Newsletter September 2012


Feeling like a late night newspaper editor, I had to make a last minute change to my headlines this month as George Osborne announced the intriguing concept of a new style employment contract. Immediately this was installed as my lead item - see below.

Aside from that, 1 October represents the start of a new era in pension provision in UK with the arrival of auto enrolment. The requirement to provide and fund pensions for employees hits only the very largest businesses immediately, but your turn will come. I strongly advise all clients to take a careful look at these rules and prepare for this extra cost, most obviously by factoring it into the planning of pay increases.

Darryl Evans
T: +44 (0)7771 725341

Owner-employee contract

Employees entering into this new-style employment contract will be given between £2,000 and £50,000 of shares (that are exempt from capital gains tax). In return they must surrender their UK rights on unfair dismissal, redundancy, and to request flexible working and time off for training, and will be required to provide 16 instead of eight weeks' notice of return from maternity leave.

The aim is that companies can use this new type of contract from April 2013. More details should become apparent in a forthcoming consultation.

Auto enrolment has arrived

Automatic enrolment into a pension scheme became effective from 1st October 2012. Only businesses with 120,000 or more employees have to comply on 1st October this year, but the next tranche of employers, those with 50,000 employees or more, must comply from 1st November 2012, and so the threshold drops monthly until we get down to the smallest employers in the second half of 2015.

You can see the staging timeline by following this link:

Employers are graded according to payroll size, so it is important to understand the rules and not assume it is simply company headcount which is the determining factor.

Briefly, from the applicable date an employer must enrol employees in a 'qualifying scheme' and make their own contributions to the scheme, as well as deduct contributions from the employees' pay. I will not go into any more detail here. The following link to the Pensions Regulator's website provides guidance:

As a consequence of the new regime, the obligation on employers with five or more employees to provide access to a stakeholder pension scheme was abolished on 1 October 2012.

New minimum wage rates

The following hourly rates of national minimum wage apply from 1 October

  • £6.19 for workers aged 21 and over
  • £4.98 for workers aged between 18 and 20 (no change)
  • £3.68 for workers aged under 18 (also unchanged)
  • £2.65 for apprentices

News from Mr Cable

Business Secretary Vince Cable made a number of announcements in September on the government's on-going employment law reform programme. Two new consultation papers have been published, covering proposed new employment tribunal rules, a proposed reduction of the cap on unfair dismissal awards and measures to encourage the use of compromise agreements (to be renamed 'settlement agreements').

The idea of compensated no-fault dismissal, which aroused both interest and criticism, has been binned.

Annual Employment Tribunal Statistics 2011/12

The Ministry of Justice has published the annual Employment Tribunal (ET) and Employment Appeal Tribunal (EAT) statistics (to 31 March 2012). The highlights are:

  • the number of ET claims fell by 15%
  • the median unfair dismissal award was just £4,560 and the mean average £9,133
  • there was an increase in cases in which cost awards were made, from 487 to 612 cases

Dismissed employee could refuse offer of self-employment

When an employee is dismissed, they are under a duty to take reasonable steps to mitigate their loss by seeking alternative employment.

In the case of F & G Cleaners v Saddington and Oliver (UKEAT/0140/11), Mr Saddington and Mr Oliver were employees of Actual Support Services, which lost its cleaning contract to F & G Cleaners Ltd. F & G did not accept that TUPE applied (which was a rookie error, because it did) and so did not accept that the two employees' employments had transferred to them.

Two weeks after the transfer, F & G offered to take the two on on a self-employed basis, although at a lower daily rate, different working hours and a different holiday entitlement. They said thanks, but no thanks.

The EAT decided that the two employers were unfairly dismissed and that it was reasonable for them to turn down the offer of self-employment because of the significant reduction in their pay and conditions.

TUPE: the joy of trying to harmonise terms and conditions

An employee dismissed for a reason relating to a TUPE transfer will automatically win an unfair dismissal claim unless the employer can show that the reason was an economic, organisational or technical ('ETO') reason entailing a change in the workforce. Manchester College v Hazel (UKEAT/0642/11) deals with how that principle operates when an employer dismisses employees and then re-engages them on new contracts as a means of harmonising terms and conditions in the aftermath of a transfer.

Following the transfer of large numbers of staff to it under TUPE, Manchester College began a process of costs savings, which included trying to harmonise terms and conditions across 37 different contracts of employment.

The two claimants in this case objected to the changes, which included pay reductions, and were dismissed with an offer of employment on the new terms. They accepted the new contracts, continued in employment, but still claimed unfair dismissal (perfectly permissible as they had technically been dismissed).

The EAT held that the reason for the dismissals was connected with the transfer and the dismissals were therefore automatically unfair. The requirement that the ETO reason entailed a change in the workforce was not met.

It also decided that re-engagement on the new contracts, but on the employees' old rates of pay, as ordered by the Tribunal, was an appropriate remedy (although they would not receive any pay rises until their colleagues' pay caught up with theirs). This was considered practicable since the employees had continued working and had the trust and confidence of the employer.

Order not to 'speak in your own language' was direct discrimination

Can an employer require a foreign employee to speak only in English in the workplace, or would such a requirement be racial discrimination? Ms Dziedziak was a Polish national among a mainly English speaking workforce. After she had spoken to a Polish colleague in Polish about a work-related matter her manager told her not to speak in her 'own language'.

The EAT decided that this amounted to direct race discrimination, which cannot, as a matter of law, be justified.

The twist is that the EAT went on to say that if she had been told to speak only English, as opposed to being told not to speak in her 'own language', then this would probably have amounted to indirect discrimination, allowing the employer to argue that the instruction, whilst discriminatory, was justifiable.

Employers wanting to insist on English being spoken in a multi-national workforce should have a clear stated policy which is prepared in a way which is not directly discriminatory and which can be clearly justified.

(Dziedziak v Future Electronics Ltd UKEAT/2012/0270.)

Determining the reasonableness of a restrictive covenant

In Patsystems Holdings Ltd v Neilly (2012 EWHC 2609) the High Court has confirmed the principle that the reasonableness of a post-termination restriction must be determined at the time it was entered into, not when the employer tried to enforce it. A change of circumstances after the restriction was first agreed, such as a promotion, could not turn an invalid covenant into a valid one.

Employers should always review post-termination restrictions when an employee's circumstances at work change, which may result in having to seek fresh acceptance of a restriction from the employee.

Will a Tribunal correct an employer's errors?

When deciding whether a dismissal is within the range of reasonable responses, can an Employment Tribunal take into account matters which the employer did not take into account?

In Nejjary v Aramark Ltd (UKEAT/54/12) the employee was dismissed for three issues. When he appealed the dismissal was upheld with specific reliance on only one of the issues, which was regarded as gross misconduct.

The Tribunal found that the decision to dismiss for this one matter would have been outside the range of reasonable responses. However, as the employee had previous warnings on file, the decision to dismiss was in fact reasonable.

The EAT held that the Tribunal was wrong. The employer at the appeal had disregarded those prior warnings so the Tribunal could not take account of them.

LLP member not a 'worker' after all

In my May newsletter I reported the EAT decision in Van Winkelhof v Clyde & Co LLP (2012 EWCA Civ 1207) that a member of an LLP could be a worker. The Court of Appeal has now reversed that decision on the basis of a specific provision of the Limited Liability Partnerships Act 2000 to the effect that if the LLP had in fact been an old style partnership and the individual regarded as a partner in it, he/she cannot be an employee or a worker. That was the case here.

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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