Employment Law Update - August 2006

Employment Update – August 2006

The Draft Maternity and Adoption Leave Regulations have been Published.

Further to the article in our July update on the Work and Families Act 2006, the draft Maternity and Parental Leave etc and Paternity and Adoption Leave (Amendment) Regulations 2006 ("Regulations") have now been published by the DTI.

The Regulations are intended to implement a number of changes relating to maternity leave, for women whose children are due on or after 1st April 2007.

What are the main provisions?

1. The Regulations will remove the qualifying period for additional maternity leave (AML) (currently, only employees with 26 weeks' continuous employment at the beginning of the 14th week before the expected week of childbirth qualify for a further six months' additional maternity leave). Under the Regulations, all pregnant employees who qualify for ordinary maternity leave will qualify for AML, regardless of their length of service.

2. 'Keep in touch days' will be introduced allowing employees on maternity leave or adoption leave to be able to agree with their employer to work up to 10 days during their statutory maternity leave period or statutory adoption leave period. However, the leave period will not be extended by the days worked, employers will not have a right to require work to be carried out and employees will not have the right to work during this period. 'Work' includes training or activities which will assist an employee in keeping in touch with the workplace.

The Employment Rights Act 1996 will be amended to provide that employees who undertake, consider undertaking or refuse to undertake such work will benefit from protection from detriment or dismissal. Dismissal for this reason will constitute unfair dismissal.

3. Employers will have the right to make reasonable contact with the employee whilst on maternity leave (guidance from the DTI on 'reasonable contact' will follow).

4. New notification requirements will be imposed on employees who change their mind as to their intended return date after AML, or additional adoption leave (AAL). If the employee informs the employer of the intended return date, which is before the end of the AML or AAL, and the employee then changes this date, they must give 8 weeks' notice of the new date (as opposed to the current 28 days). 5. The small employers' exemption will be removed. This means that employees will have the right to return to the same or a similar job regardless of the size of the employer's organisation. Provided Parliamentary approval is gained, the  Regulations will come into force on 1 October 2006 and will apply to employees who are due to adopt or who are expecting a baby on or after 1 April 2007.

The Regulations can be read at: -

http://www.opsi.gov.uk/si/si2006/draft/20064772.htm

Termination Payments and 'Short Notice' In SCA Packaging Limited v Revenue and Customs Commissioners (May 2006) the Special Commissioners held that the part of a termination payment which reflected payment for any unexpired notice period was deemed to be income from employment. This is because the payments derived from the employees' agreement to accept short notice. Such payments were therefore taxable despite there being no contractual clause entitling the employer to make a payment in lieu of notice (PILON).

SCA Packaging Ltd made a number of employees redundant over a five-year period. It had entered into a memorandum of agreement with its recognised trade unions, entitling the redundant employees to, amongst other things, a payment for any unexpired period of notice at the date of termination. The individual contracts of employment did not contain an express PILON clause.

SCA treated the PILON payments as redundancy payments, and therefore did not deduct income tax or NICs.

The memorandum of agreement meant that on redundancy SCA had a contractual right to end the employee's contract before the end of the contractual notice period and if this right was exercised, it was a contractual right for employees to receive a PILON. SCA appealed against HMRC's decision that the payments were taxable. HMRC argued that the statement in the agreement concerning payment of unexpired notice created a contractual right for SCA to make a PILON and therefore the payments were 'from employment'. Their appeal was dismissed by the Special Commissioners (who disagreed with HMRC's reasoning).

Decision The Commissioners found that the memorandum of agreement was incorporated into the contracts of employment for most employees. The PILON arose from an agreement between SCA and the employees, and the agreement did not create a contractual right for employees to receive a PILON.

It simply varied the terms of the employment contracts and therefore the PILON payments were found to be made under the contract of employment.

The Commissioners said that a payment made under terms of a contract does not inevitably mean that the payment was from the employment and therefore, taxable. The question to consider is: 'where did the payment come from?'. In considering this question, the Commissioners distinguished the case from Henley v Murray [1950], which provides the principle that a payment made in exchange for the total surrender of contractual rights is not taxable, as it does not derive from employment. The case was distinguished on the grounds that an employee's agreement to accept short notice in return for a PILON where the agreement and the payment ended the contract completely was different from an agreement to modify the contract during its currency. In Henley, the payment was consideration to abandon the contract completely, whereas here the contract continued but in a modified form. In this case, the employees agreeing to short notice did not cancel the contract which continued for the time during which the notice period was worked.

