Irwin Mitchell - Focus on Employment

Focus A magazine from

Edition 10 - Autumn 2016

on Employment

Protected Conversations Avoid common mistakes How Do You Calculate Holiday Pay? Putting recent decisions in context Fair Exchange is No Robbery The future of salary sacrifice

Contents 4 Legislation tracker 6 News in Brief 8 Protected Conversations

16 How Do You Calculate Holiday Pay? 20 Fair Exchange is No Robbery 22 Case Law Update

LEGISLATION TRACKER:

Autumn 2016 12 July onwards

Changes to immigration controls

The Immigration Act 2016 extends the criminal offence of employing an illegal migrant to employers with “reasonable cause to believe” that the person is an illegal worker and will introduce a new offence of illegal working.

Other provisions, not yet taking effect, include a requirement for workers engaged in the public sector with public-facing roles to be able to speak fluent English or Welsh.

The Secretary of State will also be able to introduce an immigration skills charge on employers who sponsor skilled workers from outside the European Economic Area (EEA).

1 October

Increases to National Minimum Wage rates

Workers aged 21 to 24 - £6.95 Workers aged 18 to 20 - £5.55 Workers over compulsory school age under 18 - £4.30 Apprenticeship rate - £3.40 The National Living Wage for workers aged 25 and over will remain at £7.20

Delayed expected April 2017

Gender Pay Reporting

Section 78 of the Equality Act 2010 enables the Government to make regulations requiring employers with over 250 employees to publish information about their gender pay gap. Draft regulations have been published.

Pay will include basic pay, paid leave, sick pay, area allowances, shift premium and bonuses. It will not include overtime, redundancy payments, salary sacrifice schemes or benefits in kind.

The first period for assessment is expected to be 30 April 2017 but employers will have until 29 April 2018 to publish their report.

4 Focus on Employment

Edition 10 - Autumn 2016

Date TBC

Repayment of public sector exit payments

Public sector exit payments include those paid for loss of employment, such as enhanced redundancy payments, discretionary payments to buy out actuarial reductions to pensions and severance payments. It does not apply to payments in lieu of notice, contractual bonus payments or those made in connection with incapacity, or payments awarded to the individual by a court or tribunal.

Qualifying individuals are those who earned £80,000 or more within 12 months of receiving their exit payment.

Repayment will be tapered, so for example, an employee returning within two months of receiving an exit payment will repay more than an employee returning nine months after receiving the payment.

Date TBC

Exit payments and apprenticeships

The Enterprise Act 2016 will introduce: • A £95,000 cap on exit payments made to public sector workers to end sixfigure payoffs • Regulations to restrict the use of the word “apprenticeship” to Governmentaccredited schemes and to increase the number of public sector apprenticeships offered.

Date TBC

Trade unions

Proposed changes to balloting rules for industrial action (including enhanced rules for “essential public services” (not yet defined)), removing the prohibition on using agency staff to cover striking employees, measures on picketing, facility time, political donations and additional powers for the Certification Officer.

Date TBC

Tax treatment of termination payments

Proposals include treating all payments in lieu of notice as taxable. The Government’s response to the recent consultation is expected later this year.

Date TBC

Company directors

All company directors should be natural persons (not corporate entities). There will be a 12 month grace period after which corporate directors will cease to be directors by operation of law.

Follow us on Twitter @irwinmitchell

5

Government looking at ways to curb nonEU immigration

Article 50 predicted to be triggered by March 2017 The Government recently announced that it still intends to keep to its original timetable and issue Article 50 no later than March 2017, despite the ruling of the High Court which said that the it must seek parliamentary approval first. The Supreme Court will hear the Government’s appeal on 5 December and we expect that its judgment will be made available before Christmas.

The Government has said that it intends to reduce net migration to ‘sustainable’ levels and introduce tougher entry requirements for nonEU citizens. Currently, employers wishing to recruit from outside the EU have to satisfy the ‘resident labour market test’ introduced under its points based system. It says that this has become a ‘box ticking exercise’ that allows UK businesses to discriminate against UK workers.

It proposes to tighten up the resident labour market test to “ensure that people coming here are filling gaps in the labour market, not taking jobs British people could do.” A consultation will be announced soon.

N EW S

I

New consultation on gender pay gap for public sector workers

Judicial assessments of tribunal cases

Public sector workers are excluded from the draft Regulations (expected to come into force later this year) which will require organisations engaging 250 or more to publish details of their gender pay gap. The Government announced last year that it would be bringing in similar reporting requirements for all large employers in the public sector and has published a consultation.

The tribunal has issued a new protocol for judicial assessments. Judicial assessment is an informal assessment by a judge, involving a litigant in person, in which the judge gives a preliminary assessment of the case with a view to encouraging settlement between the parties.

It will only take place if both parties agree, and after the formalities of the case management hearing have taken place.

The Government has said that it will align the publication dates for both public and private sector, which means that the first data capture will take place in April 2017.

