Bell & Scott's Employment Law Update

Bell & Scott's Employment Law Update, February 2010

Welcome to the first issue of Employment Law Update for 2010.

Employment Law Update seeks to cover a wide range of topics of interest to Employers and H.R. personnel.

If you wish to discuss any of the items in this edition or require advice on employment law issues please contact Rhona Wark: DD: 0141 285 3803 e: r.wark@bellscott.co.uk

The annual change in statutory rates and compensation limits takes effect and, unusually, there will be a reduction rather than an increase in the maximum compensatory award for unfair dismissal. Where the effective date of termination occurs on or after 1 February 2010, the maximum compensatory award for unfair dismissal will go down from £66,200 to £65,300. The rate is set taking into account the Retail Price Index (RPI) for September. Between September 2008 and September 2009, there was a 1.4% decrease in the RPI. There will be no change, however, to the maximum amount of one week’s pay which is used to calculate statutory redundancy pay and the basic award for unfair dismissal. This will remain at £380 per week.

The Equality Bill is arguably the most significant and long-awaited piece of legislation in the employment law field for many years. It aims to harmonise and strengthen discrimination law. It will also introduce a number of new concepts, including:

It must be borne in mind that there is an election this year and, should there be a change in government, there is no certainty that the Bill will make it to the statute book given the views already expressed by opposition parties.

The EU Temporary Agency Workers Directive gives agency workers the same rights, as permanent workers, to pay, hours and holidays. The Directive aims to protect agency workers by applying the principle of equal treatment to basic working and employment conditions (although, in the UK, this will be subject to a 12 week qualifying period). All member states are required to adopt the necessary laws to implement the Directive by 5 December 2011. The Government intends to bring the draft Agency Workers Regulations 2010 into force in October 2011: this will require preparation during the course of 2010.

The introduction of the right to request unpaid time off for study or training, effective from 6 April 2010, has had relatively little publicity, even though it is estimated that around 11 million people will benefit from the new right. Through The Apprenticeships, Skills, Children and Learning Act 2009, a new right to request unpaid time off for study or training applies to businesses with more than 250 employees.

The new right is modelled on the existing right to request flexible working. For instance, the employee must satisfy the eligibility criteria of being continuously employed for 26 weeks and the employer must seriously consider the request and arrange to meet with the employee to discuss the matter. There will be a number of specified business grounds for refusing (similar to flexible working) including, for example, detrimental effect on ability to meet customer demand and impact on quality and performance. In addition, the employer can reject the request, if the proposed study or training would not improve the employee’s effectiveness in the business or the performance of the business. Please note that if the request for time off is granted, the employer will not be obliged to pay the employee’s salary whilst off work, nor is there any obligation to pay for the training. The arrangements for the training will be subject to agreement between the employer and employee. As with the right to request flexible working, employees have the right not to be unfairly dismissed or prejudiced for making or exercising the right.

In the current economic climate, the numbers taking up the right to time off may be relatively low initially. Even so, employers and H.R. managers should put in place an appropriate policy for managing applications and ensure that those with responsibility for considering requests are fully aware of their obligations and responsibilities.

The 'right to request' will be available to employees who have completed 6 months' employment where they consider the training will improve both their effectiveness at work and the performance of their employer's business.

The Additional Paternity Leave Regulations 2010 come into force on 6 April 2010 and will apply to parents of children due on or after 3 April 2011. At present, statutory paternity leave is limited to two weeks paid leave at £123.06 per week which must be taken within 56 days of the birth (paternity leave is also available when a child is being adopted). The individual must have at least 26 weeks' continuous service and the leave must be taken as either one week's leave or two consecutive weeks' leave. This period of leave will be re-named Ordinary Paternity Leave and there will be a period of Additional Paternity Leave (APL) of up to 26 weeks but this can only be taken once the mother of the child has returned to work.

The earliest start date of APL will be 20 weeks after the child’s date of birth. Fathers taking APL will be entitled to benefit from up to 10 'keeping in touch' days and the right to return to the same job on the same terms and conditions as before the APL began. The contract of employment will continue throughout the APL period and fathers will continue to benefit from the terms and conditions of employment, except for remuneration.

The UK government has proposed changes to the current 'sick notes' used by GPs, with the aim of focusing on fitness to work rather than just incapacity. New forms would give GPs the opportunity to state if the patient is fit for work, fit for some work or unable to work at all and to comment on whether adjustments (such as a phased return to work, altered hours, amended duties, and/or workplace adaptations) would be beneficial.

