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Law for Business

Knowhow - guidance - precedents

28 MAR 2012

Unfair dismissal

This month hrlaw@trowers.com reports on unfair dismissal and territorial jurisdiction, indirect age discrimination being justified on grounds of cost, and on disciplinary proceedings and suspension. In addition, hrlaw@trowers reports on proposals to reform the Rehabilitation of Offenders Act, on calls to freeze the national minimum wage, and on the controversy surrounding the government's work experience scheme.

  • 1 Case Law
  • 1.1 Indirect age discrimination justified in cost-based selection procedure

The EAT has held in the case of HM Land Registry v Benson that an employer was justified in selecting for voluntary redundancy on the basis of whom it would cost least to dismiss, even though this gave rise to indirect age discrimination against employees aged 50 to 54.

The employer implemented a voluntary redundancy exercise. It had more applicants than could be accommodated within the budget it had allocated to the project and so it undertook a selection exercise. Its principal selection criterion was to choose those who it would cost least to dismiss, so as to maximise the redundancies achievable within the budget. As a result, applications from employees between 50 and 54 were disproportionately rejected on grounds of cost. The EAT held that the budget available to the employer was part of the employer's aim which was legitimate. The budget was for a particular project (the redundancy programme) that was not directly discriminatory, but which, as it turned out, required a selection exercise that could only practicably be done on an indirectly age discriminatory basis. Whether this judicial thinking will be developed will be seen in the ourt of Appeal decision expected soon in Woodcock v Cumbria Primary Care Trust.

  • 1.2 Disciplinary proceedings and suspension

The Court of Appeal has held in the case of Crawford and anor v Suffolk Mental Health Partnership NHS Trust that the tribunal had been correct in holding that two nurses dismissed for gross misconduct, following the restraint of an elderly dementia patient, had been dismissed unfairly. It held that, as the ability of the nurses to pursue their chosen careers was at stake, the tribunal had been correct to look particularly carefully at the procedures followed by the Trust.

The Court made some important obiter observations. It was critical of the Trust's decision to suspend the nurses, pending the investigation into their conduct, and referred to Lady Hale's decision in Gogay v Hertfordshire County Council that, even where there is evidence supporting an investigation that does not mean that suspension is automatically justified. The Court was also critical of the Trust's decision to refer the matter to the police, observing that being under the cloud of possible criminal proceedings is a very heavy burden, and that "employers should not subject employees to that burden without the most careful consideration and a genuine and reasonable belief that the case, if established, might justify the epithet "criminal" being applied to the employee's conduct".

  • 1.3 TUPE and an organised grouping of employees

The EAT has held in the case of Eddie Stobart Ltd v Morman that, in determining whether there has been a service provision change for the purposes of TUPE, it is not sufficient to say that employees will transfer if they simply "go with the work".

Edie Stobart Ltd (ES) was a warehousing and logistics service provider with 35 employees at one site which serviced at least 5 clients. When the contracts reduced so that only two were left (the main one of which related to Vion) ES closed the site. Another company, FJG Logistics Ltd (FJG) picked up the Vion work and ES believed that all employees engaged wholly, or for more than 50% of their time, on the Vion work should transfer to FJG.

In carrying out an analysis the EAT found that the employees were organised via shifts, and not assigned to a particular customer. As such no service provision change had taken place.

Please see our recent bulletin on Taking the TUPE temperature for more details.

  • 1.4 Application for interim injunction to prevent strike action refused

The High Court has refused Balfour Beatty Engineering Services Ltd's application for an interim injunction to prevent strike action in the case of Balfour Beatty Engineering Services Ltd v Unite the Union. The Court held that the balloting requirements do not require unions to "take all steps that are reasonably practical" to ensure the accuracy of the balloting constituency, but allow union officials to exercise their own judgement about the appropriate steps to take. As a result, Unite had done enough to ensure that only those entitled to vote in the ballot were sent ballot papers, as they had undertaken additional checks on the union's membership data before conducting the vote.

Since all reasonable steps had been taken, and the industrial action had been supported by a ballot, the Court went on to accept the argument that it would be lawful for Unite to "induce" members to strike who had in fact been unable to vote.

