UK: Round-up of Employment Law Developments: April 2003

Last Updated: 29 April 2003

This article includes short summaries of the following developments:

  • Pay Transparency
  • Rolled-up Holiday Pay
  • Agency workers
  • HSE initiatives
  • Planning for employment law changes
  • Reminder: new legislation in force this month

Pay Transparency

The widely-reported case of Barton v Investec this month has once again highlighted the risks involved in an employer operating an "opaque" bonus system or other pay scheme. It is the first appellate decision in this area and is of great importance.

Louise Barton claimed that she received lower salary, bonuses and share option awards than male colleagues. Investec's bonus scheme was discretionary and employees were not told how the awards were calculated. Ms Barton's equal pay and sex discrimination claims failed at first instance, with the tribunal somewhat controversially stating that secrecy and a lack of transparency were "vital components" of the bonus culture in city institutions. This aspect of the decision was surprising, particularly given that the lack of transparency in Schroder Securities' bonus scheme was heavily criticised by the tribunal in Julie Bower's 2001 bonus claim and was material to the finding that her bonus awards were discriminatory (our summary of that decision is available here).

Ms Barton's appeal to the EAT was upheld and her claims were remitted to a fresh tribunal to reconsider. The EAT expressly disapproved of the tribunal's comments, stating that "no tribunal should be seen to condone a City bonus culture involving secrecy and/or lack of transparency because of the potentially large amounts involved, as a reason for avoiding equal pay obligations."

Particular emphasis was given to the provisions of the EOC Code of Practice on Equal Pay (which tribunals must take into account if relevant) referring to the importance of pay systems being transparent i.e. employees should be able easily to understand how their rate of pay is determined. As explained below, the burden of proof in many cases will now be on the employer to demonstrate that its treatment of the employee was not affected by the employee's gender. Investec's failure to comply with this aspect of the Code, together with its failure to deal properly with a statutory sex discrimination questionnaire, were held to be highly material factors in assessing whether it had done so in this case. As the tribunal had not properly considered whether Investec had in fact discharged this burden, the issue was remitted to a fresh tribunal to consider.

The EAT also took the opportunity to set out some guidelines on the burden of proof. An employee need only prove facts from which the tribunal can conclude, in the absence of an adequate explanation, that the employer has committed an act of discrimination, before the burden of proof shifts to the employer to disprove discrimination by demonstrating that gender played no part in the employer's treatment of the employee. Lack of transparency in a pay system, being a breach of the EOC Code, may in itself be enough to shift the burden of proof. An employer will be hard pressed to prove that sex played no part whatsoever, consciously or subconsciously, in its decisions. The tribunal will require cogent evidence and will examine carefully explanations for failure to deal with the questionnaire procedure and/or apply the Code of Practice.

The case highlights the need for employers at least to apply objective criteria fairly in awarding bonuses and to keep documentary evidence of their decisions, even if they do not wish to publish this information to employees. This, together with equal opportunities monitoring of pay and bonus awards and equal opportunities training for all managers involved in the decision-making process, will help in defending claims. Employers worried about risks inherent in their pay systems may also want to consider an equal pay audit, perhaps using the EOC equal pay review kit. However, maintaining opaque pay systems is probably only going to be a short term solution, in view of the media attention given to the new equal pay questionnaire in force from 6 April, which disgruntled employees may use to obtain information on bonus criteria.

Possible questions that could be asked in an equal pay questionnaire are suggested by the EOC on their website. While employers can probably resist providing details of individual employees' bonus awards unless the individuals consent or the tribunal orders disclosure (on the basis of data protection law), an employer will still need to provide information in a generic or anonymised form where possible – and this would certainly include bonus criteria.

Of course, where bonus criteria have been set (whether published to employees or not), employers must not let other extraneous factors influence the bonus decision or otherwise exercise their discretion "perversely or irrationally". Employers also need to take care that, where one of the criteria for bonuses is individual performance, the rating given to an individual for bonus purposes should be consistent with their appraisal rating.

Rolled-up Holiday Pay

Employers paying "rolled-up" holiday pay may face substantial claims for further holiday pay.

The Working Time Regulations 1998 oblige employers to provide workers with four weeks' paid holiday a year. Some employers have sought to comply with this by paying hourly or weekly rates of pay, which expressly include an element of holiday pay, during periods actually worked, rather than paying workers during the leave they take. This approach is useful where employees work varying hours, given the administrative burden in calculating average weekly pay in such cases. Whilst it has been clearly established that such an arrangement is ineffective if it has not been agreed with the employees, there have been conflicting EAT decisions as to whether such a mutually agreed arrangement satisfies the Regulations.

The issue was recently considered by the Scottish Court of Session in MPB Structures Ltd v Munro. It held that the right is to be paid for annual leave at the time that the leave is taken and therefore "rolled-up" pay does not satisfy the Regulations. Moreover, it held that the employer was not entitled to set off against its liability to provide pay during a period of leave the amounts already paid as part of the "rolled-up" rate prior to the start of the leave.

Decisions of the Court of Session are not binding on English tribunals, but are persuasive. Employers using this pay method may therefore be faced with substantial claims for "unpaid" holiday pay. Although claims under the Regulations must be presented within three months of the date on which the payment should have been made, the EAT in List Design Group Ltd v Catley held that workers can also bring deduction from wages claims for unpaid holiday pay, and as the "failure" to pay holiday pay would probably be treated as a series of deductions, time would only run from the last in the series of failures. This may expose employers to claims for pay dating back to the introduction of the Regulations in October 1998. It remains to be seen whether employers will be able to recover the holiday-related element of the wages paid, on the basis that it was paid under a mistake of law, whether by court action or as an overpayment of wages deductible from subsequent wages.

