UK: Employment Update - December 2011

Last Updated: 14 December 2011
Article by Michael Powner

Welcome to our December update. As many of you will have seen in the news Vince Cable used his speech to the EEF to announce the Government's plans to radically reform employment relations through a package of measures aimed at reducing onerous and unnecessary demands on business, while safeguarding workers' rights. As part of this the Government has at long last published its formal response to the consultation on Resolving Workplace Disputes. Dr Cable also announced a number of other measures to be introduced and there is still much in the way of the detail to emerge. We summarise some of the key changes revealed so far and look at what is yet to come.

In this update my colleague, Nick Hurley, gives us his opinion on the FRC's approach to increasing the number of women in the boardroom, we focus on the latest cases on the ongoing saga of holiday pay and long term sick leave and finally we take a look at the impact of social media in the workplace and what employers should be doing to deal with this.

All that remains is for the Employment and Pensions Group to wish you all a very Merry Christmas and a Happy New Year!

Opinion piece

Women in the Boardroom - would mandatory quotas address the real issues?

At the current rate of change, it will take over 70 years to achieve gender balanced boardrooms in the UK".

This is the opening statement of Lord Davies' report "Women on Boards" which was published in February this year. In 2010 women made up 12.5% of boards of FTSE 100 companies. The report has recommended that these companies should aim to have a 25% female representation by 2015. The report looks at various business benefits for companies that have a more diverse boardroom but a key issue which needs to be addressed is why so many women leave the workplace before reaching senior management.

Increasing women on boards is not just a question of equality, it is about improving the performance of boards as a whole.

The business case for having more women on boards was demonstrated by the 2007 McKinsey and Company report "Women Matter". This showed that companies with a strong female representation at board and top management level performed better than those without. Increasing women on boards is not just a question of equality, it is about improving the performance of boards as a whole. Lord Davies comments that "it is about the richness of the board as a whole, the combined contribution of a group of people with different skills and perspectives to offer, different experiences, backgrounds and lifestyles and who together are more able to consider issues in a rounded holistic way and offer an attention to detail not seen on all male boards which often think the same way, and sometimes make poor decisions".

So, why is there not a gradual progression of women being promoted through companies to board level? In Europe and the USA, women account for approximately 6 out of every 10 university graduates, yet this is not feeding through to high levels of senior management. Many women choose to take career breaks to care for children and this should be respected. Clearly many find that, having taken a break, a return to the workplace is daunting or difficult. Companies that look to change this culture and remove these barriers will benefit from an increased talent pool. The causes of the present situation go far beyond career breaks though.

The question is, do we need compulsory quotas to bring about this change? Quotas will undoubtedly speed up the process of increased female board level representation, which has the advantage of producing role models for younger women, who may have previously thought there were too many barriers to their reaching board level. It will also produce mentors that can help other women progress, which is often cited as another barrier to greater representation. However, quotas are not a panacea and there are real disadvantages in advancing individuals to meet legal requirements that otherwise would not be advanced. Appointing people on the basis of their sex and not merit is the most obvious one. Companies that are compelled to appoint to their board for the sake of meeting quotas are unlikely to be as effective as those that are making appointments based on merit alone. A study by the University of Michigan suggested that the appointment of inexperienced women to boards in Norway (following the introduction of mandatory quotas) on one measure (Tobin's Q) damaged the performance of those companies. Additionally, in countries such as Norway where compulsory quotas have been introduced, this has not tackled the issue of women leaving the workplace early in their careers to care for children or other dependants.

The case of Norway is an interesting one. It brought in legislation in 2003 giving companies until 1 January 2008 to meet the quota of 40% female members on boards, with heavy sanctions including fines and potential liquidation for those who did not. In Spring 2008, there was full compliance. However, the majority of the increase in representation of women on boards has been through non-executive director appointments, with some women holding several non-executive positions. Women still only make up 2% of CEOs and 10% of executive committee members. This evidences the concern that quotas will lead to an artificial "padding" of boards and do nothing to tackle the underlying issues of trying to encourage women to progress through organisations and allow them to gain a better work/home balance.

Australia has adopted the "if not, why not" approach and companies must report/explain where they are with female representation on boards, with targets of 25% by 2012 and 40% by 2015. The UK is following the Australian model with the Corporate Governance Code being amended by the Financial Reporting Council ("FRC") to require listed companies to report annually on their boardroom diversity policy, including gender and on any measurable objectives that the board has set for implementing the policy and the progress it has made in achieving the objectives. Companies must also consider the diversity of the board, including gender, when evaluating board effectiveness. The changes will apply to financial years beginning on or after 1 October 2012 but the FRC is encouraging companies to voluntarily comply and report on these changes with immediate effect.

