Newsletter July / August 2011


Things have not been entirely quiet on the employment law front over the summer break. My summary of the main news over the last two months covers some developments in TUPE, yet another case on whether a person is or is not an employee and the latest twist in the vexed question of whether an employee on long-term sick leave continues to accrue statutory holiday throughout the absence.

I think the most eye-catching case, though, comes from Germany via the European Court where the prospect of being able to justify an age at which an employer can require staff to retire seems to come onto the table at the same time as the statutory right in the UK to retire people at 65 comes off it. In my experience most employers have accepted compulsory retirement as a thing of the past but maybe there is scope to reconsider policy on this. It suggests at least that any changes to policies and employee documents removing compulsory retirement should leave open the possibility of a change
of approach some time in the future.

Darryl Evans
T: +44 (0)7771 725341

Compulsory retirement age - not gone after all?

The specific right for an employer to require a person to retire at 65 was recently taken away by the government. Any employer wanting to keep that power must be able to show objective justification for doing so. Those employers should regard the European Court decision in Fuchs and anor v Land
Hessen (C-159/10 and 160/10)
as very significant.

A provision of German law fixing a retirement age of 65 for permanent civil servants was considered by the Court not to breach the EU Equal Treatment Framework Directive. The policy had the aim of establishing a balanced age structure in order to encourage the recruitment and promotion of young
people, improve personnel management and avoid performance disputes with older workers. It also allowed that aim to be achieved by appropriate and necessary means.

Employers seeking to establish a compulsory retirement age should start from here, although we need to see further court decisions before we can be at all confident of being able to justify a fixed retirement age in other cases.

In addition, the Court stated that Member States are entitled to take cost considerations into account when setting social policy objectives, but cost saving cannot of itself constitute a legitimate aim. This adds little clarity to the issue of the extent to which cost can justify age (and therefore other) discriminatory practices.

Establishing employment status: contract or reality?

If 'is this person an employee or not?' was the original employment law question, you would think we lawyers would know the answer to it by now. In fact, it is amazing how many basic aspects of this issue continue to be taken to and debated in the courts.

One of those is: in determining a person's status do we look at the contract or what happens in practice? The Supreme Court's decision in Autoclenz Ltd v Belcher (2011 UKSC 41) comes down pretty clearly on the side of what actually happens.

20 people who valeted cars for Autoclenz signed contracts in which they were described as self-employed subcontractors. They did so fully aware of their self-employed status, paid their own tax, arranged their own insurance and purchased their own uniforms and materials (which they could get from Autoclenz). In addition, their contracts stated they were under no obligation to attend work. However, crucially, the Tribunal found that the reality was that they were expected to attend work and provide services personally.

The Supreme Court held that these people were employees. The real situation trumped the written contract. The contracts did not need to be a sham (i.e. be intentionally misleading) to be disregarded. Neither did it matter that the contracts had a written a 'substitution clause' implying a substitute
could do the work instead, because in reality everyone expected the valeters to carry out the work themselves.

Employee is only prevented from pursuing claim if he knowingly
misrepresented his employment status

On a similar topic, in the case of Connolly v Whitestone Solicitors (UKEAT/2011/0445) Mr Connolly was offered a job by Whitestone Solicitors as an employee but chose instead to join them with self-employed contractor status. When he left the firm one of his claims was for unfair dismissal,
which involved him alleging he had in fact been an employee. The question was whether he was ruled out from doing that on the basis that if he was his contract was an illegal one (i.e. he had been taxed as self-employed).

The Employment Appeals Tribunal (EAT) confirmed that for a contract to be tainted with illegality it is not enough for the individual to represent himself to HMRC as being self-employed. He must in fact know that his entitlement to this status is unsustainable.

This means that an employer cannot knock out a claim for unfair dismissal by a contractor solely on the basis that he went along with or even suggested self-employed status. The incorrect status must be more clear cut than that.

Accrual of annual leave by the long-term sick

The prospect that an employee who is on long-term sick leave continues to accumulate statutory holiday throughout their absence has upset many employers, particularly if the employee is being kept on to benefit from an insured salary continuation scheme.

