the public and politicians (notably Vince Cable) to baulk at the lack of restraint exercised by the financial services sector in the context of the austerity measures and public sector cuts affecting us all. This year the CEBR has estimated that around £7 billion will be distributed in City bonuses but new and tighter arrangements are in place to tackle those organisations that seek to reward their staff without reference to long term risk and proportionality.

The FSA in responding to the European (CEBS) guidance has finally revamped and released its final Remuneration Code which came into effect on 1 January 2011 for those firms to which it previously applied and will take effect from 1 July 2011 for others. The Code captures around 2700 financial organisations (as opposed to 26 previously) and sets out the main areas of restraint being:

  • the avoidance of agreed multi-year bonuses with guarantees only capable of being agreed for one year for all staff (and only in the context of new hires);
  • deferral of 40% to 60% of variable pay for Code staff;
  • the requirement to pay at least 50% of variable pay in shares for deferred and nondeferred portions;
  • a cash cap of 20% for the most senior Code staff; and
  • the requirement for the adjustment of variable pay if performance is re-evaluated or where there is employee misbehaviour.

With much wider application as to the individuals it affects, being all staff for the purposes of avoidance of multi-year bonuses and otherwise generally those in a senior management position and any employee whose professional activities could have a material impact on a firm's risk profile, the Code is markedly more stringent and embracing than its predecessor.

The big question is, however, will it work to curb the perceived excesses of the banking establishment and more importantly change behaviour? Many banks have responded to the Code by significantly upping basic salaries of key staff (which is broadly permissible under the Code) and lawyers and accountants will be scrambling to identify avoidance measures and lacunae.

Mr Cable has hinted that the Government will seek to legislate to tax bankers if restraint is not exercised, which betrays a lack of confidence in either the efficacy of the Code or the likelihood of strict adherence or perhaps both. However, you don't have to subscribe to the Gordon Gecko "greed is good" philosophy to realise that if the Government becomes too bound up in an ideological war on banks it is likely to stifle a banking recovery and ultimately drive away the most talented people in the sector. Whilst it would be tempting for political gain to sate public fury by adopting the Irish Government's "doughnut" approach to bonuses at AIB, this would be a catastrophic approach and in the medium to long term would seriously damage London as a major global financial hub. It will be interesting to see if Mr Cable allows the current proposals time to work before taking (what could be very damaging) further action.

Latest news

New Tribunal limits

For dismissals taking place on or after 1 February, the maximum compensatory award for unfair dismissal rises from £65,300 to £68,400, with the maximum limit on a week's pay rising from £380 to £400.

Flexible working

The Government has now issued regulations extending the right to request flexible working to parents of children aged 17 and under. This new right will take effect from 6 April 2011.

Statutory payment rates

From April 2011 the standard rates for statutory maternity pay, paternity pay, adoption pay and maternity allowance will increase from £124.88 to £128.73. Statutory sick pay will also increase from £79.15 to £81.60.

"Gold plating"

The Government has announced an end to "gold plating" of European measures when they are transposed into UK laws. The intention is that there will now be a direct "copy out" principle so that UK businesses are not put at a disadvantage relative to their competitors in other European jurisdictions.

PAYE coding

HMRC have issued new instructions on the correct PAYE coding to be applied on payments which arise after an employee has left and a P45 issued. Employers must use an "OT" PAYE code and withhold income tax at 20%, 40% or 50% as appropriate.

Default retirement age

The Government has confirmed that the default retirement age (DRA) will be phased out from April 2011.


Statutory maternity pay*: £128.73 per week *

This also applies to paternity pay, adoption pay and maternity allowance.

Statutory sick pay: £81.60 per week

What the cases say

Must have interest in job before you can sue for discriminatory advert

Mr Berry brought large numbers of claims against recruitment agencies and employers claiming that their job advertisements were discriminatory as they targeted younger applicants. Many of his claims were settled, but what became clear was that he had no intention of applying for many (if any) of the roles.

