Spring 2012 Newsletter

 

CHANGES IN EMPLOYMENT LAW IN 2012

The Government has announced plans to make a number of changes to Employment Law in 2012.

The following changes to the Tribunal system have been announced to take effect from April 2012:

  • The qualifying period for unfair dismissal will increase from one to two years. This will only apply to those whose employment commences on or after 6 April 2012.  So for current employees the one year rule will continue to apply. Whilst the increase in the qualifying period to two years (as it was originally) may be helpful in reducing the number of stand alone unfair dismissal claims, given that these claims are frequently combined with claims for discrimination or whistleblowing, which have no qualifying period, we suggest the increase will have limited impact – it may simply result in a greater number of employees trying to bring discrimination claims, even where unmeritorious, which are the more burdensome claims for employers to respond to.
  • Unfair dismissal claims will also be heard by a tribunal judge sitting alone, without lay wing members. This will be reviewed after one year.
  • The amount of a deposit order that a tribunal will be able to order a party to pay will increase from £500 to £1,000 per claim from 15th February 2012. Deposit orders are an underused by parties to tribunal claims and can be very a effective tool in encouraging the other side to withdraw an unmeritorious claim or defence.
  • The maximum amount of costs that an employment tribunal can award without referring the case to the County Court for detailed assessment, will increase from £10,000 to £20,000.
  • Witness statements will be taken as read in the tribunal, unless the tribunal judge directs otherwise. Tribunals will also be given powers to direct parties to bear the costs of witness attendance, including the cost of witnesses called by the successful party.  The Government will withdraw all state funded expenses.

In addition to the above changes, from April 2012, the Working Time Regulations will be amended to allow for annual leave to be carried over into the following annual leave year in limited circumstances, and maternity, paternity and adoption pay will increase to £135,45 per week. SSP will also increase to £85.85 per week.

Vince Cable also recently announced the proposals arising out of the consultation on resolving workplace disputes.  The main proposals are:

  • Simplification of compromise agreements, including clarifying section 147 of the Equality Act and the definition of an independent adviser.  They will also be looking at whether to enable compromise agreements to settle both existing and future claims.
  • Discretionary financial penalties on employers that lose a claim in the Tribunal.  This will be in addition to the damages awarded to the claimant and will be equal to half of the total award made by the Tribunal with a minimum threshold of £100 and a maximum of £5,000, and will be reduced by 50% if paid within 21 days of the award.
  • The introduction of Tribunal fees. The consultation closes on 6 March 2012, but the Chancellor has confirmed that fees will be introduced, with implementation ultimately scheduled for April 2013.  It is reported that the proposal is for an issue fee of £250 and a listing fee of £1,000, with higher fees if the claim exceeds £30,000. There will also be exemptions for those without the means to pay.  It has also been reported that the claimant will be able to recover the fee if they are successful at tribunal, but it is not clear whether the fee will be recoverable from the employer or whether the tribunal will simply refund it.  We consider this proposal will, in principle, dissuade claimants from bringing spurious claims.  However, given the fact the proposal is that those who cannot afford it will be exempt from payment and that most claimants will have recently lost their jobs and be unemployed we query as to how often the fees will actually be payable.

The Government has also announced that it intends to enter into consultation regarding the simplification of TUPE and a proposal to reduce the length of collective consultation.

 

PROTECTED CONVERSATIONS

David Cameron recently announced that he plans to introduce “protected conversations” so that employers and employees feel able to have a frank conversation with neither party being able to rely on what the other said as evidence in subsequent proceedings.  Although full details of the proposals will be revealed in forthcoming consultation, the initial reaction has been mixed.

The current regime allows for “without prejudice” conversations to take place where their purpose is a genuine attempt to settle a dispute between the parties. The problem is that there has to be a dispute and this often involves one party or another creating a dispute so that they can have such a conversation. For employers this is often too late. The aim of the proposal is not to protect employers from making discriminatory comments, but to encourage employers to have sensible conversations that they ought to already be having but are afraid to have for fear of the conversation being cited in the future. It is thought that these conversations would be particularly helpful in the wake of the removal of the default retirement age.

The CBI have supported the plans saying that while “employment laws should set the necessary minimum standard in the workplace, they can get in the way of open and frank communications between employees and employers”.

Introducing “protected conversations” seems a sensible approach as neither party may wish to have to go through a process if matters can be agreed amicably. However employers need to be more pro-active in managing performance and follow a fair procedure to allow employees a period of time over which to improve their performance, warning their dismissal could result if they fail to improve. It is possible to fairly dismiss an employee who is underperforming on the grounds of capability. We suggest that regardless of “protected conversations” if employers more pro-actively manage their employees then this would help their negotiating stance and position with “protected conversations” when the situation has gone on too long.

In addition, while the intention is well meant, any legislation introduced to deal with this issue could be very difficult to frame as it is suggested it will only apply to small employers and could increase confusion as why should it not also apply to larger employers.

We shall have to wait and see what the outcome of the consultation is and will update you further once the response has been received.