'Fit notes' are expected to be introduced in Spring 2010. While these forms will be of assistance, they will not negate the requirement for specialist medical reports, particularly where an employee is disabled.

At present, employers can compulsorily retire employees (safe from claims of unfair dismissal and age discrimination) once they have reached 'normal retirement age' (usually 65), provided they follow a specific retirement procedure. The government announced earlier this year that its review of the default retirement age of 65, which had originally been planned for 2011, will be brought forward to 2010.

The default retirement age is contained in the Employment Equality (Age) Regulations 2006, which provide that an employer may fairly dismiss employees who are over the age of 65 for retirement reasons. The employer’s right to do so was challenged in the "Heyday" case. While the High Court confirmed that the default retirement age of 65 is lawful, the future of 65 as the retirement age for employees looks uncertain. Employers can also refuse to hire someone if he or she has reached 'normal retirement age' or is within 6 months of this.

The case of Autoclenz Limited v Belcher looked at the issue of whether a person was “an employee”, “a worker” or “a sub-contractor” and concerned a group of 20 car valeters who worked for Autoclenz Ltd at their premises in Measham, Derbyshire.

The valeters argued that they were employees of the company with all the protection that employment status confers. This was despite the fact that the company described them as sub-contractors.

The valeters were successful in their claims at the Employment Tribunal. However, the Employment Appeal Tribunal decided that they were not employees but ‘workers’ within the meaning of Section 230 (3) of the Employment Rights Act 1996.

This is an important and difficult point in Employment Law because Parliament, under various statutes, has given many forms of statutory protection to people who contract work to others and their entitlement to protection depends upon their legal status in the work place. In particular, there are three main possibilities – self employed, a worker or an employee. The categories are not mutually exclusive. An individual who is not a worker is probably a self-employed contractor. However, if he is a worker, he may be an employee but may be a self-employed contractor.

In the case, the Court decided that the fact that the parties to a contract described their contractual arrangements in a particular way is not conclusive of the actual effect of the arrangements. Where contractual terms are in writing, they would usually be taken to represent the agreement between the parties but, if one party to the agreement claims that the written terms do not represent the true agreement, then it is open to the Court to decide what the true agreement is.

The company argued that the terms set out in the documents reflected the true nature of the contractual arrangement between the parties. The valeters’ position, however, was that they did not.

The Court had to decide whether the Employment Judge had, in fact, been correct to decide that the written contract did not genuinely reflect the rights and obligations of the valeters. The EAT went with the valeters.

Whether Autoclenz had taken the valeters to be self-employed contractors in the paperwork was not the key question. The key question was whether they were, in fact, sub-contractors and this had to be assessed against the background of the documents and what Autoclenz actually required the valeters to do in terms of their work. There were three key points in this assessment:

All of these factors made the relationship one of employment, despite the contrary assertions in the written documents.

This case is one in a line of cases dealing with employment status in the context of so called “sham contracts” and is a timely reminder to employers that they need to ensure that their relationship with self-employed contractors is just that. Employers must make sure that those who are self-employed contractors have replacement manpower at their disposal, control over their own work arrangements and a means of earning a living elsewhere.

The issue is of central importance to the construction industry where the grey area of “self-employed status” has been with us for many years.

Construction industry: false self-employment and the taxation of workers

Employers in the construction industry have long had to be mindful of the employment status of their workers. The European Labour Force Survey 2007 highlighted that 34% of workers in the construction industry were self-employed compared with only 11% in all other industries. The government has attributed this unusually high number of self-employed in the construction industry to the practice of false self-employment.

False self-employment occurs where a worker is presented for income tax and national insurance purposes as self-employed but where the underlying characteristics of the engagement point to an employment relationship. As a result, the employer benefits by not having to pay national insurance contributions, holiday pay or pension contributions to these so-called ‘self-employed’ workers. The workers, while paying lower national insurance contributions are able to take advantage of the more generous income tax rules for the self-employed, but they miss out on the security of an employment contract, holiday pay and pension rights.

The government has concluded that false self-employment has reached the stage where regulation is needed due to the negative impact prevailing on the competitiveness of compliant businesses, workers entitlements to benefits and the Exchequer.

The proposal is that a simple legislative test be introduced to determine the employment status of a worker in the construction industry. This new test will replace the current HMRC compliance system and is intended to be much more straightforward. Under the new test, a worker in the construction industry will be deemed to be receiving employment income for tax purposes unless one of the three ‘self-employment’ criteria are met. The criteria are as follows:

Provision of plant and equipment – that a worker provides the plant and equipment required for the job he or she has been engaged to carry out;
Provision of all materials – that a worker provides all materials required to complete a job; or
Provision of other workers – that a worker provides other workers to carry out operations under the contract and is responsible for paying them.

