It's a trap!

Employment Law Newsletter - October 2013


In this issue ...

  Employee shareholders - hold the front page   There's life in the old dog yet!  
  A repeal and an appeal   Public sector pensions  
  It must be a penalty!   You can't hide behind multiple motives  
  The frustrations of reasonable adjustments   Watch how you use that intern  
  Reaping the benefits  

Employee shareholders - hold the front page

Reports from the British Chambers of Commerce and the Department for Business (BIS) confirm what we said in our September issue - there is no sign of any surge of employers offering 'employee shareholder' status to staff. But there are still interesting, opportunistic and (we hope) unintended, applications of the new rules. The Financial Times recently reported on the sale of Whitworths, a long established supplier of dried fruit and nuts. The purchaser gave senior managers each a £50,000 equity stake in the business in return for the assumption of 'employee shareholder' status, with its attendant income and capital gains tax exemptions.

But (we hear you say) so what, surely that's what the scheme allows? Yes (we reply) but the idea was to stimulate business and entrepreneurial activity, whereas here the focus seems to be on doing what would have been done anyway with the executives, and giving them the additional benefit of avoiding the tax that would previously have been payable. What, tax avoidance? Well... yes. But the Government is chasing down tax avoidance schemes, isn't it? Yes, but here, and despite its mutterings about the scheme being used 'appropriately' and about there being anti-avoidance rules to ensure it isn't exploited, it is difficult to see how the Government can control its own creation other than by abolishing it.


A repeal and an appeal

So, it's goodbye to employer liability for third party harassment under the Equality Act. The repeal of sections 40(2) to (4), made possible by the Enterprise and Regulatory Reform Act, occurred on 1st October.

On case law, BIS has persuaded the Employment Appeal Tribunal (EAT) to give it the right of appeal (to the Court of Appeal) in the Woolworths' case on the meaning/relevance of 'establishment' when counting whether there are 20 or more proposed redundancies (see our May issue and July issue). Here's hoping!


It must be a penalty!

Ah, the wonders of social media. As the seasonal debate about the quality of football referees' eyesight gathers pace, here's a clear(ish) penalty decision.

BIS's formal position remains that there is no definitive timescale for activating the rules allowing tribunals to impose financial penalties on losing employers. However, Jo Swinson, Minister for Employee Relations, recently tweeted that the rules would apply from April 2014. We bring this to your attention because, even if you are a member of the 'Twitterati', we think it quite possible that you will be following a more interesting feed or two.


The frustrations of reasonable adjustments

The doctrine of frustration allows a contract to be terminated by operation of law when an unforeseen event makes its performance impossible or substantially different from that envisaged. It should rarely be used by employers as the initial basis of decisions to terminate employment and as a substitute for 'going through procedure'. It leaves no room for manoeuvre.

Nevertheless, it still has its role to play as a (preferably, not the sole) defence in legal proceedings - even in employment situations protected by disability discrimination laws. In Warner v Armfield Retail & Leisure, the EAT decided that it was possible for a person's employment contract to be frustrated by their disability (here, a stroke affecting a site manager for a business refitting shops and pubs throughout the country). But that outcome could only arise if the employer had not breached its duty to make reasonable adjustments (here, the employer could do no more to mitigate the effects of the disability). So, with disabled employees, the priority remains that statutory duty.

While we're on the subject of frustration with reasonable adjustments, here's another EAT ruling that might truly frustrate employers. In Croft Vets v Butcher, the employee was absent with 'work-related depression'. A psychiatrist's report recommended that she be referred to a clinical psychologist and also attend several psychiatric sessions. When the employer failed to commission these measures, it was found to have breached the duty on reasonable adjustments. The measures were job-related because they were targeted specifically at resolving the problems the employee was experiencing at work and allowing her to return (and it did not matter that they were assessed as having no more than a 50% chance of success).

So, what's the message there? Cost alone is not enough to avoid responsibility (but you knew that already). And, if you choose to disregard a recommendation for treatment on the ground that it relates not to the job but to overall amenity and quality of life, you will often be taking a calculated risk - after all, many conditions can be attributed to or exacerbated by the working environment. The irony is that extending sick pay (O'Hanlon v HMRC) and facilitating ill-health retirement (Tameside Hospital v Mylott), both also entailing expenditure by the employer on benefits, are not normally considered to fall within the duty to make reasonable adjustments.


There's life in the old dog yet!

Since the 'service provision change' (SPC) will be staying under TUPE (see our September issue), it's just as well to get the latest case law under your belt. So, here goes.

Must a service requirement be guaranteed to be capable of transfer? 'No', said the EAT in Lorne Stewart v Hyde. A framework agreement for routine installation and repair of heating equipment for a council also allowed the council to offer the contractor (C) higher value work. Although the council was not obliged to make any offer of this type and C was not obliged to accept it anyway, in practice C did all such work offered by the council. When C lost the main contract to LS, C's two employees allocated to the 'non-guaranteed' higher value work were found to transfer to LS. All that mattered was that they were an organised grouping of employees devoted to that activity.