The Employment Appeal Tribunal found that an individual cannot succeed in a claim when they have no interest in the job in question as there cannot be discrimination if the advert has no impact on the individual. Whilst this protects companies from litigants who trawl adverts for potential discrimination, organisations should nevertheless review their recruitment adverts carefully to ensure there is no discrimination in the wording or targeting of the job advertised. The EHRC now has increased powers under the Equality Act to bring such cases.

Costs do have an impact on whether an adjustment is "reasonable"

Under the disability discrimination provisions, employers are under a duty to make reasonable adjustments where a provision, criterion or practice places a disabled employee at a substantial disadvantage. The extent of that duty is often difficult to assess when the only factor against the making of the adjustment is cost.

In Cordell v The Foreign and Commonwealth Office

Mrs Cordell was profoundly deaf and the FCO had, on previous postings, provided lip speaker support at considerable cost. When she was appointed Deputy Head of Mission in the embassy in Kazakhstan it was estimated that the additional lip speaker support she would require would cost almost £250,000. This was more than five times her salary, and was, on its own, more than the entire cost of employing local staff in the Kazakhstan embassy. The court found that the cost of the adjustment meant it was not a "reasonable" adjustment for the employer to make.

This demonstrates that the courts will look carefully at costs in relation to adjustments, even where the cost is theoretically possible for the employer to meet.

Careful drafting required

When drafting contracts, particularly those of higher paid employees, it is worth taking time to consider carefully what will happen on termination of the contract to make sure it reflects what is intended. In the case of Locke v Candy & Candy an employee's employment was terminated 10 days before a bonus of £160,000 fell due. Under the contract the employer was entitled to terminate with immediate effect and make a payment in lieu of notice (PILON), but the PILON clause did not specify what that payment should be made up of.

Mr Locke argued it should include the bonus that would have fallen due had he worked his notice. The company obviously argued this was not the case, and used the bonus clause to support their position. The bonus clause stated that "you must be employed by the Company to receive the bonus".

The court did not agree about how the PILON clause and bonus clause should be interpreted, but, by a majority (2:1) found that the company were not obliged to pay the bonus, because Mr Locke was not "employed" at the time the bonus fell due. This serves as a reminder as to how important it is to draft bonus and PILON clauses tightly and ensure they work together as intended.

Key issues for 2011

Additional paternity leave

Employers will have been aware for some time of the new additional paternity leave (APL) provisions coming in for those expecting children on or after 3 April 2011. The new provisions throw up some interesting issues. For example, although much of the commentary surrounding APL refers to the father being able to use up the remainder of the mother's maternity leave, the reality is that APL "bites" for the father once the mother has returned to work, provided this is before the child's first birthday (regardless of whether she has any untaken leave remaining). This means that theoretically, if the mother starts her maternity leave 11 weeks prior to the child's birth, the combined leave of mother and father could be up to 63 weeks, which is obviously more than the mother's entitlement of 52 weeks.

Another feature is that there are unlikely to be many employers who offer enhanced pay to those on paternity leave, whereas they may offer enhanced pay to those on maternity leave. As part of the consultation process, the Government did state that they could see no reason why there would be any requirement for employers to offer terms above statutory requirements during APL, but this position may not be sustainable. Whilst pregnancy and maternity leave have historically been treated as requiring special protection, the purpose of both AML and APL relate to child care responsibilities, and this applies equally to a man taking APL. It may be therefore, that it is possible to argue that the extended leave provisions no longer require special protection as was once the case, opening up the possibility for discrimination claims by men where their employer offers enhanced maternity pay but not enhanced paternity pay.

Immigration changes

The UK has seen many changes to its immigration system over the past few years and this trend continues into 2011, with the Government seeking to reduce net migration to tens of thousands each year, rather than the current hundreds of thousands.

