VOLUME 33 NUMBER 8
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EDITORIAL
KATHLEEN HEALY 2 Freshfields LLP
ELA NEWS
CHARLES WYNN-EVANS University of Bristol Law School
NIKITA SONECHA Browne Jacobson LLP
3
CASPAR GLYN KC and EMMA DARLOW STEARN 7 Cloisters
IN BRIEF
EMPLOYMENT PRENUPS: ADVANCE SETTLEMENT AGREEMENTS
REBECCA TUCK KC 11 ANTIZIONISM AS A PROTECTED BELIEF: THE Cloisters RAMIFICATIONS OF UNIVERSITY OF BRISTOL v MILLER JP BUCKLEY, LEANNE FRANCIS and ROSIE CRYANS 15 THE DATA SUBJECT RIGHT TO COMPLAIN: Lewis Silkin MANAGING COMPLAINTS ALONGSIDE CASES HOLLY INSLEY and DAVID MENDEL 18 Freshfields LLP
IS THERE A NEW USE FOR EMPLOYEE SHAREHOLDER STATUS?
ANTONY DUNKELS 20 PLATFORM: BALANCING LEGAL RISK AND Cairnstone REPUTATIONAL SURVIVAL IN SENIOR MISCONDUCT CASES – A PR PERSPECTIVE CONTRIBUTOR GUIDELINES
Editor CHARLES WYNN-EVANS University of Bristol Law School Editorial committee KATHLEEN BADA Charles Russell Speechlys LLP CLARE FLETCHER Slaughter and May JO-ANNE GRAHAM / AMY FERRINGTON Government Legal Department
IDS ELA Briefing is published by IDS, part of Thomson Reuters. The IDS legal research team has been providing analysis and information on employment law since 1966. Tel: 0345 600 9355 www.incomesdata.co.uk Follow us on Twitter: @IDS_team
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DOUGLAS LEACH Guildhall Chambers RICHARD LINSKELL Gunnercooke LLP CRAIG LUDLOW 3PB Barristers SARA MEYER DAC Beachcroft NIKITA SONECHA Browne Jacobson Advertising CYNTHIA CLERK Cynthiac@elaweb.org.uk
a word from the editor
ELA is a non-partisan and non-political organisation, and ELA Briefing reflects that position in its coverage. That does not mean that, within those confines, we should not include thought-provoking opinion/platform contributions addressing the practice of labour and employment law. Consistent with this, in this issue, Antony Dunkels ‘AI presents risks that offers a PR specialist’s perspective on the handling must be understood of senior misconduct cases addressing, among and managed’ other points, how PR and legal priorities may conflict. In addition, we have two contributions looking at how employers might seek, in relation to highly paid employees, to address the removal of the cap on the compensatory award for ‘standard’ unfair dismissal. Caspar Glyn KC and Emma Darlow Stearn of Cloisters review the potential utility of ‘advance’ settlement agreements, while Holly Insley and David Mendel of Freshfields consider how employee shareholder status, which might appear otherwise to be nearly if not actually defunct, might also be deployed in this context. Please do keep proposals for articles coming and contact me if you would like to discuss joining our editorial committee – to which we are delighted to welcome Amy Ferrington from the Government Legal Department. Many thanks to Nicola Taylor for her contribution during her time on the committee. We will all be aware of the omnipresent impact of AI on legal practice, and of the many and varied stories of hallucinated case law, draft documents that do not reflect the interests of the client, breaches of confidentiality and privilege consequent upon the uploading of client material, as well as the widely reported increase in what are considered to be overblown, exaggerated and disproportionate grievances and employment tribunal claims. The Solicitors Regulation Authority’s (SRA) warning notice of 17 August about the misuse of AI emphasises the importance of the issues potentially arising in relation to hallucinations and confidentiality, noting that AI can be a valuable tool and, when used appropriately, can support the delivery of legal services. Nevertheless, AI also presents risks that must be understood and managed. The SRA makes the points that the use of AI does not diminish a solicitor’s professional responsibilities and accountability for all work and advice delivered to clients, whether or not AI has been used in its preparation, and that appropriate human oversight, informed professional judgement and a proportionate, risk-based approach are essential to ensure compliance with a solicitor’s regulatory and legal obligations. While somewhat belated, and flagging issues that ought already to be well known to anyone even partially acquainted with AI and their professional obligations, the SRA’s warning notice is, at the very least, a reminder that the issues presented by the use of AI can have regulatory ramifications. The recent decision in SRA v Kumar (case No. 12884-2026), in which a registered foreign lawyer was struck off, demonstrates that this can be a very real issue. And reflecting the slightly back-to-school feeling of the early autumn, I recently came across the advice of Felix Frankfurter, an associate justice of the US Supreme Court, to a young man interested in going into law: ‘No one can be a truly competent lawyer unless he is a cultivated man. If I were you, I would forget all about any technical preparation for the law. The best way to prepare for the law is to come to the study of the law as a well-read person.’ CHARLES WYNN-EVANS, University of Bristol Law School
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ela news
September is here and we will soon have forgotten about the long hot days of summer. I hope you managed to grab some downtime before we buckle up for a rollercoaster autumn, preparing for the 1 January 2027 unfair dismissal changes. Over the summer we saw the Jason Arday story unfold, culminating in the very worst news for his family and friends. The story was a salutary reminder ‘the whistleblowing of the importance of the employment relationship to legal framework in one’s wellbeing and self-esteem, and of the harm that the UK is something can potentially be done when matters related to the we should be very employment relationship end up in the public domain. proud of’ Following the events of the summer, Cambridge University announced that there will be an independent review, led by Nazir Afzal, of the ‘decision-making and actions’ in the period leading up to Mr Arday’s death. In commenting on the review, Mr Afzal has said he hopes people will feel able to speak up and acknowledged that ‘doing so is never easy’ and people should ‘not let fear inhibit the review’. In the UK, our whistleblowing protections are fundamental to the efficacy of such reviews. Without them, these reviews would most likely rarely get to the bottom of what might have led to a particular issue or crisis. They are a vital piece of the investigations landscape. Having spent part of my summer working in Asia, I was reminded of the fact that such protections do not exist everywhere. Some countries do have whistleblowing protection for employees, including protection against retaliation and against dismissal. In other countries – including some where there is also an enhanced stigma attached to reporting wrong-doing at work – there is as yet nothing, making it so much harder for employees to speak up. The whistleblowing legal framework in the UK is therefore something we should be very proud of. Recent activities • Training Committee webinars included ‘Differences in Law and Procedure: Key areas where employment law and tribunal procedure in England & Wales differs from Scotland and Northern Ireland’. There was a half-day online Settlement Agreements course. • The Legislative and Policy Committee responded to consultations on the Acas draft code of practice on disciplinary and grievance procedures and the Make Work Pay consultations on employment rights for unpaid carers and parents of seriously ill children and reforms of zero hours and similar contracts. • The Pastoral Committee organised two webinars: ‘Social Media: Helping parents understand, guide, and protect their children in the age of likes, filters and followers’ and ‘A Focus on Suicide: World Suicide Prevention Day’. Looking ahead • Training Committee webinars include ‘Conditional Job offers: Condition precedent or condition subsequent?’, 7 October and Employment in Higher Education, 13 October. A Speed Mentoring event will be held on 21 October in London and the two-day ‘Introduction to Employment Law’ course will take place on 9/10 November in Birmingham. • Pastoral Committee has organised webinars on ‘Performing Under Pressure (just like an F1 pit crew)’, 6 October, ‘Difficult Conversations: Both sides of the desk’, 8 October and ‘Moral Injury: Recognising and managing the risks for ourselves and others’, 14 October. An in-person event ‘Breathe Better, Perform Better’ will take place in London on 13 October. KATHLEEN HEALY, Freshfields LLP
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in brief
Employment Rights Act 2025: the next wave The reform agenda under the Employment Rights Act 2025 (ERA 2025) shows no sign of slowing. Having absorbed the April 2026 changes – the launch of the Fair Work Agency (FWA), the extension of statutory sick pay, unpaid parental and statutory paternity leave becoming day one rights, the doubling of the protective award for collective redundancies, the amendment of the list of protected disclosures to include disclosures about sexual harassment and the first wave of trade union reforms – practitioners and employers must now prepare for a further raft of changes taking effect in autumn 2026 and beyond.
