Newsletter February 2011


Evans Employment Law Limited has been operating for two months now and I am launching a monthly newsletter. My aim is to identify, in short, clear terms, the employment law developments which have the greatest practical impact on how employers manage their staff.

In my view the first news item below is the most significant in this edition. Employers may be about to lose the ability to force staff to retire at 65 or any other particular age. This may impact the profile of your workforce and your resourcing model. It will certainly affect the policies and procedures you have in place for dealing with the termination of employment of older workers and could make robust (and non-discriminatory) performance management much more important. Incentive plans which have special rules for retirement leavers will be impacted. And if you currently have employees approaching retirement age who you want to retire forcibly, you need to move quickly. All employers should ensure they are up to speed with these developments - you should start looking now at the implications for your business.

I hope you find this and future newsletters helpful. I would welcome any feedback you may have to help me make it as useful a publication for you as possible.  

Darryl Evans
T: +44 (0)7771 725341

Employing non-retiring types

In January the Government confirmed its plan to remove the default retirement age; that is the age at which it is generally lawful for an employer to require an employee to cease employment by reason of retirement. It has followed that up with draft regulations showing the changes to be made to the Equality Act and other employment legislation to bring this important policy into effect.

One slight surprise is that employers are being allowed to force the retirement of any employee who reaches 65 before 30 September 2011. This still requires the employer to give notice of intended retirement before 6 April 2011, so there is not much time to take action.

There is some concern, though, that the way the regulations are drafted means that this flexibility does not cover anyone who is already 65 by 6 April 2011. The regulations could mean that for employees in this category it is already too late to act, and even notices already issued will serve no purpose (unless they expire before 6 April).

One of the main worries for employers concerning the changes was whether it meant they would have to offer over 65s would life assurance, private medical insurance and the like, and the impact on premiums (if indeed cover could be obtained at all). This has been addressed: it will be lawful not to offer such benefits from when an employee reaches 65 (or state pension age if later).

Annual increase in Tribunal award limits

On 1 February, the maximum compensatory award for unfair dismissal went up from £65,300 to £68,400 and the maximum amount of a week's pay (used to calculate statutory redundancy pay and the basic award in unfair dismissal cases) rose from £380 to £400.

Good drafting - a bonus for employers

A recent case acts as a reminder that careful drafting can save employers money when it comes to arguing over whether a bonus is payable on termination of employment.

In Locke v Candy & Candy (2010 EWCA Civ 1350), Mr Locke's contract entitled him to a guaranteed bonus after 12 months employment, provided he was still employed by the company. He was terminated a few days before the due date for payment, the company operating a PILON clause, i.e. exercising a right in the contract to make a payment to terminate rather than serving notice. This brought the contract to an immediate end and excluded him from the bonus. He argued that the in lieu payment should include bonus - the contract wording was not clear on exactly what had to be paid. The Court of Appeal disagreed - overall, the intention of the contract was that he did not qualify for the bonus.

Whilst the inclusion of a PILON clause can have adverse tax consequences, it can be very valuable for other reasons such as in circumstances like these. Indeed, the employer could have improved its position here by being clear on what the in lieu payment would be, and particularly that it would not include any bonus.

Redundancy - good news, bad news

First the good news: another case (Morgan v The Welsh Rugby Union UKEAT/0314/10) has confirmed that when considering potentially redundant staff for alternative roles an employer has more flexibility and can apply more subjective criteria (most likely related to who will do the role best) than when determining who must be selected for redundancy out of an affected pool. The stricter tests for 'selection out' do not necessarily apply.

Now for the bad news: in Fulcrum Pharma (Europe) Ltd v Bonassera and another (UKEAT/0198/10) the company reduced its HR team from two to one by dismissing the HR manager. The dismissal was found to be unfair because the company had not considered pooling the HR manager with the more junior HR executive in deciding who to make redundant. The major sin here appears to have been a failure properly to consider pooling and then to consult with the affected employee over it. However, it is a reminder of the care needed in such situations and the possibility of needing to operate a broad pool cannot be ruled out.

Tax on post-termination payments - a new system

We have all grown accustomed to the general principle that payments made to an ex-employee after issue of P45, if taxable at all, are subject only to basic rate tax deduction. Not any more.

From 6 April 2011, employers will have to operate code '0T', meaning that income tax should be withheld from any taxable payment made after termination at the basic, higher and/or additional rate of tax, as appropriate. This will not stop the first £30,000 of severance pay potentially being income tax free, but if a taxable payment is made after issue of P45, for example if it is made in instalments, these new rules will have an impact.