The Tier 1 (General) highly-skilled route was closed to those applying from overseas on 23 December 2010. Tier 1 (General) will remain open within the UK until 5 April 2011 and will then be replaced in its entirety by a new route for "persons of exceptional talent". This route will have a far narrower scope than Tier 1 (General) and will only cover migrants who have won international recognition in scientific and cultural fields, or who show sufficient exceptional promise to be awarded such recognition in the future, limited to 1,000 places per year.

Tier 2 (General) will continue to be subject to a numerical limit for those applying from outside the UK and will be further restricted to graduate-level jobs only. Those employers who have yet to apply for Licensed Sponsorship or who have used up their Certificate of Sponsorship allocation will have to apply for exceptional consideration for initial or additional certificate of sponsorship, with preference going to shortage occupations, posts requiring higher academic qualifications and higher salaries. The minimum level of English language competency for Tier 2 (General) applications will also be increased from basic to intermediate level (B1 on the Common European Framework of Reference).

Whilst the Tier 2 (Intra company transfer) category will not be caught by the limit, applicants in the Established Staff sub-category will only be able to stay in the UK for up to 5 years if they are paid more than £40,000 per year; and those paid between £24,000 and £40,000 will only be able to enter for up to 12 months within a specified period.

Bribery Act 2010

This is due to come into force in April 2011 and will introduce a new corporate offence for failing to prevent bribery by individuals acting on behalf of an organisation. The only defence open to employers will be to show that they have "adequate procedures" in place to prevent bribery and corruption. Draft guidance on what will amount to "adequate procedures" has been under consultation and it is anticipated that the final guidance will be published early this year. Penalties for breach of the Act are high with companies facing potentially unlimited fines. Individuals guilty of an offence can face an unlimited fine and/or up to 10 years imprisonment. This will lead to a fundamental change in the way businesses approach corporate hospitality.

We will be reporting on this fully when the final guidance is issued.

Cases on the horizon

Damages for pre-dismissal breach of contract – Edwards v Chesterfield Royal Hospital NHS Trust

The Supreme Court will be considering whether, in principle, an employee can recover damages for future loss of earnings where a breach of the contractual disciplinary procedure resulted in dismissal. This could result in potentially significant amounts of damages being awarded.

Right to legal representation at disciplinary hearings – R v X School and Others and Hameed v Central Manchester University Hospitals NHS Foundation Trust

The Supreme Court and the Court of Appeal are considering in separate cases whether there is a right to have legal representation at disciplinary proceedings under Article 6 (the right to a fair trial) of the European Convention on Human Rights where the individual's right to practice their profession is at stake.

When is the obligation to collectively consult triggered?– The Court of Appeal is referring this question to the ECJ

The issue is whether the obligation arises when the employer proposes to make a strategic business or operation decision that will foreseeably or inevitably result in collective redundancies or whether it arises only once the employer has actually made that strategic decision. The answer to this question is extremely important to employers particularly in the current climate and in view of the significant financial penalties if they get it wrong.

Redundancies and "special treatment" for women on maternity leave – De Belin v Eversheds

The EAT will be considering whether it was discriminatory to a male employee to give a woman on maternity leave special treatment when being scored in a redundancy exercise.

Pre-pack sales and TUPE – Olds v Late Editions

The EAT decision is currently awaited on whether regulation 8(7) of TUPE applied to a pre-pack sale by an administrator which meant that TUPE did not apply and the employees did not transfer.


  • Ensure your paternity policies are up to date and review your position on offering enhanced paternity pay where you offer enhanced maternity pay.
  • Review recruitment adverts and ensure that wording is not discriminatory and not targeted at particular groups.
  • Always ensure contracts are drafted carefully – particularly those of higher paid employees – and that different clauses work together as intended.
  • Prepare for the removal of the default retirement age.
  • Review policies and contracts in anticipation of and in the light of final Bribery Act guidance.

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David Green
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