Newsletter January 2013


When I was at PwC Legal a colleague and I had a standing joke with members of the Corporate Law team that they must hold a party each time there was any change in their laws, so rare was any company law case or piece of legislation. Even now I am on the circulation of a company law update email which invariably says 'no legal developments this week'.

Contrast that with the area of employment law, especially during these past few weeks when the Government has announced a raft of planned changes and some important cases have been decided.

The common theme running through the Government proposals is the desire to simplify and deregulate. Unfortunately many lawyers seriously doubt they will achieve this. Take for example the proposal to allow employers to propose an agreed separation with an employee without that proposal being disclosable in a subsequent court case. Many lawyers are saying all that will lead to is arguments over whether the conversation was protected or not, so more litigation, not less.

The plan to apply an extra cap of one year's pay on unfair dismissal liability sounds encouraging for employers, but the counter there is that the large majority of claims do not come anywhere near that level anyway, and the effect will be for high earners seeking compensation to follow discrimination arguments more aggressively, so making cases more complex, not simpler.

It is, though, the proposed TUPE changes which have most attracted my attention. Removing the service provision change (SPC) rules is not going to mean that TUPE will not apply to an outsourcing. Rather, we will we back to the pre-SPC position where it was necessary to decide whether the outsourcing fell within the normal business transfer test. Often it will. The SPC rules may have had the effect of increasing the number of situations to which TUPE applied but at least the rules were clear. Anyway, in recent months the courts have started to put some helpful and clear limits on their application.

As for the plan to remove the obligation to provide of employee liability information, that may take an 'administrative burden' away from the transferor of the employees, but tell that to the new service provider in an outsourcing who now faces the risk of inheriting staff with no information about them at all. In situations in which there is a direct contract between transferor and transferee, the transferee will demand the employee liability information and more from the transferor anyway, so taking away the TUPE obligation achieves nothing.

The Government presumably thinks that by taking things out of TUPE which it does not feel need to be there to meet the requirements of EU law they are making TUPE less onerous and easier for employers. I do not agree.

That's my longer than usual commentary. Set out below are details of the proposed changes and some other recent developments.

Darryl Evans
T: +44 (0)7771 725341

Change to compensation for unfair dismissal on the way

In the first of some significant planned employment law reforms, the Department for Business, Innovation & Skills (BIS) has confirmed it intends to limit the compensatory award in a successful unfair dismissal claim to the lower of the existing cap (now £74,200) and one year's pay. No date is fixed for this change, although the Government anticipates it becoming law this summer.

Early offer of agreed termination to be made easier

The second major reform the Government plans to introduce from this summer relates to the use of 'settlement agreements'.

The previous ideas of 'protected conversations' and 'no-fault dismissals' have been abandoned. Instead, it will be possible for an employer (or indeed an employee) to propose an agreed separation without that proposal being used in any subsequent legal proceedings. So an employer could suggest an employee leaves on terms as an alternative to entering a performance improvement programme without the risk that the employee then uses that to argue that the employee made up its mind at the outset and the procedure was a sham. Really what this does is extend the protection of 'without prejudice' discussions to an earlier stage, when no actual legal dispute may exist.

The protection will be lost by an employer (or employee) who is guilty of 'improper behaviour'.

Acas is tasked with preparing a Statutory Code which will support this new regime and will include guidance on what will amount to 'improper behaviour'. It will also include template letters and a standard settlement agreement. When this is published we will have a better sense of how this is all likely to work in practice.

Amendments to TUPE - out with the new

The Government has issued a consultation on a number of proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) with a view to these changes becoming law in October 2013.

The most significant is the proposed repeal of the regulations relating to 'service provision changes' which set out specific tests describing when first- or second-generation outsourcings and in-sourcings fall within TUPE.

Also proposed is removing the obligation to provide employee liability information (although it will be made clear that transferors should disclose information to the transferee to aid the information and consultation process).

Other proposals, whilst significant, are quite technical but they include:

  • Providing that 'entailing changes in the workforce' includes changes to
    the workforce's location, thus potentially making it easier to make a fair
    dismissal in connection with the transfer.
  • Enabling the transferee to consult with the transferring employees on
    collective redundancies prior to the transfer.

