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• Employment Update - October 2007

Introduction

Collective Redundancy: Change in legal position over the obligation to consult employees

The EAT has overturned previously binding authority regarding the obligation of employers to consult employees about the reasons for a redundancy situation. Until now employers were only obliged to consult employees over the ways to avoid redundancies. However in the recent case of UK Coal Mining Ltd v NUM the EAT ruled that this position is no longer good law.

This case marks a significant change for employers who are proposing to make more than 20 employees redundant from the same establishment.

The case of UK Coal Mining Ltd v NUM concerned an appeal against the decision of the Tribunal which had concluded that UK Coal Mining Ltd (''the respondent'') had failed to comply with their obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 in failing to consult about proposals to make in excess of 100 employees at the Ellington Colliery redundant.

The respondent owned the Ellington Colliery in Northumberland and employed 329 staff. The staff were represented by two unions, the National Union of Mineworkers and the British Association of Colliery Management (''the unions"). After several years of technical and financial problems at the colliery the decision was taken to close the plant and make employees redundant. The decision was made without any consultation at all with the unions about the redundancies that would take place.

The Tribunal awarded a maximum protective award of 90 days' pay to each of the workers for failure to consult.

The respondent appealed against this decision arguing that the Tribunal made errors of law that had impacted on the amount of the protective award that was made. The unions brought a cross appeal arguing that the respondent had a duty to consult over the closure of the plant as well as the obligation to consult over the redundancies. They submitted that in accordance with previous case law (in particular R v British Coal and secretary of State for Trade and industry ex parte Vardy) the correct interpretation of the law is that consultation over a decision to close a plant is required in order to sufficiently transpose EU Directive 2(2) into UK law. The EAT agreed with the union's reasoning on this point and dismissed the respondent's argument over the protective award stating that the Tribunal's award was sustainable as there had been a deliberate attempt to mislead the unions over the real reason for the dismissal.

Statutory Dismissal Procedure: The EAT clarifies the required content of the "step one" letter

In the recent case of Homeserve v Dixon the EAT confirmed that a "step one" letter is not required to explicitly state that the employer is contemplating dismissing the employee. Therefore, omission of a statement to this effect in the "step one" letter does not constitute a breach of the statutory dismissal procedure.

Mr Dixon (''the claimant'') was employed by Homeserve Emergency Services Ltd (''the respondent'') as a chief service engineer. The claimant was provided with a company van to use to travel between his home and work, and on company business. The claimant was caught by the respondent using the company vehicle for private purposes and he was suspended with immediate effect for breach of his contractual obligations. Following the suspension the respondent wrote a "step one" letter to the claimant which read:

"I write to confirm you are suspended on full pay and invite you to attend a formal disciplinary meeting...the meeting will...present the facts in respect of the following allegations: - breach of contractual obligations, namely conducting private business using company property...''

The letter did not confirm that a possible outcome of the meeting could be the claimant's dismissal.

Following the disciplinary hearing, the claimant admitted that he was using the respondent's equipment for private purposes and the respondent took the decision to summarily dismiss him for gross misconduct. The claimant was subsequently informed of his dismissal in writing and was advised of his right of appeal.

At first instance the Tribunal held that the respondents had unfairly dismissed the claimant due to their failure to complete the statutory dismissal and disciplinary procedure. It stated that the respondent had breached step one of the procedure because the letter did not state that dismissal was a possible outcome, and therefore the claimant's dismissal was automatically unfair.

The respondents appealed against the decision and argued that in accordance with schedule 2 part 1 of the Employment Act 2002 ''the employer must set out in writing the employee's alleged conduct or characteristics or other circumstances which lead him to contemplate dismissing or taking disciplinary action against the employee.'' This provision does not require the employee to explicitly state in the letter that dismissal is a possible outcome. The EAT ruled that the Tribunal had erred in its decision and stated that the respondent had not failed to comply with the "step one" procedure merely because their letter did not state that dismissal was a possible outcome. It was sufficient that the letter invited the employee to a formal disciplinary meeting as it was implied that the respondent was contemplating dismissal or some other type of disciplinary action.

Disciplinary Investigations: Taking statements from informants

In the recent case of Mainwaring v Corus Uk Ltd the EAT ruled that the failure of an employer to take a statement from an informant who had tipped them off about a colleague's misconduct was within the 'range of reasonable responses.' The investigation was therefore reasonable and the employee was fairly dismissed.