Do I know everything my staff know?

Not according to the Court of Appeal in the recent case of Orr v Milton Keynes Council (2011, EWCA Civ 62).

The question was: was it reasonable for the manager to dismiss the employee when his staff knew things which he did not and which may have affected the disciplinary decision? The Court decided that, as long as a fair and thorough investigation had been carried out, the manager making the decision need only take account of the facts known to him.

The long arm of the (UK employment) law

The application of UK employment laws to expatriates has come into the spotlight in recent years, but most of the cases have focussed on whether people working temporarily or even permanently outside UK can establish a sufficient connection with UK to make claims here.

Mr Pervez, on the other hand, was seconded by his Hong Kong employer (Macquarie Capital) into UK to work for Macquarie Bank Ltd in London. After just under a year his employment was terminated. He maintained he could bring unfair dismissal and discrimination claims under UK law and the UK court agreed, even though his employer had no establishment in UK and his contract was governed by Hong Kong law. (Pervez v Macquarie Bank Ltd (London Branch) and another UKEAT/0246/10.)

Businesses sending secondees to UK should already recognise the application of core protections to those staff such as working hours and minimum holiday rules. This reminder that dismissal rights may apply also should encourage greater care if it becomes necessary to bring an expatriate's employment to an end.

Is bringing employment claims about to get harder?

In January the Department for Business, Innovation and Skills (BIS) launched its consultation on potential reforms to the employment tribunal system. The document, called Resolving Workplace Disputes: A Consultation, contains various proposals which could impact the tribunal process with the primary intention of taking pressure off the system.   

The proposals include the following:

  • raising the qualifying period for unfair dismissal to two years (which is what it used to be once upon a time)
  • compulsory pre-claim conciliation with ACAS
  • charging claimants a fee
  • more encouragement for settlement offers in the procedure
  • wider powers to strike out a claim or order payment of a deposit for a claim to continue
  • raising the limit on costs awards
  • subjecting employers who lose at tribunal not only to damages but also to a fine of up to £5,000

These proposals are likely to be hotly debated, and concessions made, before changes come into force.

At the same time BIS published the Employer's Charter. This is a two-pager with various confirmations about what an employer is permitted to do to its staff. All I can say for those who have not yet read this is: don't get too excited.

Some other substantial reason dismissals - ACAS code applies

The ACAS Code of Practice on Disciplinary and Grievance Procedures is used by employment tribunals as a benchmark in establishing the procedural fairness of dismissals. It clearly applies to dismissals for misconduct or poor performance, and it clearly does not apply where the reason for dismissal is redundancy (although well-established standards for redundancy consultation should be followed). But what about those situations in which the statutory reason for termination is 'some other substantial reason'? An example is where dismissal is effected to try to drive through a change to terms and conditions.

A tribunal has recently held that the Code does apply. Siemens Communications Ltd failed to send written notice of a meeting to the employee, which is contrary to the Code. In fact, the defect was considered insufficient to make the dismissal unfair, but the case is a reminder of the standards tribunals may look for in such situations.

Equality Act update

A number of regulations under the Equality Act will come into force in April and I will preview those in my March newsletter.

I should mention, though, the problem over the drafting of the Act and whether that prevents any discrimination claims from being settled by compromise agreement. If it does, that is bad news for employers whose only option for being certain of a clean break where discrimination is alleged is to involve ACAS and use the COT3 settlement form the ACAS representative puts together. That is not always attractive.

Frankly, it is inconceivable that the courts will decide that the Equality Act has emasculated the compromise agreement route, but nobody can be sure so any employer entering a compromise agreement should recognise the risk.

Don't mention the Bribery Act

All I will say in this newsletter is that this far reaching (some may say alarming) piece of law has been delayed and will not now come into effect in April. The promised statutory guidance is awaited - no date has yet been confirmed - and businesses will have two months to digest that before the rules will start to apply. I will comment more on the HR impact of this in later newsletters.

No extension to right to request time off for training

Smaller employers can also take relief from the recent announcement from BIS that the right to request time off for training is not going to be extended to all employees from April 2011. It remains an obligation for employers with 250 or more employees. The maximum penalty for not considering a request is eight weeks pay.

The information and any commentary contained in this newsletter are for general information purposes only and do not constitute legal or any other type of professional advice. Darryl Evans and Evans Employment Law Limited do not accept any and, to the extent permitted by law, exclude all, liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this newsletter. If you have a particular query or issue you are strongly advised to obtain specific, personal advice and not to rely on the information or comments in this newsletter.

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