Collective consultation periods on redundancy to be shortened

Larger employers proposing to dismiss as redundant 100 or more staff in a 90 days period at one establishment currently have to commence consultation with representatives of those employees at least 90 days before the first redundancy can take effect. That period is to be reduced to 45 days from 6 April 2013.

The potential compensation of up to 90 days' pay for a failure to comply is not changing. Neither is the period of consultation for smaller scale redundancy programmes (20 employees or more) which will remain at 30 days, although the proposal to exclude from the scope of consultation employees on fixed-term contracts which are expiring could affect smaller redundancy programmes.

Also, a new Acas non-statutory code of practice will be introduced to assist employers with this process. This will include guidance on the meaning of 'establishment'.

If you thought it was all over - it isn't yet....

Further areas in which changes are in the pipeline include the following.

  • A consultation has been launched on the detail of 'early conciliation' through Acas. This will require an employee intending to bring a claim to request early Acas conciliation before being able to issue certain proceedings in the employment tribunal. If both parties agree, the conciliator will have up to one calendar month (which can be extended by a further two weeks with the parties' agreement) to facilitate a settlement.
  • Proposals have been announced to simplify the regulation of the recruitment sector by repealing the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 and replacing them with a new regulatory framework.
  • The Department for Work and Pensions has announced a new Health & Work Advisory and Assessment Service, to be introduced in 2014, providing (amongst other things) state funded occupational health testing for employees who are off sick for more than four weeks.

Annual compensation limits review

Back in the mainstream, the limits on certain employment tribunal awards and other amounts payable under employment legislation have received their usual update from 1 February.

Most significantly, the maximum unfair dismissal compensatory award is now £74,200 and the maximum amount of a week's pay (for example, for determining statutory redundancy pay) is now £450.

Displaying Christian beliefs at work

You may well have read about the case of Ms Eweida, whom British Airways stopped from wearing a cross owing to its uniform policy. She failed in her claim for religious discrimination in the UK courts but the European Court of Human Rights has held that this meant that the UK had failed to protect a Christian employee's right. BA may legitimately have wished to project a certain corporate image, but that had been given too much weight in deciding that the uniform policy was objectively justified.

Three other Christian employees lost their claims though. These were a nurse whose employer prevented her from wearing a crucifix on hospital wards because of health and safety; a registrar who was dismissed by a council for refusing to conduct civil partnership ceremonies; and an employee of Relate who was dismissed for refusing to counsel same-sex couples.

So denying the right to display Christian (or other religious) beliefs may be justifiable, but it is a question of degree in each case. In fact, BA changed its uniform policy soon after Ms Eweida's claim was raised, as it was clear that the ban on crosses was not necessary to protect their image. In the other cases the case for the employers was more compelling. Nonetheless, Ms Eweida's victory may result in a shift of emphasis in future indirect discrimination cases in the UK based on religious or philosophical belief. (Eweida and others v United Kingdom 2013 ECHR 37.)

Pension related reduction in redundancy pay - was it discriminatory?

The German case of Odar v Baxter Deutschland GmbH (C-152/11) concerns a provision in a redundancy policy which reduced compensation for workers aged over 54 by taking into account the earliest date from which they could receive a state pension.

The European Court of Justice considered that this was not unlawful age discrimination. The difference in treatment on grounds of age was justified by a legitimate objective of protecting younger workers and facilitating their reintegration into employment, whilst taking into account the need to achieve a fair distribution of limited financial resources given that older workers could receive replacement income from the state pension.

Unfortunately for the employer, though, the provision did fall foul of disability discrimination law. The reduction also adversely affected severely disabled workers, who received less redundancy compensation than non-disabled workers because they were entitled to a state pension at a younger age. This could not be objectively justified. Among other things, it disregarded the greater difficulties that severely disabled people face in finding new employment, which tend to be exacerbated as they approach retirement age.

Is this a further sign that the Courts are more inclined to tolerate discrimination on grounds of age than other prohibited characteristics?