The EAT stated that in accordance with the facts of the case, the communication between the employer and the informant did not form part of the investigation into the employees conduct, it had only put them on notice and triggered the investigation.

Mr Mainwaring (''the claimant'') was employed by Corus UK Ltd (''the respondent'') as a crane driver. The claimant began suffering back problems which caused him to be absent from work for extended periods of time. He consulted his G.P and was prescribed medication and advised to attend physiotherapy. The G.P also advised him to stay active, continue to perform his day to day activities as fair as his condition would allow, and to avoid lifting heavy items or sitting in one position for extended periods of time. The claimant also attended regular appointments with his Occupational Therapist who told him that he would be able to return to work in two weeks.

During this period, a colleague tipped off the respondent that the claimant had been acting in a manner outside work which was inconsistent with his condition. The employer elected not to take a witness statement from the employee reporting the claimant's behaviour, but rather elected to carry out surveillance of the employee. The claimant was videoed on three occasions, one of which he was recorded loading and unloading shopping from his car. The claimant's Occupational Therapist stated that had the claimant stated that he was able to carry out these tasks, he would have recommended that he was able to return to work with no restrictions imposed on him.

An investigatory hearing took place soon after, and it was decided that the claimant should be suspended pending the outcome of the disciplinary hearing. After the hearing the respondents decided to dismiss the claimant on the basis that he had dishonestly reported that he was not fit to work.

The claimant submitted an unfair dismissal claim and the Tribunal upheld his claim, citing two main reasons for its decision. Firstly that the respondent's failure to take a statement from the informant was a procedural error, and secondly, that it believed that the respondent had in its investigation shown a pre-determined mindset to dismiss the claimant.

The respondent appealed, and the EAT held that the Tribunal's decision had been incorrect. There is no obligation to take a statement from an informant who tips off where there is other evidence available. The communication from the informant was not cited as the reason for the dismissal, nor was there any evidence on the facts to suggest that the respondent had formed its decision to dismiss as a result of the communication. Therefore the omission to take a statement was not relevant to the reasonableness of the investigation and their decision to dismiss. In its judgment the EAT also raised the point that there is no requirement to seek a report on malingering from a consultant, a report from an occupational health physician will be sufficient.

Grievance Procedures: Strict compliance may breach trust and confidence

In the recent case of GMB Union v Brown the EAT laid down a judgment underlining the principle that the insistence of strict compliance with a grievance procedure can amount to breach of trust and confidence.

Ms Brown (''the claimant'') resigned from her post with GMB (''the respondent'') and claimed constructive dismissal.

The working relationship between the claimant and her line manager had broken down and she had begun to suffer from stress.

The respondent's grievance procedures required the claimant to contact her line manager in the event of a grievance. However, as it was the line manager who was the source of the claimant's perceived problems, the claimant argued that she should be permitted let someone else hear her grievance. The manager refused to vary the contractual grievance procedure.

The Tribunal accepted the claimant's argument that the respondent's failure to allow her to follow an amended process amounted to breach of the implied term of trust and confidence. The respondent appealed against the decision.

The EAT dismissed the appeal on the basis that there were "special circumstances" involved in the case. The respondent was aware that further meetings between the claimant and her manager could further damage the claimant's health and therefore it was unreasonable for the respondent, or any reasonable employer, to insist on full compliance with their procedures. Furthermore, "albeit only in exceptional circumstances" there is no reason why it cannot be a breach of the implied term of trust and confidence to insist on compliance with the express terms of the contract.

Director's Duties codified: 1 October 2007

With effect from 1 October 2007, the Companies Act 2006 has codified director's duties and has introduced a statutory statement of duties that shall replace many of the common law and equitable rules

Chapter 2 part 10 of the Companies Act 2006 contains the general duties of directors which came into force on1st October 2007. These duties shall apply to all directors of a company, including shadow directors. In certain circumstances former directors of a company will also be liable under the provisions.

Directors now have a statutory duty to:

• act within their powers. A director must act in accordance with the company's constitution and must only exercise his powers for their proper purpose.
• promote the success of the company. A director must act in a way which he considers would be most likely to promote the success of the company for the benefit of its members as a whole.
• exercise independent judgment
• exercise reasonable care, skill and diligence.