‘employers will face a longer window of uncertainty as to whether a claim will be brought’
Limitation periods: confirmed in law From 1 October, the time limit for presenting employment tribunal claims is extended from three to six months. This was expected, but it has now been formally confirmed by two instruments receiving Royal Assent: the Employment Rights Act 2025 (Commencement No 5 and Transitional Provisions) (Amendment) Regulations 2026 (SI 2026/954), and the Employment Tribunal (Extension of Time Limits) (Miscellaneous Amendments and Transitional Provisions) Regulations 2026 (SI 2026/758). The transitional provisions are important. The extended time limit will not apply retrospectively: it applies only where the ‘relevant date’ of the cause of action falls on or after 1 October. Claims where the relevant date precedes that date remain subject to the existing three-month limit. Practitioners will need to apply this distinction carefully in the months immediately surrounding commencement. The practical consequences are significant. Employers will face a longer window of uncertainty as to whether a claim will be brought. Document retention policies must be reviewed accordingly, and consideration should be given to taking early witness statements whilst memories are fresh and – where key witnesses leave – negotiating reasonable assistance agreements. Tribunal statistics: a system under strain The Ministry of Justice’s (MoJ) latest employment tribunal statistics illustrate starkly why the extension of time limits is so consequential. Between April and June 2026, the employment tribunal received 25,000 claims and disposed of only 10,000. Despite individual receipt and disposal figures falling by 19% and 29%, respectively, on a year-on-year basis, the single claim backlog has risen by 51% to 70,000 – a record high. The EAT presents a similar picture. Over the course of the year, 1,800 appeals were received (a 4% year-on-year increase) and 1,500 disposed of (a 25% increase). Receipts still exceeded disposals. Of appeals reaching a final hearing, 47% were dismissed overall – 53% of employer appeals and 46% of employee appeals. The backlog position is likely to worsen further. The extension of the limitation period from 1 October 2026 and the reduction in the unfair dismissal qualifying period from 1 January 2027 (see below) represent two structural demand-side pressures that will push claim volumes higher. Practitioners should factor a lengthening wait to hearing into their litigation strategy and settlement advice from the outset of any dispute. Sexual harassment: the bar rises Two further changes to harassment law take effect on 30 October. First, the existing duty on employers to take ‘reasonable steps’ to prevent sexual harassment of their employees is elevated to a duty to take ‘all reasonable steps’. The shift in language is modest; the compliance implications are not. Secondly, a new standalone
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obligation is introduced regarding third-party harassment. Critically, this applies across all protected characteristics – not just sex. An employer will be treated as having permitted third-party harassment where a third party harasses an employee in the course of their employment and the employer failed to take all reasonable steps to prevent it. Breach gives rise to a standalone claim. A degree of uncertainty remains: the Government does not intend to implement regulations specifying what constitutes reasonable steps until 2027 – after the changes come into force – and the Equality and Human Rights Commission has yet to publish updated guidance. Nevertheless, the compliance bar has risen materially. Employers whose staff regularly interact with third parties such as customers, clients or contractors face a particular challenge. Practical steps to consider now include: • carrying out comprehensive and regular risk assessments to inform what preventative steps are required; • reviewing and updating harassment and dignity at work policies; • implementing a regular, tailored anti-harassment training programme; • ensuring clear and accessible reporting channels are in place; • reviewing commercial terms and arrangements with third parties and embedding anti-harassment provisions; and • maintaining documented evidence of all steps taken, including how risks were assessed and how preventative action was reviewed. That last point is critical. Documented evidence will be the key to demonstrating compliance. Trade unions: more change in October Following the significant trade union reforms earlier in 2026 – including the simplification of the recognition process and the launch of the FWA – a further tranche of changes takes effect on 30 October. The most significant is a new trade union right of access to workplaces, both physically and digitally, to engage with workers for the purposes of representation, support, recruitment, organisation and facilitating collective bargaining (though not to organise industrial action). This is a substantial shift for UK industrial relations. Combined with the simplified recognition process already in force – under which the 40% ballot support requirement has been deleted in favour of a simple majority and the membership threshold may be as low as 2% – employers should expect greater trade union visibility in the workplace, increased membership and more recognition requests. Preparation now is essential. Also taking effect in October are: • a new duty on employers to inform workers of their right to join a trade union, at the point of issuing a section 1 statement and at other prescribed times (further regulations on the form and content of the notification are awaited); • better rights and protections for trade union representatives; • protection against detriment for taking industrial action; and • further reforms to the trade union recognition process. Other October 2026 ERA 2025 changes include the reintroduction of the ‘twotier’ code in public sector procurement and the establishment of Social Care Negotiating Bodies. Non-financial misconduct: extended to all SM&CR firms From 1 September, the Financial Conduct Authority’s (FCA) Code of Conduct sourcebook (COCON) non-financial misconduct (NFM) rules – previously applicable to banks – are extended to all firms subject to the senior managers
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and certification regime (SM&CR). Approximately 40,000 firms are affected. The new COCON rule applies to unwanted conduct that (i) has the purpose or effect of violating an individual’s dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for them; or (ii) is violent to that individual. The conduct covered is not limited to the protected characteristics in the Equality Act 2010 (EqA). Purely private conduct with no connection to the firm’s regulated business is excluded, as are minor workplace disagreements. From 1 September, affected firms must notify the FCA of formal disciplinary action against Conduct Rules staff for COCON breaches or affected fit-to-work (FIT) assessments, and include NFM findings in regulatory references when an individual moves to another SM&CR firm. The regulatory reference obligation means that findings will follow individuals across the regulated sector – making the rigour of internal disciplinary processes more important than ever. For financial services clients, the FCA’s NFM rules and employment law obligations now operate in parallel. Internal investigations, disciplinary outcomes and regulatory notifications will need to be carefully coordinated. In particular, the timing and content of any FCA notification where disciplinary action is contested — or where an employment tribunal claim is anticipated — requires close attention. Looking further ahead: the January 2027 unfair dismissal reforms The most far-reaching changes on the horizon are the unfair dismissal reforms taking effect in January 2027, and employers should be preparing now. From January, the qualifying period for unfair dismissal is reduced from two years to six months and the cap on the compensatory award is removed. New restrictions on so-called ‘fire and rehire’ practices also take effect in January. These reforms are expected to significantly increase both the volume and value of unfair dismissal claims. More complex claims involving high earnings and valuable benefits are likely, along with arguments around career loss. The removal of the compensatory award cap will alter the economics of defending claims and reshape the dynamics of settlement negotiations – particularly for senior exits where the cap has historically provided a natural ceiling. Steps employers should be taking now include: • strengthening recruitment and selection practices; • making effective use of probationary periods and performance management processes, with proper documentation; • communicating with line managers about the forthcoming changes and addressing people management skills gaps through training; • applying notice provisions correctly – including statutory minimum notice periods — to avoid inadvertent unfair dismissal exposure; and • exercising particular care in relation to high-value or high-risk dismissals and senior exits. Menopause and menstruation: a new global standard The British Standards Institution, in conjunction with the International Organization for Standardization, has published a new global standard: BS ISO 45010 – ‘Menstruation and Menopause in the Workplace’. The standard provides recommendations on workplace culture, policies and procedures manager awareness and training, workplace design and practical adjustments, and includes a new clause on disclosure and privacy. Currently, the obligation on large employers (those with 250 or more employees) to publish equality action plans – which should detail steps taken to tackle gender equality, including menopause support – remains voluntary only. However, regulations under ERA 2025 are expected in 2027 to make publication mandatory for employers of that size.