Disability is about what someone cannot do, not what they can

Mr Aderemi worked in the station gate line as a first point of contact for customers, including checking tickets. He needed to be on his feet for substantial periods of the day. He developed a back problem which precluded long periods of standing and was dismissed on capability grounds.

The tribunal held that he was not disabled because his impairment did not have a substantial adverse effect on his ability to do normal day-to-day activities. It set out a list of various things he could continue to do.

The Employment Appeals Tribunal (EAT) said the tribunal had tackled this question in entirely the wrong way. It should have concentrated on the various things he could not do, such as stand up for 30 minute periods and lift things. These may have involved substantial effects on the ability to carry out normal day to-day activities. (Aderemi v London & South East Railway 2012 UKEAT 0316.)

Employee breaching compromise agreement loses benefits

Mr Imam-Sadeque was a highly paid and senior investment manager. He wanted to leave his employer, BlueBay, and succeeded in doing so under a compromise agreement which designated him a 'good leaver' for share option purposes. If he had resigned, he would have been a 'bad leaver' and lost options worth £1.7million.

The agreement made the option benefit conditional on his not competing or soliciting BlueBay's employees. In fact, the employee secretly set up in competition and poached a former colleague. BlueBay denied him the share option.

The High Court held that BlueBay was entitled to do this. The employee had committed a material breach of the compromise agreement and therefore a condition for receiving the shares, so they were forfeited.

There were some technical arguments in the case over whether the loss of the shares was disproportionate and a penalty, but the court said not. So this is good news for employers who enter compromise agreements and offer any benefit on a condition that non-compete assurances or other promises are adhered to. (Imam-Sadeque v Bluebay Asset Management (Services) Ltd 2012 EWHC 3511 (QB).)

A redundancy policy could be contractual

In Allen v TRW Systems (2013 UKEAT 83), TRW agreed a policy with its works council for enhanced redundancy payments. It referred to it in the employee handbook and in letters to the workforce on a number of occasions thereafter.

The fact that the employee contracts themselves made no mention of the payments was not enough to stop them becoming contractual rights for employees. The works council agreement, the express promise in the employee handbook and the subsequent repeated promises in correspondence all added up to a contractual commitment.

This is a reminder that policies can become binding. It is not just contracts of employment which need to be carefully worded.

Is day-to-day control required for an employment relationship?

The owners of a small estate in Surrey visited it once or twice a year. They left it in the management of two caretakers engaged under an agreement that set out various duties and responsibilities for the farm and grounds. There were no fixed hours, but several references in the agreement to 'employment.'

The EAT decided that the fact that the owners did not apply day-to-day control over what the caretakers did was not enough to mean there could be no employment. The test of employment is a combination of many factors. As far as control is concerned, all aspects are relevant and there was a contractual right of control even if there was no day-to-day oversight. (White & Todd v Troutbeck SA 2013 UKEAT 0177.)

Accounting firms and privilege

Legal advice privilege is the rule which allows a person to withhold legal advice he has received from production in court. The clear policy aim is to allow a person to take legal advice without feeling that he could be prejudiced or compromised later in court proceedings for having done so.

We lawyers and our clients clearly benefit from this rule. But giving legal, or quasi legal, advice is by no means restricted to the traditional legal professions of solicitors, barristers and chartered legal executives. Subject to one or two very limited exceptions, anyone can dispense legal advice, and in some areas, such as tax law, many sophisticated professionals do.

None more so than the major accounting firms, which is what led to Prudential plc claiming legal advice privilege for advice provided by accountants in connection with a tax avoidance scheme.

In a blow for the accountants, the Supreme Court came down on the side of limiting privilege to the traditional legal professions, all the more galling a result for the accountants because the Court was split with two prominent Law Lords disagreeing with the majority view.

The majority of the Court said that broadening the scope of privilege was a matter for Parliament. In the current climate, and with representatives of the Big 4 accounting firms having recently spent a day in front of a Select Committee discussing their role in tax avoidance, now does not seem the likeliest time for Parliament to move on this one. (R (Prudential plc and another) v Special Commissioner of Income Tax and another 2013 UKSC 1.)

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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