All companies should be looking at why they are not retaining women in their businesses or appointing to senior positions.

Looking at the business benefits for companies with higher female representation at senior management and board level, all companies should be looking at why they are not retaining women in their businesses or appointing to senior positions. Many women choose to have a career break to care for children, but if there is not more consideration as to how to encourage these women to return to the workplace and/or strike a better balance between home and work, then companies are missing out on a wide pool of talent which will benefit their businesses. Quotas are, however, in my view not the answer and Lord Davies was right to stop short of recommending their introduction.

Employment law reform – at long last some detail!

After many months of speculation, leaks and snippets of information, the Government's formal response to the consultation on Resolving Workplace Disputes has finally been published. As well as the already disclosed increase to 2 years for the qualifying period for unfair dismissal, the proposed reforms place an increased emphasis on workplace mediation and early conciliation. There are other changes, some subject to further consultation, which will bring about significant reform to employment issues in the workplace.

We now take a look at some of the most interesting:

Compromise agreements.

The Government wants to encourage the use of simplified "settlement agreements" (to replace compromise agreements) and make it easy to reach a no fault settlement. A further consultation will look at developing standard form wording and guidance, amending legislation so that all existing and future claims can be covered together with the ability to use them at an early stage without the risk of constructive dismissal claims.

The Government will also be consulting on the introduction of a system of "protected conversations" to allow employers or employees to initiate a conversation about an employment issue at any time "as a way of resolving the matter without fear". The stated intention is to allow employers to talk to employees about poor performance or retirement plans. However, what seems like a simple idea is fraught with practical difficulties, and could well lead to disputes around whether there was or was not a protected conversation. It is understood that an employer would not be protected from claims of discrimination or harassment in relation to these conversations which also raises the question as to how it could approach discussions about retirement which would be inherently age discriminatory, without putting itself at risk. We await further details of this with interest!

Tribunals

The Government will introduce an early conciliation period. As the first part of the tribunal process, Claimants will have to submit details of their claim to ACAS and will be offered the option of a one month conciliation period. This will not be compulsory and will have a knock on effect on limitation periods. A fixed, early conciliation period was introduced by the previous Government but was severely undermined by a lack of resources within ACAS, which is an issue that needs to be addressed by this Government if any such plans are to succeed. The tribunal procedural rules will be the subject of a fundamental review by the outgoing President of the EAT in order to maximise their effectiveness which includes considering expanding strike-out powers.

However, from April 2012, deposit orders will increase from £500 to £1,000 and the maximum amount of costs that can be awarded will increase from £10,000 to £20,000. Despite little support for the idea, unfair dismissal claims will be heard in the future by an employment judge alone. There are also proposals to consider introducing a "Rapid Resolution" scheme for straightforward claims.

Extending qualifying period

As already mentioned, the qualifying period for unfair dismissal claims will increase to 2 years from April 2012. The Government does not think this will cause a considerable disparity of impact on any particular group but should this be challenged it believes it would be able to justify this as a proportionate means of achieving the legitimate aim of improving business confidence to recruit and retain staff. However, many commentators consider that this change will have a disparate impact on young people, particularly in view of the high levels of youth unemployment. The qualifying period of service was previously reduced to 12 months due to a successful challenge to a 2 year period based on sex discrimination, so it is unlikely that this will be introduced without litigation following.

Financial penalties

The Government has decided not to impose an automatic penalty for breaches of employment law by employers. Instead, tribunal judges will be given a discretion to consider imposing a penalty where the employer's behaviour in committing the breach has aggravating features. This will be half of the award made by the tribunal with a maximum penalty of £5000 which will be reduced by 50% if this is paid within 21 days.

Still to come...

In addition, the Government will be consulting next year on the proposed introduction of fees in order to bring and continue with tribunal claims. It has also asked for evidence on the effectiveness of TUPE with a consideration of "gold-plated" provisions, such as the service provision changes, with some fairly open questions being put. Similarly, it has asked for evidence on collective redundancies including reducing the consultation period for redundancies involving over 100 employees from 90 days to 60, 45 or 30 days.