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Clients who already have a menopause policy, or who are voluntarily publishing action plans, should consider aligning with BS ISO 45010 as a useful preparatory framework. National minimum wage: the ‘name and shame’ list The Department for Business, Innovation, Science and Trade published its latest ‘name and shame’ list of employers who have failed to pay the national minimum wage, with £7m in penalties issued by HMRC. The Government’s educational bulletin identifies the most common causes of underpayment as: • deductions from wages for items such as food, travel costs, equipment, childcare costs and salary sacrifice schemes; • unpaid working time, including unpaid pre- or post-shift work, travel time and overtime; and • failure to uprate pay following a birthday or from 1 April. The FWA is expected to assume full responsibility for enforcing national minimum wage compliance from April 2027, alongside similar investigative and enforcement powers in relation to sick pay and holiday pay. Right to work: major expansion from 1 October A major expansion of right-to-work compliance beyond direct employees takes effect from 1 October 2026. The changes affect businesses engaging contractors, casual workers, outsourced labour, platform workers and other non-traditional workforces – regardless of whether those businesses consider themselves to be the individual’s employer. This is a significant development and specific advice should be sought well ahead of the commencement date. NIKITA SONECHA, Browne Jacobson LLP
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Employment prenups: advance settlement agreements CASPAR GLYN KC and EMMA DARLOW STEARN, Cloisters
Following the Government’s late changes to what became the Employment Rights Act 2025, employees will now accrue unfair dismissal rights in ‘standard’ cases only after six months’ continuous service. The price of dispensing with the long-promised day one right was high: the removal of the cap on standard unfair dismissal compensation from 1 January 2027.
Proposals to reduce the risk to employers presented by the removal of the cap include properly policed probation periods, fixed-term contracts and abbreviated disciplinary procedures for senior employees. These reduce but do not eliminate the exposure. This article examines a method to exclude the risk entirely, which could become a standard approach for terminating the very highly paid (such as C-suite employees, those working in finance for banks or hedge funds and highly paid sportspersons and their managers), the use of advance settlement agreements agreed on the commencement of employment, waiving any standard unfair dismissal claim on subsequent termination. The cap and highly paid employees The statutory right not to be unfairly dismissed under s.94 ERA 1996 has, since 1971, carried a compensation ceiling. The cap is currently £123,543 or 52 weeks’ gross pay, whichever is lower. It has long been common for employers to ‘exit’ highly paid employees (whose remuneration is such that they will very likely incur losses exceeding the cap, and therefore recover the maximum compensatory award), by settling for an amount equal to the cap, plus the value of the notice period (salary and benefits). Unless the individual has a claim of unlawful discrimination or, in the case of certain automatically unfair dismissals (for example, whistleblowing), settling on such terms is attractive, as the individual would not recover more than the proposed termination payment by litigating and might recover less if the claim failed or compensation was reduced for failure to mitigate their losses, contributory conduct etc. This approach will no longer be effective in relation to the highest earners once the cap disappears. The effect of the change The compensatory award under s.123 ERA 1996 confers a broad discretion (s.123(1)): the amount ‘shall be such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal’. The award includes ‘loss of any benefit which [the employee] might reasonably be expected to have had but for the dismissal’ (s.123(2)) – therefore extending to loss of pensions, shares and long-term incentive plans, which can entail very significant financial losses. The losses suffered by highly paid employees will therefore often far exceed the cap, as may those of public sector and other employees by virtue of the loss on dismissal of defined benefit pension entitlements.
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Employment prenups: advance settlement agreements ‘removal of the cap will therefore render unfair dismissal claims from the most highly paid senior individuals much more valuable and unpredictable’
The circumstances in which recovery of an employee’s losses may be limited – such as mitigation (s.123(4)), contributory conduct (s.123(6)) and the Polkey principle – are not guaranteed to assist an employer. As Contract Bottling underscored, the approach established in Polkey is ‘a predictive exercise’ about which ‘there can be no absolute and scientific certainty’. Mitigation and contributory conduct deductions are likewise fact specific and hard to predict. Removal of the cap will therefore render unfair dismissal claims from the most highly paid senior individuals much more valuable and unpredictable. Career-long losses to retirement age may loom large. The change is less likely to affect lower paid individuals, save to the extent that those who may be able to show losses beyond a 12-month period will be able to claim for their losses in full. How then might an employer limit its exposure in the new environment? Risk-averse businesses may start subjecting senior employees to PIPs before dismissal. (The EAT restated in Zen that procedural steps are not absolutely required before capability dismissals, but fair dismissal without them will be rare.) An alternative option is to deploy advance settlement agreements prior to the commencement of employment. Section 203 ERA 1996 Section 203(1) ERA 1996 provides that any agreement is void insofar as it ‘purports – (a) to exclude or limit the operation of any provision of this Act, or (b) to preclude a person from bringing any proceedings under this Act’. Capping or waiving liability in the employment contract would thus be void. If liability is to be limited by agreement, it must be through the only gateway s.203 leaves open: a settlement agreement. Section 203(2)(f), read with s.203(3), disapplies the prohibition of the waiver of relevant statutory employment claims where certain conditions are satisfied: • the agreement must be in writing; • the agreement must relate to the particular proceedings; • the employee must have received advice from a relevant independent adviser as to the terms and effect of the agreement, and in particular its effect on the ability to pursue rights before a tribunal; • the adviser must be covered by a contract of insurance or an indemnity; • the agreement must identify the adviser; and • the agreement must state that the conditions regulating settlement agreements under s.203 are satisfied. The current position is that settlement can validly bite on claims not yet crystallised or events not yet occurred. In Hinton, the Court of Appeal held that an agreement did not ‘relate to the particular proceedings’ as required for a valid settlement agreement. As Smith LJ observed (obiter): ‘The particular claims or potential claims’ must be identified ‘either by a generic description such as “unfair dismissal” or by reference to the section of the statute giving rise to the claim’. In Bathgate, the Inner House considered whether a settlement agreement covered discriminatory conduct yet to occur. The Court held that the protections established by s.203 ‘do not exclude the settlement of future claims so long as the types of claim are clearly identified’ (para 31). A ‘contract of employment cannot prevent an employee from enforcing his rights in the future, but a privately negotiated compromise agreement can do so if the safeguards are met’ (para 37). Bathgate was followed by the EAT in Clifford, which confirmed that the statutory safeguards protect employees from signing away claims without appreciating their significance, rather than from settling future claims at all. Consequently, the current position is that a properly drafted settlement agreement can waive an unfair dismissal claim that has not yet arisen, provided it identifies the claim by reference to a statutory provision or generic label and meets the other s.203(3) conditions. Pre-employment settlement of unfair dismissal claims Advance settlement agreements offer a practical route for employers to limit their exposure in unfair dismissal claims from highly remunerated individuals (or those in positions requiring quick changes, such as football