  • 1.5 Tribunal entitled to find a redundancy selection pool of one was unfair

The EAT has upheld a tribunal's decision that a dismissal following a selection for redundancy from a pool of one was unfair in the case of Capita Hartshead Ltd v Byard. The EAT also set out the applicable principles which will apply when assessing whether the correct redundancy selection pool has been used.

Ms Byard was an actuary who, as a result of many of the pension schemes she worked on being wound up, no longer had enough work to fill a full-time role. Although there were three other actuaries, Ms Byard was put into a redundancy selection pool of one. GH Ltd argued that there was not enough work to sustain four actuaries and, as the work carried out by an actuary for a pension scheme was of a personal nature, there was a risk of losing clients if they were transferred between actuaries. Ms Byard was selected for redundancy and brought an unfair dismissal claim arguing that all four actuaries should have been included in the pool. The EAT found that the tribunal was entitled to conclude that GH Ltd had not applied its mind to the issue of who should be in the pool for consideration for redundancy as the majority of the tribunal had made the finding that there was only a slight risk of losing clients if work was transferred from one actuary to another.

  • 1.6 Employees not entitled to payment for overtime, but required to co-operate with overtime requests

The EAT has held in Blair and ors v Hotel Solutions London Ltd that a group of employees were not entitled to paid overtime under their contracts. In doing so it rejected the argument that a requirement to work overtime can arise merely because an employee is asked to do more work than can be accomplished within their normal working day.

The claimants' contracts expressly stated that overtime was voluntary but also required them to co-operate if HSL Ltd required them to work overtime at short notice. The claimants' claimed that, in order to clean 15 rooms every day, they were only ever taking a 30 minute break, rather than their full hour's entitlement, and brought unlawful deduction from wages claims for the non-payment of overtime relating to the additional 30 minutes a day they were working. The EAT held that the requirement to co-operate in the claimants' contracts could not limit the express condition in their contracts that overtime is voluntary. The claimants were attempting to turn the requirement for co-operation into a general requirement to work overtime, which is not what their contracts provided.

  • 1.7 Independent contractors found to be employees for PAYE and NI contribution purposes

The Upper Tribunal (Tax and Chancery Chamber) has held in the case of Weight Watchers (UK) Ltd v HMRC that "Leaders" engaged to conduct Weight Watchers meetings were employees of Weight Watchers Ltd (WW Ltd) for the purpose of PAYE and NI contributions.

The Leaders had contracts with WW Ltd describing themselves as independent contractors. They were required to pay their own tax and national insurance and were only paid if they personally conducted their own meetings. Their contracts contained an express substitution clause and they were obliged to find a suitably qualified replacement if they did not want to lead a meeting. The Upper Tribunal held that the Leaders were employees and not self employed contractors. They were required to provide their services personally and although their contracts contained a substitution clause, the right to substitute was "fettered" as the Leaders were required to find a suitably qualified replacement. This may differ from a strict legal interpretation, which could reach a different conclusion to HMRC.

  • 1.8 Springboard injuctions and team moves

In the case of QBE Management Services (UK) Ltd v Dymoke and others the Claimant succeeded in obtaining "springboard" relief to restrain three former employees and their financial backer from commencing a competing business. In addition to injunctive relief, QBE also recovered damages and indemnity costs.

Two employees, one of whom owed fiduciary duties, had solicited a third and planned a competing business which would "rip the heart" out of part of QBE's marine insurance business. Springboard injunctions can be useful in team move situations as the injunction effectively imposes a restraint of trade on the defendant in circumstances where there is no express restraint of trade provision. The injunction is an equitable remedy and its basis is that the court imposes an injunction to neutralise an unfair advantage that the defendant has obtained as a result of a breach of duty (in this case his breach of contract).