Vince Cable also referred in his speech to plans to amend the whistle-blowing legislation so that a claim cannot be based on an alleged breach of the employee's contract of employment. Such claims are currently used as part of what are in essence purely internal disputes regarding that employee's employment situation, and do not involve any disclosures of a breach of any wider law or regulation.

There are also proposals to introduce no-fault compensated dismissals for micro-employers i.e. those with ten or fewer employees. In addition, the Government will be looking at "radically slimming down.. existing dismissal processes" by seeking views on how to move to a simpler, quicker and clearer dismissal process including potentially working with ACAS to make changes to their Code. It certainly looks as if 2012 and beyond are going to be interesting times for those involved in employment law issues!

Case focus: Sickness and holiday

Workers can carry over full 5.6 weeks The Working Time Regulations 1998 do not allow workers to carry over unused holiday into the next holiday year, but European decisions have found that, where workers have been off sick, they should be able to carry holiday forward. So, how are employment tribunals dealing with this conflict in the UK? In the recent case of Adams & Another v Harwich International Port Ltd, an Employment Judge was prepared to read additional wording into the Regulations, in order to allow a worker to carry over their statutory annual leave entitlement to the next leave year where they had not been able to take it because of sickness. Interestingly, the Judge did comment that sick workers should not be able to accumulate and carry over their leave entitlement indefinitely, but gave no practical guidance on this particular point.

In the past, we and many other commentators have suggested that the entitlement to accumulate and carry over leave should only really apply to the 4 weeks' annual leave required by the Working Time Directive, not the additional 1.6 weeks leave that is allowed under the Regulations. The Judge in this case, however, found that the entitlement to carry over applied to the full 5.6 weeks, not just the minimum 4 weeks required by the Directive. This is at odds with the Government's current proposals to amend the Regulations to give effect to the Directive's requirements with regards to sickness and holidays and carry over as the proposal does not include the additional 1.6 weeks leave.

This is an employment tribunal decision and therefore not binding but does indicate that tribunals are willing to interpret legislation in line with the "underlying thrust" of EU legislation in respect of wording which expressly says the opposite.

Holiday carry-over not indefinite for long-term Sick

In a decision which is good news for employers the ECJ held, in KHS AG v Schulte , that the Working Time Directive does not require annual leave to accumulate and be carried forward indefinitely.

This case involved a German collective agreement which provided that in the case of sickness, all holiday not taken within 15 months of the end of the relevant leave year would be lost. The ECJ held that this did not infringe the Working Time Directive. It took into account the fact that the health and safety purpose behind the Directive is to provide the worker with a period of rest from his or her work as well as a period of relaxation. Although the positive health and safety effects continue even if the leave is taken after the year in which it accrues, annual leave only provides a rest from work for a certain time limit and beyond this it simply provides a period of relaxation and leisure.

It will be interesting to see if the Government's review of the Working Time Regulations takes this into account and whether, in the meantime, the tribunals apply a 15 month carry-over limit or a different period.

Does the worker need to request leave?

As stated above, workers on sick leave can accrue and carry over untaken holiday, but does the worker actually have to request leave in order for the right to carry over to apply? As we have detailed in previous updates, there have been conflicting cases on this point, but the President of the Employment Appeal Tribunal has recently found that a request does need to be made. In Fraser v Southwest London St George's Mental Health Trust the employee, who was absent on sick leave, had made no request for holiday in the relevant leave year. The EAT found that this meant that, on termination, she was not entitled to be paid for the earlier leave years.

This decision disagrees with earlier EAT decisions (but as it is at the same court level, cannot overturn the earlier decisions). Until this matter is settled by a higher court, which should happen next year when a case on this point is going to the Court of Appeal, it will be of some assistance to any employers facing claims going back over a number of years, where no request to take holiday has been made.

Focus: Social Media

The enormous increase in the popularity and use of social media in the last decade has brought with it corresponding benefits and risks for businesses. While social media can be a useful business tool and professional networking sites such as LinkedIn enable employers to build up business contacts and share information to their advantage, employees' personal use of networking sites such as Facebook has the potential to cause the employer loss and damage.

Particular issues for the employer include the publication of its confidential information; damage to its reputation from derogatory postings by disgruntled employees; loss of productivity if employees spend excessive amounts of work time on these sites and potential liability for online bullying, discrimination and harassment of employees by other employees. Problems which may arise following termination of employment in respect of former employees include solicitation of the employer's clients/customers through such sites and the retention of business information and/or details of business contacts through the same.

