UK: Employment Update - July 2018

Last Updated: 16 July 2018
Article by Travers Smith Employment Department


Positive action

All-male shortlists should have "no place" at organisations seeking to improve their gender balance, according to the CEO of the Hampton-Alexander Review. The review, launched in 2016, is looking at ways to ensure talented women at the top of business are promoted and has set a target of 33 percent female representation on FTSE 350 boards by 2020. With women currently making up only 25.5 percent of FTSE 350 boards, the review is urging companies to do more – but how far can employers go?

UK law draws a distinction between "positive action", which is lawful, and "positive discrimination", which is not. Positive action involves taking steps to address underrepresentation, such as targeted networking opportunities, encouraging women to apply for senior roles or providing mentoring programmes.

In contrast, favouring someone from a protected minority in recruitment or promotion would constitute "positive discrimination". The only exception is in a genuine "tie break" situation – where an employer faces a choice between two equally qualified candidates, it can choose someone from an underrepresented group.

Having female quotas for senior roles or shortlists for recruitment and promotion could well fall on the wrong side of the line. In contrast, implementing "soft targets" or "aims" to avoid all-male shortlists is more likely to constitute lawful positive action. Given the subtleties here, employers should carefully consider their diversity initiatives to ensure that, despite their best intentions, they do not fall foul of discrimination law.


Brexit and immigration

The Government has provided further details of the new "EU Settlement Scheme" that will apply in relation to Brexit. EU nationals and their family members with at least five years' residence in the UK as at Brexit will be required to apply for "settled status" as proof of their permanent right to live and work in the UK. It is proposed that:

  • the application will be made online, with a unique reference number issued to evidence settled status (rather than a hard copy document)
  • those applying will need to prove their identity, demonstrate their UK residence and declare they have no serious criminal convictions
  • proof of residence will be automatic for many as the Home Office will check employment and benefits records
  • the application will cost £65, but those already with a permanent residence document will be able to exchange it for settled status for free.

The application process will open in a phased way later this year and will open fully by 30 March 2019. Although EU nationals will have until 30 June 2021 to apply, employers should be engaging with staff now to prepare for the process.

Those with less than five years in the UK will be required to apply for a new "pre-settled status" to allow them to continue to live in the UK in order to complete the five years needed for settled status. The new pre-settled status route should open for applications from 30 March 2019.

Skilled visas – easing the pressure?

In welcome news for employers across all sectors, doctors and nurses are to be removed from the heavily oversubscribed Tier 2 work visa cap from July 2018 onwards.

The annual 20,700 cap on Tier 2 (General) visas is allocated on a monthly basis and has been consistently oversubscribed every month since December 2017, with around 40 percent of the available slots being taken up by NHS roles. As a result of the cap being oversubscribed, in June 2018, the minimum salary required for a Tier 2 (General) visa was £60,000 – double the minimum salary level set for Tier 2 (General) applications generally. The pressures on numbers should now be relieved with the removal of NHS roles from the cap. The move should benefit not only the NHS but all employers regardless of sector who have had to contend with refusals of their allocation requests in recent months.


Pimlico Plumbers

This case involved a plumber who carried out work solely for Pimlico Plumbers. He was engaged as an independent contractor and paid tax on a self-employed basis. His contract said that the company was not obliged to offer him work and he was under no obligation to accept work offered. However, the company manual said that he had to perform a minimum of 40 hours' work a week. There was no express right to provide a substitute but, in practice, plumbers could swap assignments. He had to hire a company-branded van and wear a company uniform, and was prevented from undertaking other plumbing work in competition during his engagement and for a period after it ended. When his engagement was terminated, he brought claims for unfair dismissal, holiday pay and disability discrimination, arguing he was an employee or at least a "worker" of the company.

The Employment Tribunal ruled that he was not an employee, so could not claim unfair dismissal, but that he was a "worker" entitled to some basic employment rights. The decision was appealed all the way to the Supreme Court. The Supreme Court has now confirmed that the individual was a "worker" since he was obliged to provide his services personally to the company and could not be said to be self-employed, given the level of control exercised by the company over him.

