UK: Employment Update - November 2013

Last Updated: 14 November 2013
Article by Michael Powner

Case Update

Age discrimination and justification

Two recent cases have focused on the issue of objective justification in the context of age discrimination. In Dansk Jurist-og Okonomforbund v Indenrigs-og Sundhedsministeriet the ECJ had to assess whether a Danish pay protection scheme, which excluded those over the age of 65, could be objectively justified.

The Danish civil service operated a scheme whereby those made redundant were entitled to continue receiving their salary for three years after their redundancy. This reason given for this was that they could then redeploy those individuals, should a position arise in the three years, retaining the skills and independence of the civil service. Those over 65 were excluded because they could draw a (reduced) pension from 65, although they didn't have to retire until 70.

The ECJ found that this was not objectively justified and was unlawful discrimination. Despite the fact that the Court found that the aims of the policy were legitimate, they thought these aims could have been achieved by less discriminatory means, such as asking if the individuals wanted to defer their right to a pension at 65, instead of excluding them altogether.

This decision was unusual as in the past, the fact that replacement income was available, would often be a decisive factor in favour of justification when balancing the discriminatory effect and the legitimate aim. This may be an indication that Courts will scrutinise the issue more closely in future.

In another recent case, the EAT found that a redundancy scheme that provided enhanced payments for older workers, was objectively justified age discrimination. In Lockwood v Department of Work and Pensions and anor the DWP operated a redundancy scheme that allowed for additional payments to be made to those aged over 30 and further additional payments for those over 35. This meant that Ms Lockwood, a 26 year old with eight years' service at the time of her redundancy, was paid £17, 000 less than a 36 year old with the same length of service would have been paid.

The justification given for this difference was the fact that statistics were produced that showed younger people who were made redundant were in a better position to find employment than older workers. It is unlikely that in the current job market, where there is a need to work longer, and the young are struggling to find jobs, that such relatively low age bands (of 30 and 35) would still be justifiable. These statistics related to the time of Ms Loockwood's redundancy in 2007, so the outcome may be different for redundancies today.

Holiday, carry over and calculating pay

Since the introduction of the right to paid holiday in 1998, the stream of cases that followed have been a headache for employers. The two latest cases bring a mixture of some comfort for employers, as well as the potential for further problems!

In Sood Enterprises Ltd v Healy , the EAT had to determine whether the Working Time Directive (WTD), which underpins the Working Time Regulations (WTR), requires employers to allow the carry over of the additional 1.6 weeks' leave allowed under the WTR (as compared to the WTD allowance of 4 weeks) where a worker is unable to take the leave due to sickness. The EAT found that as the additional leave is derived from purely domestic, as opposed to European law, there is no requirement that the worker be allowed to carry it over.

This provides some welcome clarity for employers, who can prevent carry over of the additional 1.6 weeks' leave, over and above the 4 weeks provided for by the WTD, if that is what they want to do.

In a second case on the issue of holidays, an Employment Tribunal found that overtime should be taken into account when calculating statutory holiday pay. In Neal v Freightliner Ltd , the Tribunal found that the WTR does not adequately implement the WTD as it reduces a worker's holiday pay by excluding overtime. As such, the employment judge found, that overtime should be taken into account when calculating holiday pay, which, if upheld by a higher court, has significant implications. Since this is only a Tribunal Judgement, it is not binding, so employers do not yet have to act on it, but may want to consider their current policies in light of what this might lead to.

Focus: TUPE proposals

In September, the Government published details of its proposed changes to TUPE. The changes are not as extensive as originally anticipated as some key proposals have been dropped; for example, the plan to remove the rules on service provision changes (SPCs). Draft regulations have now been produced, with implementation in 2014.

Key points to note are:

  • As flagged above, the provisions relating to SPC's are to remain. The legislation will, however, clarify that for there to be an SPC transfer, the activities carried on after the change in service provision must be "fundamentally the same" as those carried on before it.
  • The Government had originally planned to remove the requirement to provide employee liability information, but this will now be retained. To assist in business planning however, the information will have to be given 28 days before the transfer, rather than the current 14 days.
  • The amended legislation will clarify that a "static" approach to the transfer of terms derived from collective agreements should be taken. This means that transferees will not be bound by changes made to a collective agreement post transfer by third parties, where they have no say in the negotiations. Additionally, amendments will be made to TUPE to enable transferees to change terms derived from collective agreements one year after the transfer, provided that the overall change is no less favourable to the employee.
  • Changes in the location of the workforce following a transfer will be expressly included within the scope of an "economic, technical or organisational" reason entailing changes in the workforce (ETO reason), thereby preventing genuine place of work redundancies from being automatically unfair.
  • Regulation 4 (restriction on changes to terms) and regulation 7 (protection against dismissal) will more closely reflect the wording of the Acquired Rights Directive and ECJ case law. A variation to terms will be void if the reason for the variation is the "transfer". If, however the contract permits variation, this will be permissible even if the reason for the variation is the transfer.
  • The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) will be amended to clarify that redundancy consultation which begins before the transfer can count for the purposes of complying with the collective redundancy rules, provided that the transferor and transferee can agree and the transferee has carried out meaningful consultation.
  • Micro businesses (fewer than 10 employees) will be allowed to inform and consult affected employees directly when there is no recognised independent union, nor any existing appropriate representatives.