Implementation of these changes shall invariably necessitate the review and amendment of directors' service agreements. In addition it is important that directors are made aware of the changes, in order so that they can implement them in practice.

It is important to note that directors will be liable only to the company (not its shareholders) for breach of the codified duties. The company will need to show that a loss has been suffered. Companies should also therefore also review their directors' and officer's liability insurance to ensure there is adequate cover.

Changes to entitlement to apply for flexible working

From 1 October 2007 the list of those now entitled to apply for flexible working has been extended further.

The definition of 'adopter' will now include a person with whom a decision has been taken to place a child for adoption, rather than a person matched for adoption. The entitlement will also be extended to cover parents of children to who are not being placed by a UK adoption agency. This will include adoptions from overseas and adoptions by relatives. In addition from October 1 private foster carers will become eligible for the right, as will employees who have parental responsibility for a child by virtue of a residence order.

Maternity pay increases delayed until 2010

The Government intended to extend Statutory Maternity Pay (''SMP'') Maternity allowance (''MA'') and Statutory Adoption Pay (''SAP'') from 39 weeks to 52 weeks and to introduce Additional Paternity Leave and Pay (''APL & P'') by the end of this parliament. However, a recent notice issued has indicated that these plans have been put back by a year.

APL & P will be a new right which will give employed fathers the opportunity to take an additional 26 weeks off work with pay to care for their child in its first year in cases where the mother returns to work early and has not used her full entitlement to paid maternity leave.

These changes are now due to be implemented in April 2010 in order to allow time for further preparations to be made.

Age Discrimination: Changes to pension scheme justified

In the case of Bloxham v Freshfields Bruckhaus Deringer the Tribunal dismissed claims of direct and indirect discrimination on grounds of age brought against the firm by a former partner. The dispute arose as a result of changes made to the partner's pension schemes which aimed to provide a more financially sustainable scheme. Mr Bloxam ('the claimant') argued that the new arrangements effecting partners over the age of 55 would place him at a disadvantage compared with partners under this age.

At first instance the Tribunal held that the new arrangements were discriminatory however, it ruled that the arrangements were justified. The Tribunal stated that amendments to the policy were a proportionate means of achieving a legitimate aim and that this aim could not have been accomplished by another method which would have been less discriminatory.

This case concerned the Employment Equality (Age) Regulations 2006, which prohibits direct and indirect discrimination on the grounds of age. An important difference between discrimination under this Act and other Acts is that direct discrimination can be objectively justified where the treatment is a proportionate means of achieving a legitimate aim.

The claimant was a former partner at Freshfields Bruckhaus Deringer ("the respondent").

The respondent had a retirement benefits scheme for partners which was characteristic of an unfunded occupational pension scheme in that it drew its revenue from a percentage of the firm's annual profits. However the ratio of pensioners drawing money to active partners was growing, and it was noted that this system was becoming unfair because younger partners were paying out a greater percentage of profits than had been paid by their predecessors, and they would receive less benefits when they retired.

As part of this policy, a partner could retire at the age of 55 or above on a full pension. Partners aged between 50-54 could only retire with permission of the partnership council and on a reduced pension. A partner could mitigate their loses by electing to defer payments but this could would not permit a discount of less than 20%. The firm proposed to implement new provisions to their pension scheme, which would be fairer for younger employees but which would in effect, reduce the claimant's pension by approximately 35%. As a result, the claimant was forced to choose to retire early at the age of 54 and forfeit 25% of his pension, which he later reduced to 20% by accepting deferred payments.

The claimant brought a discrimination claim arguing that the firm had discriminated against him on the ground of age by:

• Refusing to remove the 20% discount to allow him to retire on a full pension
• Refusing him to defer receipt in order to qualify for a full pension
• Forcing him retire early

The Tribunal stated that although the transitional arrangements had led to the claimant receiving less favourable treatment on the grounds of age, the less favourable treatment was justified as it was proportionate means of achieving a legitimate aim; this aim was to rectify the unfairness of the current system on younger partners and there was no other less discriminatory way to achieve this goal.

This case is one of the first age discrimination cases in which the Tribunal has considered the issue of objective justification.

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Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.