This decision is not surprising given the facts of the case. However, it follows the recent trend of rulings where individuals have successfully challenged the "self-employed" label and established they are workers with basic employment rights. In the light of this trend, employers should review their arrangements with self-employed contractors to ensure the arrangements are properly classified and that individuals are receiving the correct rights. Unlike self-employed contractors, workers have the right to national minimum wage, paid statutory holiday, protection for whistleblowing and pensions automatic enrolment.


Right to work

The employee in this case was a manager in training at a Dominos Pizza branch. He had a temporary right to work in the UK which expired on 12 August 2016. He was then eligible for permanent residence and, provided he applied before 12 August, he would continue to have a right to work. He was reminded by HR twice that he needed to provide proof of his permanent residence application by 12 August. The employee emailed his manager late on 12 August attaching what he said was the necessary proof but the manager told the employee he could not open the attachments, expecting him to resend them. Worried about potential penalties for employing an illegal worker, the employer decided to dismiss the employee the same day and did not offer a right of appeal. The employee brought an unfair dismissal claim.

As it happened, the employee had made a permanent residence application in time and did have the right to work. Despite this, the Employment Tribunal initially ruled that the dismissal was fair because the employer had a genuine and reasonable belief it could not continue to employ the employee. On appeal, the Employment Appeal Tribunal disagreed. It ruled that the dismissal was unfair because the employer failed to allow the employee a right of appeal, which might have established that he did have the necessary right to work.

This case highlights the importance of offering an appeal against any dismissal decision, particularly where it relates to right to work. Faced with an employee who cannot demonstrate their right to work in the UK, the employer usually has no option but to dismiss in order to avoid potential criminal liability for employing an illegal worker. However, the employee should always be given an opportunity to appeal the dismissal. If the employee can demonstrate their right to work on appeal, the employer can reinstate and usually avoid an unfair dismissal claim.

Disability discrimination

The employee in this case worked for an insurer in a customer support role. She had a disability resulting in high levels of absence. Over a three-year period, she consistently exceeded the "trigger points" in the employer's sickness absence policy but no action was taken. There were various informal discussions where the employer said it might consider taking action if absence levels increased. The employer had also made various other adjustments to accommodate the disability. However, the employer eventually issued a warning when the employee's absence exceeded 60 days in a 12-month period – six times over the employer's trigger point. The employee claimed disability discrimination as the warning meant she was no longer entitled to company sick pay.

The employee won her claim. The Employment Appeal Tribunal acknowledged that it is legitimate for an employer to want to improve attendance levels. However, the employer could not explain how a warning would assist here, given all of the employee's absences (bar one) were disability-related. In addition, the employer had not investigated the impact of the absence on the employee's team and had failed to follow its own policy of referring the employee to occupational health before issuing the warning.

Employers can legitimately seek to manage attendance by giving warnings where absence levels are unacceptably high. However, as this case shows, the employer must adopt a different approach where the absences are connected by an underlying disability. In such cases, the employer should seek medical advice to determine whether adjustments could be made to help improve attendance. If, after exploring all available adjustments, high absence persists, the employer should treat this as a capability, rather than disciplinary, issue. Any decision about the employee's ongoing employment must be taken against the backdrop of medical advice about whether the situation is likely to improve and clear evidence as to the impact the absence is having on the employer's business and service levels.



Pay ratio disclosure

Draft regulations have been published which will require quoted companies with more than 250 UK employees to report pay ratio information in their annual directors' remuneration reports. The ratio information will need to compare the total remuneration of the company's CEO with the remuneration of employees at the 25th, 50th and 75th percentiles of the workforce. Going forward, it is intended that the ratio information should cover a ten-year period. In scope companies will also need to include a narrative explaining changes to the ratios from year to year, and whether the ratio is consistent with the company's policies on employee pay. The reporting duty applies in relation to the individual company's employees and also the employees of any subsidiaries. Once approved by Parliament, the requirement will apply to financial years starting on or after 1 January 2019, meaning that reporting will begin in 2020 to cover pay information from 2019.

Corporate governance for large private companies

Draft regulations have been published which will require large private companies to include a statement about their approach to corporate governance in their directors' reports. The statement will need to set out which corporate governance code the company has applied (if any), how it did so and the reasons for any departure from that code. The Financial Reporting Council is currently consulting on new corporate governance principles for large private companies which can be used for this purpose. The requirement will apply to companies that have either more than 2,000 employees or a turnover of more than £200 million and a balance sheet of more than £2 billion. Public companies which currently make a corporate governance statement would be exempt but not their large subsidiaries. Subject to Parliamentary approval, the new requirement will apply to financial years starting on or after 1 January 2019, meaning that the first statements will need to be published in 2020.