Team moves: navigating the pitfalls

The recent case of Thomson Ecology Ltd and anor v APEM Ltd highlighted the difficulties involved in team moves. Preparing to compete, and collaborating with colleagues to leave, can cause problems both for departing employees, and their new employer. Every employee has an implied term in their contract of employment that they will serve their employer with good faith and fidelity.

In addition to this, a senior employee may also owe a fiduciary duty which brings with it more onerous implied duties. Therefore, even if an employee has no express terms restricting their actions during employment, they must still comply with their duty of fidelity whilst employed. By contrast, post-termination restrictions will not be implied (except in relation to trade secrets), and must be tightly drafted in the employment contract to be enforceable.

So, what are the issues that the departing employees and new employer need to consider?

  • What express terms are contained in the contract of employment? Assessing this will enable a competitor to consider what steps the individual can take to prepare for work without breaching their obligations and without the new employer risking action against it by inducing a breach.
  • Any post-termination restrictions need to be assessed for their enforceability, so the potential new employer knows how long the individual may be kept out of the business, and what contact he can have with clients and customers.
  • Even if there are no express restrictions during or after employment, the implied duty of good faith and fidelity will apply. This includes a duty not to compete during employment. Steps can be taken to prepare, but must stop short of competing. This is a difficult line to judge. It is not a breach of this duty to tell colleagues you are leaving, but may be if you invite colleagues to join you, depending on his seniority.
  • If recruiting a team, the new employer should consider using recruitment agents and not involving any member of the team in the recruitment of the others. This will reduce the scope for allegations of breach of the duty of fidelity.
  • Where the departing employee is also a Director and in a senior position of trust, they may also owe a fiduciary duty. These duties are more onerous than the general duty of good faith and fidelity. If they are a fiduciary, they must not make a secret profit, there must be no conflict of interest between himself/herself and his/her employer and he/she will be under a duty to disclose his/her own misconduct. These are all highly relevant if preparing to compete.

What is often forgotten is that during employment an employers' business is protected by implied as well as express duties and many employees fall foul of their implied obligations. Those thinking of moving in teams need to ensure they are not breaching their obligations as team moves can be very damaging to the business, making it more likely the former employer will take action to protects its' interests.

Opinion Piece

Subject Access Request - The new discrimination questionnaire?

Many employers will be rejoicing at the news that the Government is to remove the ability for an employee to raise a statutory questionnaire when pursuing a discrimination claim. Those employers who have received the dreaded questionnaires know how much effort and work that they have to go to in responding. It is not something that an employer can ignore, otherwise there would be an inference of discrimination drawn by the Employment Tribunal.

Many employers are also faced with a subject access request in relation to an employee's personnel file. This can also place a considerable burden on an employer to produce the relevant information. These requests are often fishing exercises to see whether a smoking gun email can be found on an employer's computer system. The bad news for employers is that these requests are likely to become even more prevalent when an employee no longer has the right to file a questionnaire with the employer.

Employers reading this, do not need to be completely deflated by this possibility, but employers should review their policy in respect of subject access requests. It is, of course, good practice to comply with a request but many requests are unreasonably wide. The case law in the UK has sought to narrow an employer's obligations. The UK approach is contrary to the European Union view of data access request and the revised Code recently issued by the Information Commissioner Subject Access Code of Practice tries to tread a line between the UK Court's view and the much wider European Union view.

Employers should not however fear being reported to the Information Commissioner. The first sanction is a polite request to respond to issues raised by the Information Commissioner. If the Information Commissioner is still not satisfied with the employer's response, then the next sanction can be an Enforcement Notice served on the employer. This Notice certainly should not be ignored, because it contains criminal sanctions. However, the number of Enforcement Notices actually served on employers is minimal. It is only the employee who could then seek damages via court action against the employer on the basis that there was failure to comply with such a request. If the employer defends such an action, then case law is more supportive of employers than employees. It should also be noted that the level of compensation awarded to successful employees by the Court, is currently very small. In a recent decision not relating to employment, the award was £750.

Whilst it is of course not the writer's role to encourage employers to ignore subject access requests, employers do need to review how much effort they actually go to to comply with large, wide ranging requests.

Employment Reforms: June and July

September 2013

  • The new concept of employee-shareholder has been introduced. Employees give up certain employment rights in exchange for shares in the business.

October 2013

  • Third-party harassment provisions in the Equality Act 2010 were repealed.

January 2014

  • EU provisions limiting bankers' bonuses to be introduced. The basic salary to bonus ratio will be 1:1, which can be raised to a maximum of 1:2 if approved by shareholders. A minimum of 25% of any bonus exceeding 100% of salary must be deferred for at least 5 years.

April 2014

  • Introduction of compulsory pay audits where a Tribunal finds that an employer has breached the Equality Act 2010 by discriminating because of sex in relation to non-contractual pay, or breach of the equality clause in relation to contractual pay.
  • Financial penalties of between £100 and £5,000 to be introduced where an employer loses at Tribunal and there are "aggravated features".

Key Points to Take Away

  • Review any age related policies to ensure they are not unlawful.
  • Review holiday pay provisions to assess the impact of overtime payments.
  • If you receive a subject access request, consider carefully if it is broader than permissible.

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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