Some argue that any claim is limited to the final year of employment on the basis that paid holiday is lost if the employee does not claim it or take it. We are hoping the European Court will clarify the law on this in KHS AG v Schulte (Case C-214/10). Ahead of that decision the Advocate General, in effect a legal adviser to the Court, has given his opinion. His view is that holiday entitlement accrued by workers on long-term sick leave should be able to expire, but not earlier than 18 months after the end of the holiday year in which it arises. The AG's opinion is not binding but will be highly persuasive when the Court makes a final decision in the case.

Meanwhile the EAT has said in NHS Leeds v Larner (UKEAT/0088/11) that an employee absent for the whole of a pay year through sickness does not lose his holiday entitlement if he fails to request the leave before the end of the relevant pay year. (It also suggested that the position might be different for a fit employee.)

Confused? Watch this space for some clarification of this whole issue from the European Court although even then it may need the government to change to the statutory rules to put this whole area to bed.

TUPE vs. equal pay - and the winner is....

TUPE. Let me assume that you have taken on staff under TUPE and are therefore required to maintain their terms and conditions. However, their pay structure and rates differ from your existing staff and therefore you immediately face pressure to harmonise pay, especially if one group is mainly female and the other male and you are worried about an equal pay claim. What do you do?

The EAT has offered you some help. It has confirmed that 'red-circling' (i.e. maintaining) an individual's pay following a TUPE transfer will normally be a genuine material factor justifying a disparity in pay between a man and a woman. Better still, it has said that you are under no duty to
narrow the pay gap after the transfer, for example by freezing the salary of the transferred employees until others have caught up. So if you choose to do so you can maintain the two pay structures and rates, as long as future pay rises are not biased in favour of the higher paid group and therefore perpetuate the discrimination. (Skills Development (Scotland) v Buchanan UKEAT/0042/10.)

TUPE - no service provision change where services quite different

Nottinghamshire Healthcare NHS Trust ran a care home which it closed, re-housing its residents into their own homes with their care being taken over by two independent companies. Some care workers in the former home were offered jobs with the new providers. Did TUPE apply?

The EAT said not. There was neither a transfer of an economic entity retaining its identity nor a service provision change. Under the new arrangements the care provided was not "fundamentally" or "essentially" the same as the service provided before the change. (Nottinghamshire Healthcare
NHS Trust v Hamshaw and others EAT/0037/11.)

Football must play by the rules

Football is a funny old game and in terms of employment law often appears to operate under a different set of rules to other sectors. Not all the time though.

Mr McBride, the Falkirk FC Under 19 team manager, suddenly found that an Academy Director had been appointed and given the right to select the team, a right Mr McBride had up until then enjoyed. He claimed constructive dismissal and lost in the Employment Tribunal which accepted that the Club had an implied right to make the appointment and take some of Mr McBride's powers away.

Wrong, said the EAT. In assessing the duty not to undermine trust and confidence an employer cannot rely on specific industry factors such the autocratic style of management which the employer argued was the norm in football. There was, in addition, no scope for implying an unnecessary, obscure and vague term giving the Club this power. The same rules apply in football as everywhere else. Financial service sector employers also take note. (McBride v Falkirk Football and Athletic Club UKEATS/0058/10.)

If you do not pay for overtime, say so

In Driver v Air India Ltd (2011 EWCA Civ 830), the employee switched to a new contract that provided for rostered and ad hoc overtime, with payment set out in company issued notices and circulars. Except there were no notices or circulars.

The Court of Appeal decided that Mr Driver had a right to pay for overtime (noting that he had been paid for it in the past) and the law must therefore imply a reasonable sum. If a contract expressly says overtime is not paid this problem would be avoided.

Integration of income tax and NICs?

In July HM Treasury issued a 'call for evidence' on the integration of income tax and national insurance contributions (NICs). It seeks views on the administrative difficulties of operating income tax and NICs for employers, payroll software providers and payroll administrators, including how the proposed collection of PAYE data on a real time basis may affect the integration of income tax and NICs. The government will use responses as the basis for proposals to reform income tax and NICs, which will be published for consultation later in the autumn.

Agency Worker Regulations

This is a final reminder that the new rules on agency workers come into force on 1 October. They provide that an agency worker will have the same rights to pay, benefits, rest periods and holidays as someone recruited directly by the hirer, subject to a 12 week qualifying period.

Recent regulations have made some last minute corrections to these rules but the main message is: if you have temporary staff provided by an agency and are not yet on top of these rules, you should be and time is running out. Please feel free to contact me for further detail.

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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