  • 1.9 Unfair dismissal and territorial jurisdiction

The Supreme Court has held in the case of Ravat v Halliburton Manufacturing and Services Ltd that a British citizen, living in England, who worked for a British-registered company in Libya on a month-on, month-off basis, could bring a claim of unfair dismissal. Although Mr Ravat did not fit into any of the categories of employees working abroad who may bring an unfair dismissal claim identified by the House of Lords in Lawson v Serco, his employment relationship was found to have a stronger connection with Great Britain than with Libya.

The Supreme Court considered that the starting point should be that the employment relationship must have a stronger connection with Great Britain than with the foreign country where the employee works. In the present case there was plenty of material from which it could be concluded that Mr Ravat's employment was most closely connected with British employment law. The documentation he was given indicated that it was the employer's intention that the relationship should be governed by British employment law, and this was the practical effect as matters relating to the termination of his employment were handled by the employer's human resources department in Aberdeen.

  • 1.10 Discrimination on grounds of religious belief

The Court of Appeal has held in the case of Bull & Bull v Hall & Preddy that the Christian owners of the Chymorvah hotel discriminated against the civil partners by refusing to allow them to share a double bed.

The hotel operated a strict policy refusing double bedrooms to unmarried couples. The Court of Appeal held that the claimants should be treated the same way as a married couple, and the only reason they were treated differently was because they were gay. The Court rejected the hotel owners' argument that the "no unmarried couples" policy was simply a manifestation of their religious belief, concluding that if they chose to run a business they had to run it in accordance with the law which includes an obligation not to discriminate against potential customers on grounds of their sexual orientation.

  • 1.11 Imposition of franchise business model following TUPE transfer was potentially fair

The EAT has held in the case of Meter U Ltd v Ackroyd and ors that where, after a TUPE transfer, the transferee dismissed transferring employees and offered them work as franchisees, it could argue that it had an economic, technical or organisation reason (an ETO reason) for the dismissals entailing changes in the workforce. This potentially rendered the dismissals fair despite their connection to the transfer. The EAT decided that individuals providing their services through sub-contracted franchise companies did not constitute the "workforce" for TUPE purposes. This meant that the dismissal of employees to be replaced by franchisees involved a change in workforce numbers which meant, in turn, that an ETO reason could be valid.

MU Ltd provided electricity reading services but did not employ any meter readers directly. It tendered for meter-reading contracts and then sub-contracted the work to individual meter readers who provided their services through their own limited companies. MU Ltd won a couple of retendered meter-reading contracts from companies that did employ meter readers and these meter readers transferred to MU Ltd under TUPE. MU Ltd explained its business model to the employees and offered them the opportunity to set up individual companies to work under MU Ltd's franchise arrangement. The majority refused and were dismissed for reasons of redundancy. The case has been remitted to the tribunal to determine the fairness of the dismissals now that it has been established that they are not necessarily automatically unfair under TUPE.

  • 2 News
  • 2.1 "Clean slate" plan to help workers with criminal past

The Guardian reports that the justice secretary, Kenneth Clarke, is to "wipe the slate clean" for hundreds of thousands of offenders by dramatically shortening the period during which they are obliged to tell potential employers about their criminal past.

The proposed reforms to the Rehabilitation of Offenders Act 1974 will see the time after which the convictions of medium-term prisoners are "spent" reduced from ten years to four. The convictions of short-term prisoners, serving sentences of up to six months, will be spent after two years instead of the current seven. In additional people who have recently been fined or ordered to serve community sentences will no longer have to declare their criminal record after one year instead of the current five.

The changes will also raise the threshold for prison sentences that are never spent from two and a half years to four, on the basis that sentence lengths are much longer now than when the period was fixed in 1974. The proposals are intended to be applied retrospectively. As the justice minister Lord McNally said, the changes were being made because it was "no good for anyone if they go to jail and come out and then can't get an honest job and so turn back to crime again".

  • 2.2 Female staff win equal pay deal at council

The Independent reports that nearly 1,000 female council workers, including cleaners, carers and dinner ladies, are to share a multi-million pound payout under a "historic" equal pay deal. Unison said that the agreement with Bury council settles a number of equal pay claims from women paid less than their male colleagues for doing work of equal value.

