This e-bulletin includes short summaries of the following developments:
- New Revenue guidelines on taxation of payments in lieu of notice
- UK statutory claims by employees working abroad
- Dress codes
- Use of video evidence
- Introduction of equal pay questionnaires
- Disability Discrimination - Blind and Partially Sighted People
- National minimum wage
- Pension lifetime limit / consultation on pension changes
- Fee for work permits
- Review of the Employment Relations Act 1999 / tribunals
New Revenue guidelines on taxation of PILONs
The Inland Revenue has issued new guidance on taxation of payments in lieu of notice in their Tax Bulletin Issue 63 (available on the Revenue website).
Employers commonly choose to pay employees in lieu of notice rather than require them to work out their notice. Whether such a payment is fully taxable or can benefit from a £30,000 tax-exemption will depend on the terms of the employee's contract of employment and on the employer's conduct.
The Revenue's latest interpretation of the case law is as follows:
- where the contract states that the employee is entitled to either notice or a payment in lieu of notice, the payment will be fully taxable.
- where the contract states that the employer reserves the discretion to (but is not obliged to) make a payment in lieu if notice is not worked, a payment which is substantially the same in value as provided for by the contractual clause will be fully taxable UNLESS the employer can show that it in fact chose to breach the employment contract and the payment was damages for breach (in which case the £30,000 tax exemption will apply). To persuade the Revenue that the employer has breached the contract and then agreed to pay damages, it will be helpful if the payment has been reduced to reflect mitigation of loss, the payment is net loss with only the balance over £30,000 grossed up and without deduction of NICs, and there is written evidence of a decision not to exercise the discretion to pay in lieu.
- where the contract does not provide for a payment in lieu of notice, a termination payment in respect of notice will benefit from the £30,000 tax exemption UNLESS the payment was an automatic response to termination. In the latter case, the payment will be regarded as having its source in the employment relationship and therefore be treated as a fully taxable emolument.
UK statutory claims by employees working abroad
Prior to 1999, employers could be confident that they would not face English unfair dismissal claims from their employees ordinarily working outside Great Britain. The relevant statute was amended in 1999, leaving the legal position unclear. It was hoped that the Government might act to clarify the issue, but it has recently stated that it sees no need to do so. Following a handful of (not entirely clear) tribunal decisions, the EAT has finally considered the position in a recent case. It has held that an English tribunal can hear an unfair dismissal claim brought by an employee working abroad, provided the employer is resident or carries on business in England and Wales. It is irrelevant that the employee is domiciled abroad or has only worked abroad, or that the contract of employment states that it is governed by foreign law. The only additional restriction is where the jurisdictional rules governing EU member states apply to determine which of two EU member states can hear a claim.
The EAT also held that the same territorial limits applied to claims pursuant to the Working Time Regulations. As a result, an employee working in the Ascension Island for a company which was registered and had its head office in England was entitled both to claim unfair dismissal and to the protection of the Working Time Regulations limits on hours. The position will be similar for other statutory rights which do not expressly state that employees working abroad are excluded. (The discrimination acts, conversely, do not apply where the employee does all his work outside Great Britain.)
Pending a decision of the Court of Appeal on this issue, UK-based employers should review their treatment of employees working abroad in light of this decision.
Dress codes
The press has widely reported a recent tribunal's decision that a dress code requiring men to wear a collar and tie was discriminatory. The code apparently required women to "dress to a similar standard" but, while men had to wear a tie, there were no mandatory items of clothing for women. A list of permitted items of clothing included T-shirts, but only for women. The employer, the Department of Work and Pensions, has apparently appealed. However, even if the decision is upheld on the facts, it does not represent the end of the mandatory collar and tie. Key to the tribunal's decision was its finding that there was an unevenness of approach in the Department's policy, as in practice women were left with a wider choice including more casual items. A dress policy which restricts both genders' choices to the same extent and applies a consistent standard will still be lawful. This is demonstrated by another recent tribunal decision rejecting a similar claim by a prison officer required to wear a tie, on the basis that both sexes were treated the same in terms of the standard of dress required.
Use of video evidence
Employers faced with a disability discrimination or personal injury claim sometimes suspect that the claimant is exaggerating his/her injury or disability, but have difficulties proving their suspicion to be correct. The approach taken by an employer's insurers in a recent case before the Court of Appeal was to send an enquiry agent to the claimant’s home to obtain access by posing as a market researcher and film the claimant using a hidden camera. The claimant argued that the video evidence should not be admissible in court, as it had been obtained by trespass and in breach of her right to privacy under the European Convention on Human Rights. The Court held that this was a relevant circumstance in deciding how to exercise its discretion whether to admit such evidence. However, on the facts in this case, the conduct of the insurers was not so outrageous that the defence should be struck out and, as the case was therefore to proceed, it would be artificial and undesirable to exclude the relevant video evidence. The Court did make clear its view that the conduct of the insurers was improper and unjustified and, for that reason, held that the employer should pay the costs of the proceedings to resolve the issue of admissibility.
Introduction of equal pay questionnaires
It has now been confirmed that the new statutory equal pay questionnaire is to come into force on 6 April 2003. The regulations are not yet available, but a summary of the results of the consultation on the draft questionnaire is available on the Government's Women and Equality Unit website.
An issue of particular concern to employers is the extent to which the procedure may be used to seek confidential information on comparator employees' salary and benefits or appraisals, even where no genuine equal pay claim is being considered. The Government's position, which accords with data protection law, is that identifiable information should only be supplied with the consent of the employees concerned or where a tribunal has ordered disclosure. Employers should explain that this is the reason for their refusal to provide such information, but will be expected to give as much information as possible in general terms whilst still preserving the anonymity and confidence of their workers.
Disability Discrimination - Blind and Partially Sighted People
The Disability Discrimination (Blind and Partially Sighted People) Regulations 2003 come into force on 14 April 2003. The regulations provide that anyone who is certified by a consultant opthalmologist or registered with the local authority as blind or partially sighted will automatically be disabled within the Disability Discrimination Act definition.
National minimum wage
The DTI have announced that the national minimum wage is to rise from £4.20 per hour to £4.50 an hour in October 2003. For 18-21s, the hourly rate will rise from £3.60 to £3.80.
The Government is also consulting on proposed changes to the way in which the national minimum wage applies to output workers, including many homeworkers – the consultation closes on 9 May 2003 and details are available here.
Pension lifetime limit / consultation on pension changes
The Government has recently published a Green Paper on pensions reform. Employers recruiting senior executives or enhancing current executives' terms may want to bear in mind the likelihood of the Government imposing the proposed lifetime limit allowance of £1.4 million. If this is imposed, contractual pension commitments to senior executives could well turn out to be prohibitively expensive to deliver.
The Government has also indicated that it proposes to require employers to consult with their employees regarding any changes to their pension arrangements - this would clearly affect future plans to end final salary arrangements.
Fee for work permits
The Home Office has announced that, with effect from 1 April 2003, companies applying for work permits for foreign employees will have to pay a flat £95 fee.
Review of the Employment Relations Act 1999 / tribunals
The Government has published its review of the Employment Relations Act 1999 for consultation until 22 May 2003 - details are available in the DTI press release and summary of proposals. The Government has concluded that the Act is working well and proposes only minor changes, but has invited comments on its proposals. If you disagree, please let us know where you think changes are needed, as we are planning to respond to the consultation paper.
The Lord Chancellor's Department has also announced its conclusions following a review of the tribunal service. Employment tribunals and the EAT are to become part of a unified tribunal service - further details are available here.
Article by Anna Henderson
© Herbert Smith 2003
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