UK: Employment Update - September 2011

Last Updated: 27 September 2011
Article by Michael Powner

There is now less than a month to go before the long awaited Agency Workers Regulations come into effect on 1 October, and whilst we focused on these in our last update, for those who want to revisit a summary of the new provisions please click here. The government has recently confirmed that the Regulations will come into force as originally planned and it is not intending to suspend or amend them despite reports that it was carrying out a review following legal advice that they are "gold plated".

There is little else to report on the legislative front, but that will change soon when the government reports back on consultations that took place earlier this year on areas such as tribunal reform, flexible working and shared parental leave.

In this update we look at some recent cases, David gives his opinion on the ongoing issue of long-term sick leave and holiday entitlement and we take a look at apprenticeships given the government's drive to promote these.

David's opinion piece

Holidays, damn holidays

Holidays used to be such a simple issue for employers. Employees took their holiday under their contract, they carried forward some holiday, or they simply lost their holiday. Life is no longer that simple and the latest decision of the Employment Appeal Tribunal in NHS Leeds v Mrs J Larner is enough to drive any HR practitioner to complete distraction. Perhaps the only upside of that to the HR practitioner is that their own holidays, when recovering on sick leave, will be protected!

The facts of the Larner case are outlined separately in this update. The decision was made by a Judge sitting alone at the Employment Appeal Tribunal. He reached his decision, whilst acknowledging in the introduction to his Judgment, that a possible consequence of this would be that employers would be less likely to keep sick employees on their books.

It is understood that this case is being appealed, but unless it is overturned, employers are faced with a potential time bomb, namely long term sick employees who did not claim their holidays during a holiday year now being entitled to be paid for those "lost" holidays, even if they did not request them. It is a time bomb because under the Working Time Regulations, the time limit for bringing a claim in respect of those holidays does not start running until termination. This means long term sick employees who have returned to work or long term sick employees who leave after several years, because they are not fit to return to work, have potential claims going back many years.

Unless you are an employer who has thought through all these issues, then your practices need to be reviewed. For example, if you are an employer who operates a permanent health insurance scheme, do you monitor employees' holidays whilst they are away from work? A situation could arise whereby a sick employee does go on holiday but does not officially claim that holiday because they are in receipt of PHI payments. What is to stop them now claiming those holidays if the employer has no record of them. This would not be a cost borne by the insurer. Employers therefore have a choice if this case law stands. They can either decide to do nothing and deal with any claims as and when they arise, or they can take steps to spread the cost. This would involve actually paying holiday pay to sick employees, even if they do not request holidays so that liability does not build up but this, of course, commits employers to actually making that payment each holiday year. Another possible course of action for employers is to try and limit the number of holiday days to those referred to in the relevant European Directive which is 20 days once an employee is on long term sick leave. These additional costs are hardly what any employer wants in these current economic times.


Apprenticeships have very much been one of the hot topics for 2011. Vince Cable announced in February this year that the government intended to create 100,000 new apprenticeships and to increase funding for vocational training. More recently, on 6 September, the government announced a package of new measures to make it easier for employers to offer apprenticeships. This has all been accompanied by a range of wider initiatives and press attention throughout the year.

The Apprenticeships, Skills, Children and Learning Act 2009 ("the 2009 Act") introduced by the Labour government is also now largely in force for apprenticeships in England, and partly in force in Wales, and represents the first major overhaul of apprenticeship legislation for nearly 200 years. However, for many employers they remain a bit of mystery and this has not been helped by an uncertain legal context. Here we take a look at what an apprenticeship entails.

Apprenticeships must follow a "framework" which has three strands: a competence based element, a technical element and a skills element.

What are apprenticeships?

Apprenticeships involve on-the-job training, leading to nationally recognised qualifications and generally last between 1 – 4 years. In this way, the primary purpose of an apprenticeship is the training of an apprentice, with the execution of work for the employer being secondary. Apprenticeships must follow a "framework" which has three strands: a competence based element, a technical element and a skills element. Whilst many apprentices are young, there is no upper age limit, and employers must guard against age discrimination when considering apprenticeship schemes and applications for places. However, given the importance of government funding to many employers running such schemes, it may be possible to justify age-based decisions.

The employment status of apprenticeships

Apprentices are included within the key definitions of "employee" for the purposes of employment law rights, including unfair dismissal and TUPE, for example. Apprentices are also protected against discrimination under the Equality Act 2010.