Reporting on employee engagement

Draft regulations have been published which will require all companies with at least 250 UK employees to report on employee engagement as part of their annual directors' reports. The report will need to describe what measures were taken during the financial year to introduce or develop arrangements for providing information to employees and consulting with them about decisions likely to affect them. Directors will also need to explain how they had engaged with employees and had regard to their interests, and how this has impacted on key decisions of the company. The new requirement will apply to financial years starting on or after 1 January 2019, meaning that the first reports will be published in 2020.

Tax on termination payments – did you know...?

As reported in the March 2018 Employment Update, since 6 April this year, new rules have applied to the taxation of termination payments, so that all notice payments are subject to income tax and NICs, regardless of whether there is a PILON clause in the contract. There are a few unexpected quirks in the rules which are worth highlighting:

  • If the employee has any salary sacrifice arrangements, then the notice pay calculation uses the pre-sacrifice salary – so the notional notice pay on which tax is due will be higher than the actual notice pay
  • If an employee is dismissed for gross misconduct, and subsequently receives a settlement payment, then the notice element of this will be taxable (even though the employee was not actually entitled to notice because of the gross misconduct)
  • If the employment contract contains different notice periods from the employer and employee, then it is the notice period from the employer which is used to calculate the notice payment for tax purposes (regardless of who actually terminated the contract).

We have been working with our Incentives & Remuneration team to advise on these and similarly tricky scenarios. The new rules are detailed and employers who are making termination payments should check them carefully given the potential pitfalls.


Changes to taxing contractors?

The Government has published a consultation paper on extending rules on taxing contractors. These rules already apply in the public sector and the extension would apply them to the private sector. The so-called "off-payroll working rules" were introduced in the public sector in April 2017. Under the rules, where an individual contractor or consultant supplies their services to a public sector client via a personal services company, the client must decide whether the "IR35 legislation" applies. This broadly involves the client asking whether, without the personal services company, the individual would be regarded as an employee of the client for tax purposes. If so, the client (or the body responsible for paying the contractor's company) must deduct income tax and national insurance contributions from payments to the contractor's company.

The rules are designed to ensure that those who work through a personal services company, who would be employees if they were engaged directly, pay broadly the same tax as employees. No date has been given for the extension to the private sector but this is likely to happen in April 2019. The consultation about the proposal is open until 10 August 2018. Employers who use contractors through personal services companies may want to consider commencing a risk assessment now, in order to be ready for when the changes are introduced.


Sexual harassment

The Equality and Human Rights Commission (EHRC) has published a report, Turning the tables: ending sexual harassment at work, which makes a number of recommendations to strengthen the protection for victims of sexual harassment. The report calls for a mandatory legal duty on employers to take reasonable steps to prevent workplace sexual harassment, which would be enforceable by the EHRC. Other recommendations would see confidentiality provisions in settlement agreements used only where these have been requested by the victim, and banned altogether where they seek to prevent disclosure of future (as opposed to past) sexual harassment. The EHRC would also like to see the limitation period for sexual harassment claims extended from three to six months to give victims more time in what are already traumatic circumstances.

The report follows a survey that gathered evidence from employers and individuals on the extent of, and responses to, sexual harassment in the workplace. The EHRC had also written to the chairs of FTSE 100 companies in December 2017 asking them to provide evidence about what safeguards they have in place to prevent harassment and what steps they have taken to ensure all employees are able to report instances of harassment. The Government response to the EHRC report remains to be seen but there is mounting pressure on the Government, and employers, to take action in this area.

Our News

We are delighted to announce that Adam Wyman was promoted to the position of partner in the Employment Department with effect from 1 July 2018. Adam joined Travers Smith as a trainee in 2007 and has specialised in employment law and business immigration for the past eight years.

TSEmpLaw, our employment and business immigration app, has featured in the legal news. An article in The Lawyer magazine about legal "Tech Pioneers" profiles Nick Tidd, our IT specialist who built the app. You can read the full article here.

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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