Employers should also be aware that they can put themselves at risk of claims of discrimination if they trawl social networking sites for information about job applicants as these are more likely to disclose information relating to protected characteristics, such as an individual's sexual orientation or religious beliefs. An employer is also likely to be in breach of data protection legislation with issues arising in relation to pre-employment vetting and verification. A further point to take into account is the employee's human right to privacy and freedom of expression which should be balanced with the employer's need to protect its business.

The ease of access to social media both at home and at work means that the line between them is increasingly blurred. In order to address this employers need to consider the extent to which they will allow (or even, perhaps actively encourage) access to social networking sites for business purposes, and the extent to which they will permit access at work for personal use, as well as ensuring that employees are given clear guidelines on what is and is not acceptable behaviour. Even if the employer does not allow access at work, employees will still be able to use social media in their own time and on their own equipment and so many of the same issues and risks still apply.

Employers need to carefully and comprehensively manage these risks and issues. In order to protect themselves, employers should consider putting in place a policy which covers the use of social media which gives clear guidance on what is and is not acceptable including limits on personal use, reminders about privacy settings, reminders not to disclose confidential information, copyright issues, information about monitoring, cross references to other policies such as anti-bullying and harassment and a reminder that any breach may be a disciplinary issue. Training employees at all levels on such policies and the risks will be important to help avoid such matters arising.

While social media can be a useful business tool ... employees' personal use has the potential to cause the employer loss and damage.

Employers should also ensure they have appropriate restrictions and controls in place to minimise the risk of confidential information and business contacts/customer details being taken by employees when they leave and to prevent solicitation of customers/clients by former employees.

We are starting to see more cases involving social media coming through the Courts and tribunals which explore some of the issues. In Preece v JD Wetherspoons plc a tribunal found that a pub manager was fairly dismissed for gross misconduct when she made offensive comments while at work on her Facebook page about customers who had verbally abused and threatened her. She thought her privacy settings meant that only close friends could see her entries. However, a wider audience saw her comments including relatives of the customers she commented on. She was found to be in breach of her employer's email and internet policy which specifically stated that the employer would take disciplinary action if the contents of any blog or page on a site such as Facebook lowered the reputation of the organisation, staff or customers. This shows the importance and benefit of having in place a policy concerning the use of social media.

In contrast, in Whitham v Club 24 Ltd t/a Ventura a tribunal found that an employee who posted relatively minor comments on Facebook about her workplace was unfairly dismissed. Her employer alleged that she was in breach of confidence and that its reputation and relationship with a major client could have been damaged, whereas in fact there was no evidence that this was actually the case. This is a reminder that any negative comments on a social networking site do not automatically justify dismissal and the normal standards of investigation apply. It is also important to identify the exact nature of the misconduct and the harm done before taking action.

In the News

  • Bribery Act – first conviction: The first prosecution and conviction under the Bribery Act has taken place. The case involved a Court Clerk who had accepted £500 in exchange for not recording a traffic offence. He has been sentenced to 6 years in prison, 3 years for bribery and 6 years for misconduct in a public office which he is serving concurrently.
  • FRC announce changes to strengthen boardroom diversity: The FRC will not be introducing quotas for female board membership (see opinion piece above), but are strengthening the Corporate Governance Code to require listed companies to report annually on their boardroom diversity policy.
  • Auto-enrolment: The Government has announced a push back for some dates for introducing auto-enrolment. Employers with less than 50 employees will now need to comply in May 2015 (changed from April 2014), for those with between 50 and 3000 employees their date of July 2013 will also be pushed back. Those employers with 3000 or more employees are still likely to need to comply between October 2012 and July 2013.
  • Religious discrimination claim succeeds: Mr Hashman who brought a claim for religious discrimination in respect of his anti-fox hunting and hare coursing beliefs has won his discrimination claim. The tribunal decided his dismissal was because of these protected beliefs.
  • Sickness absence: Along with all the other proposed reforms, the results of the independent review on sickness absence have been published. This proposes the creation of an Independent Assessment Service which will provide an in-depth assessment of an individual's physical and/or mental function when they have been signed off work for four weeks. It also makes a number of suggestions as to how to address the problems with the current sickness absence system.

KEY POINTS TO TAKE AWAY

  • 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 continue to keep a watching brief for the outcome of the appeal in the Larner case which is due next year.
  • Review your policies and risks in respect of the use of social media in the workplace and ensure you have in place a policy which covers social networking.

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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