 

TRANSFER OF UNDERTAKINGS (PROTECTION OF EMPLOYMENT) REGULATIONS 2006

  • Key2Law (Surrey) Llp v De’antiquis [2011] Ewca Civ 1567

  • Spaceright Europe Limited v Baillavoine [2011] EWCA Civ 1565

  • Enterprise Management Services Limited v Connect-Up Limited & The Claimants Ukeat/0462/10

Recently there have been a number of interesting cases on TUPE. The Court of Appeal in two cases; Key2Law (Surrey) Llp v De’antiquis [2001 Ewca Civ 1567 and Spaceright Europe Limited v Baillavoine [2011] EWCA Civ 1565, clarified the position regarding the application of TUPE to companies placed in administration and the EAT in Enterprise Management Services Limited v Connect-Up Limited & The Claimants Ukeat/0462/10provided useful guidance on service provision changes

Key2Law (Surrey) Llp v De’antiquis [2011] Ewca Civ 1567

Regulation 8 (7) of TUPE 2006 provides that where the transferor is the subject of “terminal insolvency proceedings” – ie bankruptcy proceedings or any analogous proceedings which have been instituted with a view to liquidating the assets of the company, the employees will not automatically transfer under TUPE, and any dismissals due to the transfer will not be automatically unfair. However, regulation 8 (6) provides that in “non-terminal proceedings” – ie those which have been opened not with a view to liquidating the assets of the company, the employees will transfer and receive protection from unfair dismissal. The question has always been  – is administration a terminal or non terminal proceeding?

In this case the Court of Appeal decided that administration cannot be terminal as the primary objective of administration is to rescue the company as a going concern (paragraph 3(1)(a) Insolvency Act 1986), unless it is not reasonably practical or the creditors would be better served by liquidation of the assets.

This claries an area of law where there has been conflicting case law at EAT level for a number of years.  The effect of this decision is that when a company is placed into administration the employees of that company will transfer under TUPE to any purchaser, and they will receive protection from unfair dismissal.  However, some of the transferor’s debts in respect of the employees will not transfer, but will be paid out of the National Insurance Fund. In addition, the transferee has greater scope to change employees’ terms and conditions of employment.

Spaceright Europe Limited v Baillavoine [2011] EWCA Civ 1565

The Court of Appeal has confirmed that a dismissal can be automatically unfair under TUPE even if  the transfer itself is not in contemplation at the time that the dismissal is effected.

In this case the administrators, who intended to sell the business as a going concern, dismissed a number of employees including the claimant. The business was subsequently purchased by Spaceright Europe Limited.

The Court of Appeal found that the claimant’s dismissal was automatically unfair because he had been dismissed for “a reason connected with the transfer” and so was automatically unfair. The fact that the dismissal took place in order to achieve a sale at a future date was sufficient.

Enterprise Management Services Limited v Connect-Up Limited & The Claimants UKEAT/0462/10

This case is interesting, not because it decides anything new, but rather because the EAT provided useful guidance as to when a service provision change under TUPE may occur. In this case the service provision change was from one contractor to another.

As the expression ‘activities’ is not defined by TUPE.  The first task is to identify the relevant activities carried out by the original contractor:

The second (critical) question is whether the activities to be carried on by the incoming contractor are fundamentally or essentially the same as those carried on by the original contractor.  Minor differences may properly be disregarded.  This is essentially a question of fact and degree.

If the services are to be divided among a number of different contractors; fragmented, it may be that a service provision change does not take place.

Where the activities before and after the transfer remain essentially the same and are not fragmented, a service provision change will only take place if:

there is an organised grouping of employees in Great Britain which has as its principal purpose the carrying out of those activities concerned on behalf of the client;

the activities are not a “single event” of short-term duration;

the activities are not wholly or mainly the supply of goods (rather than services).

The final question to consider is whether the relevant individual was assigned to the organised grouping of employees.

 

IR35: CONTRACTOR’S STATUS CHANGE DURING THE TERM OF THE ENGAGEMENT

  • JLJ Services Limited v Revenue & Customs [2011] UKFTT 766 (TC)

In this case, the First Tier Tribunal determined that the worker’s status for IR35 purposes changed during the period of the engagement – which was over seven years. Strictly speaking, the IR35 rules only apply to an individual status for tax purposes, however, the question of whether an individual worker is an employee or some other form of worker has ramifications far beyond questions relating to tax and national insurance.

The Tribunal accepted that the worker was notionally self-employed for IR35 purposes at the beginning of the engagement when extensions to the contracts were for short periods of time.  With one exception the extensions had all been between one to four months, and most extensions related to a particular project to be undertaken and completed. There was no suggestion at this stage that the client wished to engage the worker indefinitely. However, from around December 2003 the parties moved to a pattern of annual renewals on a non project basis. The Tribunal concluded that at this point the worker became an employee for IR35 purposes as the client wished to engage and retain the worker indefinitely. Throughout the engagement the worker, an IT specialist, provided his services through a personal service company.

The Tribunal noted that the precise point at which the change occurred was not easy to pinpoint, but that at the end of December 2003 there were various indications that the relationship changed.

The Tribunal also commented that right to substitute had little to no effect on their decision as it was perfectly obvious it had been inserted to achieve the desired tax purpose only. The Tribunal only just stopped short of calling it a sham.  Emphasising the fact that the mere inclusion of a substitution clause is insufficient and such clauses should be realistically usable.

This decision highlights the importance of continually monitoring the status of workers (whether for IR35 purposes or more generally). Working for one client for a sustained period of time brings with it the risk that the worker’s status will change and certainly increases the risk that HMRC will scrutinise the relationship.