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Employment prenups: advance settlement agreements ‘a properly drafted settlement agreement can waive an unfair dismissal claim that has not yet arisen, provided it identifies the claim by reference to a statutory provision or generic label and meets the other s.203(3) conditions’
managers or C-suite employees) – and indeed senior employees may often value a no-fuss exit in return for a guaranteed termination payment. The structure of an advance settlement agreement would be as follows: • the parties would explicitly settle future ‘standard’ unfair dismissal claims by reference to s.94 ERA 1996 in return for a lump sum payment on termination. Following Hilton, RNOHT and Ajaz, when releasing future unknown claims, the waiver language must be ‘absolutely clear’ and leave ‘no room for doubt’; • while no compensation payment is strictly required for a settlement to be valid, the safer route is to provide for a termination payment by way of a quid pro quo – this will be necessary for market acceptance and to withstand judicial and public policy scrutiny. Furthermore, the employer will wish to make sure contractually that the payment of the lump sum can be set off should the employee sue for compensation in respect of other claims; • payment should be made on ‘any termination’ to avoid litigation over the nature of the termination – unless the employer does not wish to make the payment on a straightforward resignation and is prepared to risk a dispute, with an attendant potential uncapped unfair dismissal liability (if the employee argues that they were constructively dismissed); and • the amount of the termination sum will depend on the individual’s remuneration and bargaining position and the employer’s assessment of the employment risk. We counsel restricting such an advance settlement agreement to ‘standard’ unfair dismissal claims only. While an advance settlement agreement could validly compromise all statutory claims identified with particularity, an employer would be ill-advised to seek to do so. The advance settlement agreement approach addresses the economic risk of uncapped unfair dismissal compensation arising from quick dismissals – not employer mistreatment during employment. There are, of course, potential enforceability issues in attempting to compromise certain future detriments – whistleblowing, discrimination and discriminatory terminations causing personal injury. Section 2(1) of UCTA prohibits the contracting out of personal injury claims and s.1(3) LR(PI)A voids such terms in employment contracts. We would not recommend this approach for junior/lower paid employees – the transactional costs and greater public policy considerations outweigh the benefits. We also consider this advance settlement agreement route to be superior to adopting the employee shareholder route under s.205A ERA 1996, which, in any case, may only be feasible in practice in certain sectors such as private equity. Foregoing unfair dismissal rights weighs heavily against receiving a minimum of £2,000 equity with tax advantages removed. Additionally, detriment for refusing to enter s.205A ERA 1996 is actionable. The risks and downsides Nothing in law is certain. The risks of the advanced settlement agreement approach include the following: • despite its compliance with s.203(1) on the basis of the current authorities, might tribunals treat this approach as invalidly ousting their jurisdiction on the basis that a pre-employment settlement differs from settlement at/after dismissal? A settlement presented as take-it-or-leave-it in the hiring package may collapse the distinction between an independent compromise and the contract of employment; • in the decided cases on settling future claims – Bathgate, Clifford, Ajaz, Darlington – the employment relationship regarding which future claims were compromised was ongoing or recently terminated. No cases address settlement before employment. A court might find this to be a distinction with a difference. Furthermore, there is also currently no Supreme Court authority on point; • critics may argue that, notwithstanding the current authorities, this approach subverts Parliament’s intention on the basis that, if Parliament intended to permit such arrangements, it could have done so expressly, as is the position in relation to the employee shareholder scheme under s.205A ERA 1996; • many senior individuals are employed before being promoted into a role where an advance settlement agreement might otherwise be a compelling option for the employer. Employers might therefore seek to introduce advance settlement agreements at promotion. This is less straightforward: individuals with BRIEFING September/October 2026 9
Employment prenups: advance settlement agreements ‘whether the advance settlement agreement route becomes prevalent for the highest earners ultimately will be ultimately for the market and the courts to decide’
employment rights and service may object more readily and refusal of promotion without execution of an advance settlement agreement could present further legal complexities and practical retention issues; • assessing a termination payment acceptable to the employee may be challenging. A sum negotiated before commencement of employment is unlikely to reflect the employee’s actual losses, since the circumstances of termination, the employee’s length of service and labour market conditions as at eventual termination are unknown. What appears generous at hire may be inadequate years later. Uptake may be low; • some may object to the advanced settlement route on public policy grounds on the basis of inequality of bargaining power at the point of hire, although this is a less compelling argument for the category of employees for which we would recommend that the advance settlement agreement route be adopted; and • there is also the concern for listed companies that investors would not approve of guaranteeing a termination payment up front regardless of the performance or the circumstances of the departure of the individual. Conclusion The current law is clear that future claims can be compromised under settlement agreements provided that they are clearly identified and all the relevant statutory conditions are met. However, these cases all concerned settlement during or immediately after employment; none directly addressed pre-employment settlement so it is unclear how courts will treat it in future. Notwithstanding this and the other risks outlined above, for a senior, well-paid employee to contract out of ‘standard’ unfair dismissal rights on subsequent termination under a properly drafted settlement agreement – fully advised, with the protections provided by the requirements of s.203 – and then to receive a significant termination sum would, in our view, be justifiable and likely enforceable. Whether the advance settlement agreement route becomes prevalent for the highest earners will be ultimately for the market and the courts to decide.
KEY:
ERA 2025
Employment Rights Act 2025
ERA 1996
Employment Rights Act 1996
Polkey Polkey v AE Dayton Services Ltd [1988] AC 344 Contract Bottling Contract Bottling Ltd v Cave [2015] ICR 146 PIPs Personal Independence Payments Zen Zen Internet Ltd v Stobart [2025] EAT 153 Hinton Hinton v University of East London [2005] EWCA Civ 532 Bathgate Bathgate v Technip Singapore Pte Ltd [2023] CSIH 48
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Clifford Clifford v IBM United Kingdom Ltd [2024] EAT 90 Hilton Hilton UK Hotels Ltd v McNaughton EATS/0059/04 RNOHT Royal National Orthopaedic Hospital Trust v Howard [2002] IRLR 849 Ajaz Ajaz v Homerton University Hospital NHS Foundation Trust [2025] EAT 18 Darlington Darlington v Islington LBC [2024] EAT 171 UCTA Unfair Contract Terms Act 1977 LR(PI)A Law Reform (Personal Injuries) Act 1948
Antizionism as a protected belief: the ramifications of University of Bristol v Miller REBECCA TUCK KC, Cloisters
In Miller, the EAT has upheld the much-publicised decision of the employment tribunal that the claimant’s particular personal belief in antizionism passed the Grainger test and was therefore a protected philosophical belief under s.10 of the Equality Act 2010.