Judicial assessment is done without the judge evaluating the evidence but can be extremely useful means of encouraging settlement at an early stage by identifying what the case is really about, what is at stake, and clarifying and narrowing the issues in contention.

6 Focus on Employment

Edition 10 - Autumn 2016

Employers will not have to publish details of non UK staff they employ The Government recently announced that it is considering making UK businesses publish the number of international staff they employ.

Following widespread opposition by business leaders, the Government has confirmed that it will not go ahead with this.

However, it does intend to launch a consultation (not yet announced) on steps the Government wishes to take to curb foreign workers and students.

N

MP’s investigate high heels and workplace dress codes The House of Commons Petitions Committee has launched an enquiry into high heels and workplace dress codes after an e-petition was signed by nearly 150,000 people calling for a ban on employers being able to force women to wear high heels to work. In addition, the Women and Equalities Commission is hearing oral evidence from women on this issue and may make recommendations to Parliament in due course.

BR I E F

Inquiry on Corporate Governance The Business, Innovation and Skills (BIS) Committee has launched an inquiry on corporate governance which will consider executive pay, directors duties and the composition of boardrooms, including worker representation and gender balance. The results are expected to be published in the new year.

Government review on “gig” economy The Government has appointed an advisor to conduct a wide-ranging review to ensure that employment laws and protections are keeping pace with changes in the labour market and the economy. It will look at the extent to which the growth in “non-standard” forms of employment has undermined key employment rights and whether the current definitions of employment status need to be “updated” to reflect new forms of working.

This suggests that the Government might be considering granting employment rights to workers in the “gig” economy such as couriers.

Follow us on Twitter @irwinmitchell

7

Protected Conversations For the last three years employers have been able to have conversations about exiting staff from their organisation on agreed terms without those discussions being used against them in ordinary unfair dismissal claims in the event that no agreement is reached.

The protection offered to employers is limited. It only applies to claims for unfair dismissal and even then does not apply if there has been any ‘improper behaviour’ or the claim is one of automatic unfair dismissal.

If an employee, as is often the case, brings another claim (e.g for discrimination, holiday pay, notice pay) as well as an unfair dismissal claim, they can refer to the protected conversation in the other claim.

The difficulties arise where the parties cannot reach agreement and the employer has to manage the problem that prompted the protected conversation in the first place. Employees are often keen to allege that any formal

8 Focus on Employment

Edition 10 - Autumn 2016

action taken against them following an unsuccessful protected conversation has been pre-judged and, in the context of their dismissal, demonstrates that their employer acted unfairly.

We have seen many claim forms, known as ET1’s, that contain references both to the fact that a protected conversation has taken place and details of that conversation. As the employee chooses what to put in the claim form, an employer can’t prevent them from referring to the conversation.

In these circumstances employers understandably, are often keen to put their side of the story across and include reference to the protected discussions in their defence. This is not least because, in the absence of other “open” or “on the record” communications with the employee, the protected conversation can explain gaps in the process which, might otherwise be used to demonstrate delay and lead to a finding of procedural unfairness.

Follow us on Twitter @irwinmitchell

9

A recent case provides some salutary advice.

Fairhorn Farrell Timms v Bailey, EAT In Fairhorn Farrell Timms v Bailey, EAT, an employee who had been working part time for a number of years was told she had to increase her hours. She didn’t want to work full time and she initiated a protected conversation, clearly in the hope that she would receive financial compensation in exchange for quietly leaving her job.

Unfortunately, the parties were not able to reach agreement and their relationship deteriorated. A number of letters and emails were sent which contained lengthy expositions of their respective views on their relationship, with little reference to any negotiations. Ms Fairhorn raised a grievance that referred to the protected conversations and after this was rejected, she resigned and claimed constructive unfair dismissal and sex discrimination. Her ET1 also referred to the protected conversations, and in response, her employer also referred to those conversations and to written correspondence about them.

The Tribunal was asked to decide whether the parties could rely on their protected conversations and in particular if: 1 the protection covered both the content of the discussions and also the fact that discussions had taken place 2 the existence of another claim (in this case discrimination) rendered the material admissible for an unfair dismissal claim 3 the parties can agree to waive the protection and put evidence of the protected conversations before the Tribunal.

Decision The Tribunal found that references to the fact that a protected conversation had taken place were admissible but not the discussions themselves. That finding was reversed by the Employment Appeal Tribunal, which provided the following extremely useful guidance.

1

2

3

4

5

Protected conversations can only be used to agree terms in claims that might otherwise become unfair dismissal claims (but not automatically unfair dismissals). This means that protected conversations can be used to initiate termination discussions about any of the potentially five grounds of dismissal, including SOSR and redundancy. They are not limited to misconduct or performance dismissals.

If another claim is also brought that is not protected, the material does not become admissible for both claims. The protected conversation cannot have any bearing on the unfair dismissal claim.

The without prejudice nature of a protected conversation refers to both the content of those conversations and the fact that they have taken place at all – so the employee can’t refer at all to the protected conversation.