DIT Publishes guidance on TUPE 2006 and Insolvency

Guidance on the insolvency provisions of TUPE 2006 and the effect the regulations will have in respect of different types of insolvency situation have been published by the DTI.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (the Regulations) came into force on 6 April 2006, replacing TUPE 1981.

The Regulations have introduced new provisions dealing specifically with the transfer of insolvent businesses which aim to make failing business more attractive to potential buyers.

The Regulations aim to do this in two ways:

1. Employees will not automatically transfer where the transferor is the subject of bankruptcy proceedings or analogous proceedings which are with a view to liquidating the transferor's assets and which are under the supervision of an insolvency practitioner.

2. Scope to change the employee's terms will be increased where the transferor is the subject of insolvency proceedings which have not been opened with a view to the liquidation of the transferor's assets and which are under an insolvency practitioner's supervision.

Also, the Secretary of State and not the transferee will cover certain debts to employees. Such payments are met by the Redundancy Payments Office (RPO) out of the National Insurance Fund.

The DTI has now set out further guidance on the application of these provisions and can be read at http://www.dti.gov.uk/files/file30031.pdf

The guidance does not have statutory effect but the RPO has said it will apply this guidance.

Authoritative rulings on whether these provisions apply in certain situations will only be given by tribunals and courts.

Fixed Term Contracts become Permanent

Further to our May update, fixed-term employees who have been continuously employed for four or more years from 10 July 2002 may have gained permanent status under the Fixed Term Employee (Prevention of Less Favourable Treatment)Regulations 2002 ("Regulations") from 10 July 2006 where their contract is renewed or they are reengaged on a fixed-term contract.

Under the Regulations, if a fixed term employee has been continuously employed for four or more years from 10 July 2002 and their contract has been renewed or the employee has been re-engaged on a new fixed term contract after that date, the new or renewed contract will take effect as a permanent contract.

Employees who do not have four years' continuous service with the same employer as at 10 July 2006 but who are on heir second or subsequent fixed-term contract with that employer will obtain permanent status when they reach four years' service.

Employees who were on their first fixed-term contract on 10 July 2006 will have gained permanent status on the contract's renewal or attaining four years service, whichever is the later.

Employees will gain permanent status in accordance with the three paragraphs above unless the fixed term contract can be objectively justified or the period of continuous employment of four years has been lengthened under a collective or workplace agreement.

Objective Justification

If a fixed term contract is renewed beyond the fouryear period, the employee will not gain permanent status if the renewal can be objectively justified.

That is: -

• The fixed term contract is used to achieve a legitimate objective, e.g. a genuine business objective;

• A fixed term contract is necessary to achieve that objective;

• A fixed term contract is an appropriate way to achieve that objective. Employers should individually assess each case to determine whether any of the above applies.

Employers should be mindful of the procedure which has been set out in the Regulations which they are required to follow when faced with an employee potentially gaining permanent status.

Challenge to the Age Regulations

The legality of the Employment Equality (Age)

Regulations 2006 (the Regulations), which are due to come into force on 1 October 2006, are being challenged by Age Concern via its trading face, Heyday.

The new regulations prohibit unjustified direct discrimination on the grounds of age or perceived age, as well as indirect discrimination on the grounds of age, covering any provision, criteria or practice which puts persons of a particular age group at a disadvantage. Discrimination by harassment and victimisation is also prohibited. However, if a discriminatory act is a proportionate means of achieving a legitimate aim, the discrimination may be objectively justified.

The Regulations provide that compulsory retirement under 65 years of age is prohibited unless it can be objectively justified. Where the normal retirement age for an employee is over 65 years, dismissal before reaching that age may constitute discrimination. The default retirement age under the Regulations is 65 years.

Heyday believes that the Regulations contravene the European Directive on age discrimination by leaving people over the age of 65 years without the right to choose to continue working. Heyday believes that those over 65 should have the right to choose to continue working.

Neil Churchill of Heyday stated "forcing people to retire is denying people the right to work - a right which everyone should have, regardless of age.... currently, workers have no rights to stay in employment past 65 and are being driven out of work".

Under the Regulations, an employee nearing their retirement age only has the right to request to continue working beyond that age. Employers must consider that request but ultimately they have the right to refuse that request and there is no obligation on the employer to give their reasons behind the refusal. If the compulsory retirement age is abolished, UK employers can still dismiss employees on the grounds of performance and ability.

If Heyday's application is granted, the High Court will consider in detail the legality of the Regulations in a full hearing which is expected to take place in the early autumn.

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.