The Miller decision The EAT upheld the employment tribunal’s findings about three communications by the claimant in February 2021 (in a lecture, to a student newspaper and to the Jewish Chronicle) which led to his dismissal. They had been found to involve the expression of protected philosophical beliefs (rendering the claimant’s dismissal discriminatory). However, they also included statements about Jewish students and student groups which, as the EAT put it, ‘were neither expressions nor manifestations of the particular beliefs upon which [the claimant] founded his case’ and which the tribunal held were also causative of his dismissal. Furthermore, even if these statements had been manifestations of the claimant’s protected belief, the EAT would have upheld the employment tribunal’s findings that it was proportionate for the employer to investigate and hold a disciplinary hearing about this aspect of the claimant’s conduct and to impose a disciplinary sanction but that the claimant’s dismissal was, in all the circumstances, disproportionate. The employment tribunal’s finding that the claimant was 50% culpable for his dismissal was also upheld. The question of whether the claimant would lawfully have been dismissed in non-discriminatory circumstances at a later date because of further comments made by the claimant in August 2023 – found by the tribunal to have had a 30% likelihood by October 2023 – was held to have been insufficiently reasoned and this issue has been remitted. The protection of philosophical belief The well-known test set out in Grainger lays down five requirements for a ‘philosophical belief’ to be protected, each of which has now been the subject of further appellate authority: • a belief must be genuinely held: in Thomas, the EAT held that it was permissible for an employment tribunal to look beyond what a claimant says is their protected belief (in that case, ‘English Nationalism’) to consider their ‘true belief’. Examination of Mr Thomas’ social media accounts showed that his belief included a demand that Muslims be removed from the country. This was found to be unworthy of respect in a democratic society, and so failed Grainger V (see below); • it must be a belief and not an opinion or viewpoint based on the present state of information available: that a belief is political does not prevent it from being protected, nor does the fact that it is based on empirical research (McClintock). Furthermore, it need not be fully fledged (Campbell) and may change over time (Williamson); • be a belief as to a weighty and substantial aspect of human life and behaviour: in Henderson, Simler J (as she then was) noted that ‘all qualifying beliefs are equally protected. Philosophical beliefs may be just as
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Antizionism as a protected belief: the ramifications of University of Bristol v Miller ‘the claimant’s belief was that “political Zionism … an ideology which holds that a state for Jewish people ought to be established and maintained in the territory that formerly comprised the British Mandate of Palestine … is inherently racist, imperialistic and colonial”’
fundamental or integral to a person’s individuality and daily life as our religious beliefs’, while in Mackereth, Eady J considered that a protected philosophical belief ‘must be capable of being understood as a characteristic of the individual in question’. This does not require that the belief should affect all or many aspects of a claimant’s life. Rather it is sufficient that it affects a ‘single but important aspect of a person’s life’ (see Gray; Miller at [138(ii)]). • the belief must attain a certain level of cogency, seriousness, cohesion and importance: in Gray, the EAT referred to protected beliefs being required to attain ‘the same level of cogency, seriousness, cohesion and importance as a religious belief’ – giving some ‘philosophy of life’ that determines in a substantive way the shape of the holder’s life. However, the bar of cogency must not be set too high (Williamson/ Forstater), and as set out above, it is sufficient if the belief affects a ‘single but important aspect of a person’s life’; and • the belief must be worthy of respect in a democratic society, and not be incompatible with human dignity or conflict with the fundamental rights of others: as Choudhury P observed in Forstater (at para 79): ‘It is important that in applying Grainger V, tribunals bear in mind that it is only those beliefs that would be an affront to Convention principles in a manner akin to that of pursuing totalitarianism, or advocating Nazism, or espousing violence and hatred in the gravest of forms, that should be capable of being not worthy of respect in a democratic society. Beliefs that are offensive, shocking or even disturbing to others, and which fall into the less grave forms of hate speech would not be excluded from the protection. However, the manifestation of such beliefs may, depending on circumstances, justifiably be restricted under Article 9(2) or Article 10(2) as the case may be.’ While this paragraph is oft cited, it is worth noting that Sheldon J warned in Thomas (at para 102) that, considering the Strasbourg jurisprudence on Article 17 of the European Convention on Human Rights (ECHR), this paragraph ‘may not be the last word on the matter’, because ‘beliefs that espouse intolerance or discrimination might also fall outside of the protection of the Convention’. In Miller, the University of Bristol accepted that the claimant’s ‘true belief’ was that which he had set out in his pleaded case. It also stood by the results of two investigations it had commissioned which found that the way in which Mr Miller had manifested his beliefs (at least in the period up to and including February 2021) had not been antisemitic. The employment tribunal also accepted Mr Miller’s evidence that ‘he did not hold antipathy towards Jews or Judaism’ and that his ‘opposition to Zionism was not to the idea of Jewish self-determination or to a preponderantly Jewish state existing in the world’. Mr Miller’s belief and the extent of its protection In Miller, the claimant’s belief was that ‘political Zionism … an ideology which holds that a state for Jewish people ought to be established and maintained in the territory that formerly comprised the British Mandate of Palestine … is inherently racist, imperialistic and colonial; and political Zionism ought therefore to be opposed’. The employment tribunal found that this was a belief which the claimant had ‘incorporated into his teachings and writings [and concluded] that they ha[d] played a significant role in his life for many years’. The tribunal also held that these beliefs had been ‘reinforced’ by the claimant’s academic research, and were ‘deeply held and not amenable to change’. The EAT upheld these findings in relation to the Grainger I and II requirements. Satisfaction of Grainger III was not disputed. As to requirement IV, the EAT was satisfied that the claimant’s belief was coherent and the low bar of Grainger V was found to be met in circumstances where the
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Antizionism as a protected belief: the ramifications of University of Bristol v Miller ‘when considering a protected belief, an employment tribunal needs to consider precisely how a particular claimant describes their own belief’
respondent, relying on the outcome of two investigations it commissioned, did not make any allegations of antisemitism. Analysis A couple of important if relatively basic points are worth noting in relation to Miller and its application of the Grainger principles. When considering a protected belief, an employment tribunal needs to consider precisely how a particular claimant describes their own belief. The fact that Mr Miller’s opposition to what he describes as ‘political Zionism’ was protected does not mean that another claimant will necessarily have that genuine belief (Grainger I) or that they will be able to satisfy the other Grainger requirements. For example, in Sohail, Ms Sohail’s beliefs about the Israel/Palestine conflict were found by the employment tribunal ‘not to have crossed the threshold from being a current viewpoint based on current events to being a deeper philosophical belief’. Nor had they developed sufficient cogency and coherence to satisfy Grainger IV. Furthermore, if a label of ‘antizionist’ is used to try and mask a true belief in antisemitism, the belief will not be able to pass even the relatively low hurdle of Grainger V. This is not only clear from the ratio of Thomas, but also from the European Court of Human Rights which has repeatedly found – in cases such as M’Bala and Ivanov – that antisemitism engages Article 17 of the ECHR: ‘Any person who engages in any activity or performs any act aimed at the destruction of any of the rights and freedoms in the ECHR are not protected by other rights.’ So, if a mere label of ‘antizionist’ is unlikely to be sufficient to establish a protected belief for the purposes of the Equality Act 2010 (EqA), and antisemitic beliefs or the espousal of violence are likely to disqualify those beliefs from protection by virtue of Grainger V, why are so many Jewish groups concerned about the Miller judgment? There is no universally accepted definition of ‘Zionism’ nor of ‘political Zionism’. That said, what is very likely to find universal agreement is that no ‘Zionist’ would agree with the definition given by the claimant in Miller describing political Zionism as inherently racist, imperialistic and colonial. If ‘Zionism’ is a belief in Jewish self-determination surveys suggest that around 90% of British Jews agree with this concept – indeed the employment tribunal judgment suggests that Mr Miller does too. If Zionism is defined as ‘the right for Israel to exist in the historic homeland of the Jewish people, Eretz Yisrael’, around 65% of British Jews would describe themselves as Zionist (Institute for Jewish Policy Research; 6 October 2025). However, regardless of whether Jews are Zionists, antizionists or have no opinion, it is undoubtedly the case that criticism of Israel frequently crosses the line into antisemitism. Despite constituting only 0.4% of the population, the UK Government recorded 33% of all religious hate crimes being against Jews. In the last year, those crimes have included murder, grievous bodily harm and arson. The Community Support Trust (CST) collects data on incidents reported as antisemitic; in 2025, 53% of reports alluded to Israel and the Middle East, and CST reports that the terms ‘Zionism’ or ‘Zionist’ – frequently used as proxies for ‘Jew’ and ‘Jewish’ – were used in 462 cases of anti-Jewish abuse. The UK Government stated that ‘the levels of anti-Jewish racism in the UK constitute a national emergency’ when publishing the report from Lord Mann following his review of antisemitism and other forms of racism in the NHS and healthcare regulatory system in July 2026. That the claimant was, on the particular facts of this case, successful in his claims while being penalised in compensation for certain aspects of his conduct does not provide great assistance in identifying the sometimes difficult line between robust but legitimate discussion and unacceptable discrimination. Likewise, an EAT judgment reviewing whether the employment tribunal adopted the correct approach to the application of reasonably well-established principles is of limited wider assistance.
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Antizionism as a protected belief: the ramifications of University of Bristol v Miller ‘while it is now clear that antizionism is capable of being a protected belief, the Grainger test must be carefully applied’
While it is now clear that antizionism is capable of being a protected belief, the Grainger test must be carefully applied; it is not simply a ‘tick box’ exercise such that anyone describing themselves as antizionist will automatically be deemed to have a ‘protected belief’ within s.10 EqA. Moreover, when it comes to manifestation of beliefs, employers need to ensure they take into account the rights of others. Employers’ work on drawing that line between legitimate discussion and unacceptable discrimination continues, as will ours on advising them.