More significantly, the protected nature of the conversations is not limited to discussions between the employee and employer but also applies to discussions by people within the employer’s organisation. This means that discussion between managers and HR will also be protected; they do not have to be directly involved in speaking to the employee.

Parties cannot agree to disclose the protected nature of these conversations. So any reference to protected conversations in the ET1, the ET3 or other documents must be removed or blanked out and documents relating to the protected conversation must be excluded from the tribunal bundle.

10 Focus on Employment

Edition 10 - Autumn 2016

Lessons for employers This is the first time the EAT has considered the new rules on protected conversations and the guidance offered has clarified a number of issues and provided a useful framework for employers.

What will you do if you cannot agree terms?

It is important that you think about how you are going to manage the relationship going forward if you cannot agree terms with your employee. Do not assume that the employee will accept the offer. This is particularly important if you are having protected conversations with a number of employees (perhaps in relation to a redundancy exercise) and most of the employees have accepted the offer and entered into settlement agreements. It can be tempting to get on with the process and ask all staff to remain at home. If you do this, however, you will need to provide an explanation for your actions in the event that no agreement is reached. So, for example, if you want someone to remain at home whilst you are having the protected conversation, ensure that you have an “on the record” document setting out why the employee isn’t required to come in to work. A simple email exchange should be enough – for example setting out that you have agreed that they will take a period of paid leave.

Make sure that you do not take any steps whilst discussions are on going which might compromise your position later on You should not act in any way that suggests that the employee has already been dismissed, for example, by asking them to return all company property. Make sure that you have in place a paper trail that will enable the employee to return to work if the negotiations aren’t successful, and that explain the employee’s absence. In short – don’t burn any bridges until you’ve got the signature on the settlement agreement!

Do not pressurise the employee to accept the offer Once a decision has been made to try and exit the employee, most organisations will want to move quickly. It is important however not to threaten or pressurise the employee into accepting the offer as this may amount to ‘improper behaviour’. If improper behaviour is established the protected nature of the conversations falls away and the tribunal can take the entire conversation into consideration.

ACAS has published a Code of Practice on Settlement agreements, which contains guidance on how to carry out a protected conversation. It recommends giving employees at least ten days to consider a settlement agreement offered during a protected conversation.

As well as giving the employee time to consider their position, be careful about the language you use and the impression it gives. In the case referred to above, the employee alleged that correspondence sent to her by her employer contained unsubstantiated threats and ultimatums. She said that this amounted to threatening and bullying behaviour. That issue has been sent back to the Tribunal for it to consider, as no findings of fact had been made on the question, but the EAT suggested that improper behaviour could be a wide concept and could include this type of behaviour.

It is also worth remembering that the protected status of the conversation and accompanying correspondence will only apply to conversations that are made in an attempt to reach a settlement. The Tribunal might look at other material.

The EAT suggested that ‘extraneous material’, such as lengthy expositions of the parties’ respective views on their relationship, with little reference to any negotiations, could be excluded from the protection.

On the following pages, our checklist will help you avoid common mistakes.

Follow us on Twitter @irwinmitchell

11

12 Focus on Employment

Edition 10 - Autumn 2016

CHECKLIST:

Are you using protected discussions to exit staff?

Use this checklist to make sure you get it right This checklist will help you to decide if a settlement or protected conversation discussion is the right way to deal with the problem and how to minimise risk if you do so.

Decide who, within your organisation, can initiate a settlement discussion and whether they need to consult with HR before doing so. Ideally this should be limited to senior managers/HR.

Make sure that authorised individuals are properly trained and understand how to ‘safely’ have a settlement discussion.

It may be helpful to have a policy setting out the circumstances in which it is never appropriate to have a ‘settlement discussion’. Remember that settlement discussions are not protected if the employee has raised issues about discrimination, harassment or victimisation or where they could bring a claim for automatically unfair dismissal (because they have asserted a statutory right, ‘blown the whistle’ etc.), or believes that the business has breached the terms of their contract of employment.

Decide whether a settlement discussion is the best way to deal with the situation.

Consider the implications for the employment relationship if an agreement cannot be reached. What message are you sending out? Will this have other implications for the remaining staff?

Obtain all relevant information about the employee.

What are the background issues? Are you confident that there is no unlawful discrimination, victimisation or other issue that will mean that the discussion cannot be protected?

Is there a risk that the employee will accuse the business of discrimination if you attempt to use a settlement

discussion to get rid of them – “you’re only dealing with me in this way because I am black/gay/disabled/old” etc.?

Has the employee been disciplined for similar conduct? How long ago?

Have you already started an informal or formal performance procedure? Why do you think it is not working?

Follow us on Twitter @irwinmitchell

13

CHECKLIST:

Avoid, if possible, having a settlement conversation “out of the blue”. There must be a clear basis for making the approach.

If the employee has no hint that his behaviour or conduct is unacceptable, they are likely to be defensive and you are unlikely to achieve an agreed settlement. Consider in appropriate cases introducing the idea of a protected conversation gently, by asking the employee if they would be willing to have one.