Bury was the first council that Unison targeted with mass litigation for equal pay in 2007. The union said the council "wasted" more than £1m of public money fighting the claims through the courts.

  • 2.3 Jobs lost due to errors at the Criminal Records Bureau

The Telegraph reports that at least 20,000 have been wrongly labelled as criminals, or accused of more serious offences than they committed, because of blunders by the police and the Criminal Records Bureau. The errors are contained in vetting checks, meaning that many may have been unfairly turned down for jobs or had their reputations shattered.

Statistics from the Home Office, gained under a Freedom of Information Act request, show that during 2010/11, 2,343 people had inaccurate data stored against their names. In at least 3,000 cases the police record of a different person was passed on to employers, while more than 3,500 people discovered their entries on the police national computer were inaccurate.

Apparently the errors also include the recording of inaccurate or misleading details on cases where there was no conviction, such as someone being questioned for an alleged offence but never charged. According to the Telegraph some innocent people could have been labelled as a threat purely because the police held inaccurate suspicions about them.

  • 2.4 Minimum wage may be frozen

The Telegraph reports that David Cameron is considering calls to freeze the national minimum wage in an attempt to revive the "subdued" economic recovery and encourage employers to hire more staff. The government is expected to make an official announcement on this year's rates in the next couple of months.

Presenting evidence to the Low Pay Commission (which recommends minimum wage rates to ministers) the Department for Business, Innovation and Skills (BIS) warned that increases in the minimum wage made employers more reluctant to hire. Pointing out that the effects of the economic downturn were still being felt in the UK labour market, BIS said that the commission should "consider concentrating their attention on the effect of a rise in the adult national minimum wage on employment". Meanwhile, Brendan Barber, the TUC general secretary, has said that freezing the national minimum wage would be "wrong", saying that the "commission should recommend an increase that at least keeps pace with the growth of prices and earnings across the economy, otherwise the least well off will be left even further behind".

  • 2.5 Companies and charities to be paid more than £2,000 for putting young jobless into work

The Telegraph reports on Nick Clegg's announcement that companies and charities will be paid more than £2,000 for every jobless youth they place in employment or education. According to the government, spending a period not in employment or education (Neet) has "scarring" consequences for someone's long-term employment chances and earnings.

Almost 1.2 million people under 24 are classed as Neets, and Ministers are under mounting pressure to tackle record levels of youth unemployment. Mr Clegg has set out details of a £126 million funding allocation to pay for outside bodies to work with Neets aged 16 and 17 who have no good GCSE passes, offering them services and support including skills training and interview practice. Charities and private-sector groups will be paid according to the results of their work with Neets, with the most successful getting £2,200 for each client. The scheme, which is part of Mr Clegg's £1 billion fund to address youth unemployment, will be the first use of "payment by results" contracts for under-18s, according to officials.

  • 2.6 Controversy over government work experience scheme

The Guardian reports that the employment minister Chris Grayling has said that the government is willing to review its work experience scheme following concerns expressed by major employers such as Tesco. Argos and Superdrug have suspended their involvement pending talks with the DWP to ensure that the scheme is voluntary and that jobseekers would no longer fear having their benefits removed if they pulled out of placements after the first week. Waterstone's, Sainsbury's and TK Maxx have already withdrawn from the scheme.

Whilst access to the work experience is voluntary, if someone leaves the scheme without "good reason" after the first week, they can lose two weeks jobseekers' allowance. The scheme is aimed at 18 to 24-year-olds who are unemployed for more than three months. Chris Grayling has defended the scheme insisting that it is not exploitative and that "the idea that people are being press-ganged for long periods of time to work for nothing to provide cheap labour for big companies is totally untrue".

  • 2.7 Pensions Regulator issues Financial Support Direction against ITV companies

The Pensions Regulator has issued financial support directions (FSDs) against five companies in the ITV group in respect of the Box Clever Group Pension Scheme, even though those companies did not participate in the scheme. The Determinations Panel of the Pensions Regulator ruled that the five companies were "associated" with the scheme's participating employers on the basis that the companies exercised voting control of the participating employers.