Employers in this position will also want to terminate their current "rolling-up" arrangements. As with any contract variation, the legal position should be carefully analysed before doing so to minimise potential claims.

Agency workers

Can agency workers be employees, either of the agency or the client? Tribunals have tended to accept that the agency set-up does not meet the requirements for an employment contract by either party. Two cases this month suggest that the issue remains open to debate and that, in the right factual case, a tribunal will find that an employment relationship exists.

In deciding whether someone is an employee, there are two preconditions: there must be sufficient control by the alleged employer and there must be the necessary mutuality of obligation (i.e. a contract whereby the employee is obliged to provide his own work and skill in return for remuneration). The tribunal will then consider whether there are provisions of the contract inconsistent with employment, balancing all the relevant factors.

An agency worker has a contract with the agency but is usually subject to the day-to-day control of the client. Arguments for an employment relationship with the agency tend to fail due to the agency's lack of practical control, those for an employment with the client fail due to the absence of a contractual relationship between the worker and client.

However, in Dacas v Brook Street Bureau, the EAT held that an agency worker supplied for six years to provide cleaning services for a client was an employee of the agency. The tribunal found as a fact that the agency exercised "considerable control" over the worker in paying her wages and being entitled to discipline her or terminate her services (although "day-to-day" control was exercised by the client). The EAT thought that the agency's control was sufficient to satisfy the required control factor for the worker to amount to an employee of the agency. The agreement between the worker and agency stated that she was not an employee, but the label applied by the parties is only determinative if the other points are inconclusive, and here the other factors pointed towards employment.

The flip side of the coin was considered by the Court of Appeal in Franks v Reuters. In this case the client was held to have sufficient control in terms of its day-to-day management of the worker. The issue was therefore whether the worker could be the client's employee in the absence of a written contract directly between the worker and client. The Court held that such a worker could be an employee of the client. The existence of only two written agreements, one between the worker and agency and another between the agency and client, does not mean that there cannot be a contractual relationship between worker and client. The tribunal must consider whether there was an implied contract of employment which had come about through conduct. This would involve examining the circumstances and what was said and done by the parties at the start of the work and subsequently. Length of service might be relevant in a case such as this, where an agency worker stayed with the client for over five years and was re-deployed in that period. The Court thought that dealings over a period of years "are capable of generating an implied contractual relationship". As the tribunal had not fully considered this question, the case was remitted to the tribunal to reconsider.

This decision can be contrasted with the earlier case of Hewlett Packard Ltd v O'Murphy concerning an agency worker who contracted through his own personal service company with the agency, which then contracted with the client. The EAT held that in such a case, had the tribunal correctly asked itself whether there was a contractual nexus between the worker and client, it would have had to conclude that there was none. It may be that four parties is one too many.

The cases illustrate the importance of findings of fact by the tribunal, which it will be hard to challenge on appeal. So how should agencies and clients respond to these cases? From the client's perspective, the risks of a contractual relationship between it and the worker being implied are decreased if the period of engagement is kept short and if it ensures that the written documents between it and the agency and (to the extent it can influence this) between the agency and worker include statements that the worker is not an employee of the client. It should also try to ensure that as much control as is practical remains in the hands of the agency. Agencies will of course seek to do the reverse, e.g. include statements that the worker is to be the employee of the client. It may become increasingly common for the parties to apportion the risk of employment claims by way of indemnities.

HSE initiatives

The HSE is reported to be training its inspectors to carry out inspections on stress in the same way as they inspect for other workplace risks, with inspections to be introduced later this year. Employers are already required to carry out risk assessments on health and safety issues including stress. This may be a good time to check your house is in order.

The HSE has also indicated that it intends to step up efforts to improve the safety of work-related driving, working with police to examine failures in companies' health and safety management following road traffic incidents. They will look particularly at the imposition of unrealistic delivery schedules, inadequate training and failure to properly maintain vehicles. Guidance for employers on work-related road safety is planned for publication in August 2003.

Planning for employment law changes

In an attempt to make employers' lives slightly easier, the DTI has announced that new UK employment laws will come into effect on either 6 April or 1 October each year. The exceptions will be the annual increases to tribunal compensation limits, which will continue to take effect on 1 February, and legislation to implement existing European legislation. From January 2004, the DTI will publish an annual statement of forthcoming employment regulations.

Reminder: new legislation in force this month

On 6 April 2003 the following employment–related legislation came into force:

  • Employment Act 2002 (part only) and associated regulations: provisions relating to maternity, paternity and adoption leave and pay, right to request flexible working, and equal pay questionnaires. Note that a third set of flexible work regulations was implemented very recently, providing that flexible work claims can be submitted to ACAS arbitration as an alternative to a tribunal claim.
  • Working Time (Amendment) Regulations 2002: amendments to implement the Young Workers Directive and amending slightly the method of calculation of the average working week.
  • The Income Tax (Earnings and Pensions) Act 2003: new statutory references for tax legislation.
  • Regulations providing for the new National Insurance rates announced in the 2002 Budget, plus other minor changes to employment-related tax provided for in the 2003 Budget (details can be found in a briefing on the 2003 Budget available here).

ACAS has also drafted a revised Code of Practice on time off for trade union duties and activities, including guidance on time off for union learning representatives (a new right brought into force by the Employment Act 2002). The Code came into force on 27 April 2003.

Article by Anna Henderson

© Herbert Smith 2003

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.