The test is to apply only to workers in the construction industry and will take precedence over any existing provisions contained in the IR35.

This new system will have substantial impact in the construction sector. Employers will need to comply with the new system when it comes in, at some point in 2010 given that the consultation process only closed on 12 October 2009.

The proposed legislation is driven by a desire to increase tax yield and demonstrates the government's determination to crack down on a sector perceived by it to be lax. The proposed 'remedy' will, however, see many fully tax-compliant contractors and construction businesses suffer.

Self-employed contractors who are caught by the proposed legislation will have to pay NICs at a far higher rate than at present and construction businesses will have to pay NICs on the payments they make to these workers.

It should be noted that the consultation document, while making it difficult to be a self-employed labour only sub-contractor, affords no employment rights to those who will be caught.

In addition to raising more revenue for the government, the proposals will also burden those responsible for paying the worker with the task of applying the new test for determining whether the worker's income is to be treated as employment income. In addition to construction businesses, employment agencies and other intermediaries may be affected by this increased administrative burden.

Rhona Wark, Partner, comments:

It would be prudent for existing arrangements to be reviewed in light of the proposed legislation. The consultation paper contains a number of examples of how the new 'deeming' provision for "self-employed" would work and there remains scope for the income of a worker not to be deemed to be employment income.

As each case will turn on its own facts, it will be important that, when status is to be successfully challenged, the facts are properly presented to HMRC.

Posting of a dismissal letter

The Court of Appeal decided in the case of Gisda Cyf v Barratt that where an employee is dismissed by a letter sent to the employee at his or her home address, provided that the employee had neither gone away deliberately to avoid receiving the letter nor avoided opening it and reading it, the effective date of termination is when the letter is read by the employee, not when it is posted or even when it arrives through the employee’s letterbox.

Consequently, it is only when the letter has been read by the employee that the three month time limit for lodging a tribunal application will begin.

In the case, the employer informed the employee of her summary dismissal for gross misconduct by recorded delivery letter. The letter was posted on 29 November and was delivered to her home on 30 November. The employee did not, however, open and read the letter until 4 December.

The employee lodged her claim for unfair dismissal on 2 March and the EAT and Court of Appeal both agreed that the employee’s complaint was made in time.

Rhona Wark, Partner, comments:

This is a slightly surprising decision and seems heavily weighted in favour of the employee. The employee received a recorded delivery letter on 30 November but did not open it until four days later. The employer may have reasonably thought that, once three months had elapsed from the receipt of the letter on 30 November, no claim was going to materialise. This decision means that it is advisable to dismiss an employee in person or by service of a letter by sheriff officer, although, even in the latter case, the employee cannot be compelled to open the envelope!

Swine flu, the second coming

It was suggested in the media that there could be over 100,000 cases of swine flu by the end of August 2009. Happily this has not materialised. However, given the bitter cold of last month and the fact that the flu season generally follows a month or so after the holiday season, it may be sensible for employers to prepare for potential disruption. The spread of the virus could lead to absences where employees are infected (primary absences) and absences required because uninfected employees need to take time off work to care for sick dependents (secondary absences).

Primary absences – it is likely that those who contract swine flu will be unable to attend work. Indeed, to stop the threat of the infection spreading throughout the workplace, most employers are likely to prefer that the infected employees stay off until they are fully recovered. It may be that some employees will be keen to return to work before they are fully recovered, particularly where sick pay entitlement has been used up. Employers, in these cases, should be extremely careful in allowing staff who have been infected to return to work prematurely. Swine flu has more severe health consequences than common flu and employers have a legal obligation to provide a safe place of work for all employees. In the circumstances, it would be preferable to request medical confirmation of an employee’s fitness to return to work before allowing them to do so (albeit it is recognised that in some occasions this may not be practicable). Employees should be reminded that quite often, in terms of their contracts of employment, that failure to adhere to a reasonable request to provide a medical certificate before returning to work may be the subject of disciplinary procedures.

There will always be employees who consider swine flu as an opportunity to take advantage in order to gain a few extra days off work. At present, self certification is sufficient for 7 days absence, although it is proposed by the government that there will be an extension of this to 14 days. Consequently, the contractual sick pay period should be extended to 14 days should the need arise. If employers suspect that an employee is malingering, then a request should be made for him or her to submit to medical examination. There is potential for some employees to abuse the situation and employers will need to exercise discretion and keep a weathered eye on who has suspected flu over the course of the next few months.