KEY:
EqA
Equality Act 2010
Miller University of Bristol v Miller [2026] EAT 84 Grainger Grainger Plc v Nicholson [2010] IRLR 4 Thomas Thomas v Surrey and Borders Partnership [2024] EAT 141 McClintock McClintock v Department of Constitutional Affairs [2008] IRLR 29 Henderson Henderson v GMB Union [2015] IRLR 415 Mackereth Mackereth v Department for Work and Pensions [2022] ICR 1609 Gray Gray v Mulberry Co (Design) Ltd [2019] EWCA Civ 1720
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Campbell Campbell and Cosans v UK [1982] 4 EHRR 293 Williamson R (on the application of Williamson) v Secretary of State for Education and Employment [2005] 2 AC 246 Forstater Forstater v CGD Europe [2021] IRLR 706 Sohail Sohail and Khalid v Lloyds Bank Plc ET 2202954/2022 and 1600657/2022 M’Bala M’Bala v France [2015] ECHR No 25239/13 Ivanov Pavel Ivanov v Russia [2007] ECHR No 35222/04 CST
Community Support Trust
The data subject right to complain: managing complaints alongside cases JP BUCKLEY, LEANNE FRANCIS and ROSIE CRYANS, Lewis Silkin
On 19 June, a new right came into force enabling individuals to complain against organisations who are ‘controllers’ for data protection purposes. Organisations will need to have a procedure in place to help them to manage those complaints successfully. Complaints must be resolved or at least acknowledged within 30 days.
The right to complain, its policy context and impact This new right to complain, introduced by the Data (Use and Access Act) 2025, is applicable to organisations governed by UK data protection law. After the previous Government’s failed reform attempts, the current Government resurrected them with a significant trim back, given the delicate balance between delivering some post-Brexit change while maintaining the UK’s ‘adequacy decision’ from the EU – permitting data transfers from the EU and European Economic Area to the UK without greater formality and procedures. The right to complain was inserted into the Data Protection Act 2018 at s.164A and requires data controllers to: • facilitate complaints by introducing appropriate measures to investigate them; • acknowledge complaints within 30 days of receipt; • respond without undue delay, informing the complainant of the outcome; and • inform individuals of their right to complain to the organisation (and the Information Commissioner’s Office (ICO)) at the point personal information is collected. This new formal statutory right to complain must be considered against a background of the increasing utilisation of data subject rights in the UK, and its impact on the UK’s data protection regulator, the ICO (which with effect from 30 September 2026 will transition to the Information Commission). The ICO currently receives over 40,000 complaints per year regarding data protection matters alone, alongside other areas they regulate. This was forecast to exceed 50,000 complaints per year if action was not taken – consequently, this alternative route for complaint was introduced. Many of these complaints relate to data subject access requests (DSARs) which are a now standard weapon used in employment grievances and employment tribunal claims. How employment grievances, DSARs, the new right to complain and tribunal claims will interact In the employment context, many issues initially crystallise from a grievance. It is widely acknowledged that the volume of grievances being raised has been on the increase in recent times, triggered by a range of factors including an enhanced understanding of employee rights as well as the deployment of generative AI. This often leads to not just more frequent grievances but longer, more complex ones. The Employment Rights Act 2025 is likely to trigger more grievances and other claims – as a consequence not only of general awareness-raising, but also specifically as a result of the increased scope for and value of claims resulting from the extension of the employment tribunal time limit from three to six months expected in October, the reduction in the qualifying period for unfair dismissal claims from two years to six months and the removal of the statutory cap on unfair dismissal compensation. The cumulative effect of these reforms, alongside an increase in likely claim volumes, is that employers should expect a significant increase in the volume and frequency of DSARs being used in the employment context. In
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The data subject right to complain: managing complaints alongside cases ‘employers should expect a significant increase in the volume and frequency of DSARs being used in the employment context’
turn, this will lead to more complaints about their responses to DSARs to assess and determine. It is therefore important that employers understand how they should manage this issue, and why they should do so. Top tips for managing grievances and DSAR searches If managed appropriately, the following steps can ease both the burden and apprehension in an organisation upon receipt of a complaint. Privilege While widely known, legal privilege is often incorrectly applied. Where you can appropriately use it, you should. Legal privilege falls into two categories: legal advice privilege (confidential communications between a lawyer and client for the dominant purpose of obtaining or giving legal advice, and within a client for their preparation in doing so) and litigation privilege (confidential communications made for the dominant purpose of conducting existing or reasonably contemplated litigation, which can be between lawyer, client and a third party). Taking simple steps to assert privilege, using project names and privileged markings assist in the legitimate application of privilege in response to a DSAR. Importantly, however, correspondence with non-lawyer HR investigators/support teams advising a business is typically not privileged. A key point will be for organisations to prepare DSARs in a methodical and well-tracked way clearly demonstrating why specific scopes have been searched/redactions applied, so they will be able to efficiently and effectively respond to a complaint. Third-party privacy A careful assessment is needed by employers as to whether information relating to, from or about third parties will later become disclosable under a DSAR or an employment tribunal claim. Complaints are likely to centre on this issue and often arise in relation to witness statements taken as part of the grievance investigation. They are often not provided during the grievance, which is then assessed again when a DSAR is received. A position which is commonly taken here is to use the so-called third-party personal data exemption when assessing materials such as these for a DSAR – but again this is another test that needs to be documented carefully to be resilient from later challenge upon complaint. An employment tribunal does not have jurisdiction to deal with data protection complaints and/or DSARs, but the Data (Use and Access) Act 2025 introduced a new power to the courts to assess the underlying materials when considering a claim for specific disclosure under a DSAR. We may see an increase in court proceedings being issued so that a further layer of scrutiny is applied to responses to DSARs. Being prepared for that is vital to avoid the increased risk of public scrutiny from court judgments, one example of which is Ashley, a case demonstrating how not to undertake a DSAR. Organisational controls for data subject complaints The key steps that employers should be taking in relation to this new right to complain are to: • prepare or update the organisational complaints procedure to accommodate data protection complaints, referring to the requirements, best practice and suggestions in the ICO’s guidance on data protection complaints (https://ico.org.uk/for-organisations/how-to-deal-with-data-protection-complaints/); • update the privacy policy to reference the new right to complain and how to make a complaint, as well as referencing the right in DSAR response letters and other materials; • consider creating a complaints intake form – while nonetheless appreciating that complaints must be addressed, however they are received. Those complaining via social media should be directed away from social media to a channel secure enough for addressing complaints; and • train staff on the new right and where any complaints should be directed to, emphasising why this should be done quickly.
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The data subject right to complain: managing complaints alongside cases ‘prepare or update the organisational complaints procedure to accommodate data protection complaints, referring to the requirements, best practice and suggestions in the ICO’s guidance on data protection complaints’
When a complaint is received, employers need to: • triage the complaint to determine if it is a data protection complaint (and not, for example, the assertion of a new right, or a grievance); • investigate the complaint (using the employer’s applicable procedure, taking ‘appropriate steps’, and recording what these are and why they are appropriate) without undue delay; and • if the investigation is likely to run past 30 days (not a month) then communicate this to the complainant. After a complaint is received, the employer needs to keep the complainant updated and provide a final outcome to the complaint. This should be accessible to the complainant, set out what the employer has done to resolve the issues raised and whether appropriate actions were taken. If the employer concludes that it did comply originally, it should set out why in detail and provide enough information to help the complainant understand that conclusion. There is a suggestion in the ICO’s guidance that employers might introduce a further review process should the complainant continue to be unhappy with the outcome of the complaint. Following this guidance may provide greater opportunity to resolve complaints and avoid ICO involvement, but cannot be guaranteed to do so in practice. The scope of a DSAR and disclosing documents in a tribunal claim Often, DSARs are made in anticipation of an employment tribunal claim, in effect as a fishing exercise to attain documents ahead of disclosure. The newly introduced right of complaint will no doubt be deployed in support of this tactic. Preparing for disclosure is a key milestone in tribunal proceedings. As some tribunals are now being listed for 2030, any complaint about compliance with a DSAR from earlier on in the dispute process is more likely than previously to have been resolved by the time of the final tribunal hearing. Nonetheless, it is vital that employers bear in mind the important differences between provision of personal data by way of a DSAR and the disclosure of documents in tribunal proceedings so as to be ready to respond to a complaint about DSAR compliance prompted by the disclosure of documents in the tribunal process being broader than that required in response to a DSAR. Complaints about DSAR compliance under the new right may therefore be prompted by the differing disclosure required. In this regard, it should be remembered that: • these are separate duties – it will therefore often be appropriate for employers to work on a DSAR request and a disclosure exercise in parallel as part of their organisational response strategy; • the disclosure requirements are different – for DSARs it is, of course, limited to the relevant personal data, whereas in a tribunal claim, it is for all documents relevant to the issues whether or not they include personal data; and • exemptions are quite widely available in DSARs and, when used appropriately with contextual justification and not on a blanket basis, are defensible. The exemptions from disclosure are much narrower in the tribunal process and do not apply to relevant documents unless they are legally privileged. We will be monitoring complaints about DSAR compliance and seeking views and statistics later in the year to develop insights into how the new right is being used.