Whilst an employer can discipline an apprentice for misconduct or poor performance, a dismissal on these grounds cannot be justified except in exceptional circumstances.

Apprenticeships are for a fixed period – until the apprentice has achieved the requisite qualification or completed the set training plan. However, they are expressly excluded from the protection of the Fixedterm Employees (Prevention of Less Favourable Treatment) Regulations 2002.

Apprentices have otherwise been afforded a higher level of protection by the courts than an "ordinary employee" when it comes to being dismissed and case law shows that they can claim damages for loss of wages, loss of training and loss of status. Establishing a fair dismissal will also be more difficult than is otherwise the case. Therefore, whilst an employer can discipline an apprentice for misconduct or poor performance, a dismissal on these grounds cannot be justified except in exceptional circumstances. Misconduct and/or poor performance would truly have to reach a point where it had become impossible for the employer to continue to teach the apprentice. In the case of redundancy, unless a business is closing altogether, or there is a fundamental change in the character of the employer's enterprise, it will generally not be open to the employer to end an apprenticeship on the ground of redundancy. This is all because of the notion that the purpose of the contract is the training rather than the work in itself.

Once the apprenticeship has come to an end the employer is under no obligation to employ the apprentice under a new contract, unless there is provision to do so within the contract of service. However, the end of the apprenticeship will still amount to a dismissal for unfair dismissal purposes and so a fair process will still be required.


The costs of training an apprentice are significant, but the government provides funding to cover the cost. For apprentices aged between 16-18 the government will pay up to 100% of the training costs, and for those aged between 19-24, up to 50%. The government will make a contribution for specified places for those aged 25 plus. There is, however, still a cost for employers because apprentices must be paid: the National Minimum Wage for apprentices ages 16-18, and those 19 and over in the first year of their apprenticeship is £2.50 an hour. This is due to be reviewed later this year. Apprentices who are 19 or over and have already completed the first year of their apprenticeship must be paid the National Minimum Wage appropriate to their age group. Apprentices must pay income tax and national insurance on their income.

Apprentices are entitled to statutory minimum annual leave, and are also eligible for statutory maternity leave and statutory maternity pay. An employer may also offer additional benefits in the usual way.

In light of the changes to be introduced via the National Employment Savings Trust (NEST) regime (to be phased in from 2012 onwards), apprentices who are a) aged 22 and over, and b) earn at least £7,745 a year, may become eligible for automatic enrolment in a qualifying scheme or NEST in the future.

The 2009 Act dictates that, except in a minority of cases, all apprentices should be in employment for at least 39 hours a week. There is provision for part-time apprenticeships of at least 16 hours a week to be approved where the apprentice cannot complete the full 30 hours. However these are very much an exception, and must only be put in place because of the needs of the apprentice – not the employer. The entirety of the apprenticeship programme should be delivered within the apprentice's contracted working hours.

Employers must also be aware that the Working Time Regulations 1988 require that young workers (workers who are under 18 but over compulsory school age) must not work in excess of 8 hours a day, or 40 hours a week. In addition, health and safety requirements for employing anyone under the age of 18 are more stringent than for adults over 18.

The Specification of Apprenticeships Standards for England (SASE) has been introduced in order to comply with the requirements of the 2009 Act, and requires every apprentice to receive 280 hours of guided learning (time in education and training away from their usual duties) within the first year of the apprenticeship.

Case update

Paid holiday for sick workers – the end of the debate?

As referred to above, the recent case of NHS Leeds v Larner is the latest in a line of cases looking at the issue of what happens to a worker's holiday entitlement when they are on long term sick leave. The Working Time Regulations 1998 provide that all workers are entitled to 28 days paid annual leave. Under the Regulations there can be no carry over of untaken holiday and a payment in lieu of holiday can only be made on termination of employment.

It was found in an earlier case that holiday still accrues for those on long term sick leave (despite the fact they are not "working"), and that the sick worker has the right to be paid for that holiday. In Larner , the EAT had to consider whether Mrs Larner needed to have requested to take holiday in the relevant holiday year, for the right to be paid for it on termination to take effect.

Mrs Larner was on sick leave from January 2009 until April 2010 when her employment was terminated. The holiday year ran to 31 March 2010 and the NHS argued that she had lost her entitlement for that year as she had not given notice that she wished to take holiday, as required by the Regulations. The EAT, however, found that her holiday entitlement carried over into the following year, whether she requested it or not, and the right to be paid for this then crystallised on termination.