The sponsoring employer of the scheme, Box Clever, was established in 2000 as a joint venture between Granada and Thorn, both of whom transferred their television rental businesses to the company. Granada received over £500 million from Box Clever. Granada subsequently merged with Carlton Communications to form ITV. The participants of the joint venture had extracted significant cash sums from the business, leaving the scheme with a weakened principal employer which had ultimately become insolvent. We understand that the targets of the FSDs have appealed to the appropriate tribunal.

  • 2.8 Pensions Regulator outlines compliance and enforcement strategy for auto-enrolment

The Pensions Regulator has published a strategy paper setting out the approach it will adopt in monitoring and enforcing compliance with the new employer auto-enrolment duties. The paper focuses on defined contribution (DC) schemes as it is assumed that most, if not all, new members will be auto-enrolled in DC pension arrangements.

The Regulator makes it clear that it will look to whistle-blowers and use data analysis and intelligence shared with other government bodies to alert it to non-compliance with auto-enrolment legislation. The Regulator's aim is to ensure that all employers believe the new regime is being applied fairly, and that those employers who do not comply with their duties under the legislation are penalised by applying appropriate civil and criminal sanctions.

The paper confirms that the Regulator's detailed compliance and enforcement strategy and policy will be published in spring 2012 and that it will also be consulting on best practice for maintaining the payment of employer contributions later in 2012.

  • 3 Legislation
  • 3.1 Draft statutory instrument for increasing unfair dismissal qualifying period published

The draft Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 2012 has been published. It provides that for all employees employed on or after 6 April 2012, the qualifying period for unfair dismissal increases to two years. Employees whose period of continuous employment began on or before 5 April 2012 will still be subject to the one year qualifying period.

  • 3.2 Tribunal judges to sit alone in unfair dismissal cases

The draft Employment Tribunals Act 1996 (Composition) Order 2012 has been published and is expected to come into force on 6 April 2012. It enables employment judges to sit alone in unfair dismissal cases and is aimed at speeding up and reducing the cost of the tribunal system.

  • 3.3 Auto-enrolment - DWP publish response to consultation exercise on auto-enrolment regulations and updated guidance for employers released

DWP has published four sets of regulations which make changes to the auto-enrolment legislation. Many of the changes will be going ahead as initially announced although there are some key differences. For example. employers now have an extended period of time (one month instead of one week) within which they must give information to workers if they are using a waiting or transitional period before auto enrolling their employees.

Following the response to the consultation exercise, the Pensions Regulator and the DWP have released updated guidance on auto enrolment obligations for employers. The Regulator has issued nine separate guidance notes which set out how employers should implement their auto-enrolment duties. The DWP has also updated their Workplace Pension Toolkit to include issues resolved by the consultation exercise.

  • 3.4 Auto-enrolment - consultation on exemption for European employees

The DWP has issued a consultation on draft regulations which would exempt employers who have cross border European workers from the requirement to auto-enrol employees into a pension scheme. Under pensions legislation, UK employers that contribute to a pension scheme in respect of workers whose place of work is subject to the social and labour law of another EEA, are required to register their pension scheme as a cross border scheme with the Pensions Regulator and comply with additional regulatory requirements. This can be costly and complex and therefore the DWP is considering amending the auto-enrolment regime to exempt these employers. The consultation closes on 2 April 2012.

  • 3.5 Further changes to tax treatment of asset-backed pension contributions

The Finance Bill 2012 will make changes to the Finance Act 2004 about asset-backed pension contributions. Employers using, or considering, an asset backed contribution structure will need to consider the accounting treatment of such contributions in light of these new changes. The new tax regime comes into effect from 22 February 2012, with transitional provisions applying to payments made between 29 November 2011 and 21 February 2012.

The changes provide that upfront tax relief will not be given unless the structure is an "acceptable structured finance arrangement". Broadly this is where the asset backed contribution structure satisfies the regime governing structured finance arrangements and certain other conditions are met. The new conditions must be met at the outset of the structure. If the structure does not qualify as an acceptable structured finance arrangement then relief will only. be available for any future income payments made to the pension scheme under the payment plan.

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