Ask the employee to attend a meeting to discuss their behaviour or performance on a mutually convenient date.

Don’t ambush the employee. Give them advance warning of the meeting and explain that it is voluntary and will be a settlement discussion. Briefly explain what this means i.e. that the discussion will be ‘without prejudice’ or ‘off the record’ and will be inadmissible in legal proceedings. Explain that you hope that this will enable you and the employee to have a frank discussion about the issue/s. It is helpful (but not essential at this stage) to put this in writing.

Decide whether you will allow the employee to be accompanied at the meeting.

Note – ACAS recommend that employers should allow employees to be accompanied at a protected conversation meeting by a trade union representative or a work colleague, but you are not obliged to do so.

Prepare carefully for the meeting.

Have a note taker present to make a record of the conversation.

At the start remind the employee of the purpose of the meeting and that any discussions will be inadmissible in legal proceedings (which you hope will not be necessary in any event)!

Explain to the employee that they must keep the discussion confidential.

Be careful about the language you use and the impression it may give to the employee.

Do not:

• Threaten the employee “take the offer or else you will be sacked” or

• Give the employee the impression that a decision has already been made about their future

employment. For example, you could say “We have concerns about your performance which we will be

looking to address through the performance management process. We recognise however that

performance management can be a difficult and stressful process for employees, so would like to talk

about an alternative option”.

• Appear aggressive, impatient or condescending “I’ve only got 10 minutes to discuss this with you” etc.

(you may need to hold more than one meeting before you reach an agreement or decide that you are

not able to do so).

• Tell the employee that they have to make up their mind quickly, or the offer will be withdrawn

(employees should be given no less than 10 calendar days to consider a written offer).

• Put the employee on “gardening leave” to consider the offer.

Remember: if you pressurise the employee, the conversation will lose its protected status and can be referred to in

any subsequent proceedings the employee may bring against you.

14 Focus on Employment

Edition 10 - Autumn 2016

Negotiate sensibly

Decide in advance what financial offer should be made and the maximum that you are prepared to pay.

Factors to consider:

• Length of service (remember all new employees need two years’ service to bring a claim of ordinary

unfair dismissal). If your employee cannot bring a claim for unfair dismissal you may be able to short-cut

the “normal” process anyway without needing to have a protected conversation.

• How long will it take before you will be in a position to fairly dismiss the employee or resolve the problem?

• Notice and any other contractual entitlements, including any untaken annual leave.

• Previous settlement figures.

• How long it might take the employee to find another job.

• The possible liabilities and costs involved in dealing with any potential tribunal or court claim if the issue

is not settled.

Will you provide a reference? What will it say? (Remember that any reference that you write must be true, accurate and fair).

Prepare a settlement agreement or letter in advance, which you can give to the employee if the meeting progresses well (the employee must be given at least 10 days to consider the agreement and time will only start to run from the date the employee is given the settlement agreement).

Listen to what the employee has to say and be prepared to negotiate with them or their representative within the reasonable limits you have set.

Comply with the ACAS Code of Practice on settlement agreements

Put the offer in writing (by way of a settlement agreement).

Allow the employee at least 10 days to consider it (unless the employee agrees to a shorter period but do not pressurise them to do so).

Allow the employee to take independent legal advice (and be prepared to pay a reasonable sum for this if agreement can be reached).

Remember: if agreement cannot be reached, you will need to continue or start your internal processes to deal with the issue. The employee may well refer to the settlement discussion during other internal processes such as disciplinary or grievance proceedings. If this happens, you will need to remind the employee that the discussion is inadmissible and that you will remove any reference to it from any written documentation.

Follow us on Twitter @irwinmitchell

15

How do you calculate holiday pay?

The recent Court of Appeal’s decision in Lock v British Gas has created renewed interest in the vexed question of how much you have to pay your staff when they take a holiday.

We set out the basic principles and offer advice on how to tackle this issue and minimise cost and risk to your business.

1 Holiday pay should reflect a worker’s normal pay European case law has made it clear that workers’ should not be discouraged from taking leave and that their holiday pay should generally correspond to what they would have received had they been at work.

The Working Time Regulations (WTR’s) require that certain types of worker are entitled to be paid ‘normal remuneration’ (rather than simply basic pay) when they take a holiday. These include workers who do not have normal working hours, or are piece workers. Their holiday is calculated by reference to all of their taxable earnings over the previous 12 weeks and this will include any overtime worked or commission received.

However, the WTR’s specify that workers with normal working hours (such as the traditional 9-5) whose pay does not vary with the amount of work done or those whose working hours include shift patterns and whose pay does vary, are only entitled to be paid by reference to their basic pay when they take a holiday. Non-guaranteed overtime, commission payments and allowances that do not relate to their normal working hours are not included.

This anomaly has been challenged in a number of cases and we now have a very clear idea of how much these types of workers are entitled to receive by way of paid holiday.