KEY:
ICO Information Commissioner’s Office
Ashley Ashley v HMRC [2025] EWHC 134 (KB)
DSAR Data subject access requests
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Is there a new use for employee shareholder status? HOLLY INSLEY and DAVID MENDEL, Freshfields LLP
Is it feasible to use employee shareholder status under s.205A of the Employment Rights Act 1996 to mitigate the consequences for employers of the removal, with effect from 1 January 2027, of the cap on compensation for unfair dismissal? This may only be appropriate for senior individuals in businesses which typically operate share-based remuneration arrangements, but the uncertainties associated with the use of advance settlement agreements to waive unfair dismissal claims on termination do not arise. What does the removal of the cap on compensation mean for employers? Many employers are concerned that the removal of the cap is likely to result in significant increases to employer termination costs, especially for highly paid employees and those remunerated in shares. Legal advisers have therefore sought to identify a range of possible mechanisms for providing cost protection to employers. One possibility is to make use of a now largely forgotten employment arrangement – that of the employee shareholder. What is employee shareholder status? Employee shareholder status was introduced in 2013. The aim was to create a new class of employee with a shareholding in the company. Employees subscribed for free shares from their employer with a minimum value of £2,000. In return, the employee was required to agree to give up certain employment rights, including the right to bring an ordinary unfair dismissal claim. Significant tax breaks were available to employee shareholders in relation to their shares. What conditions must be satisfied? The conditions are set out in s.205A ERA: • the employer and the individual must agree that the individual is to be an employee shareholder (s.205A(1)(a) ERA); • in consideration of that agreement, the company must issue or allot to the individual fully paid-up shares in the company or procure the issue or allotment of fully paid-up shares in its parent undertaking, which have a value, on the day of issue or allotment, of no less than £2,000 (s.205A(1)(b) ERA). The value of the shares is assessed by reference to s.272 and s.273 of the Taxation of Chargeable Gains Act 1992; • the company must give the individual a written statement of the particulars of employee shareholder status and of the rights which attach to the shares in question (the content requirements for the written statement are set out in the legislation) (s.205A(1)(c) and (5) ERA); and • the individual must give no consideration other than by entering into the agreement (s.205A(1)(d) ERA). An individual considering becoming an employee shareholder is required to obtain independent advice at least seven days before the employee shareholder agreement is entered into (s.205A(6) ERA). The employer must also meet the employee’s reasonable costs in obtaining the advice (s.205A(7) ERA). The original purpose for which employee shareholder status was introduced was short-lived because the tax breaks attached to employee shareholder status were withdrawn for employee shareholder agreements entered into on or after 1 December 2016. However, s.205A ERA has not been repealed. The question that now arises is whether it could be revived as a mechanism for employers to manage the risks of uncapped unfair dismissal liability.
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Is there a new use for employee shareholder status? ‘it should be possible to structure the equity arrangements so that the statutory conditions are met, while also requiring the relevant manager to make a real investment in the business and minimising adverse income tax consequences’
Can employee shareholder status be used to manage the removal of the compensation cap? It is only likely to be appropriate for relatively senior employees and will only be available in businesses where employees typically acquire share interests as part of their overall remuneration package. An obvious example is private equity. It is standard for senior employees working for private equity portfolio companies to participate alongside the PE funds by acquiring ordinary shares in the corporate entity in which the private equity funds invest. Assuming the investment is successful, the managers will then be able to sell their equity interests at the same time as the PE investor and benefit from any gain in value. The issue from an unfair dismissal perspective is that the manager may be contractually required to sell their equity interests at a reduced value if their employment ends before the PE investor ‘exits’ the investment. As part of an uncapped unfair dismissal claim, an outgoing manager could therefore seek to recover the difference between the value received for the equity interests on departure and the higher value they would have received had they been permitted to retain those equity interests until the PE investor’s exit. In principle, it ought to be possible to make the award of equity to management conditional upon their agreement to become employee shareholders, with employees agreeing to give up the right to bring an ordinary unfair dismissal claim if subsequently dismissed. The rationale for this would be that the equity arrangements carry significant upside opportunity, and that it is reasonable for the employer to protect itself so that its liability on termination of employment (absent discrimination) is limited to the negotiated contractual terms only. The s.205A ERA conditions are all capable of being satisfied in this scenario. The trickiest condition is the requirement for the individual to provide no consideration other than the written employee shareholder agreement itself. Managers are normally required to pay for the shares they acquire, so that they have a stake in the success of the investment. Paying unrestricted market value for the shares also avoids an income tax charge arising on acquisition of the shares. It should be possible to structure the equity arrangements so that the statutory conditions are met, while also requiring the relevant manager to make a real investment in the business and minimising adverse income tax consequences. The employee would be awarded £2,000 of free shares to qualify for employee shareholder status (care will need to be taken to ensure the share valuation meets the £2,000 threshold). However, once the manager has become an employee shareholder, s.205A ERA does not then prevent them from paying to acquire further shares. This payment would not constitute consideration for becoming an employee shareholder but would form part of the PE investor’s overall management incentivisation arrangements. By paying for the additional shares, the manager also avoids an upfront income tax charge. Is this only limited to private equity investments? In principle, no. Any company that makes equity available to its senior employees could try to structure their arrangements in a way that complies with the employee shareholder status regime (for example, in a listed company by awarding restricted shares of the requisite value). Does this work only for employees at the point they are being hired? Not necessarily. In principle, even existing employees can enter into an employee shareholder status agreement. It is however less obvious that companies will want to ask their current employees to give up unfair dismissal rights (or, equally importantly, that they would agree to do so).
KEY:
ERA
Employment Rights Act 1996
PE
Private equity
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Platform: balancing legal risk and reputational survival in senior misconduct cases – a PR perspective ANTONY DUNKELS, Cairnstone
When a serious allegation is made against a senior figure, the hardest decisions can be reputational as much as legal. How should businesses balance the competing pressures and why does the independence of any investigation matter so much?