It is also possible that some employees may refuse to come to work for fear of contracting swine flu from colleagues, particularly if there have been cases of swine flu in the workplace. If this situation arises, an employer would be able to discipline the employee and possibly, even, dismiss them. Employees cannot be absent from work without good reason. The employee would need to show that he or she reasonably believed that there was a serious and imminent risk of contracting the virus and, therefore, left or proposed to leave (while the danger persisted) or refused to return to his or her place of work. In the case of swine flu, it is suspected that this protection is unlikely to be available given that the current government guidance states that people should effectively continue with their lives as normal while taking reasonable precautions about spreading swine flu by washing their hands and using a handkerchief.

Secondary absence – where employees need to take time off for sick dependents - this time would fall under Section 57A of the Employment Rights Act. Here, employees have the right to take time off unpaid, in certain circumstances, to take care of or make arrangements in respect of a dependent (a dependent being a spouse, civil partner, child or parent) under the proviso that the time taken must be reasonable and necessary. This would apply because of the unexpected disruption or termination of arrangements for care of the dependent, if, for example, a child’s school was closed because of swine flu.

It would be difficult for an employer to justify refusing the employee time off on this basis due to staff shortages in the workplace, because under Section 57A, the impact on the employer is irrelevant. Should an employer refuse this, the employee has an opportunity to raise proceedings in the Employment Tribunal for “just and equitable” compensation, and, if dismissed for a reason shown to be connected with the fact that he or she took time off for a reason under Section 57A, that dismissal would automatically be unfair.

Employers may need to be creative and flexible in terms of working practises and might want to consider, where possible, home working, flexible working, redeployment of staff and recruitment of temporary staff.

It is suggested that it would be sensible for most employers to consult government websites such as nhsdirect and nhsuk for regular updates in assessment of the risk to their staff of swine flu and any action which they could reasonably take to avoid its spread. An employer’s ability to deal with swine flu in the workplace will be determined to some extent by the degree of flexibility it can show. Discussion and dialogue with employees over their concerns and what will happen in the event of swine flu being contracted or a need for time off arising, should minimise any impact upon the business.

Company Fined £700,000, following the death of two employees

Bodycote HIP Limited, who provide specialist metal processings and coatings to the aerospace, construction and automotive industries, has been fined £533,000 and ordered to pay costs of £200,000, by Worcester Crown Court after pleading guilty to a breach of Section 2(1) of the Health and Safety at Work Act 1974. This followed an accident at its manufacturing plant in Hereford which resulted in the deaths of two employees.

On Tuesday 14 June 2004, the Works Manager and Maintenance Engineer were found dead on a set of stairs leading to a concrete lined pit into which argon gas had leaked from a large pressure vessel. The court heard how the pit's oxygen alarm system was switched off at the time of the accident and the ventilation system, which it was said could have saved the mens' lives, was not operating. There was also evidence that neither man had been provided with adequate health and safety training.

The prosecution argued that both deaths were not only regrettable but entirely preventable and that the company had failed to learn lessons following a similar double fatality at one of its US plants, where two workers were killed by argon gas asphyxiation, just three years earlier. Despite being well aware of the risks associated with confined space working and argon gas, the company failed to undertake a proper risk assessment of the means of entry into the pit and, whilst a permit to work the system had been implemented, employees had not been provided with proper training in its use. It was also found that the company had failed to put in place an adequate system for monitoring compliance with its new procedure.

On the day of the accident, the ventilation system, which was designed to remove any leaking argon before it rose to a level which became a danger and the oxygen alarm system, which would have warned the men of the presence of the gas, were both turned off.

At the inquest into the death of the two men, the jury returned a verdict of unlawful killing. However, this was overturned by the High Court in January 2008.

Rhona Wark, Partner, comments:

This case is significant because, had this accident occurred after Sunday 6 April 2008, when the Corporate Manslaughter and Corporate Homicide Act 2007 (“the Act”) came into force, the company would, undoubtedly, have faced a criminal investigation and could have faced a charge of corporate manslaughter.

The Act focuses on the failings of a company to manage and organise its business activities which, in this instance, included inadequate training, supervision, monitoring, risk assessment and a failure to heed prior warnings (which is one of the most serious aggravating features of any case). For further information see our update of June 09 accessible here.