16 Focus on Employment

Edition 10 - Autumn 2016

2 All regularly worked overtime should be included The EAT has determined that non-guaranteed overtime (which the worker is contractually obliged to accept if offered) must be included if it is regularly worked.

There are no binding decisions about purely voluntary overtime, but evidence from recent Tribunal decisions suggests that the courts are moving away from the “label” attached to the type of overtime worked. If overtime (of whatever nature) has become part of a worker’s normal pay, it is likely to have to be included in their holiday pay.

There is no guidance about what sort of working pattern is regular enough to be included, but Tribunals have held that overtime worked “week in week out” (Hertel and Bear Scotland) and “every Saturday” (Brettle and others v Dudley Metropolitan Borough Council) should be included.

What is less clear, is whether workers who work overtime at regular times of the year (such as over the Christmas period) will also be able to include this in their holiday pay calculations and we expect further challenges on different working arrangements. Purely ad-hoc overtime does not have to be included.

3 Commission Workers are entitled to have ‘results based commission’ included in their holiday pay, probably calculated by averaging their pay over a 12 week period and should not be otherwise be financially disadvantaged when they take a holiday.

Not all workers earning commission will be entitled to have these payments included. So far, we only have a binding decision on a commission scheme that was purely assessed by reference to the worker’s own efforts and made up approximately 60% of his salary (Lock v British Gas).

Workers must be able to demonstrate that they have suffered a loss by taking a holiday. This will be much more difficult to prove where commission (or even bonuses) are paid less regularly, involve discretionary elements or are not based solely on the worker’s own contribution.

5 Overtime, commission and allowances only have to be included in 20 days paid holiday Businesses can lawfully distinguish between holiday payments made for the first 20 days taken each year, from all other statutory and contractual holiday (“Directive leave”). A worker’s holiday pay should include all overtime, commission and allowances for the first 20 days, but after that businesses can reduce this to basic pay.

6 Impact of Brexit The UK will continue to be bound by EU laws until another agreement is reached or we unilaterally withdraw from the EU (which cannot be earlier than two years from the date the exit notice is served). This means that the laws and judicial interpretation of those laws about working time and holidays will continue to apply to businesses.

We expect to see workers seek to widen the scope and argue that other types of commission schemes or bonuses should also be included.

However, the Government has recently announced that it intends to end the jurisdiction of the ECJ in the UK and, next year, will introduce the “Great Repeal Bill”. This will end the authority of EU law by converting all of its provisions into UK law on the day we exit.

4 Allowances Allowances should be included in holiday pay to the extent that they are linked to a worker’s productivity or work. Travel or subsistence expenses do not have to be included (Hertel and Bear Scotland) but out of hours standby payments and call out allowances that are regularly paid should be included. In Brettle payments had been made one week in every four or five and were included.

This will not mean that all of our employment laws fall away, but the intention of the legislation appears to be that ECJ interpretations (based on Directives) will no longer bind our UK courts and tribunals. That is likely to have a profound effect on holiday pay cases and businesses that have not already changed their holiday pay policies may, in the future, be able to avoid doing so and instead rely on the strict wording of the WTR’s.

As a rule of thumb, taxable allowances that can be distinguished from payments that purely reimburse expenses should be included in the calculation.

Follow us on Twitter @irwinmitchell

17

What should employers do now?

Employers have a number of options available to them.

Review the contracts of those staff actually undertaking overtime and examine whether any patterns of overtime emerge. Non-guaranteed overtime that is regularly worked should be included in holiday pay (but can be limited to the 20 days required under the Directive). Consider making financial provision for any claims that result.

Decide whether to limit pay in respect of the Directive leave. If this option is taken, businesses must ensure that their payroll systems have the ability to adjust holiday pay in each holiday year to differentiate between Directive and additional leave.

Decide on an approach to voluntary overtime and refuse to pay intermittently worked overtime until such times as the law requires you to include it.

Set up a ‘task force’ within the business to deal with any queries about holiday pay and make sure that line managers know to refer complaints or grievances about holiday pay to it.

The publicity generated around the overtime cases is likely to encourage many workers to examine their payslips and begin to think about whether they have been ‘underpaid’. A number of unions have already publically declared that they are using the decisions to encourage membership and a clear strategy needs to be considered as to how to deal with any underpaid employees or bodies representing these individuals.

Review their workforce’s terms and conditions of employment.

Contracts and policies could be re worded to make it clear that Directive holiday will be taken before any additional or contractual holiday.

Businesses that have seasonable fluctuations in their non guaranteed overtime arrangements could consider: 1

Specifying when workers can take holiday and, for example, providing a moratorium on holiday being taken within three months of a busy period. Although employers do have the right to decline holiday requests under the WTR’s, if staff were required to take all of their Directive holiday at a particular time of the year, they may seek to argue that this disadvantages them in some way (for example, it prevents them from taking time off when their children \ are on school holidays), or affects their health and is therefore contrary to their Directive rights.