Serious workplace conduct allegations against senior individuals can be ruinous to a business – not solely as a result of the conduct itself and its legal consequences, but also from the reputational impact of the decisions the business makes once it becomes aware of the issue. Bad decisions play out in the media or sever the vital trust between a workforce and its leadership. No amount of savvy PR will save bad decision-making. When companies consider how best to respond to a conduct issue, they should put reputational considerations at the heart of their decision-making, even if this sometimes means choosing a sub-optimal legal strategy, or shouldering additional legal risk, because the reputational consequences may be more severe. Four points at which the legal and the reputational considerations may differ Identifying where the balance lies on these questions, and others, is central to managing the issue well, and deserves careful consideration by the board from the outset. Whether to comment publicly The careful lawyer’s instinct may well be silence, reinforced by the obligation to protect the privacy of everyone involved, including the accused. However, if the wider workforce hears nothing, they may draw their own conclusions. Rumours spread, which can be highly disruptive, and staff may begin to speak directly to journalists. The trouble is that a statement that would reassure employees is often the very statement a lawyer wants to avoid. The business must weigh the safe legal position against the cost of looking, to everyone watching, as though it has something to hide, or is not managing the issue properly. What to do with the individual accused of misconduct during an investigation Moving a senior individual aside early, by suspension or a temporary step back, signals that the business takes the matter seriously and reassures employees; allowing them to remain in place can be disruptive, even alarming. But suspension carries its own risks. It can be read as prejudgement, it may strain the individual’s contract and it creates a potential grievance. Where the balance lies will depend on the facts, the allegations, the culture of the business, and the actual or perceived risk to the complainant and other employees. The ‘quiet’ settlement Nothing is cleaner, in narrow legal terms, than a resolved claim: liability capped, the matter closed, confidentiality secured. However, it is also a decision that can detonate later, perhaps years later, with serious reputational damage. For example, if the individual is accused of wrongdoing again and earlier complaints are flushed out, they will be perceived as having been ‘covered up’. This is quite apart from the constraints applying to confidentiality provisions and the potential regulatory aspects, particularly in light of the Financial Conduct Authority’s new non-financial misconduct rules. A perfectly legitimate payment made to a complainant on exit carries the appearance, when it surfaces, of ‘they knew, and they paid to keep it quiet’.
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Platform: balancing legal risk and reputational survival in senior misconduct cases – a PR perspective ‘the businesses that come through situations with their reputations intact are the ones that made hard decisions early, accepted the legal risk that came with them and ensured that the process behind those decisions could withstand scrutiny’
Consideration of dismissal The familiar pattern, at one large institution after another, even where the reputational cost of keeping an individual accused of misconduct in post is mounting, is to wait; for the investigation, for certainty, for the moment the decision feels safe. By then, the reputational damage may well largely have been done, and a removal can look forced by media scrutiny rather than being chosen. Even though difficult, there can be circumstances where on balance it is better for the business to take a decision up front to dismiss and accept the attendant legal risk. That does not mean dismissing without grounds. It means recognising that the misconduct itself may be unprovable on the timescale that matters, while other lawful grounds, a genuine and irretrievable breakdown in trust and confidence chief among them, may be available and sufficient. A claim, and even a settlement, is a containable cost. A leader the business has visibly failed to remove may not be. Independent, and seen to be independent Investigations serve a dual purpose – to get as close as possible to the truth and to demonstrate internally and to the outside world that the business is taking the matter seriously and will act on the facts. One reason the independence of an investigation carries such weight in demonstrating that the business is taking the matter seriously is that it is the one part of an investigation outsiders can assess without knowing any of the facts. Employees, the media, clients and customers cannot tell whether the findings of an investigation are justified whereas they can see whether those handling the investigation were independent. The conclusions of investigations lacking independence, however sound, can be discounted before they are even read. Sometimes, lack of independence may itself become a story that touches not only the business, but also the personnel running the investigation whose independence is in question. The choice of investigator is therefore itself a reputational decision, made before a single fact has been found. Two familiar options can be problematic. The first is to hand the matter to the internal HR team. The difficulty is structural rather than a reflection on the people involved: HR reports, ultimately, to the leadership team that may come under scrutiny in relation to the issues under investigation. The second is to instruct the company’s usual law firm. Those lawyers may have a close relationship with the person under investigation or have handled earlier related allegations that are again under scrutiny. The firm may say it is best placed to investigate precisely because it knows the business so well. But however rigorous its work, and even if the firm’s investigations team is separate from the team that leads the client relationship or conducts most of the clients work, it can carry the appearance of an adviser with a stake in the outcome, and appearance is everything. To the outside world, the firm’s proximity can read as a lack of independence. A compromised investigation also has a peculiar reputational toxicity, because it fuses the original misconduct with a second wrong: actual or perceived institutional bad faith. Whether or not justified, the story stops being ‘this happened inside their organisation’ and becomes one of cover up – ‘they knew, they investigated, and they made sure the answer came out the way they wanted’ – whether aired in the press, an employment tribunal claim, social media commentary or otherwise. The default, then, should be genuine external appointment: independent investigators instructed by, and reporting to, a committee of the board rather than management, with anyone touched by the allegations excluded from the process. Conclusion The decisions a company makes in response to workplace conduct allegations, including who it appoints to investigate, reflect a business-critical discipline: treating reputation as a primary consideration rather than something handed to the communications team once the lawyers have finished. These decisions determine whether a company succeeds or fails in managing the issue. None of this means ignoring the legal advice. It means refusing to mistake it for the absolute answer. The businesses that come through these situations with their reputations intact are the ones that made hard decisions early, accepted the legal risk that came with them and ensured that the process behind those decisions could withstand the scrutiny it was always going to attract.
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guidelines The purpose of these guidelines is to minimise the need to edit submissions to conform to the ELA Briefing style. As the guidelines may be updated from time to time, it is important that contributors follow the latest version, available from the editor or on the ELA website. It is a condition of publication that ELA Briefing has First British Publication Rights. Do not submit articles printed elsewhere (in identical or similar form) or being considered for publication elsewhere. Authors may provide a link to their article as it appears in ELA Briefing (not the complete issue of ELA Briefing) on their firm/company website, provided they clearly acknowledge that the article was first published in ELA Briefing (© Employment Lawyers Association). Please ensure that any contributions will not expose ELA or IDS to civil or criminal proceedings. SUBMISSION: articles should be emailed as a Microsoft® Word attachment to ELABriefingEditor@elaweb.org.uk by the copy deadline (details on the website or from the editor) in order to be considered for that month’s issue. Articles may be held over to a subsequent month if there are space constraints.
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• do not use stops for abbreviations such as etc, ie, eg • use acronyms where they exist, but with initial capital only: Acas, Ofcom, Nato, Defra
WORD COUNT: all articles must be either 550, 1,100, 1,700 or 2,300 words (reflecting page lengths).
TITLES: should be no more than 50 characters, followed by the author’s name and firm/chambers. The topic should be clear from the title.
(CBI, ECJ, EAT, MoJ, BIS, ELA)
• if no standard abbreviation exists, first use its full name, then a short form
• only define short forms (in brackets without quote marks) if not doing so would be confusing
• refer to all legislation and cases (italicised) using an abbreviated form taken from the key
• sections of legislation should appear as follows: s.94 ERA (ERA s.94 at the start of a sentence), ss.94-95 ERA CAPITALS: use initial capitals for languages, personal titles, names of places, institutions (such as the current Government) and publications, statutory provisions (other than section and paragraph), months and public holidays. Use lower case for job titles (such as director, editor) and legal descriptors such as claimant, defendant, judge, counsel, court, tribunal, etc.
DATES: display in the following format: 24 July 2012.
ITALICS: italicise case names and names of publications. INTRODUCTION: begin with a ‘standfirst’ paragraph of 30-40 words, which should introduce the subject covered in the article.
EXTRACTS: suggest a phrase or short sentence for each page, to be extracted as quotes.
QUOTES: use single quote marks where quoting from judgments or legislation (except for quotes within quotes). Do not italicise. Include paragraph and page references in brackets after the quote mark (para 12, p.12).
diary
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1 October
Performing Under Pressure (just like an F1 pit crew)
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6 October
Conditional job offers: Condition precedent or condition subsequent?
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7 October
Difficult Conversations: Both sides of the desk
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8 October
Employment in Education
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Moral Injury: Recognising and managing the risks for ourselves and others
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14 October
An Employer’s Guide: Obligations for listed companies
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4 November
Work in Flux: navigating the future of work
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5 November
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1 October
Lincoln
Employment Law in the High Court: Navigating the interplay with the employment tribunal
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1 October
Leeds
St Albans Coffee Morning
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6 October
St Albans
Ipswich Coffee Morning
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7 October
Ipswich
Breathe Better, Perform Better
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13 October
London
Speed Mentoring
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21 October
London
Introduction to Employment Law
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9/10 November
Birmingham
Litigating State Immunity in the Employment Tribunal
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23 November
London
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