It is, however, unlikely that this is the end of the matter. The EAT did not deal specifically with the conflict between allowing carry over, and the fact that the Regulations state that untaken holiday cannot be carried over. It is understood that the case is being appealed, so this is one to watch. Proposals to amend the Regulations to allow for carry over where a worker has been unable to take annual leave are part of a current government consultation.

Global conspiracy

The courts have, on the face of it, recently been more willing to extend the protection given under the "religion or belief" provisions of the Equality Act, to what many see as personal views rather than beliefs. The recent case of Farrell v South Yorkshire Police Authority is not a case that follows that trend.

Mr Farrell was an intelligence analyst for the police and had to produce a 'strategic threat' document to include issues such as potential terrorism. He submitted a document to the police explaining that he held views contrary "to the UK government's rhetoric on the events such as 9/11 and 7/7". He believed them to be "false flag" operations authorised by the UK and US governments to garner support for foreign wars. He was dismissed by the police for holding views incompatible with his contract and he subsequently brought a discrimination claim, arguing that his views were capable of protection under the religion or belief provisions.

The tribunal found that his beliefs were not capable of protection under the Equality Act. This was on the basis that they lacked the "cogency and coherence" required. Effectively, the tribunal were looking at whether it made any sense for Mr Farrell to hold the beliefs he did. Many employers will be relieved to see a halt (however temporary) in the extension of nonreligious beliefs capable of protection. However, that the tribunal got involved in assessing the credibility of Mr Farrell's view, could make this decision vulnerable on appeal.

Setting aside express contractual terms

Should courts be able to look behind express contractual terms to see if the reality of the relationship is different to that expressed in the contract? In Autoclenz v Belcher the Supreme Court has found that they can. In this case car valeters were described in their agreements as self-employed, the agreements also contained a substitution clause and HMRC had found them to be self-employed for tax purposes.

It is not enough to have clear contractual wording. If the wording does not reflect the true position, the courts can set the provisions aside.

The Supreme Court held, however, that the reality of the situation was that they were employees. Previous cases had found that there must be an intention by both parties to misrepresent the position before a court could look behind the terms, but the Supreme Court said this was too narrow in the employment context. Instead, the tribunals should look to the "actual legal obligations of the parties", whether at the outset or over time and even if there was no intention to mislead.

This demonstrates that it is not enough to have clear contractual wording. If the wording does not reflect the true position, the courts can set the provisions aside.

"Ex gratia" payments – careful wording required

The EAT has found that a termination payment described as "ex gratia" could not be used to meet the employer's obligation to pay damages for failure to pay the employee notice pay.

In O'Farrell v Publicis , Ms O'Farrell was entitled to three months notice under her contract. There was no "pay in lieu" clause and when she was made redundant she was sent a letter setting out her severance package which included an "ex gratia payment equivalent to three months salary".

The EAT found this wording to be unambiguous and, as a result, the payment was truly ex gratia and not made in respect of the notice entitlement. Payment in respect of the notice period therefore remained outstanding.

This is a harsh decision in many ways, but it does serve as a reminder of the importance of clear wording which accurately reflects the employer's intention in such circumstances.


  • The latest tribunal statistics for the year ending 31 March 2011 have been produced. Whilst they show an overall drop in claims of 8%, there are some areas where claims are increasing. For example working time claims were up 20%, part time worker claims almost trebled and age discrimination claims were up 32%.
  • The national minimum wage rates increase from 1 October 2011: the adult rate (21 and over) will be £6.08; for 18 to 20 year olds it will be £4.98 and for young workers (16 to 18 year olds) £3.68.
  • ACAS have published a report on social media and its impact in the workplace, advising employers to introduce social networking policies and to react reasonably to social networking issues.
  • On 5 August the FSA published finalised guidance on its remuneration code. The guidance provides tools to help firms comply with the code. The FSA has also published a further consultation on guidance on issues relating to remuneration.


  • Review your practices on holiday and sick leave and decide what, if any, action to take in respect of those on long-term sick leave. Also keep a watching brief for the outcome of the appeal in the Larner case.
  • Ensure that when making payments on termination of employment it is clear what they relate to.
  • Ensure you have in place a policy which covers social networking issues.
  • If apprenticeships are an option for your business, ensure you are familiar with the legal rights and practicalities of employing apprentices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael Powner
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