2 Setting a more appropriate reference period to calculate holiday pay, such as twelve months.

3

Re-structuring the workforce so that the business is not as reliant on overtime. Businesses would need to ensure that they comply with relevant legislation around the need to collectively consult before making any changes.

18 Focus on Employment

Edition 10 - Autumn 2016

Our experience

We have been closely in in a number of holiday pa and have experienced law help you to minimise the of these decisions on your and advise on a strateg dealing with your work and / or the unions

nvolved ay claims wyers to e impact r business gy for kforce s.

Follow us on Twitter @irwinmitchell

19

Fair exchange – the future of Over the last few years, salary sacrifice schemes have surged in popularity. More and more employees are willingly accepting a reduction in their salaries in exchange for non-cash benefits such as pensions contributions, private healthcare, cars, gym membership or mobile phone contracts.

These salary sacrifice arrangements, although popular with employers and employees, have become unpopular with the treasury and caused them to propose changes to tax law to change the way in which tax is paid on benefits under salary sacrifice schemes.

The root of the treasury’s discontent lies in the tax advantages that salary sacrifice schemes attract. For example, if an employee earns £20,000 per year and agrees to reduce their salary by £1,000 per year so that they can buy a company car, they are currently only liable to pay income tax on £19,000.

Likewise, their employer only has to pay National Insurance contributions on £19,000. HMRC are therefore missing out on income tax and National Insurance on that additional £1,000.

20 Focus on Employment

Edition 10 - Autumn 2016

The treasury also argues that these schemes are inherently unfair. An employee cannot make a salary sacrifice if this would result in their salary falling below the National Minimum Wage or National Living Wage. For this reason, as a general rule, it is the higher earners in society that are able to benefit from salary sacrifice tax advantages, while the lower earners have to pay all the tax that they are liable for.

In an attempt to level the playing field between earners of all levels and ensure that HMRC are not being short-changed, the government has proposed to change the tax legislation for salary sacrifice schemes. Under the new regime, employers and employees will have to pay National Insurance and income tax respectively on salary sacrifice benefits. Tax will be charged on the higher of the actual amount of salary sacrificed and the cash equivalent as set out in statute (if any).

Using the example above, this will mean that even though the company car only cost the employee £1,000, if there is a statute that states the cash equivalent value for a company car is £2,000, tax must be paid on the higher value of £2,000.

e is no robbery salary sacrifice However, it is not all doom and gloom for all salary sacrifice schemes. The government has decided not to change the taxation, at least for the time being, of salary sacrifice schemes that are in the public interest. These are: (a) Employer pension contributions (b) Employer-provided pension advice based on the

recommendations of the Financial Advice Market Review (FAMR) (c) Employer-supported childcare and provision of workplace nurseries (d) Cycles and cyclist’s safety equipment which meet the

statutory conditions (e) Health related benefits such as cycle to work schemes; (f) Health screenings (g) Benefits for which there is likely to be difficulty in ascribing

a value to each individual employee, for example,

workplace gyms (h) Salary sacrifices for intangible benefits such as extra

annual leave or flexible working hours

(i) Payroll Giving where employees are able to donate a

certain amount of their salary to charity before income tax

is deducted.

New legislation is intended to apply from 6 April 2017. This should give employers and employees enough time to decide whether their salary sacrifice schemes need changing and a few more months to enjoy the existing tax advantages while they can!

As salary sacrifice schemes form part of an employee’s contract of employment, we can advise employers on how the legal steps that need to be gone through to change existing arrangements.

Follow us on Twitter @irwinmitchell

21

CASE LAW UPDATE 22 Focus on Employment

Edition 10 - Autumn 2016

Libel: Can an employer disclose details of a former employee’s gross misconduct and alleged criminal conduct?

Yes, but only if the information is substantially true according to the High Court in Theedom v Nourish Training Ltd (t/a CSP Recruitment) and anor.

Facts Mr Theedom was employed as a recruiter. He was accused of leaking confidential information to his partner (who worked for a rival company) and was dismissed for gross misconduct. Afterwards, his employer sent an email to 124 people who worked for actual or potential customers. The subject line was “dismissed for gross misconduct” and Mr Theedom was named in the email and his employers gave the impression that his breaches of confidentiality were so serious, they amounted to criminal conduct.

Mr Theedom launched a defamation claim and argued that the contents of the emails were libellous.

Decision The first issue to be determined was whether the emails were likely to cause serious harm to Mr Theedom’s reputation.

That test was easily met. Then the court had to examine whether the emails were substantially true. If they were, then Mr Theedom’s claim would fail as truth is an absolute defence to libel.

The court found that he had disclosed client details to a third party and had sent confidential information to his partner. It went on to find that he had been dismissed for gross misconduct and that the employer had been right to do so. The issue of whether Mr Theedom’s conduct amounted to criminal behaviour (which was probably the most damning statement) caused the court some concern because the employer had not considered this at the time of dismissal. The court found that there were reasonable grounds at the time the emails were sent, to suspect that Mr Theedom of criminal offences, as there was evidence that he had dishonestly abused his position to secure gains for another organisation. This was capable of amounting to fraud and it did not matter that Mr Theedom was unlikely to be prosecuted.