In Rynda v Rhijnsburger, the EAT clarified that nothing hangs on use of the plural in 'organised grouping of employees'. So, an SPC can happen even when there is only one person involved - provided that person is consciously and principally allocated to the service that is changing hands.


Public sector pensions

On a TUPE-related theme, the Government has just published a new guidance document, called Fair deal for staff pensions. It is about the pensions of those transferring to a private sector employer which assumes a service from certain public sector ones (broadly, most bodies except local authorities and police forces).

The new arrangement, to be reflected in provisions of the contract between the two organisations, is that the transferring staff should be allowed to remain in the relevant public sector pension scheme, with their new employer entering into a 'participation agreement' with that scheme. This last element is quite similar to 'admitted body' status, still permitted under the Local Government Pension Scheme (hence the exclusion of local authorities).

The rules apply to all transferring staff with the right to join the relevant scheme, whether or not they are members, for as long as they remain in the transferred service. Later recruits are excluded. If there is a re-tender of a service which was previously contracted-out under the 'old' arrangements (whereby the new employer had to provide an independent scheme, certified as 'broadly comparable' by the Government Actuary), the new contract must require that employees who moved out of the relevant public sector scheme can rejoin it.

As ever, this type of transition is not directly governed by employment law - the enforcement measures and mechanism are left to the public sector body to specify in its contract. And the transition could be messy anyway. Alongside the statement that the new arrangements have 'immediate' effect is an acknowledgement that there is no need to terminate or delay a procurement process that is already at an advanced stage.


You can't hide behind multiple motives

The 'meat' of a grievance is often the precursor to a resignation and then a constructive dismissal claim. But the employer's treatment of the grievance itself can also be the cause of such events.

In Wright v North Ayrshire Council, a care home assistant resigned, principally because of her own domestic caring responsibilities. On that basis, an employment tribunal decided that she could not claim constructive dismissal, even though another factor behind her departure was her employer's failure to deal with three grievances (a clear repudiatory breach of contract). The EAT disagreed. It was enough that the employer's conduct in breach was an effective cause of resignation. Its partial contribution could be considered in calculating her compensation.


Watch how you use that intern

The legal position of interns, especially their entitlement to payment, has become topical during the last five, recessionary years. The paradox is that the desire to give interns, particularly the ones who show energy and talent, something of value to do, is the very thing that can end up costing the 'sponsor'. Recently, an intern for Sony, who had expected to do nothing but 'shadow' an established employee but ended up as a tester for the company's games, brought a claim for unpaid wages and settled for £4,600.


Reaping the benefits

That the economy expanded at its fastest rate for three years in Q3 of 2013, according to the Office of National Statistics, is another indicator that a sustained improvement may be under way. What, if anything, might this mean for reward in 2014?

With inflation outstripping the general rate of pay increases, overall living standards fall as employees take an effective pay cut. So signs of economic recovery might be expected to lead to significant pressures on pay. In its survey of employers' intentions on pay for 2014, Incomes Data Services reports that most plan to increase pay by the same amount as in 2013, but just over a quarter say the increase will be higher. XpertHR's survey produced similar results. So, if a significant number of early, higher increases occur, they could have an important impact on settlements that follow them. It will also be interesting to see how many settlements exceed RPI inflation - 3.2% in September, but predicted by some to fall slightly during 2014.

Although 'ability to pay' will continue to be the greatest influence on pay awards, optimistic assessments of the economy are likely to lead more employers to look at their broader strategies for reward. This will have a variety of outcomes. Although the picture on unemployment is fuzzy, skill shortages in some sectors will increase emphasis on recruitment and retention. This may result in moves to more flexible structures for pay, with the greater use of differential pay awards or non-consolidated bonuses for scarce or talented groups and individuals.

There is also evidence, from the Chartered Institute of Personnel and Development, that employers want to put greater emphasis on benefits rather than pay. Auto-enrolment will do this up to a point. And a few years of pay restraint may have broken the direct link between RPI and pay increases. This could help to refocus attention on benefits. We have seen few recent signs of growing enthusiasm for flexible benefits or 'total reward'. But an increase in salary sacrifice options could indicate that these may return more prominently to the agenda. Another straw in the wind is increased 'chatter' about the need to recognise the diversity of workforces and to engage employees with optional benefits that suit them as individuals. New technologies can support this. Employee engagement is hardly a new concept, but as the cloud of recession lifts there could be greater emphasis on motivating employees to improve managerial practices and performance by means other than pay.


If you would like to discuss this or any other issue facing your organisation please speak to your usual contact at Collinson Grant or Jo Hale on 0161 703 5600

Although care has been taken in the preparation of this Newsletter, Collinson Grant cannot accept responsibility for errors, omissions or advice given. Readers should note that only Acts of Parliament and Statutory Instruments have the force of law and only the courts can authoritatively interpret the law.