Accordingly, his claim against his former employer failed.

Tip The lessons of this case apply equally to written references where former employers have duty not to mislead.

The steps taken by the employer are unusual and perhaps, reflect the highly competitive nature of the recruitment industry.

Clearly it was keen to advise its own clients and contacts that Mr Theedom could not be trusted with their business.

The employer was fortunate that the court found that the employee’s conduct was capable of amounting to a criminal act, otherwise it is likely that his claim would, in part, of succeeded. Businesses should therefore avoid allegations of criminality unless they possess absolute proof.

Follow us on Twitter @irwinmitchell

23

CASE LAW UPDATE

Disability discrimination: Is an employer required to maintain a disabled employee’s salary even when, as a reasonable adjustment, he is doing a different job on a lower pay grade?

It might be a reasonable adjustment (and was) in the case of G4S Cash Solutions v Powell, EAT Facts Mr Powell was employed to maintain ATM machines. As a result of back pain, he became unfit for this work and, to facilitate his return to work, his employer created a new role for him. This involved delivering materials to ATM engineers. His salary was maintained despite the fact that the role was less skilled and would have attracted a lower salary. After 12 months, the employer decided to restructure and decided that Mr Powell’s salary should be reduced by around 10%. He was given the choice of either accepting the reduced pay rate or being dismissed because of his ill health. He refused to accept a pay cut, was dismissed and brought a disability discrimination claim.

Decision Both the Tribunal and EAT held that the employer should have continued to pay Mr Powell at the higher rate of pay as a reasonable adjustment for his disability.

The EAT said that the requirement to make reasonable adjustments envisages an element of cost to the employer. The objective is to keep employees in work, and there was no reason why a package of measures for this purpose, which includes some pay protection, should not be a reasonable adjustment.

It also dismissed the employer’s assertions that paying Mr Powell more than other employees doing a similar role would cause discontent as an “unattractive reason” and one that was unsupported by any evidence.

Tip This case does not say it will always be a reasonable adjustment for employers to continue a higher rate of pay even in circumstances where the disabled employee can no longer undertake their original role and are either working part time or in a different capacity. The EAT stressed this would not be an everyday event and the context in this case involved a very large employer (with large pockets) and an arrangement that had already been in place for a year.

But, this case does demonstrate that enhanced pay may be a reasonable adjustment and should therefore be considered in appropriate circumstances.

Please note that this decision does not apply to sick pay. Previous cases on reasonable adjustments have found that employers are generally not required to continue to pay salary as a reasonable adjustment because adjustments should enable the employee to return to work rather than making them more comfortable when they are sick. This case was not comparable because it was about keeping an employee in work.

24 Focus on Employment

Edition 10 - Autumn 2016

Disability discrimination: Can an employer rely on its lack of knowledge of a condition that was not medically diagnosed until after the employee was dismissed for gross misconduct?

Not on the facts in Watterson v Health and Safety Executive for Northern Ireland, an Employment Tribunal decision. Here the knowledge defence failed because the employer was a large organisation with considerable resources and there was enough information to put it on notice that the employee may have been on the autistic spectrum and, had it done so, it would have made reasonable adjustments to its disciplinary process.

Facts The employee, Mr Watterson, sent a number of long, rambling emails to a female colleague expressing his feelings towards her. She became uncomfortable with this and told him that she just wanted to be friends. He agreed to stop sending her messages, but later sent a text to her mobile phone and she complained that she was being harassed. Mr Watterson was suspended and told not to contact his colleague. Despite this he sent a Valentine’s card to her. She went to the police and he was subsequently prosecuted for harassment.

The head of HR was concerned about the tone of the emails and referred Mr Watterson to occupational health asking for an assessment of his general fitness and his underlying mental health issues. Mr Watterson went off sick and was never referred for a specialist opinion. He was dismissed for gross misconduct. Eleven months later he was diagnosed as suffering from Asperger’s syndrome which is on the autistic spectrum.

He brought a claim of disability discrimination and argued that his employer failed to make reasonable adjustments for his disability in the disciplinary process.

Decision Mr Watterson claimed that his employers had enough information at the time they dismissed him to be on notice that he may have autism, because his barrister had flagged this as a possibility during the criminal proceedings. The ET agreed and also pointed to the fact that his behaviour (which was considered to be unusual by the head of HR) was sufficient to put the employer on notice that he may have been disabled and they should have done more to establish this before he was dismissed.

The ET found the disability may have influenced the disciplinary hearing. Mr Watterson was put at a substantial disadvantage and he was awarded ÂŁ6,000 injury to feelings.

Tip Although this principle is not new, it illustrates that employers will be expected to take steps to establish whether an individual has a disability where there is enough information to arouse suspicion, even in circumstances where the employee themselves has not had a diagnosis and is otherwise unaware of it. It will not always be easy to make a judgement call on this, particularly in respect of some conditions, such as autism, which encompasses a wide range of behaviours.

Larger employers will generally be expected to do more than smaller employers.

Follow us on Twitter @irwinmitchell

25

CASE LAW UPDATE Discrimination: Are prospective candidates protected from unlawful discrimination, even where they have applied for the job just so they could bring a claim?

No they are not protected, according to the ECJ in Kratzer v Allgemeine Versicherung AG. Facts The business sought applications for graduate trainees with good degrees in a stated number of subjects achieved within the last year. Mr Kratzer applied for one of the positions and indicated that he met all of the essential criteria. His application was rejected (by automated selection criteria) and he responded by asking for 14,000 Euro for age discrimination. He was then invited for an interview, but he refused to attend until after his compensation claim had been agreed. When that was refused, he brought a claim in the German courts for age and sex discrimination.

Decision The ECJ said that individuals who apply for jobs solely with the intention of bringing discrimination claims are not entitled to be protected. The Directive only protects those who were actively seeking employment. It was for the German court to determine if Mr Kratzer had, in fact, only applied for the post to obtain compensation.

Tip Most job applicants do not apply for jobs they do not want merely as a ruse to obtain compensation.

When advertising jobs, it is helpful to provide job specifications which set out the essential requirements of the role. If these are not met, the applicant can be rejected. Employers should make sure that you have evidence to support the reason why someone either is or is not allowed to go into the next round, or shortlisted for the post. In the unlikely event that your applicant has all of the qualifications, but their interview answers suggest that they are not really interested in the job, you should make sure that your interview notes record this.

Whistleblowing: Can an agency worker bring a claim against an end user (client)?

Yes, according to the EAT in McTigue v University Hospital Bristol NHS Foundation Trust.

Facts Ms McTigue was employed under a contract of employment by an agency and assigned to work as a nurse at the Trust’s hospital. She was also given the hospital’s standard form contract which set out the procedures she was required to follow.

She was removed from this engagement and alleged that the Trust had done so because she had made a protected disclosure.

Decision The Tribunal said that she could not sue the Trust because she was not employed by it, but that decision was overturned by the EAT. It found that an employee of an agency may also be a worker for an end user under the extended definition of a worker under the whistleblowing legislation because both organisations had determined the terms under which Ms McTigue worked. It was not necessary to work out who determined the majority of terms and was it possible that both the agency and end user client could be the employer.

Tip Organisations that engage agency staff must make sure that they are aware of their internal whistleblowing procedures and helplines and treat any disclosures from agency staff in the same way as they would for its own employees.

26 Focus on Employment

Edition 10 - Autumn 2016

Shared parental leave: Can employers offer enhanced contractual pay to mothers or primary adopters but not to fathers or partners?

This amounts to indirect sex discrimination and is unlawful, according to the Employment Tribunal in Snell v Network Rail.

Facts The employer’s shared parental leave policy provided that mothers would be paid enhanced payments during the first 39 weeks of shared parental leave. However, their partners were only entitled to the statutory rates of pay.

Mr Snell and his wife both worked for Network Rail and successfully applied to take shared parental leave. Mr Snell was unhappy that he would only receive statutory pay during his leave and he brought a grievance, arguing that the pay disparity between men and women amounted to indirect sex discrimination.

Decision Network Rail conceded that their policy amounted to indirect discrimination and the only issue to be determined by the Tribunal was compensation. He was awarded over ÂŁ21,000, including interest, and an uplift to reflect the fact that the employers considerable delay in responding to his grievance (whilst they obtained legal advice) breached the ACAS Code of Practice.

Tip Network Rail responded by removing the enhancement and levelling down its maternity and adoption pay policies so that all parents were paid the statutory rates and that is an approach we have seen other employers adopt.

This case addressed pay disparity between men and women taking shared parental leave. Importantly, it did not address the issue of whether it is unlawful to enhance maternity and adoption pay but restrict pay rates for shared parental leave to statutory rates, which is an issue that is of interest to many of our clients. When shared parental leave was introduced, the Government issued detailed guidance, which said that it did not believe that it was unlawful for businesses to only provide enhanced pay to mothers and primary adopters. However, that assertion has not yet been tested in a tribunal and is subject to some legal debate.

If you do treat mothers differently from co-parents taking shared parental leave, you will have to establish that your policy is a proportionate means of achieving a legitimate aim. It might be a legitimate aim to attract and encourage and support women to return to work, but only in circumstances where they are under-represented in the workforce.

If you pay different rates of pay for employees taking family related leave, you must be able to explain and justify the reasons why you chosen to do so. Put this in writing and regularly review it to ensure that the reasons remain valid.

Follow us on Twitter @irwinmitchell

27

0370 1500 100 www.irwinmitchell.com @irwinmitchell For a list of our offices visit our website Irwin Mitchell LLP is authorised and regulated by the Solicitors Regulation Authority.

BLS-EMP-0049-NL